How to improve profit in the hospital business ?

How to improve profit in the hospital business ?

Providing care to patient has always been considered a noble cause and hence discussing profit for hospital business sounds awkward to many. However, it is a reality that this sector is now attracting investors as well as private players and for sure, they will look for ROI. There is nothing wrong with investors, if they look for fair returns in order to get sustainability and growth.

How one can improve profitability?

S No Parameter Percentage of Total Sales Remarks
1 Material Cost (Pharmacy / Consumables / Other medical items other than capital items) 25-30% This depends on the type of hospital. The High end tertiary unit will have near 30 % as material cost
2 Doctors Payment (It could be retainer-ship or salary as per Hospital norms 18-20% This depends on how well you structure your association with top doctors
3 Manpower cost (This excludes Senior doctors cost and outsource staff cost) 16-20% If the building is old and outdated technology, this will be much higher
4 Marketing Cost 2-4% All depends on the experience of the unit and how ethical it is.
5 EBDITA  (Profit before  interest, Depreciation & Tax) 15-20% At full maturity i.e.after five years of operations, hospital should have EBDITA of more than 18 – 20 %
  • Create a lean organization. Strict control on head count. Encourage multitasking.
  • Non – Medical staff such as HR, Finance, Administration, Security, IT, Biomedical, and Marketing should be few in numbers but better in efficiency.
  • One must judiciously negotiate with doctors if he/she is hiring them on fixed salary or on the retainer-ship. The best way is to have a partial retainer-ship and the rest to linked with their performance (volume).
  • Electricity is major recurring cost item. One must adopt a cost efficient system at the earliest and have building management system to control and monitor timing and usage of lifts, AHUs, CSSD Machines, Boilers, Chiller plant etc. Moreover, the area wise daily consumption of electricity must be monitored.
  • Material management can help in improving by 3-5 %. Hence, an adequate person with subject knowledge must drive this department. Check and balance the right processes as well as and significantly conduct regular meetings with key vendors.
  • Marketing expense must be supported by justification.
  • Last but most important thing is that every single penny saved is the profit of the organization and everyone associated with the organization is responsible for it. Hence, we should initiate creating a culture of saving.


  • Dr. Kalpesh Hegde

    Dr. V. S. Raghuvanshi Sir, I appreciate your article on improving profits in the hospital business, However, I believe, reducing OpEx alone would not suffice in itself, effective CapEx investment planning plays a huge role too in overall Hospital profitability and ROI. Can you share an Ideal breakup on department wise CapEx investment or maximum threshold to which it should not exceed?

    • Dr. Vikram Singh Raghuvanshi

      I appreciate your observation and agree 100 % with you on optimizing CapEx as ROI will depend on how much is our investment and what is EBDITA YOY.
      Reply to your question will be very lengthy. I will try to be brief:

      • If it is a new hospital, design your unit such a way that it can be functionally good. Area per bed is fair (Not less than 700 SQF per bed and in Indian condition not more than 1200 SQF per bed). The cost of civil depends on interior – Hence practically, MEP cost is huge and we should phase it (we may not need all lifts / ACs etc. on day 1). Civil + Services cost must be between 3500 – 4500 per SQF for tertiary care unit. So, say per bed area is 800 SQF then your building cost for one bed should be 800 X 4000= Rs 32 lacs.
      • Equipment per bed depends on the type of the hospital. If it is high end tertiary care hospital (with Oncology), equipment cost will be high (Rs 30 lacs per bed). However, for secondary care it will be approximately Rs 10 lacs per bed.
      • Department wise breakup will depend upon which level of hospital (Top class) one wish to create. Ballpark benchmark investment per bed for type of hospital in different cities (excluding land) is:
        Type of Hospital Metro City Tire 2 Cities Tire 3 Cities Remark
        Tertiary – Multispeciality Rs 70 lacs to 100 lacs Rs 40 lacs to Rs 60 lacs Rs 35 lacs to Rs 45 Lacs It depends on the mix of specialties also
        Secondary Care 60 lacs to 80 lacs 40 lacs to 50 Lacs 30 lacs to 40 lacs
        Single Specialty Depends on specialties such as Oncology, Heart, Eny or Mother & Child. It will be similar to tertiary care for Heart & Oncology
  • Dr. Dipa Vengurlekar

    Can you please share your work on how reducing ALOS can improve hospital revenue?

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