Apollo Hospitals's returns on investment in cath labs comes down to 8% from 15-16% due to stent price cut, says CFO Krishnan Akhileswaran
Mumbai: Apollo Hospitals Enterprise Ltd’s returns on investment (RoI) in cardiac catheterization laboratories (cath labs), unit in the hospital where angioplasty surgery is usually performed, have halved following the government’s decision to slash prices of coronary stents in February this year.
The angioplasty surgery is performed on cardiac patients to open blocked arteries. A stent, a tiny tube-shaped device, is placed in the patient’s narrowed or blocked coronary artery to maintain normal blood supply.
From 15-16% earlier, RoI on cath labs has come down to about 8% currently, chief financial officer Krishnan Akhileswaran said in an interview, adding that the stent price cut would lead to a Rs40 crore hit on earnings before interest, tax, depreciation and amortization (Ebitda) of the company in the year ending 31 March.
“I make single digit RoI of about 8% on cath labs. Earlier it was 15-16%, which itself was not very high. Now at 8%, banks will also not fund me, forget the investors. Unfortunately, government is of the opinion that we are profiteering out of this (stents, angioplasty). It is not correct," Akhileswaran said.
Cardiac segment accounts for 25% of the hospitals segment revenue of the company. In the six months ended September, hospitals revenue grew by 14% to Rs3,536.1 crore. India’s largest hospital chain operates cath labs in 80% of its centres.
On 13 February, India’s drug price regulator, the National Pharmaceutical Pricing Authority (NPPA), slashed prices of coronary stents by up to 85% in a bid to provide relief to patients.
The ceiling price of bare metal stents was fixed at Rs7,260 per unit and that of drug-eluting stents and biodegradable stents at Rs29,600 per unit. Adjusting to inflation, the prices were revised to Rs7,400 for bare metal stents and Rs30,180 for drug-eluting stents on 1 April.
The price cut has hurt profitability of hospitals, which, as per NPPA’s observations, were making huge margins on stents.
Meanwhile, hospitals say procedures and services were underpriced and that was being compensated by higher prices of consumables like stents.
Now with stent price cut, many hospitals are increasing or looking to push up charges on procedures and services.
Akhileswaran said, “Services were cross-subsidizing the price of stents and while stent price has come down, we have not really completely re-priced on the services front until now. But eventually we will do it as there is no other choice. Otherwise how do I take care of my people and other costs? It is not something that is sustainable."
“Government should understand the total cost of the surgery to the patient and see if that is what we are doing rightly or no. Unfortunately, just bringing an arbitrary price regulation on one side of the equation doesn’t really make sense," he added.
In August, Bengaluru-headquartered hospital chain Narayana Hrudayalaya Ltd had said it will increase procedure charges for angioplasty as a sharp reduction in coronary stent prices by the government has hurt profitability. The company also expects Rs40-45 crore hit on its Ebitda due to the stent price cut.
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