The business of running a hospital: Balancing profitability, patient trust and scale

The assessment of hospitals often depends on their bed occupancy, patient treatment numbers, and generated income. However, operating a financially sustainable hospital demands much more than just high occupancy and increasing revenues. Hospital leaders must carefully balance business discipline and quality of care, handling everything from cost and cash flow management to preserving patient trust and expanding operations. In an interview with Economic Times Digital, Akash Rajpal, a healthcare transformation leader and former COO of Jaslok Hospital and Masina Hospital, talks about the operational challenges, financial blind spots, and strategic choices involved in managing a hospital business. Edited excerpts.

Economic Times (ET): A busy hospital is not necessarily a financially healthy hospital. What creates this gap, and what should trustees look at beyond occupancy and revenue?

Akash Rajpal (AR): A hospital can be full, its doctors can be busy and revenue can rise, yet the organisation may still be under financial pressure. Occupancy tells us that beds are being used, but it does not tell us whether they are generating enough contribution or cash. Losses can also come from leakage throughout the process such as missing bills, out-of-date tariffs, incomplete insurance documentation & rejection, inventory wastage/pilferage, theatre downtime, delayed discharge & poorly negotiated contracts. An unfavourable specialty mix or patients staying longer than clinically necessary and long-standing receivables can make the position worse.


Trustees and promoters need to be aware of much more than just occupancy and income. They should know how much each speciality is contributing, revenue per occupied bed, theatre usage, cancellation rates, costs per patient day, receivables and the difference between income and money actually received. Within big corporate chains, there are some sites performing very well and some not so well. A large chain reporting high occupancy and a high operating margin may be averaging masking poor performing individual units.

In the charitable trust hospital where I led the turnaround process, we changed the specialist mix, implemented tighter billing controls, appointed experienced senior managers, strengthened GP relationships and improved communication with the union. The hospital soon transitioned to a healthier balance sheet and was recognised among the leading city hospitals in several categories. In another role, I helped a large tertiary care hospital achieve Western India's first NABH accreditation without an external consultant. This demonstrated that having clear processes and an accountability system can improve quality and efficiency.

ET: What do promoters and hospital leaders underestimate? Which staffing, contract or standardisation decisions become expensive or difficult to reverse?

AR: You rarely limit the cost of a decision to the initial payment. Creating a new ward means you have an ongoing cost of staff and support. Having diagnostic equipment means there is a cost of upkeep, staff and usage. I have observed situations where people left expensive equipment unused because demand and clinical pathways hadn’t developed. Some operators also spend heavily first on interiors before fixing referrals, service mix, and patient flow.

The number of staff required depends on patient levels of acuity. Having a ratio of staff to patients such as 1 nurse to 6 patients in general ward or 1 nurse to 1 patient on ventilator in ICU can aid with planning. However, it varies depending on what patient group you have and the rules that apply. If you under recruit there can be risks to patient care and staff morale. If they are recruited too early you can incur costs.

Contracts deserve the same attention. Long lock in periods, minimum volume commitments, exclusivity and unclear exit terms can be expensive to reverse. Before signing, leaders should test what happens if volumes are lower than expected and set clear service standards and exit rights and guardrails as poorly written contracts can continue costing a hospital long after the executive who signed it has left.

ET: Before investing in more beds, equipment or acquisitions, how should leadership assess an existing facility? When does utilisation improvement beat expansion?

AR: Before adding beds or equipment, I would first ask whether the hospital is turning the demand it already has into completed treatment. We should review each department for volumes, waiting times, utilisation, cancellations, staffing, and contribution. In operating theatres, it is not enough to know how many hours a theatre was open. Leaders need to determine whether cases started on time, how long turnover required, and why scheduled procedures were cancelled.

Keeping track of industry benchmarks also helps in keeping the ship on course. An Indian tertiary care study found 9% cancellation rate in elective procedures, of which 61.9% are entirely avoidable including reasons like inventory inefficiencies, ill-maintained & lack of timely readiness of crucial equipment devices or implants & pre-anesthesia clearance delays. Administrative and scheduling bottlenecks usually are predominant leading root causes. Similarly evaluating MRI, CT, and Cath Lab utilisation, report turnaround times, and internal inpatient wait times along with OPD patient flow and inpatient discharge timelines, bed block patterns, billing errors, insurance approvals, or pharmacy reconciliation, internal referrals by visiting doctors and even full-timers etc reveals a lot about the efficiency and leakages of the facility.

ET: How do you distinguish sensible cost from cuts that damage care? Can you give examples of processes, procurement or care coordination that create value?

AR: Good cost control removes waste. Bad cost cutting removes the ability to provide safe care. Reducing staffing levels below required levels, delaying necessary servicing of equipment or changing clinical products without agreement can make your budget look better in the short term but increases risks and costs. A large corporate hospital group reported that doctors and nurses accounted for about 28 percent of operating revenue and consumables for about 23 percent in its India hospitals business. Together, clinical labour and consumables make up over half of the operating revenue base. These significant spending areas require careful planning and regular review. Procurement Discipline further makes or breaks the hospital's bottom line.

