How healthcare sector can navigate COVID-19 storm
A liquidity infusion of Rs 16,000 to 22,000 crore will be required by the healthcare sector, says Vishal Bali
In September 2019 the Global Preparedness Monitoring Board commissioned by the World Health Organization (WHO) and The World Bank published a report calling for better preparedness by the world for managing the fallout of a high impact respiratory pathogen akin to the 1918 Spanish Flu virus which could cost the global economy $3 trillion.
It is ironical that within six months of this report, the unprecedented coronavirus health crisis is predicted to make a $9 trillion impact on the global economy. The world has experienced a series of pandemics, SARS in 2003, H5N1 in 2006, H1N1 in 2009, Ebola in 2013, MERS in 2015 but none turned from a healthcare crisis to a massive global financial crisis. COVID-19 has sent a chilling reminder that we live in an inter-connected world of public healthcare where a global pandemic can drag the world to a recession. This global health crisis is having the same impact on the citizens of the world as the World War II
The International Monetary Fund (IMF) predicts that the aftermath of COVID-19 will contract the global GDP by 3% with GDP/Capita shrinking across 170 nations. The IMF has also predicted that the impact of the corona virus will leave India with a 1.9% GDP growth and a longer lockdown can also take India into a potential recession. Around 8 million people who work in the informal workforce of the country will struggle for their basic necessities. The amount of Government spending required to combat the impact of COVID-19 on the country is pegged at $79bn - $130bn or 3%- 5% of GDP.
The private healthcare sector is staring at a potential operating loss of Rs 14,000 – Rs 24,000 crore in Q1 FY21 on the back of a massive reduction in volume and value of work at various segments of healthcare delivery. The revenues of hospitals and diagnostic companies are currently down by about 60-70%.
For the sector FY21 revenues will be lower by 20-35% compared to FY20 with EBITDA margins mostly in the negative zone. Private healthcare delivery enterprises both hospitals and diagnostics will face heavy liquidity issue as compared to public ones which will find support from the Govt. This is a capex intensive industry where 1.5-2% of annual revenues goes back in refurbishment of technology and infrastructure besides new capex which costs more than Rs 1 crore/bed. COVID-19 has also unleashed additional costs of keeping patients, doctors and nurses safe at all the times, thus adding another layer to the cost of operations.
Most of the medical technology and medical devices supply in the country is driven through imports. With the rupee depreciating against the dollar on a daily basis, we are also witnessing a higher cost of imports which will ultimately lead to increase in cost of treatment to consumers. Given the liquidity challenge in the industry, cash conservation is the only way to survive. It is very evident that all the stakeholders in the industry – management professionals, clinicians, nurses and other paramedical staff will have to forego a part of their compensation for their enterprises to ride the storm. This will not be an option but a necessity particularly in Q1 FY21.
Fixed costs and overheads of our healthcare institutions are built for occupancy rates of 60-70% and above, reduction in occupancy rates will need a relook at all fixed costs. India’s unemployment rate surged to 23% post the lockdown with 14 crore people losing jobs, demonstrating a deep decline in economic activity including the healthcare sector.
So healthcare enterprises which do not have liquidity will have no choice but to layoff their workforce till normalcy resumes hopefully by Q4. The regulators have finally realised the importance of telemedicine and it took a pandemic to give this wake up call. Globally the numbers for telemedicine and virtual health have been an all time high, Teladoc Health, the largest US standalone telemedicine service reported a 50% increase in service in March 2020, likewise Sweden’s KRY International, one of Europe’s biggest telehealth providers, reported a growth of 200%.
Closer home, Motherhood Women & Children’s Hospital network which is an AHH company saw its telemedicine service Tdoc deliver more than 250 paid virtual consults a day.
These are challenging times which have once again propelled the idea of 'Make-in-India' initiative in medical technology and devices. The self-reliance that India needs on the medical technology side got exhibited in the ramp up in capacity of production in ventilators by various Indian players.
The COVID 19 crisis is a wake-up call on many fronts for Indian healthcare. There is liquidity infusion of Rs 16,000 – 22,000 crore which will be required by the sector and the starting point of that should be the release of Rs 2,000 crore that the Government owes to the private hospitals for treating patients under the various schemes. The Government must put together a significant support package for the healthcare sector if it does not want hospitals and diagnostic centres of the private sector to become another casualty of COVID-19.
Vishal Bali is executive chairman of Asia Healthcare Holdings.