Increasing lifestyle diseases to boost hospital revenue

ANI | Updated: Dec 11, 2017 13:55 IST

New Delhi [India], Dec 11 (ANI): Despite the fact that India has managed to lower the incidence of communicable diseases, the occurrence of lifestyle related diseases (non-communicable) are on the rise and the same are likely to be a major contributor to hospital revenues going forward, according to credit-rating body ICRA.

Lifestyle diseases are those that are a result of habits/lifestyle related factors such as unhealthy food habits, alcohol consumption, lack of physical activity, stress, age, and urbanisation. As per an ICRA note, the largest contributor to revenues is cardiology, which accounts for almost 25 percent of the total income of the hospitals in the sample; the second largest contributor is neurology, accounting for 10 percent of revenues, followed by orthopaedics (nine percent), and oncology (eight percent).

ICRA analysed five of the largest hospital chains in the country, which together operate 19300 beds. For most of these hospital chains, the income from top five lifestyle specialties currently account for more than 60percent of the revenues.

"The expected rise in the incidence of these diseases will further boost the revenues of the hospitals, because of higher volumes, occupancy and Average Revenue per Occupied Bed (ARPOB) that these specialties provide. However, recent regulatory interventions are likely to trim the margins that hospitals earn from some of these treatments," said Shubham Jain, Vice President, ICRA.

"In February 2017 the country's drug price regulator, the National Pharmaceuticals Pricing Authority (NPPA), capped the prices of coronary stents and in August 2017 it further capped the prices of all orthopaedic knee implants, impacting the revenue and margin of players. However, the hospitals have the flexibility to revise prices of services, treatment packages, room rates, other consumables, doctor charges to partly compensate for the decline in prices of the devices," he added.

The revenues of ICRA's sample set grew at a lower rate of 12.7 percent in FY2017, against a growth of 14.5 percent in FY2016 and 16.5 percent in FY2015, the moderation being on account of the demonetisation and the cap on prices of stents.

In terms of breakup of the growth in various quarters, the aggregate revenues of the sample set grew at a healthy rate of 14.6 percent and 15.9 percent in Q1 FY2017 and Q2 FY2017 respectively.

However, post the demonetisation and the cap on prices of stents, the growth moderated to 12.8 percent in Q3 FY2017 and subsequently to 8.5 percent in Q4 FY2017. Since cardiology is the largest contributor to the revenues of all companies in ICRA's sample set, the operating margin of the sample declined from 14.3 percent in Q3 FY2017 (before the cap on stents) to 13.1 percent in Q4 FY2017 and 13 percent in Q1 FY2018.

As the revenues and margins have been under pressure in FY2017 and the companies have undertaken debt-funded expansion, the debt protection indicators have marginally deteriorated interest coverage ratio has dropped from 2.98 times in FY2016 to 2.62 times in FY2017 and net cash accruals/total debt declined from 14.8 percent to 12.8 percent during this period.

"Notwithstanding the recent regulatory action, ICRA's long-term outlook on the sector remains stable. On the supply side, India currently faces significant shortage of beds and the investments by the Government in creating healthcare infrastructure would be inadequate. This provides private sector players with the opportunity to step in to fill the gap," said Jain.

"On the demand side, a large population, increasing lifestyle diseases, rising healthcare awareness and higher medical insurance penetration are likely to push the demand for the healthcare services at a steady pace. ICRA expects an annual revenue growth of 12-14 percent over the next five years and the same is likely to result in improvement in credit metrics of the large hospitals in the sector," he added. (ANI)