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BT Buzz: How to keep cash-burning hospitals alive in coronavirus times

Although big players are expecting 50 per cent cut in earnings, they are still in a better position than smaller ones to raise bank loans. However, the uncertainty around how long the corona crisis will last will add to their problems

twitter-logoE Kumar Sharma | April 22, 2020 | Updated 22:20 IST
BT Buzz: How to keep cash-burning hospitals alive in coronavirus times
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With revenues down and uncertainty looming large on how long the coronavirus crisis will last, most hospitals are busy working out ways to outlive the crisis. In fact, there seems to be an urgent need for the government to release a financial package, especially for hospitals to help them stay afloat amid the crisis. Analysts say, even major corporate hospitals will need short-term financing (liquidity) to the tune of Rs 200-250 crore each because of the cash burn they are facing in the ongoing quarter.

Although big players are expecting 50 per cent cut in earnings, they are still in a better position than smaller ones to raise bank loans. However, the uncertainty around how long the corona crisis will last will add to their problems. If it continues beyond the current quarter, which cannot be ruled out, the hospitals will need financing for the next few quarters. Otherwise, they will not be in a position to repay and will run the risk of liquidation or bankruptcy.

The time is now to plan for keeping the hospitals solvent, say promoters of the hospitals. In case some hospitals shut their operations due to financial woes, it may lead to lack of facilities for non-corona patients. Mumbai saw the glimpse of it recently when several leading hospitals such as Wockhardt, Jaslok and Breach Candy had to temporarily shut some of their facilities after some of their staff tested positive for coronavirus.

Hospitals typically have four sources of revenue - patients admitted, surgeries, pathology and radiology tests and OPD (outpatient department). On one hand, there are huge corporate hospitals, on the other, single doctor-led nursing homes with limited staff and about 10 to 15 beds. These are expected to survive because even if the patient inflow is down, the regular expenditure is also not high. However, the ones with more than 15-100 beds and doctors across specialities along with bank borrowings are likely to face financial constraints and could encounter serious problems unless new ways are found to sustain the crisis.

Consider the case of a 30-bed hospital in Navi Mumbai. In the best of times, it has had an average 60 per cent occupancy, which is down to 15 per cent now. There are no elective surgeries such as cataract or hernia. People are scared to get admitted to hospitals and even OPD operations are limited as most consultations are being conducted through telephone or videos. Cost of operations, however, has increased with consumables such as masks and PPEs (personal protective equipment) becoming expensive and additional costs being incurred towards staff transportation during the lockdown and the fixed costs (utility bills) remaining unchanged. One of the hospital promoters, who does not wish to be named, says, "Our monthly expenditure is around Rs 40 lakh and with almost no revenue, it is difficult to pull through beyond a couple of months."

What is the way out for such hospitals? They typically seem to be in need of low-cost bank loans with long repayment periods. Since they need to retain staff and have a back-up also, their staff is working in shifts and even those staying at home are getting the full salary. In such cases, they will need subsidy from the government to sustain such operations. The government may also consider exempting hospital items from Goods and Services Tax.

Most hospitals are looking at immediate quarter with an aim to conserve cash, defer payments, clear old dues and even explore pay cuts for senior administrative staff without affecting the compensation for frontline healthcare workers. Those with no or low debt feel they can sail through the next couple of months with tight control on costs to conserve cash. Others, especially those with debts and multiple specialities, are looking at all options to prune costs.

Max Healthcare, a brand that is strong in North India with its 14 hospitals in the region -- 11 of which are in Delhi alone -- has seen the occupancy down to 35 per cent from the usual 75-80 per cent. To cope up with this, it has cut down all non-essential activities, deferred new hiring and curtailed expenditures across the board. It has also made requests to suppliers and partners to defer payments till situation stabilises.

Ranjan Pai, chairman of Manipal Education and Medical Group says banks could perhaps be a little more lenient and lend at concessional rates. Manipal talks of an occupancy down to around 25 per cent and at times getting close to 30 per cent but a far cry from around 70 per cent under normal circumstances. The current activities are only focused on emergency care such as cancer, dialysis and cardiac care with all elective surgeries deferred.

Most hospitals are expecting a bounce-back post the lockdown because while many routine procedures and elective surgeries have been postponed, they will still need to be done. The current challenge is sustaining through the crisis. Those on rented premises are seeking to delay the rent payment and get relief on it. Most hospitals are also urging the government to clear the past dues, especially from public sector units and CGHS (Central Government Health Scheme) and ECHS (Ex-servicemen Contributory Health Scheme).

In Hyderabad, Yashoda Hospitals Group that has little over 2,000 beds across three hospitals has seen its occupancy down to 15-20 per cent. It is only handling emergency cases even as fourth hospital is coming soon that will nearly double its total capacity. G S Rao, one of the promoters of the hospital chain, says that they are trying their best to conserve cash and should be able to sustain for the next three to four months. "Sustaining the crisis is a huge challenge for all hospitals."

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