Impact of COVID-19: Private healthcare sector calls for urgent financial stimulus

COVID-19 has infected more than 7.5 million people worldwide. In India, 2019 (COVID-19), which is caused by extreme acute respiratory syndrome coronavirus 2. In India, on 30 January 2020, the first case of COVID-19, originating from China, was identified. India currently has the largest confirmation cases in Asia, with the third-highest number of confirmed cases worldwide trailing the U.S. and Brazil with cumulative confirmed cases exceeding the mark of 100000 on 19 May, 200,000 on 3 June and around 17,00,000 on 1 August 2020.

How did this affect health care industry in India?

Although public policy initiatives to curb the spread of COVID-19 have been introduced, the initiatives have resulted in major operational disruption for many companies including those in the Indian healthcare industry. Staff isolation, supply-chain disruptions and abrupt declines in consumer demand have created significant problems for businesses across a broader variety of industries than originally expected. In the most part, the revenue lost during this time reflects a permanent loss and has put an immediate, unanticipated strain on the lines of working capital and liquidity.

Despite the current crisis as a health-care problem, the country's private health-care system continues to collapse under the COVID-19 negative effects. During this lockdown, there was a substantial decrease in both in-patient and out-patient footfall for private hospital chains — be it a single specialty, multi-specialty, tertiary care clinics, or even diagnostics companies.

This rapid downturn in revenue has instantly affected the ability of hospitals to manage fixed costs. Some of the other factors affecting cash flow are the failure of new centers/ hospitals to start raising cash, debt servicing commitments, reduced rates of medical tourism, and increased revenues from the scheme (which represents credit revenue).

If the current situation is any indicator, healthcare will remain one of the most affected sectors - patients focus mainly on life-critical surgery. Elective processes are avoided to the full. For the manufacturing segment, the availability of raw materials for the manufacturing segment is at an all-time low. There are big woes in the Medical Devices market concerning supply chain management, raw materials, etc. This is further exacerbated by the inverse duty structure that favors finished goods (imported IVDs) over raw materials (made in India IVDs)-resulting in an uneven playing field for all domestic IVD system manufacturers.

But the outbreak Covid-19 gave us a unique chance, I have a very optimistic outlook for our healthcare industry. The world that switches from China to India as the main producer and supplier of APIs, IVDs, and generic medicines, provided that we are wise enough to act quickly and with cash on the situation. India will become a global supplier of drug manufacturers to replace China because of growing mistrust and potential sanctions.

 How are healthcare companies facing these challenges?

Hospitals have started introducing steps to reduce or postpone costs to conserve cash in hand, to manage certain challenges. Consolidation of vendors for better pricing and renegotiation of pharmacy and consumables credit terms are steps adopted by hospitals to preserve their cash flow in the form of consumables. In terms of personnel expenses, doctor participation models are modified by moving doctors to entirely variable revenue-based models. Among the other workers/employees, changes, and variations in pay were adjusted to further minimize the general staff costs during the evaluation of shared resources. Besides, measures such as leasing contracts, vendor restructuring, and delay or staggered payment of annual costs of maintenance have been conducted for other fixed expenses. As regards outsourced services such as housekeeping and security services. Most discretionary spending has largely stopped, such as advertising and sales promotions.

Under these cases, the emphasis is also on tracking discretionary cash flows every day, weekly, and monthly. Differences in the budget are controlled carefully to determine the cash flow effect. Income and other KPIs are also closely tracked. Increased hygiene measures and protection of staff can also lead hospitals to get accustomed to the 'New Standard.' The effect is costlier procedures.

 How can the government help?

The situation can get stressful without an imminent pandemic warning. There are insufficient reserves in hospitals across divisions – large or small – and there is a need for government funding. Faster reimbursement for governmental treatments; quicker processing and settlement of TPA claims; a cut in GST levels on COVID-19 supplies such as kits for research, medications and consumer products; a faster refund on GST for suppliers on inverted-duty accrued tax credit; cheaper credits to bigger hospitals (in line with MSMEs' scheme); and standard-ratio services;

In its financial stability, the industry was already in a very fragile pre-COVID condition- Middle return on employed capital of around 7 percent below the 14 percent cost of equity, early double-digit margins, and 3 percent margin of median income after tax (PAT). The company has only worked for 19 days on a cash buffer to cover spending. The interest coverage ratio is also just 2 considering the capital-intensive nature of the industry.

In this pandemic, hospitals and health personnel, from doctors to staff members, are facing tough times as the courageous frontline soldiers battling COVID. There is an immediate call for action to meet the sector 's acute needs and to implement the financial stimulus recommendations for the private health sector.

 

Recommendations for providing urgent financial stimulus for the sector:

·      1.  Liquidity infusion — Free short-term interest/interest credit to resolve the projected operating losses for the quarter and immediate disbursement of 100 percent duties with central and state administrations.

·      2.  Indirect tax reliefs / exemptions / allowances like- recovery equal to inadmissible GST credits charged for purchase for a given period; customs duty / GST exemption on vital pharmaceutical goods, consumer and COVID therapy equipment; exemption from or termination of treatment of medical devices, EPCG time extension, etc.

·       3. Penalty for the defined duration (3-6 months): income tax advantages and deferment from statutory liability payments without interest

·       4. Rebate on commercial rate of power for a stipulated period