Covid-19 will drive revenues for hospitals, diagnostic labs in 2021

Hospitals and diagnostic labs that have been at the forefront of the fight against Covid-19 in 2020 are looking forward to resume normal business — non-emergency treatments, elective surgeries and medical tourism — next year. Most of these had come to a grinding halt in the wake of the pandemic, hitting revenue targets.

But whether or not the pandemic comes to an end in 2021, hospitals and labs will continue to earn revenues on its account. The RT-PCR tests will carry on, and the massive vaccination drive will require lakhs of antibody tests to check for immunity. One would need to do the antibody test before getting the vaccine to find out if one already has antibodies. Post vaccination, too, people would need to do the test to see if they have developed immunity. The testing technology will also be utilised for various other diseases. 

The digitisation of health services will also be a major focus for both hospitals and diagnostic labs. “We are exploring possibilities where some of our pathologists, oncologists, and radiologists could work from home in a post-Covid scenario. Remote reviewing of pathological cases is essential to prevent delays in critical patient diagnosis and care, particularly during a crisis,” said Anand K, chief executive officer, SRL Diagnostics. 

Anand also said that the current clinical practices are going to be impacted by the groundbreaking genomic testing, which is triggering a revolution to make medicine preventive, personalised, predictive and participatory. 

Diagnostics majors point out that the pandemic has made people more aware of their health and this can be a major revenue driver in the future. At the moment, preventive tests account for less than 5 per cent of the industry's turnover. Ameera Shah, promoter and MD of Metropolis Healthcare, said that the share of preventive health check-ups in the overall portfolio is likely to increase in the coming months. 

According to an EY report, occupancy levels in hospitals had fallen to 30-40 per cent by the end of March this year, whereas pre-Covid, they were around 65-70 per cent. This is because non-emergency treatments and elective surgeries took a backseat as people preferred not to risk a hospital visit while the pandemic was raging. 

That's likely to change. “Many people who have recovered from Covid-19 are suffering from additional ailments. Many patients have been avoiding doctor and clinic visits, but this is likely to go up in 2021,” said Shah.

“In 2021, the recovery and development of the healthcare sector should be our top priority. We have to look for additional innovative and interactive IT platforms to accommodate more and more online consultations,” said Sandeep Budhiraja, group medical director, Max Healthcare.

Analysts at ICRA estimate that the sector will end the fiscal with a 15-20 per cent dip in revenue and about a 60 per cent fall in Ebitda. Kapil Banga, assistant vice- president, ICRA, said that 2021 will see growth riding back on two things — medical tourism and the pent-up demand for elective surgeries. In fact, thanks to the low base of FY21, the next fiscal would show a robust rise in revenue and Ebitda, analysts said.

“We expect revenue growth to be strong — 25 per cent in FY22 on a low base and the return of normal double-digit growth. The companies focused on various cost-control measures during the lockdown, which may be partially sustainable and can help in improving RoC,” said a statement by ICICI Securities.

Though some experts feel that greenfield expansions are likely to be put on hold, not everyone agrees with that view. Dilip Jose, MD and CEO of Manipal Hospitals, which recently acquired Columbia Asia Hospitals, said, “If one does not have a cash flow problem, greenfield expansion plans can continue in 2021. It takes 24 months or so for a greenfield set-up to come up and by then the demand would also grow.” 

ICICI Securities analysts expect occupancy rates in hospitals to move back to pre-Covid levels in the first half of 2021. “However, medical tourism, which is 10-15 per cent of hospital revenue, will take longer to normalise as international travel remains limited,” the analysts said.