Hospitals witness negative impact of input GST on their business under NPPA price control regime

Mumbai, July 12, 2019: Though healthcare services have been exempted from the Goods and Services Tax (GST) regime, hospitals are witnessing negative impact of input GST under the National Pharmaceutical Pricing Authority (NPPA) price notifications with reference to out patient department (OPD) and in patient department (IPD) patients, according to experts. Drug pricing regulator in India has been fixing prices of drugs or formulations and implants on a priority basis under the provisions of the Drugs Prices Control Order- 2013 (DPCO).“To understand the impact of GST on healthcare operations, it has been observed that in case of OPD patients, drugs are supplied separately for a charge along with applicable GST in which case the healthcare services are GST exempted. In case of IPD patients, patients are administered different drugs, consumables, implants etc. as per medical requirement and finally no GST is paid on the composite supply of healthcare services,” explains Surbhi Premi, joint director, Lakshmikumaran & Sridharan Attorneys.The irony is that the input GST on procurement of drugs forms part of overall cost which is finally borne by the hospital, Premi further adds. For instance, in case a drug costs Rs.20,000+GST, the ceiling price is Rs.22,000, the rate of GST being 10 per cent, the amount recovered for the services by the hospital during IPD would be even lower than its procurement cost.“With a view to avoid hit of GST on the trade margins, whether the hospitals are entitled to treat the service portion of their supply as supply of healthcare services and the supply of drugs/formulations and implants as separate supply of goods to pay and collect GST above the ceiling price, as per the above orders”, experts argue. Hospitals should carefully analyse these orders to fix their margins. Further, the hospitals may need to strategise their operations so that the input GST does not hit their pricing.There are variety of orders issued by the NPPA. Some of them fix the retail price of drugs or formulations and implants. There are orders prescribing the ceiling price and orders that prescribe limit on trade margin along with the ceiling price. The terms retail price, ceiling price and trade margin involve their own nuances. Most of the orders provide that no additional charge, whatsoever, over and above the specified limit shall be charged from the consumer or patient except applicable GST, if any, paid or payable. Recently, in the case of Starcare Hospital Kozhikode Private Limited, Kerala held that supply of medicines, consumables, surgical items etc. for providing health care services to in-patients for diagnosis or treatment, constitute a ‘Composite Supply’ of healthcare services and hence, should be exempted from GST. The same is in line with the matter of KIMS Health Care Management Ltd and Ernakulam Medical Centre Pvt Ltd. PharmaBiz