Business Standard

Private hospitals see revenue beating pre-covid level in FY22

Non-covid occupancie­s and higher revenue per bed driving growth


Better occupancie­s, higher revenue per bed, and cost rationalis­ation are pushing corporate hospitals into recovery mode after a particular­ly gangrenous second wave of the Covid-19 pandemic brought India's public health system to its knees. In fact, the industry expects revenue and margin growth to surpass pre-pandemic levels, despite lower inbound medical tourists.

Max Healthcare, for example, has seen August occupancy levels touch 75 per cent. “With August occupancy perched at 75 per cent, occupancy levels have reached pre-pandemic levels. Further, Covid-dedicated beds account for just 1 per cent of the overall occupied beds. We should be able to sustain or outdo 70-75 per cent occupancy levels for the remainder of the year,” says a spokespers­on for Max Healthcare.

Fortis Healthcare, too, points out that non-covid occupancie­s are back to ‘normal’ levels. Speaking to Business Standard, Ashutosh Raghuvansh­i, managing director and chief executive officer, Fortis Healthcare, says occupancie­s were up 62 per cent in August. Even as September numbers are yet to be closed, Raghuvansh­i expects occupancie­s at around 65 per cent. Barely 2 per cent of occupancie­s now come from Covid cases.

One can expect to clock 30-35 per cent growth in revenue, compared to last year, says Raghuvansh­i. Compared to the pre-pandemic period, there should be sub-10 per cent growth in revenue, he adds.

“There is still some ground to be covered — internatio­nal business is in fits and starts due to restrictio­ns. However, domestic business is definitely better than pre-pandemic levels,” says Raghuvansh­i. Not just occupancie­s, average revenue per occupied bed (ARPOB), too, has recovered. From a precovid ARPOB of ~1.7 crore, it has now risen to ~1.85 crore, says Raghuvansh­i.

Max Healthcare, too, expects ARPOB to be better in the second quarter (Q2) of 2021-22 (FY22), compared to the preceding quarter.

The reason behind the rise in revenue is primarily due to case mix, observe analysts.

“This growth is happening because of case mix rather than any pricing change,” says Raghuvansh­i.

A Mumbai-based sector analyst, however, claims most hospitals have taken price rises from the first quarter (Q1) of this year, leading to growth in revenue. If occupancie­s are indeed high due to pent-up demand, they will taper off eventually.

Hospitals feel otherwise. “There may be some pent-up demand in medical specialtie­s like orthopaedi­cs, given that people had deferred surgeries. But that is not true for other specialtie­s. This growth, therefore, is driven by pent-up demand,” counters Raghuvansh­i.

Kunal Randeria, analyst with Edelweiss, says the sector is on the mend. “Surgeries and other medical treatments are back. Moreover, hospitals have rationalis­ed costs, allowing better margins,” he adds.

For example, in 2020-21 (FY21), Max Healthcare had undertaken several cost-saving initiative­s, including material cost rationalis­ation, personnel cost optimisati­on, among others. “We had implemente­d initiative­s with annualised savings impact to the tune of ~100 crore,” says a company spokespers­on.

The dive in medical tourism, however, is a cause for concern. Revenue from medical tourism has been down to one-third, owing to travel restrictio­ns, says Max Healthcare.

While hospitals expect this to improve as regular internatio­nal flights resume, some feel there has been revenue redistribu­tion in the industry. For most private chains, internatio­nal business was around 10 per cent of their overall business.

Full recovery is still some time away, but some redistribu­tion of revenue has occurred. For example, some smaller and regional centres have shown quicker growth than the tertiary care centres. In tier II and III cities, better growth has been seen,” says Raghuvansh­i.

Standalone hospitals, too, have seen better footfall. But some indicate that their margins will depend on the case mix. “While we see occupancy levels at pre-pandemic levels, our case mix is skewed towards medical cases rather than surgeries. This will impact our ARPOB and margins,” says the chief operating officer of a leading Mumbai hospital.

Analysts say vaccinatio­ns have driven up revenue in Q1 to a degree. This will slacken in Q2FY22.

In the June quarter, Apollo Hospitals clocked ~190 crore from vaccines; on this, it recorded a 15-per cent margin, reveals an Edelweiss report. However, analysts say only 40-50 per cent of Q1FY22 volumes are expected this quarter.

On the whole, the corporate hospital sector is expected to have better operating margins in FY22, compared to 2019-20, underscore­s ICRA.

The blended occupancy level of Covid and non-covid patients in the ICRA sample set was 64.2 per cent in Q1FY22, against 36.9 per cent in Q1FY21 and 58.8 per cent in the fourth quarter of FY21. Therefore, growth is not just on a low base, but sequential as well.

The ICRA sample set comprises listed corporate hospitals, including Apollo Hospitals Enterprise, Fortis Healthcare, Narayana Health, Aster DM Healthcare (India-business only), Max Healthcare Institute, Healthcare Global Enterprise­s, and Shalby Hospitals.

The operating margins for the ICRA sample set came in at 19.3 per cent, against 9.3 per cent in the correspond­ing quarter of the previous financial year, and 18.4 per cent in the quarter before. This, despite the absence of revenue from foreign patients.

“Most hospitals have witnessed sequential­ly higher footfall in July and August, compared to Q1FY22 levels, with the resumption in elective surgeries. This is expected to support strong revenue growth momentum for FY22,” says Mythri Macherla, assistant vicepresid­ent and sector head-corporate ratings, ICRA.

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