Hospital Stocks' Correction Presents A Buying Opportunity, Says Jefferies

Standardising the rate for hospital services is challenging and such complex matters take time, Jefferies India Pvt. has said after the Supreme Court expressed displeasure at the Union government's inaction to fix such charges.

The top court has observed that it would consider accepting the petitioner's request with regard to the adoption of the Central Government Health Scheme rates as an interim measure if the government does not come out with a concrete proposal by the next date of hearing. After the news came out the market cap of hospital stocks fell by over Rs 16,000 crore on Thursday. The market cap of hospital stocks fell by Rs 10,512.80 crore to Rs 3.25 lakh crore, as of 10:37 a.m. today.

"We believe it is this statement that has sparked investor concerns about price regulation for private Indian hospitals," Jefferies said in a Feb. 29 note. It underscored that any meaningful stock correction should be used as a buying opportunity.

"As per the rules, the pricing of hospital services has to be within the range of rates outlined by the central government in consultation with states," the research firm said.

The apex court has said that the government cannot shirk away from its responsibility by merely stating that communications have been made to the states and Union territories and they are not responding.

The core issue of the PIL is that there is wide disparity in the prices of medical services across government and private facilities. The litigation is in early stages. Such complex matters will not conclude in a few months' time frame, according to Jefferies.

"Moreover, we believe that it is yet to be communicated to the SC why standardising the rate is challenging and if at all any such attempt is made, the rates would be wide enough for the current ecosystem to maintain status quo or potentially only public bed rates will be standardised," it said.

What The Rule Says

Jefferies cited the relevant subsection of rule 9 of the Clinical Establishment Rules verbatim: "For registration and continuation, every clinical establishment shall fulfill the following conditions, namely:- (ii) the clinical establishments shall charge the rates for each type of procedures and services within the range of rates determined and issued by the Central Government from time to time, in consultation with the State Governments."