New Delhi [India], October 9 : The healthcare sector may be able to limit the impact of the government's decision to cap trade margins on non-scheduled anti-cancer drugs through cost rationalisation and gradual increases in procedure prices, according to a report by Jefferies.
The report said the move could affect hospital margins in the near term, but the impact on earnings before interest, taxes, depreciation and amortisation (EBITDA) is likely to be manageable. It also noted that regulatory uncertainty has eased for now, although concerns around markups on consumables remain.
"Although near-term margin could be impacted, we believe this will be transitory but importantly, regulatory uncertainty eases for now," Jefferies said in its report.
The government has decided to cap trade margins at 30 per cent of the maximum retail price (MRP) for all non-scheduled anti-cancer drugs. The measure covers branded and generic medicines, as well as domestic and imported drugs, including patented and non-patented medicines.
In an official statement on Thursday, the Ministry of Chemicals and Fertilizers' Department of Pharmaceuticals said the decision is expected to reduce medicine prices by up to 70 per cent and help cancer patients save Rs 2,500 crore annually.
Jefferies said hospitals could draw lessons from earlier government interventions in medical device pricing to manage the financial impact of the latest measure.
Nearly a decade ago, prices of cardiac stents and orthopaedic knee implants were reduced by 70-85 per cent. Hospitals managed the resulting pressure through staggered increases in procedure prices and cost rationalisation measures over 12-15 months, the report noted.
The report believes hospitals could use similar measures to reduce the impact of the anti-cancer drug price cap on their profitability.
The assessment suggests that hospitals may have some room to adjust their cost structures and pricing strategies rather than absorb the entire impact of lower trade margins. However, the extent to which individual hospitals can implement such measures remains uncertain based on the information provided in the report.
Jefferies also flagged concerns around markups on consumables, indicating that this remains an area to watch even as the immediate regulatory uncertainty eases.
For investors, the key issue will be how hospitals manage the near-term pressure on margins while protecting their profitability. The report expects the impact on EBITDA to be manageable, drawing on the industry's experience with previous price-control measures.
The government's intervention aims to reduce the cost burden on cancer patients, while the brokerage's assessment focuses on how hospitals could respond to the resulting financial pressure.