Privately-owned healthcare and hospital players are set to see strong benefits from the Centre’s decision to improve healthcare access for central government employees. The Ministry of Health and Family Welfare decided to revise the Central Government Health Scheme (CGHS) rates for a series of medical procedures .
Over 2,000 procedures, consultations, diagnostics tests and other medical facilities offered by hospitals empanelled under this scheme will see their rates being revised. Private healthcare operators have been demanding this revision to improve the pricing of the scheme as a result of soaring medical costs.
The reimbursement rates for super-specialty hospitals (over 200 beds with five pre-determined therapeutic capability) will be over 15 percent higher, especially when compared to non-NABH/NABL hospitals.
Reimbursements for hospitals in tier-1 cities will be 10 to 20 percent higher than those in tier-2/3 cities. For patients in private wards, the rates will be around 5 percent higher than semi-private wards, while general ward reimbursements will be 5 percent lower.
The Central government defines tier-1 cities as metros along with Pune, Hyderabad, Ahmedabad, and Bengaluru. Tier-2 cities form an indicative list, with Gurugram, Lucknow, Noida, Ranchi, and Patna being the prominent names.
Further, the government has increased reimbursement for certain procedures in the cardiology, ophthalmology, orthopaedic, neurology, nephrology, gynaecology and gastro-intestinal fields by up to 1.2–22.2x, when compared to the last revision in 2010 in Delhi NCR.
What are brokerages saying?
According to Emkay Global, this revision, which is positive for private healthcare operators, would disproportionately benefit super-specialty hospitals (corporate hospitals) with immediate bed expansion plans in tier-1 cities.
Further, while the revision is steep in multiple specialties; however, assuming a weighted average of 15 percent improvement in scheme ARPOBs (average revenue per occupied bed), Emkay expects the overall ARPOBs to improve by 2.5-3.5 percent, which in turn will result in a 11-13 percent increase in EBITDA. According to Nuvama Institutional Equities, some players can see a jump in EBITA of 18-22 percent.
Broking house ICICI Securities noted that the revenue contribution from CGHS scheme-based patients for hospitals under its coverage stood at ~2–5 percent. If the rates are revised by state governments, PSU firms, and PMJAY as well, to which healthcare firms have between 6-21 percent of revenue exposure, it “should sweeten the margin profile of hospitals to a larger extent.”
Krishna Institute of Medical Sciences (KIMS), Max Healthcare Institute, and Medanta stand to gain from this development, given that their exposure to scheme business (CGHS + other state government schemes) is ~18-22 percent, according to Emkay Global.
However, Nuvama Institutional Equities noted that super-specialty hospitals such as Max, Apollo and Fortis have 50–60 percent of their beds in tier I cities currently, and are projected to maintain this even on expanded beds.
Currently, around 20 percent of Max’s and Fortis’ revenues comes from government patients, while Apollo derives roughly 10 percent. Within this, the CGHS share for Max is roughly 10 percent, and 5-6 percent for both Apollo and Fortis.
Emkay suggested that while healthcare firms ramp up occupancies at new units, all scheme patients account for a larger share of the business (when compared to mature units), as companies target quicker breakeven. This hike should aid faster-than-expected breakeven for hospital chains, especially in tier-1 cities.
“We note that certain procedures, which were earlier not viable for private operators, may now become viable, given the sizable hikes undertaken,” said the brokerage, adding that this move should strengthen the healthcare infrastructure, enabling access to quality healthcare for the masses, and in turn propel volume growth in the long term.
However, while the revised rates are still lower than private rates, the revision is rather welcome, said Nuvama, particularly at a time when hospitals are undergoing massive bed expansion and amid the ongoing dispute between private insurers and hospitals.
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