At the dawn of UHC, private hospitals brace for long struggle

THE HOSPITAL UNIT of Metro Pacific Investments Corp. (MPIC) came close to staging a massive initial public offering (IPO) this year worth P83.3 billion — right on the eve of implementing the Universal Health Care Law (UHC).

Asian Development Bank Senior Health Specialist Gerard Servais found it to be an indication of the health sector’s growth potential, as “it proves that the private sector is vibrant, because they need money.”

Metro Pacific Hospital Holdings, Inc. (MPHHI) was raising cash to invest in building additional hospitals, cancer centers, clinics and new health care businesses. It would have boosted the company’s network of 14 hospitals then (15 now) and several cancer care centers, clinics, laboratories and medical schools.

The offer was widely anticipated — up until it was cancelled. MPIC announced a month before the scheduled offer period that it is deferring the IPO and instead took in a P35.3-billion investment from Kohlberg Kravis Roberts & Co. (KKR) and Singapore’s GIC Pte Ltd., the city-state’s sovereign wealth fund. The deal was finalized in December.

Is the decision to postpone going public an indication of MPHHI’s concerns about cash flow on the eve of UHC — a landmark government program that would demand much from private hospitals?

Maria Corazon C. Consunji, president and chief executive officer of Makati Medical Center (Makati Med), which is part of the MPHHI network, said this was not exactly the case.

“It was always in the discussion with the investors that putting that aside was not because of UHC but because there was a nicer proposition,” she said in a Dec. 12 interview, referring to MPHHI’s IPO delay.

But she added that although MPHHI did not do the IPO, there are indeed worries about cash flow under UHC.

“It’s a little bit alarming for (investors) because there’s a lot of unknowns,” Ms. Consunji said. “They see your cash flows and everything, but they don’t know what will happen when UHC comes… That’s a big challenge for investors. So they just have to take the risk.”

Under UHC, the government would require private hospitals to allocate at least 10% of their beds for basic or ward accommodation, as indicated in Section 29.7 of the law.

It would also get rid of the “co-payment,” or the differential between a private hospital’s rate and what the government pays through Philippine Health Insurance

Corp. (PhilHealth). Ms. Consunji said under UHC, private hospitals would have to absorb the co-payment costs.

The cash flow concern alarms other private hospitals too, such as St. Luke’s Medical Center. Senior Vice-President Benjamin S.A. Campomanes said UHC would increase the base of active PhilHealth members by about 80%, meaning the volume of bad debt may increase by a proportional amount.

“With an 80% increase in potential bad accounts, private hospital profits will likely fall, especially since healthcare providers generally have low margins,” he said at the Hospital CEO Forum in Makati City last Dec. 12.

Mr. Campomanes noted it also does not help that PhilHealth already has years worth of payables owed to private hospitals because of technical problems with its claims system.

According to the Private Hospitals Association of the Philippines, Inc. (PHAPi), 170 hospitals are owed P3.4 billion worth of receivables from PhilHealth as of Nov. 18, 2019. To some of these hospitals, the receivables date as far back as 2014.

PHAPi President Rustico A. Jimenez said this concern is what is prompting about 600 hospitals to withdraw their PhilHealth accreditations by 2020.

“During the last (PHAPi) convention (in November), about 600 hospitals were present and signified their intention not to accredit with PhilHealth pending the payment of receivables,” he said in a Nov. 26 interview.

Mr. Jimenez said unlike bigger hospitals such as Makati Med and St. Luke’s which can survive when unpaid by PhilHealth, smaller private hospitals run the risk of losing operating cash if receivables are delayed for months.

“We are not against Universal Health; we want to cover all patients. But they should consider that private hospitals do not have funding from the government. Where will we get the funds to support Universal Health if they will not pay us on time? Chances