Corporate hospitals out of the woods, albeit medical tourism remains low

Better occupancies, higher revenues per bed, cost rationalisation are driving the corporate hospital sector out of the woods. In fact, the industry expects revenue and margin growth to beat the pre-pandemic levels despite lower inbound medical tourists.

Max Healthcare, for example, has seen August occupancy levels at 75 per cent. “With August 2021 occupancy hovering at around 75 per cent levels, the occupancy levels have reached pre-Covid times. Further, currently Covid-19 occupied beds account for just around 1 per cent of overall occupied beds, hence as of now we believe that we shall be able to sustain above 70-75 per cent occupancy levels for the rest of the fiscal,” said a Max Healthcare spokesperson.

Fortis Healthcare too pointed out that non-Covid-19 occupancies are back to ‘normal levels’. Speaking to Business Standard, Ashutosh Raghuvanshi, MD & CEO, Fortis Healthcare said that occupancies were up to 62 per cent in August, and while the September numbers were yet to be closed, they expect occupancies at around 65 per cent level. Barely 2 per cent of occupancies now come from Covid19.

He added that across the industry one may expect to see 30-35 per cent growth in revenues compared to last year. Compared to the pre-pandemic period, there should be a sub-10 per cent growth in revenues.

“There is still some ground to be covered as the international business is not back yet fully due to restrictions. However, the domestic business is definitely better than pre-pandemic levels,” Raghuvanshi said.

Not just occupancies, but average revenue per occupied bed (ARPOB) have also improved. Raghuvanshi said that from a pre-Covid19 ARPOB of Rs 1.7 crore, it has now risen to Rs 1.85 crore. Max too expects ARPOBs to be better in Q2FY22 compared to the previous quarter (when the second wave was raging across the country).

The reason behind the rise in revenues is primarily due to case mix, say analysts and industry. “This growth is coming because of a case mix rather than any pricing change happening,” Raghuvanshi said.

A Mumbai-based sector analyst, however, claimed that most hospitals have taken price rises from the first quarter of this year, and this will lead to growth in revenues.

Are occupancies high due to pent-up demand? In that case, it would taper off eventually.

Hospitals don’t seem to think so. “Some of the specialties like orthopaedics where people postponed surgeries, there may be some pent up demand. However, that is not true for the other specialties.

So this growth is not so much driven by pent up demand, it is normal growth,” Raghuvanshi reasons.

Kunal Randeria, analyst with Edelweiss says that the sector is out of the woods. “Surgeries and other medical treatments are back. Moreover, hospitals have rationalised costs, and this would now allow better margins,” he added.

For example, during FY21, Max Healthcare has undertaken several cost saving initiatives including material cost rationalisation, personnel cost optimisation, amongst others. “We have implemented initiatives with annualized savings impact to the tune of Rs 100 crore,” the company spokesperson said.

Drop in medical tourism, however, is a concern. Revenue from medical tourism has been down to one-third as compared to pre-Covid-19 times owing to travel restrictions, Max said.

While hospitals expect this to improve as normal flights resume, some feel that there has been a revenue re-distribution in the industry. For most private chains international business was about 10 per cent of their overall business.

“Full recovery is still some time away, but some re-distribution of revenues has happened. For example, some smaller centers, regional centers have shown much faster growth than what we would see in tertiary care centers. In tier-2 and tier-3 cities larger growth is seen,” Raghuvanshi said.

Standalone hospitals too have seen better footfalls, but some point out that their margins will depend on the case mix.

“While we see occupancy levels at pre-pandemic levels, our case mix is skewed towards medical cases rather than surgeries. This would impact out ARPOBs and margins,” said the COO of a leading Mumbai headquartered hospital.

Analysts say that vaccinations have driven revenues in the first quarter to some extent. This would taper off during the second quarter of FY22 fiscal.

During the June quarter, Apollo Hospitals clocked Rs 190 crore from vaccines, and on this they clocked a 15 per cent margin, pointed out an Edelweiss report. However, the analysts pointed out that only 40-50 per cent of the Q1FY22 volumes are expected this quarter.

On the whole, the corporate hospital sector is expected to have better operating margins in FY22 compared to FY20, rating agency Icra highlighted.

The blended occupancy level of Covid and non-Covid patients in the Icra sample set was 64.2 per cent in Q1FY22 as against 36.9 per cent in Q1FY21 and 58.8 per cent in Q4FY21. Therefore, the growth is not just on a low base, but also sequential.

The Icra sample set comprises the listed corporate hospitals including Apollo Hospitals Enterprise Limited, Fortis Healthcare Limited, Narayana Hrudayalaya Limited, Aster DM Healthcare Limited (India business only), Max Healthcare Institute Limited, Healthcare Global Enterprises Limited, and Shalby Limited.

The operating margins for the Icra sample set came in at 19.3 per cent as against 9.3 per cent in the corresponding quarter previous fiscal and 18.4 per cent in the quarter before. This was despite absence of revenues from international patients.

“Most hospitals have witnessed sequentially higher footfalls in July and August 2021 compared to Q1FY22 levels with resumption in elective surgeries and this is expected to support strong revenue growth momentum for FY22 going forward,” Mythri Macherla, Assistant Vice President and Sector Head, Icra said.

ICRA sample set comprises Apollo Hospitals Enterprise Limited, Fortis Healthcare Limited, Narayana Hrudayalaya Limited, Aster DM Healthcare Limited (India business only), Max Healthcare Institute Limited, Healthcare Global Enterprises Limited, and Shalby Limited. Business Standard