Reflection on Hospitals

The dynamics of a hospital are influenced by various factors that determine the quality of care, patient decision-making, and revenue growth strategies. This report synthesizes key findings from academic research alongside industry observations to provide insights into the performance of public and private hospitals, the determinants of patient choices, and the strategies hospitals employ to enhance profitability. In an era where technology plays a pivotal role, we will touch upon the potential for digital investments to revolutionize healthcare delivery, highlighting how they can create a sustainable and efficient healthcare ecosystem. Note that this is report is complementary of the “Mindmap: Hospital ecosystem” excel sheet you can find below. 

Inside a hospital: Evidence from academic research

Efficiency, profitability and care

Outcomes and Efficiency

Academic research indicates that there is no definitive evidence that private hospitals outperform public hospitals regarding health outcomes and operational efficiency. While private facilities may offer a more personalized care experience due to a higher staff-to-patient ratio, they generally exhibit poorer health outcomes. This discrepancy is often attributed to inadequate regulation and oversight, especially prevalent in emerging markets where private institutions may prioritize profitability over patient care.

Cost Inefficiency

Private hospitals frequently demonstrate lower overall efficiency compared to public counterparts. This inefficiency stems from their business models, which incentivize the provision of more expensive treatments and medications. As a result, patients may incur higher costs without a corresponding increase in the quality of care. Public hospitals, while often overburdened, generally focus on maintaining affordable services for a broader patient population.

Quality of Care

Research suggests that larger hospitals equipped with a comprehensive range of specialties tend to deliver better quality care. This trend can be attributed to the availability of diverse medical expertise, advanced technology, and more substantial resources. As hospitals grow, they can implement standardized protocols and share best practices, ultimately enhancing patient outcomes.

Economies of Scale

Optimal economies of scale are observed in hospitals with between 200 and 600 beds. Facilities below this range may struggle with financial viability due to fixed overhead costs, while those exceeding 600 beds may face inefficiencies that increase average costs. The balance of capacity and resources is crucial for maintaining operational effectiveness.

Fixed Costs 

Fixed costs, including salaries, equipment maintenance, and infrastructure, constitute approximately 60-70% of hospital overheads. These substantial fixed costs pose challenges for hospitals, particularly in adapting to fluctuating patient volumes and ensuring financial sustainability. Effective management of these costs is critical for improving overall hospital efficiency.

Sector Pricing

The hospital sector is currently quite pricey (Fall 2023), leading to reluctance among stakeholders to invest more time and money into new ventures. This pricing pressure can affect hospitals’ ability to innovate and expand services, as potential investors may perceive the industry as a high-risk environment with limited returns.

Patient Decision Making

Patients typically make hospital choices based on several key factors:

Transportation and Location 

For emergencies, patients usually opt for the nearest hospital, driven by the urgency of their situation. In contrast, for long-term treatments, such as oncology or chronic disease management, patients often select facilities that are more convenient or reputable. This decision-making process reflects a balance between immediate needs and long-term healthcare relationships.

Medical Skills

The perceived quality of care, which often hinges on the reputation of doctors, significantly influences patient selection. Patients are likely to seek recommendations from family and friends or consult online reviews and ratings. The expertise of healthcare providers plays a vital role in building trust, leading patients to choose hospitals based on the qualifications and track records of their medical staff.

Personal Relationships with Staff

The human aspect of care is critical for patients. Private hospitals often foster a more personalized care experience due to a lower patient-to-staff ratio, allowing for deeper interactions between healthcare providers and patients. Such relationships can enhance patient satisfaction and adherence to treatment plans.

Drug Availability

While the availability of medications influences patient decisions, verifying this factor through outreach to companies has proven challenging. Patients may prefer hospitals that have access to a broader range of pharmaceuticals and advanced therapies, which can affect treatment options and outcomes.

Hospital Growth and Profitability Strategies

Hospitals employ various strategies to grow revenues and increase profits:

Increasing Patient Flow

Establishing new hospitals (greenfield or brownfield projects) and increasing the number of beds in existing facilities are common strategies for growing patient volumes. Most business models in the sector share a similar focus on enhancing capacity and efficiency, whether through organic growth or mergers and acquisitions.

