Max Healthcare, Aster DM, KIMS shares tank up to 8% today. Here's why

A couple of hospital stocks namely Max Healthcare, Aster DM and Krishna Institute of Medical Sciences Ltd up to 8 per cent as Supreme Court said it would implement CGHS rates across hospitals as an interim measure, if Centre and states do not come out with a proposal for hospital rates in line with the Clinical Establishment Act (CEA).

The development, if materialises, may hit Global Health Ltd (Medanta), Krishna Institute Of Medical Sciences Ltd (KIMS), Rainbow Children's Medicare Ltd, Apollo Hospitals Enterprise Ltd, Max Healthcare, Narayana Hrudayalaya Ltd and Healthcare Ltd -- in that order. But brokerages such as Kotak Institutional Equities said such uniform pricing across hospitals would be difficult to implement, even if the issue cannot be taken lightly given the SC’s strong diktat.

Max Healthcare Institute Ltd tanked 7.68 per cent to Rs 734. Shares of KIMS fell 3.23 per cent to Rs 2,182. Narayana Hrudayalaya shares declined 1.66 per cent to Rs 1,311.70.

"The Supreme Court’s order on standard hospital rates has come as a negative surprise for private hospitals, and is likely to lead to strong resistance, if implemented. We note that CGHS rates are 40–50 per cent lower than normal rates, and not all states have implemented the Clinical Establishment Act. What makes it even more difficult to standardise all treatment procedures is – complexity of case involved, co-morbidities, level of technology/equipment used, services offered, doctor’s experience, etc," Nuvama said.

If a middle ground has to be reached, Nuvama said a price range on non-complex procedures looks more probable. "Until any clarity emerges, hospital stocks could remain volatile given rich sector valuations," it said.

Kotak noted that hospitals having the highest exposure, as measured by percentage of operational beds falling under states and UTs, which have adopted the CEA,

"Apart from practical challenges and the unviability of uniform rates for prominent hospitals, implementation of this pan-India might also likely warrant a change in legislation, as only 12 states and 7 union territories (UTs) have adopted the Act. Hence, we expect a very low probability of implementation. Nevertheless, amid steep valuations, this diktat creates an overhang and assumes more relevance, especially as regulatory interventions reduced in the recent past," it said.

To recall, the SC had  two years ago said that no government can fix rates for patients in private hospitals. Looking at past precedents, including during Covid, Kotak does not believe the government (Centre and States) would be keen to actively manage public health care services.