Super-specialty hospitals may benefit from CGHS rate revision: Analysts

Super-speciality hospitals are likely to benefit from the recent upward rate revision in the Central Government Health Scheme (CGHS), analysts believe.

 

The recent revision to the CGHS rates covering around 2,000 medical procedures and effective from October 13, represents a favourable development for hospital companies that serve patients under this programme, sector experts said.

 

The new rules introduce a multi-dimensional rate structure based on three key parameters.

 

Firstly, super-specialty hospitals can now charge 15 per cent higher rates than the standard rates that are applicable to NABH-accredited hospitals.

 

A standard rate has been set for Tier I cities, which include Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad, Pune and Ahmedabad.

 

Rates for Tier-II and Tier-III cities will be 10-20 per cent lower than Tier I cities. Finally, a standard rate has been set for semi-private wards while a private ward will have a 5 per cent higher rate and a general ward will have a 5 per cent lower rate.

 

Mythri Macherla, vice president & sector head, Corporate Ratings, ICRA, said, “Generally, major hospital chains earn around 4-8 per cent of their revenues from CGHS patients, though in some cases, this can be even higher.”

 

The updated policy introduces a tiered rate card system, distinguishing between NABH-accredited and non-NABH-accredited facilities, and factoring in super specialty hospitals with over 200 beds as well as hospitals in Tier-II and Tier-III cities. This structure is designed to better match reimbursement rates with the actual costs incurred by hospitals.

 

“As a result, super specialty and NABH-accredited hospitals are expected to see higher realisations, while also addressing cost differences between major metropolitan areas and smaller cities,” Macherla felt.

 

Emkay analysts also feel that this revision will “disproportionately” benefit super-speciality hospitals with immediate bed expansion plans in Tier-1 cities. They added that KIMS, Max Healthcare, Medanta stand to benefit given their exposure to scheme business (CGHS and other state government schemes) is 18-22 per cent.

 

Corporate hospitals are in a bed-expansion phase. The median price revision is around 100 per cent-plus and super-specialty hospitals can charge a 15 per cent premium on base rates.

 

“Considering government mix and location, we reckon Max Healthcare, Fortis Healthcare, Narayana Health and Yatharth Hospitals can benefit most, 4-8 per cent on revenue and 150–400 bp on margins possibly,” Nuvama analysts said.

 

They added that Max Healthcare, Apollo Hospitals and Fortis Healthcare have 50-60 per cent of their beds in Tier-1 cities currently, and are projected to maintain this even on expanded beds.

 

“Max and Fortis have around 20 per cent revenue share from government patients while APHS derives around 10 per cent. The share for CGHS stands at around 10 per cent for Max in our view, and 5-6 per cent for Apollo and Fortis,” they added.

 

Price hikes for some procedures such as heart transplant, pregnancy procedures and certain neurology procedures are 3-6 times; on a blended basis, most listed hospitals are likely to see a 30-50 per cent hike in their CGHS portfolio, analysts feel.

 

One of the key concerns, however, remains the long receivable cycle under government schemes like the CGHS, compared with other payer categories, such as cash-paying, international patients, or those covered by insurance, Macherla said.