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Hospital stocks slip as caps on treatment by Maharashtra govt worry investors

Hospital stocks slip as caps on treatment by Maharashtra govt worry investors

Hospital stocks slip as caps on treatment by Maharashtra govt worry investors
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By Santosh Nair  May 5, 2020 2:08:20 PM IST (Published)

Hospital stocks Apollo Hospital, Fortis Healthcare and Narayana Hrudayalaya continued to drift lower on Tuesday as investors fretted about the Maharashtra government’s order last week capping prices of medical procedures during the COVID crisis. Clauses in the Epidemic Diseases Act and Disaster Management Act provide for such change in rules. The state government took this step to ensure affordable treatment after complaints of overcharging by private hospitals surfaced.

Hospital stocks Apollo Hospital, Fortis Healthcare and Narayana Hrudayalaya continued to drift lower on Tuesday as investors fretted about the Maharashtra government’s order last week capping prices of medical procedures during the COVID crisis. Clauses in the Epidemic Diseases Act and Disaster Management Act provide for such change in rules. The state government took this step to ensure affordable treatment after complaints of overcharging by private hospitals surfaced.

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 As per the notification, the aim is to help those without insurance or whose insurance is exhausted, get treatment. The maximum amount that can be charged by a hospital under the guidelines is that of the lowest bed category.


While leaving out medicines, the order says that prices of items such as intraocular lenses, stents and other medical items and consumables cannot be more than 10 percent of the purchase cost.

 The new pricing cap according to hospital owners is linked to all hospitals that fall under the GIPSA-PPN or the General Insurance Public Sector Association-Preferred Provider Network. It is a network of hospitals which are tied up with the health insurance company to provide cashless health claim settlements to policyholders. It is applicable for all procedures for both COVID and non-COVID patients. Hospitals not linked with GIPSA can’t charge more than the government’s schedule. The difference in prices due to these caps varies amongst hospitals is in the range of 15 -40 percent.

The Maharashtra government is said to have imposed these caps after reports of patients being overcharged at private hospitals surfaced. Reports said a Mumbai based private hospital charged a COVID-19 patient Rs 16 lakh for a 15 day ICU stay.

The fear among hospital owners is that the capping of prices by Maharashtra will set a precedent for other states. Narayana Health’s Viren Shetty says many hospitals cross subsidize, which means they charge patients who can afford to pay and then provide free or subsidized treatment under various schemes. Capping of prices defeats the idea of cross subsidization, Shetty says.

The cap on prices also comes at a time when the hospital industry is suffering from low occupancies due to fall in elective surgeries and closure of outpatient departments. Occupancies have fallen to as low as 20 percent in some hospitals with an average occupancy of 30-40 percent. This drop in footfalls is straining hospitals’ working capital and has raised concerns about their ability to pay interest on exist loans.

While a cap on medical procedures will impact profits, hospital heads point out the cap on medical consumables too will pressure margins. Shetty points out the mark up on consumables is used to cover costs such as transportation and warehousing. Hospital heads also point out that GIPSA consists of many corporates and multi nationals who access their insurance with many of them not needing such caps.

Sources told CNBC TV18 that talks were on between hospital heads and the Maharashtra government. Chief Minister Uddhav Thackeray held a video conference with hospital representatives on Saturday to hear their concerns. The sources said the CM has asked for suggestions to ensure affordable care during this crisis.

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