ET: How should hospitals manage cash flow when salaries and suppliers must be paid before insurance and third-party administrator reimbursements arrive? What financial discipline is needed before expansion?

AR: A hospital can show an operating surplus and still run short of cash. Salaries, doctor fees, medicines, implants and utilities need to be paid on time, while insurance and government scheme claims may take weeks or months to settle. Revenue in the accounts is not the same as money in the bank.

A report based on a National Health Authority information request put outstanding Ayushman Bharat claims at about Rs 1.21 lakh crore in March 2025, covering over 63 lakh claims. News reports cited figures of Rs 15,100 crore in insurance claims disallowed, Rs 10,937 crore rejected and Rs 7,585 crore awaiting settlement. The Association of Healthcare Providers–India AHPI has also protested over payment delays and frozen tariffs. In Andhra Pradesh, private network hospitals stopped providing cashless treatment due to outstanding payments owed to them for Aarogyasri and Dr NTR Vaidya Seva of approximately Rs 3,000 crore. The state later announced a Rs 6,475 crore discounting facility with hospitals to clear outstanding bills. This is a reported snapshot from that time, not a verified current balance, but illustrates the pressure that delayed payments can place on hospital working capital.

Hospitals should prepare a rolling 13-week cash forecast and review it every week. Claims need to be separated into those awaiting submission, under query, approved but unpaid, and rejected claims that need an appeal. Each should have an owner and a target date. Some delays begin with incomplete clinical records, coding, or authorisation, so the revenue cycle has to involve clinical and administrative teams as well as finance.

Hospitals should have reasonable credit terms with suppliers, have good stock control and not use funds required for running the hospital to invest in building/development. Trustees should also ensure that payroll, debt and suppliers can still be paid if there is a dip in collections before making large investments. If you outsource, you should still ensure that your contractors are paying their employees and statutory requirements.

ET: Can patient trust be measured as a business indicator rather than treated as a branding issue? How do billing, communication and follow-up influence referrals and reputation?

AR: Patients judge a hospital through everyday experiences. Was the bill explained clearly? Were delays communicated? Did anyone resolve a complaint? Was the patient told what to do after discharge? Advertising may bring someone through the door, but these experiences influence whether they return or recommend the hospital to others. Patient trust is an essential business indicator that directly drives institutional economics.

We should not measure trust only through exit surveys. Hospitals should track billing disputes, complaints, and how quickly they resolve them, as well as discharge delays, communication, and follow-up. These measures need to be considered alongside clinical outcomes. A low number of complaints does not mean patients are happy if they do not know how to raise a concern.

A monthly patient trust review should identify recurring problems and what management has done about them. Unexpected charges may point to a need for better explanations, discharge delays may call for better coordination between nursing, pharmacy, billing and the insurer desk, financial counselling & staff training. Listening to patients can improve both confidence and the way a hospital runs.

ET: What becomes difficult when hospitals grow through expansion or acquisition, and how should leaders protect culture, continuity and accountability?

AR: Buildings and equipment can be acquired quickly, but clinical culture, staff confidence and patient trust take time. An acquired hospital may have loyal local patients but also outdated processes, divided departments or dependence on a few physicians. Moving a well-known specialist from another city will not automatically bring the same patient volumes.

Before an acquisition, assess doctor relationships, staff turnover, employee grievances, contractor compliance and dependence on key individuals alongside financial and legal matters. The aim should be to build an institution that can perform well without relying on a handful of people and remove any anxiety among the staff around M&A and any rapid operational growth.

ET: What can commercial hospitals learn from charitable hospitals, and what can charitable institutions learn from commercial operators?

AR: In Maharashtra, covered charitable hospitals are under huge financial stress where they must reserve 10 percent of operational beds for free treatment for indigent patients and another 10 percent for concessional treatment for eligible weaker section patients along with a 2% of topline contribution to the Indigent Patients' Fund subject to exclusions. It. These obligations need to be planned for in the budget and requires precise cost modeling.

A charitable institution should know what each procedure, bed day and diagnostic test costs. It should also know which specialties generate a surplus and which need planned cross subsidy. Although donations are great, good financial control is still important. Remember that community trust and fair treatment are long term assets for commercial operators.

ET: Which functions are best outsourced or managed through partnerships, and what makes a partnership worthwhile?

AR: Outsourcing makes sense when a specialist provider can offer capability, scale, technology or reliability that the hospital cannot build economically on its own. This may include primarily non-clinical functions like housekeeping, security, claims support, IT, supply chain services and to some extent high value diagnostics, labs & equipment maintenance and strategic clinical speciality partnerships. The decision should not be driven only by a wish to reduce payroll.

A diagnostics partner should be assessed on accuracy, turnaround time, availability and quality, not just price. A claims partner should be measured on clean claims, query resolution and collections. A staffing contractor should be checked for attendance, competence, wage payments and statutory compliance.

From my experience of working with municipal healthcare partnerships, specialist partners can help improve access to high level care. This can only happen if roles are clear and performance is monitored. Contracts should clearly define what standards of service you expect, uptime, data access and protection, audit rights, statutory compliance, escalation processes and exit clauses.