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| 3 | Manpower cost (This excludes Senior doctors cost and outsource staff cost) | 16-20% | If the building is old and outdated technology, this will be much higher |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.
3 Comments
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?
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:
Can you please share your work on how reducing ALOS can improve hospital revenue?