Price Regulations To Hurt Private Healthcare, Says Apollo Hospitals’ Suneeta Reddy

Price Regulations To Hurt Private Healthcare, Says Apollo Hospitals’ Suneeta Reddy
Lab technicians analyse blood samples in Indraprastha Apollo Hospital, New Delhi India. (Photographer:Amit Bhargava/Bloomberg News)

The government imposing more price regulations will be detrimental for the private healthcare industry, Suneeta Reddy, managing director, Apollo Hospitals Enterprise Ltd. told BloombergQuint in an interview.

Everyone knows that the disease burden and the demand supply gap is so huge in India that they need to encourage the private sector to actually get into the space.
Suneeta Reddy, Managing Director, Apollo Hospitals

Demonetisation, coupled with price caps on stents and knee implants had hit Apollo Hospitals, Reddy said, adding that since 55 percent of their patients were cash paying, that segment was definitely hit.

Here are the edited excerpts of the interview.

A recent brokerage pointed out to several concerns. The firstone is regulatory issues in terms of pricing cap, high capex, declining growthtrajectory in the core Chennai cluster, etc., and they believe this will continueover FY18. Do you believe such headwinds will continue for your company?

We have met with some challenges in the past threequarters. To wish it away is not correct but clearly there have been governmentregulations which impacted, not only the healthcare industry but industry asa whole.

All of us know about the impact of demonetisation, where there is 20 percent less cash in the hands of the consumer, has impacted everyone's topline and bottomline. For us, 55 percent of our patients were cash paying patients, who were hit. And because of that, we are not able to grow at a pace we traditionally grow at.

But I think growth is coming back. The way digitisation has helped improve commerce and access to our facilities, I think this growth will come back in the next quarter.

How big are these regulatory challenges in terms of pricingcaps on stents and knee implants that you are faced with currently?

These challenges were unexpected but I think we do have adeep understanding of these challenges now. If we look at healthcare ingeneral, earlier we would price a component and leave out the procedure. It wasan anomaly that existed. Now, whatever the government might do in terms of puttinga price cap on input cost, I don't think it will affect our margins going forward because now we are repricing the service. Just like for a hotel booking or a flight, you would buy a ticket and the entire service would be priced. So, Idon't think we need to get overly concerned about theinput cost. We've crossed that bridge.

Goingahead, do you anticipate price capping of other medical devices in the next 18-24 months?

With the private sector handling 51 percent of India'shealthcare, I think it would not really help the government if they were tocome out with price regulations for the healthcare industry because everyoneknows that the disease burden and the demand supply gap is so huge in Indiathat they need to encourage the private sector to actually get into the space. As long as there are no new beds coming into the system, there is actually nothing being done for the healthcare sector.

The report actually says that the company's turnaround is basedon your ability to turnaround spectra. When do you see this happening for thecompany?

It should take another year for that to happen. If you lookat Apollo today, 30-40 percent of our surgeries are daycare surgeries. So Ithink we have a deep understanding of the patient journey, we understand the interplaybetween the technology, the skill of the doctor and what the consumer wants. People would want to go for a smaller format stores, rather than go fora large hospital for a lot of these surgeries. Today we are doing open heartsurgeries with robots for discharging patients in 48 hours so clearly these areformats of the future. Under that we have Apollo Health and Lifestyle Ltd. (AHLL) four formats. So, I thinkthese are definitely more consumer facing than a pure hospital play.

As far as your Chennai hospital is concerned, there is adecline in your growth trajectory in your core Chennai cluster. If you add theupfront cost from the Navi Mumbai hospital then free cash flow will continueinto the negative territory, when do you see this easing?

You will see our free cash flows getting much better by next year. Thereis a lot of focus on Chennai but I think you need to understand that our otherclusters are equally important. Bengaluru is very important, Hyderabad hasgrown at 17 percent. Chennai was already large where we continue to have amarket share of 20 percent, and we maintain this market share because we havedifferent formats of care in Chennai. This is working out very wellbecause clearly the day care centers and cradles, everything has started to dovery well in Chennai.

So, if you don't focus only on Chennai hospitals but you look at the market share in the healthcare space, clearly, we are the market leader in Chennai. The good news is that Bengaluru, Hyderabad and now Navi Mumbai, all of them are moving in that direction.

How are you seeing growth in markets outside ofChennai, and which hospitals are seeingtraction currently?

Clearlyin Hyderabad, we are seeing an improvement in the revenue mix. Occupancy ispicking up...Bengaluru today has close to 15 percent market share. With three hospitals in Bengaluru, the opportunity for growth is tremendous. We canget to 20 percent...New Mumbai has started to improve. Today, we have 120 bedsoccupied and 150 which are open now. Going forward, I see losses diminishing from Navi Mumbai. Overall, the bottom-line will look much better.

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