Learn How to Improve Profit in the Hospital Business By Dr. Vikram Singh Raghuvanshi

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% as material cost This depends on how well you structure your association with top doctors If the building is old and outdated technology, this will be much higher All depends on the experience of the unit and how ethical it is.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

2. 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.