Private hospitals fear profits will be severely squeezed if govt imposes CGHS

Private hospitals fear their profits will be severely squeezed if the government imposes a standardised rate like the Central Government Health Scheme (CGHS). Some procedures are as much as 80% cheaper under the CGHS compared to what they cost at private hospitals.

For instance, a hip replacement surgery at a private facility can cost anywhere between ₹230,000 to ₹500,000 versus average ₹82,000 at a government hospital.

Viren Shetty of Narayana Health believes the impact of applying CGHS rates could be an ‘armageddon’ for private hospitals as in the short term, some hospitals cannot rule out earnings before interest, taxes, depreciation, and amortisation (EBITDA) losses within a quarter.

The healthcare sector has drawn significant private equity and venture capital investments since Covid.

Over the past four years, investments in health companies has reportedly increased 15 times to ₹30,000 crore, leading to a steep run-up in the valuation of companies in the sector and their stock prices.

The companies have also undertaken huge capital expenditure (capex) over the last few years to upgrade capacity and facilities to meet the rising demand.

For instance, Fortis Healthcare invested ₹450 crore on capex to upgrade its robotics technology in the first nine months of the financial year 2024 (9MFY24).

The company expects to conduct over 3,500 robotic surgeries this year. Apollo Hospitals has also set aside ₹100 crore as incremental expenses for doctors in FY24.

HCG’s laid out ₹118 crore during 9MFY24 for operationalising four additional radiation machines. The returns on these investments could be hit due to the low CGHS rates.

What do experts say?
Industry watchers fear the lack of clarity may take a toll on stock prices.

However, they also feel the standardisation of rates for different medical procedures is difficult to implement as it is dependent on factors such as complexity of cases, level of technology and equipment used along with doctor’s experience.

Some believe instead of implementing CGHS rates, the government could consider introducing a scheme similar to CGHS for private hospitals.

Also, healthcare is a State subject. Therefore, the government might find it difficult to apply blanket rules across the state.

This is because not all States have adopted the Clinical Establishment Act, 2010. The Act regulates all clinical establishments in the country and aims to ensure minimum standards of facilities and services for quality health care.

What one could expect is a middle ground, say experts. Brokerage firm Nuvama, for example, points out that a price range on non-complex procedures could look more probable. The impact of such a move will have to be seen based on the type of price caps.

In a separate discussion with CNBC-TV18, B Bhaskara Rao, CMD of Krishna Institute of Medical Sciences (KIMS) also discussed the impact of the Supreme Court’s directive asking the central government to standardise healthcare procedure rates and consider CGHS rates. CNBCTV18