Despite healthcare services staying exempt under GST, prices may rise

Madhuchanda DeyMoneycontrol Research

In a country where few have access to proper medical care, the last thing that the hospital sector would have liked is a blow from GST. Thankfully, healthcare services will stay exempted under the new dispensation.

This exemption was given to the service providers under the mega exemption notification issued in June 2012, and strictly defined to cover diagnosis, treatment and care for illness, injury or deformity.

Then, why are the hospitals worried?

While the services rendered by the hospital are exempted from taxes, hospitals, nevertheless, avail of several inputs and services.

“We typically consume medicines, surgical utilities and also employ outsourced staff,” said Dr Sujit Chatterjee, COO of Hiranandani Hospital.

While the accounts department of the hospitals are working hard to figure out the impact of GST on the goods consumed by the hospitals, they broadly concur that there is neither an increase nor a significant reduction in input prices post GST that should get them worried at this stage.

Anupam Verma, President, Wockhardt Hospitals said that “other than aesthetics and outpatient pharmacy, GST will not be applicable on any other services of the hospital and aesthetics is a small part of the overall business.”

However, the increase in service tax rate would certainly impact business.  Since most private hospital relies on a substantial number of outsourced manpower, a 3 percentage point increase in service tax rate adds to their cost.

On a blended basis such an increase in rates stands to impact overall operating margin to the tune of 20 to 30 basis points. This should be easily absorbed by the hospital.

However, if the blended tax paid on inputs such as consumables also witness any marginal increase, hospitals might decide to pass on the increase in taxes paid on goods and services together by hiking charges on the services rendered to the patients.

So, do not be surprised if hospitals charge a tad more post the implementation of GST. This is in addition to the health insurance premium that is also likely to go up because of an increase in the service tax.

Some of the hospitals sounded worried about continuing with the government business if GST results in marginal increase in costs and the same is not passed on.

On an overall basis, close to 30 percent of business of the hospital sector comes from government through CGHS, ESIC etc. According to hospital sources, hospitals do not enjoy much margin on these businesses. Hence, if GST results in increase in costs then these businesses will turn unviable and many private hospitals may not be able to continue with this business.

The ball is in the government’s court to compensate the hospitals for the same, else private hospitals will largely shy away from servicing patients under these schemes.