Sri Lanka’s private healthcare in digital push to survive COVID-19

The Pandemiconomic Impact: Insights from ACCA finance professionals

Sri Lanka’s private healthcare sector is coming to terms with the fallout of the COID-19 pandemic with lockdowns preventing people from visiting private hospitals and government price controls impacting the pharmaceutical industry, says ACCA Member Prasenna Balachandran.

“Private healthcare is facing many challenges despite being an essential service. However, there’s plenty of opportunities if healthcare service providers can only break out of traditional business models,” says Balachandran, who is the Chief Risk and Control Officer at listed diversified group Hemas Holdings Plc with businesses in manufacturing, healthcare and pharmaceuticals, leisure, logistics, personal care and stationery.

Sri Lanka provides free healthcare. The state operates 603 hospitals with 3.6 beds for every 1,000 people in the population. Demand for quality healthcare has risen over the years with improving incomes and an ageing population. Non-communicable diseases are on the rise due to changing lifestyles.

The state health care sector cannot cope with the demand. For instance, Sri Lanka has one qualified doctor for every 1,200 people and one nurse for every 570 people in the population. In successive government budgets, healthcare’s allocation has been less than 2% of GDP each year since 2015.

Private hospitals attempt to fill the gaps in state healthcare services. The private sector operates 207 hospitals with a combined capacity of 5,100 beds. They also operate 413 laboratories, 194 general practices and 181 medical centres that offer channel consultancies.

However, COVID-19 lockdowns have threatened the sustainability of private hospitals.  Initially, private hospitals were not even allowed to carry out PCR tests for COVID-19 unless people admitted themselves.

This limitation along with curfews resulted in a sharp decline in the number of patients visiting the hospital for OPD care forcing hospitals to operate with a skeleton crew of doctors and nurses. Also, people seem to be afraid to visit hospitals fearing the COVID-19 contagion.

To overcome the revenue challenge, some private hospitals are investing in digital technology and offering online video consultations and home-delivery of drugs. However, this is not nearly enough to recover lost revenue from the lockdowns.

“Limiting online services to video doctor consultancies and drug delivery will not be enough. Private hospitals will have to innovate and extend online services to other areas like healthy living and preventive healthcare,” Balachandran says.

Private sector pharmaceutical companies, on the other hand, are experiencing a recovery. Initially, the industry got hit by a double impact.

Global lockdowns have impacted worldwide drug distribution. For instance, up to 90% of APIs (active pharmaceutical ingredients) for drugs in the US come from other countries. China is the world’s largest supplier of APIs while India supplies nearly 50% of the United States’ generic drugs. With many countries in lockdown, supply chain shocks across the global pharmaceutical industry were keenly felt.

Half of Sri Lanka’s Rs80 billion pharmaceutical market comprises private companies. Nearly 80% of Sri Lanka’s medical and pharmaceutical requirements are imported. Medical and pharma imports amount $552.6 million in 2019, according to the Central Bank.

“Despite the initial setback, global supply chains have recovered somewhat with China and others emerging out of lockdown. As a result, Sri Lanka is not facing a shortage of medicines because the global supply of essential goods is still open,” Balachandran says.

While the government has allowed private pharmacies to stay open during curfew, e-commerce is helping more people access their drugs. “This is going to be the new normal. There is a sharp increase in the number of people buying drugs online,” Balachandran says.

However, price controls disallow private sector pharmaceutical companies to adjust for exchange rate movements. Also, due to the COVID-19 lockdowns, domestic manufacturing has stalled.

Economic recovery is a long way off and Sri Lanka is grappling with the challenge containing COVID-19 and easing the lockdowns to give the economy a fighting chance at survival. It is a challenge not unique to Sri Lanka.

There is a trade-off between economic scarring caused by prolonged lockdowns and a devastatingly debilitating second wave caused by opening up too early. ACCA suggests a gradual easing of lockdowns across the world.

However, the global economy cannot return to normal without a vaccine for COVID-19. “There’s a race to find a vaccine for COVID-19, but it could take 12 to 18 months to do it right and carry out the necessary tests and acquire all the approvals so that we have a safe drug,” Balachandran says.

The OECD has estimated that most advanced economies could contract up to 24% in the June 2020 quarter. However, a Great Depression scenario is extremely unlikely, according to ACCA.

ACCA expects a severe multi-year world recession with very high rates of unemployment. But the global accounting body is confident it wouldn’t be as bad as the Great Depression of the 1930s.  The 1930s depression was to a large extent caused by policy mistakes – central banks and governments tightening policy into a downturn. That is not the case now with governments committing to support incomes and businesses. Central banks are easing monetary policy at an unprecedented scale.

Private healthcare, and any industry for that matter, must rethink strategy to get through the crisis.

I believe this pandemic will leave us with permanent dents in our economy. The only viable way to a full recovery and beyond is through innovation and digital technology. Sri Lanka’s economy must make the shift towards a digital economy fast, otherwise, we’ll have serious long term economic problems,” Balachandran warns.