'Cashless Everywhere' Facility May Affect Hospitals' Working Capital Requirements

While the General Insurance Council's announcement of the 'Cashless Everywhere' initiative may have some impact on insurance companies' cash flow requirements in the short term, it may also change the working capital requirements for hospitals after a widespread adoption.

"Implementing this policy is expected to prolong the working capital cycle, potentially extending the current 45-day period to around 60 days," said Lovekesh Phasu, group chief operating officer of Sakra World Hospital in Bengaluru.

Announced on Jan. 25, the initiative now allows insurance policyholders to obtain cashless redressal of claims at all hospitals, irrespective of whether the hospital is covered under the network of the insurance provider.

This would mean that hospitals that were originally paid in cash by policyholders—who would later obtain a reimbursement from their health insurer—will now receive payment from the insurer directly, based on their standard settlement cycle.

"Hospitals may experience a shift in their payor mix towards a higher dependence on insurance companies. This could potentially reduce the proportion of revenue derived from self-pay patients, or those covered by other payment methods," Phasu said.

"Currently, around 50-70% of a mid-to-large hospital's revenue is from insurance and government schemes. This however, depends on the size and location of the hospital," Bhanu Prakash Kalmath, partner and healthcare industry leader at Grant Thornton, told NDTV Profit.

While the initiative will prompt more patients to access better quality healthcare, boosting hospitals’ revenues, it may also put pressure on the working capital, he said.

Bigger, better and specialty hospitals could be preferred for elective surgeries due to possibility of cashless option, according to Kalmath.

In FY23, as per the insurance regulator's annual report, health claims disbursed by the industry were at Rs 70,930 crore, of which 'only reimbursement' claims were of Rs 24,653 crore, while 'only cashless' claims were at Rs 45,129 crore.

With 'cashless everywhere', the share of reimbursement that is close to Rs 25,000 crore is expected to shrink, which could be a large sum for the hospital industry, that could possibly create pressure on the working capital requirements.

Apart from this, the hospitals' average revenue per occupied bed may also get impacted, based on the terms negotiated between hospitals and insurance companies

"If reimbursement rates are favourable, hospitals may maintain or even improve ARPOB. However, if rates are lower than previous payment structures, ARPOB could decrease," Phasu said.

The General Insurance Council is eventually proposing to have a common rate chart for empanelment of hospitals for a cashless disbursement of claims for all insurers.

This is different from the current arrangement, where every insurer has a separate rate and terms agreement, with their network hospitals depending upon the size and business given by a particular insurer to a hospital or chain of hospitals.

If this happens, insurers would have better bargaining power over rates charged by hospitals for treatment.

"While common empanelment can offer advantages such as increased patient volume and operational efficiency, it also introduces challenges like standardised reimbursement rates and potential dependency on insurance contracts," said Phasu.

On an overall basis, Phasu expects the move to increase the reach for patients, giving them more options for having the best clinical care.

"We hope this sets the stage for universal policies and guidelines, making procedures more streamlined for everyone. Going further, this will also help hospitals do better cost management, and eradicate malpractices," said Barkha Amin, trustee at Bhailal Amin General Hospital in Vadodara.

This change will not only remove a significant barrier, but also help smaller hospitals access cashless benefits, contributing to the overall improvement of our healthcare system, she said.

Cashless reimbursement secures the hospital's receipt of money, while giving wider coverage to people, which should be a constant endeavour of the healthcare system, Kalmath said.