Financial Health of Private Sector Hospitals in India

Abstract

Hospitals are an important component of the healthcare delivery system. Over the years, India has experienced a significant increase in the number of hospital beds to meet the growing health demands of its population. Most of this growth has been experienced in the small sized private hospital sector (popularly known as nursing homes in India). The corporate hospital sector, however, has not exhibited similar growth though private expenditures on medical and health care in real terms have grown at 10 per cent per annum and government of India initiating number of policy reforms after 1991 aimed at attracting more capital to hospital sector. This experience has something to do with the financial health and risks, as these are critical determinants in attracting private capital. Using the financial balance sheets and profit and loss account data of 128 hospitals in India, this paper examines the financial health of hospitals in the private sector. Based on 26 key financial ratios, the paper empirically identifies relevant dimensions of financial health of hospitals. These dimensions are: profitability, financial structure, overall efficiency, cost structure, profit appropriation, technology advancement, credit management, fixed asset intensity, liquidity and current assets efficiency. It then discusses the implications of the findings. Because of lower profitability, lower financial efficiencies and less understood economies of scale, the risks in the health sector are likely to remain high. Other risk factors are the geographic pull factor, long gestation periods, a highly fragmented sector and inadequacy of standards. In this scenario, new investment in the health sector will remain resource dependent on subsidised channels of funding and will be sensitive to the out-of-pocket payment of fees, which still remains the main channel of revenues of these hospitals.