Medicine today has reached heights never even imagined before. Medical research and development has helped make life more precious and built hopes in the hearts of patients. In today’s rapidly evolving world, it has helped the medical field to grow by leaps and bounds. Diseases which were considered fatal in previous times can today be cured completely. Doctors today have advanced equipment at their disposal which facilitate visualizing the deepest parts of the body to diagnose and treat various diseases. Greater power now lies in the hands of doctors who provide health care1.

A hospital is a place where technology meets medical expertise. Newer inventions using complex techniques aid in the study, diagnosis and treatment of the human body2.

A private clinic has lot of restrictions which can be overcome in a hospital set up. Not only is a hospital a lucrative business venture, but it also is a very noble and charitable set up. Running a private consultation only requires a doctor, and a receptionist, but a hospital is an amalgamation of multiple fields. A hospital can be run efficiently only if there is proper co-ordination amidst the administrators, staff, various specialist doctors and patients. Managing a hospital requires a huge initial investment along with high recurring expenses.

Every hospital has certain fixed costs which do not vary over a short term and certain variable costs which keep varying even in the short term.
The fixed costs include capital expenditure, employee or staff salaries and bonuses, building maintenance and utilities. The variable costs include health care worker supplies, patient care supplies, diagnostic and therapeutic supplies and medications3.

A general listing below gives a broad picture of the various costs incurred in running a hospital.

In this article

Capital expenditure

This includes the initial investment for the plot of the hospital, constructing the hospital building, buying machinery and equipments.  This is a huge amount of money and will depend on the area and location of the hospital. Hence, starting a hospital requires tremendous determination and perseverance. This expense is considered as a one-time expense while the other expenses are considered as recurring expenses.

Employee or staff salaries

This recurring expense adds to the major cost of running a hospital. Payments have to be made from administration staff to the peon. The salaries will vary depending on their position. The staff must also be given regular bonuses and increments. Also, the doctors, RMOS or consulting physicians have to be paid their salaries.

Building maintenance and utilities

This includes the monthly or yearly premium that must be paid for the insurance taken for the hospital. For successfully running a hospital it is important that the infrastructure is patient friendly, modern and up to the mark. Hence, renovation and maintenance must be done regularly. Utilities include the laundry, electricity, water supply, phone, computers and the like. Marketing and publicity expenses can be enormous, but unavoidable in the current competitive scenarios. Other expenses include free camps, free services for the poor, for the staff, for the consultants and their relatives etc.

Worker supplies and patient care supplies

These are variable depending on the inflow of patients and the use of the provisions. These include staff & patient uniforms, operation theatre outfits and footwear, stationary, bed sheets, blankets etc. Most of these need replacement over a period of time and hence, these costs are inconsistent.

Diagnostic and therapeutic supplies and medications

Medications are needed every day and these expenses are difficult to define. Other supplies like instruments and other diagnostic & therapeutic tools are utilised on daily basis but need not be replaced each day. They may need to be changed over a period of time and newer ones need to be bought. Thus, again these expenses remain variable and erratic.

In 2012, Glocal Healthcare Systems Pvt. Ltd. built the Khargram hospital in Kolkata in 20 months. They have built a chain of such hospitals. The aim of these hospitals is to provide inexpensive patient care in India by focusing on efficiency rather than additional embellishments. They work to impart healthcare at 40 to 50% less than the normal health industry. Inspite of the low cost model they were able to break even in a span of less than a year. They built a hospital structure which looks visually attractive but essentially comfortable and favourable for patients. Low costs are maintained by specific methods like getting the equipments assembled, by using non-branded generic medications, by using advanced technology to cut consultant costs etc4.

Over time if such a paradigm is followed by other hospitals, then the costs of running a hospital can be cut down and cheap but efficient health care will be a reality.

Contributed by Dr. Rachita Narsaria, MD

References –

  3. Roberts RR, Frutos PW, Ciavarella GG, Gussow LM, Mensah EK, Kampe LM, Straus HE, Joseph G, Rydman RJ. Distribution of variable vs fixed costs of hospital care. JAMA. 1999 Feb 17;281(7):644–649.