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.

As per industry averages, a typical profit & loss picture of tertiary care
hospitals in India will have following component (Percentage of sales):

S. Parameter Percentage of Remarks

No
1 Material Cost (Pharmacy /
Consumables / Other medical
items other than capital
items)
2 Doctors Payment (It could be
retainer-ship or salary as per
Hospital norms
3 Manpower cost (This excludes
Senior doctors cost and
outsource staff cost)
4 Marketing Cost
EBDITA (Profit
5 before interest, Depreciation
& Tax)
Total Sales
25 - 30 % This depends on the type of
hospital.
The High end tertiary unit will
have near 30 % as material
cost
18 - 20 % This depends on how well you
structure your association with
top doctors
16 - 20 % If the building is old and
outdated technology, this will
be much higher
02 - 04 % All depends on the experience
of the unit and how ethical it
is.
15 - 20 % At full maturity i.e. after five
years of operations, hospital
should have EBDITA of more
than 18 20 %
How one can improve profitability:

1. Create a lean organization. Strict control on head count. Encourage

multitasking.

2. Non Medical staff such as HR, Finance, Administration, Security,

IT, Biomedical, and Marketing should be few in numbers but better in
efficiency.

3. 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).

4. 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.

5. 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.

6. Marketing expense must be supported by justification.

7. The 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. Vikram Singh Raghuvanshi has been in the area of hospital operations
for over 25 years. Till recently he was CEO of Jaypee group of
hospitals. He has owned P & L responsibility of over 20 + hospitals for
years.