Financial reporting practices in Indian healthcare industry

  Dr Madhav Madhusudan Singh

Financial reporting is a critical function for organizations as it provides stakeholders with information to make informed decisions. The healthcare industry in India has seen significant growth in recent years, with private sector hospitals and clinics accounting for a substantial portion of the market share. The quality of financial reporting in the healthcare industry in India is critical, given the increase in the number of investors and the need for transparency in operations.

Financial reporting in healthcare industry is a complex process that involves various stakeholders such as healthcare providers, insurers, regulators, and investors. In India, healthcare industry is witnessing a rapid growth in the recent years, however, the financial reporting practices in the sector are not well developed as compared to other industries. The main challenge in financial reporting in the Indian healthcare industry is the lack of uniformity and standardization in accounting practices across the sector. This blog aims to discuss the  quality , challenges and prospects of financial reporting practices in Indian healthcare industry.

Current status of quality of financial reporting in healthcare industry in India:

In recent years, the quality of financial reporting in the healthcare industry in India has improved significantly. The implementation of the Indian Accounting Standards (Ind AS) has played a crucial role in this improvement. Ind AS is a set of accounting standards that are in line with the International Financial Reporting Standards (IFRS). It has helped standardize accounting practices across various industries, including healthcare, and has provided transparency and consistency in financial reporting.

Despite these improvements, there are still some challenges in the healthcare industry in India. One significant challenge is the lack of skilled accounting professionals in the industry. The healthcare industry requires specialized knowledge of accounting practices, such as revenue recognition, expense allocation, and depreciation of medical equipment. The shortage of skilled accounting professionals has led to a lack of consistency in financial reporting, which has raised concerns among investors and stakeholders.

Another significant challenge in the healthcare industry is the lack of regulations and guidelines specific to the industry. The lack of specific regulations has led to inconsistencies in accounting practices and financial reporting. The absence of specific guidelines also means that healthcare organizations may not have a clear understanding of the accounting standards they need to follow, which can lead to errors in financial reporting.

Example of the quality of financial reporting in healthcare industry in India:

One example of the quality of financial reporting in the healthcare industry in India is Apollo Hospitals. Apollo Hospitals is one of the largest private healthcare providers in India, with a network of hospitals and clinics across the country. The company has been recognized for its transparent and consistent financial reporting practices.

Apollo Hospitals follows the Ind AS accounting standards and provides detailed financial reports that include revenue, expenses, and cash flow statements. The company also provides a detailed explanation of the accounting policies and practices used in preparing financial statements, which helps stakeholders understand the financial information presented.

Apollo Hospitals has also implemented internal controls to ensure the accuracy and completeness of its financial reporting. The company has a dedicated team of accounting professionals who are responsible for ensuring compliance with accounting standards and maintaining the accuracy of financial information.

Challenges:

1. Lack of standardization: One of the major challenges in financial reporting in Indian healthcare industry is the lack of uniformity in accounting practices. There is no standardized accounting framework for healthcare sector in India, which results in inconsistencies in financial reporting. Each healthcare organization follows its own accounting policies and practices, which makes it difficult to compare financial performance of different healthcare providers.
2. Complex regulatory environment: Healthcare sector in India is highly regulated, which makes it difficult for healthcare providers to comply with various regulatory requirements. For instance, healthcare providers are required to comply with various accounting and disclosure requirements under the Companies Act, 2013, Accounting Standards, Indian Accounting Standards (Ind AS), Income Tax Act, and other applicable laws and regulations. This results in additional compliance costs for healthcare providers.
3. Lack of trained accounting professionals: Another challenge in financial reporting in Indian healthcare industry is the shortage of trained accounting professionals who have expertise in healthcare accounting. Healthcare accounting is a specialized field that requires knowledge of complex accounting principles, regulatory requirements, and industry-specific practices. However, there is a shortage of skilled accounting professionals who have the required knowledge and expertise in healthcare accounting.
4. Limited disclosure: Financial reporting practices in Indian healthcare industry also suffer from limited disclosure. Healthcare providers do not disclose enough information in their financial statements, which makes it difficult for investors and other stakeholders to evaluate their financial performance. For instance, healthcare providers do not disclose information on patient outcomes, quality of care, or other key performance indicators, which are important for evaluating the long-term sustainability of the healthcare organization.
5. Limited adoption of technology: Indian healthcare industry lags behind in the adoption of technology for financial reporting. Most healthcare providers still rely on manual processes for financial reporting, which are time-consuming and error-prone. The lack of automation in financial reporting increases the risk of errors and frauds in financial statements.

Prospects:

1. Standardization of accounting practices: The Ministry of Corporate Affairs (MCA) has proposed a new accounting standard for healthcare industry in India, which is expected to bring more uniformity and standardization in accounting practices across the sector. The new standard is expected to align accounting practices of healthcare providers with international standards, which will make it easier to compare financial performance of different healthcare organizations.
2. Adoption of technology: With the increased use of technology in healthcare industry, there is a growing demand for automation in financial reporting. Healthcare providers are increasingly adopting cloud-based financial reporting software, which allows them to automate financial reporting processes and reduce errors and frauds in financial statements. The adoption of technology is expected to improve the efficiency and accuracy of financial reporting in Indian healthcare industry.
3. Increased disclosure: Healthcare providers are gradually realizing the importance of disclosure in financial reporting. They are beginning to disclose more information in their financial statements, such as patient outcomes, quality of care, and other key performance indicators. The increased disclosure is expected to improve transparency and accountability in Indian healthcare industry.
4. Training of accounting professionals: With the increasing demand for specialized accounting knowledge in healthcare industry, there is a growing need for training of accounting professionals in healthcare accounting. Educational institutions are increasingly offering specialized courses in healthcare accounting, which is expected to increase the pool of skilled accounting professionals in the industry.

 

The quality of financial reporting in the healthcare industry in India has improved in recent years, thanks to the implementation of Ind AS. However, there are still some challenges that need to be addressed, such as the shortage of skilled accounting professionals and the lack of specific regulations and guidelines for the healthcare industry. Organizations such as Apollo Hospitals have set an example of transparent and consistent financial reporting practices, which can be used as a benchmark for other organizations in the industry. By addressing these challenges and adopting best practices in financial reporting, healthcare organizations in India can improve the trust and confidence of investors and stakeholders, and contribute to the growth of the industry.

References:

1. "Ind AS and their impact on healthcare sector." KPMG. Accessed on 25th February 2023 from https://assets.kpmg/content/dam/kpmg/in/pdf/2017/06/ind-as-and-their-impact-on-healthcare-sector.pdf
2. "Apollo Hospitals Enterprise Ltd. annual report." Apollo Hospitals. Accessed on 25th February 2023 from https://www.apollohospitals.com/investors/annual-reports

Dr Madhav M Singh MBBS , MHA , MBA , PhD

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