Supreme Court to rule on hospital pricing, standalone facilities most at risk, says report

The Supreme Court of India is set to deliver a verdict this month on standardizing fee structures for private hospitals. The proposed fees are based on the Clinical Establishment Rules of 2012, with the goal of reducing patient bills and bridging the treatment cost gap between public and private institutions. However, analysts warn that implementing uniform pricing could be difficult and negatively impact smaller hospitals.

While the central government seeks to discuss the matter with state authorities, industry experts believe standardizing pricing is impractical due to the vast differences in hospital infrastructure, equipment, staff expertise, and the complexity of treated diseases.

A recent analysis by BNP Paribas Securities suggests price regulation could disproportionately hit standalone hospitals, whose profit margins are already slim. The report, authored by analyst Tausif Shaikh, predicts potential caps on room rents, impacting hospital chains with higher average revenue per occupied bed (ARPOB).

Despite these concerns, the verdict is unlikely to derail the long-term growth of the Indian hospital sector, the report said. Following the court's announcement, Indian hospital stocks took a hit, experiencing a fall of over 10% from Feb 27 to Mar 4, 2024. Although most stocks have recovered, the analyst believes that there is potential for further reevaluation within the sector due to improving bed occupancy rates and a steady projected growth of average revenue per occupied bed (ARPOB) of 5-6% in the coming years.

The recent stock market correction triggered by fears of standardized pricing has largely subsided, Shaikh said. Analysts remain optimistic about the sector, citing improving occupancy rates, steady ARPOB growth, and hospital network expansion.

BNP Paribas maintains its preference for Indian hospitals over pharmaceutical and diagnostics companies. The report argues that pharma's current growth is driven by temporary opportunities, while diagnostics face rising competition. Apollo Hospitals specifically receives a "top pick" recommendation, with analysts expecting stable growth and occupancy improvement over the next few years.

The report also highlights the government's recent focus on improving healthcare accessibility through increased consultation rates, room rents, and procedure prices under the Central Government Health Scheme (CGHS). This approach prioritizes expanding healthcare access within government programs rather than regulating private sector pricing.

Analysts further emphasize the government's recognition of hospital differentiation based on infrastructure, staff quality, and location. The report cites varying CGHS price lists across states and distinctions between NABL-accredited and non-accredited hospitals as examples. Additionally, the consistent rise in foreign direct investment (FDI) in Indian hospitals reflects investor confidence in stable growth. An adverse Supreme Court ruling, however, could jeopardize expansion plans for large corporate hospitals.

The upcoming Supreme Court verdict on hospital pricing holds significant implications for both patients and healthcare providers. While ensuring affordable care remains a key concern, the need to balance affordability with industry growth and service quality presents a complex challenge, the report said.