Enhancing Efficiency

Operational efficiencies can be pursued through several methods, including:

• Staff Reduction: Hospitals often focus on reducing non-essential personnel, frequently affecting nursing staff. While this can improve short-term profitability, it may negatively impact the quality of care and patient satisfaction.
• Bed Turnover and Occupancy Rates: Increasing bed turnover and occupancy rates can facilitate higher patient volumes. This involves optimizing discharge processes, managing admission workflows, and ensuring that hospitals operate at or near full capacity.
• Raising Prices: When not regulated, hospitals can adjust their pricing strategies to improve revenue, although this approach can lead to affordability issues for patients.
• Diversifying Specialties: Offering a broader range of medical specialties can attract more patients. Unique business models like Bumrungrad (focused on luxury care) and Rainbow (specialized in pediatric care) illustrate how hospitals can differentiate themselves in a competitive market.
• Bargaining Power on Supplies: Larger hospitals can leverage their purchasing power to negotiate better terms with suppliers, thus reducing operational costs.
• Administrative and IT Systems: Implementing advanced administrative and IT systems can streamline operations, improve patient management, and enhance overall service delivery.

Independent Physicians

Many doctors may be employed by hospitals but operate independently, often providing services to multiple healthcare entities. This model can complicate care continuity and patient relationships, as patients may see different providers for various treatments.

Cross-Subsidization Model

Many hospitals utilize a cross-subsidization approach, supporting the public healthcare system to varying extents while charging higher margins for private patients. This model helps balance the financial pressures of maintaining public services with the profitability of private care.

Hospital and digitization

Looking at the healthcare ecosystem, the interests of all parties cannot be maximized without detriment to one another. In other words, better care rarely coincides with better profits under the current setup. Therefore, the healthcare system should evolve through digital and at-home treatments supported by technological advancements, creating positive feedback loops and a virtuous cycle.

Benefits of Digital Investments

For Businesses:

• Maximizing the Number of Consultations: Digital health platforms can facilitate remote consultations, allowing hospitals to increase patient volume without the need for physical infrastructure expansion.
• Minimizing Costs: Transitioning to digital care reduces reliance on large brick-and-mortar facilities, decreasing overhead costs associated with maintaining physical spaces.
• Addressing Staff Shortages: Telemedicine and digital health solutions can alleviate some of the staffing pressures by enabling healthcare professionals to reach more patients without being constrained by physical locations.

For Patients:

• Emotional Support and Comfort: Digital healthcare solutions provide patients with emotional support from the comfort of their homes, reducing anxiety associated with hospital visits.
• Time Efficiency: Patients save time on travel and wait times, allowing them to access care more quickly and efficiently.
• Access to Quality Care: Digital platforms can connect patients with high-quality primary care, ensuring that they receive timely and appropriate treatments without compromising quality.

For Staff:

• Maximizing Revenue through More Consultations: Healthcare professionals can engage with more patients through digital channels, increasing overall revenue potential.
• Enhanced Patient Relationships: Digital solutions allow staff to spend more time with critical patients, fostering deeper relationships and improving care quality.
• Reduced Pressure: The shift to digital care can alleviate some efficiency constraints faced within traditional hospital settings, allowing staff to focus on delivering high-quality care.

For Society:

• Better Coverage of Health Needs: Digital healthcare solutions can expand access to medical services, ensuring better coverage for populations in remote areas. This increased access can lead to improved health outcomes across diverse communities.

Main KPIs for hospitals

ARPOB/day (Average Revenue Per Operating Bed)	Average revenue per operating bed. It is the average revenue realized per inpatient per day. It is a two-stage process. First per day ARPOB is calculated as per the bed classification (class) as the charges for a particular service varies with the bed classification. Then the weighted average of all the class-wise ARPOB per day is calculated to arrive at the average ARPOB for the Hospital. This is an essential metric as the ARPOB trend provides insights into the profitability, positioning of the hospital and marketing effectiveness.
ADC (average daily census)	Average number of inpatients stays for a day in a hospital ADC allows hospitals to see their capacity for inpatient care and where resources and finances should be allocated based on the needs of the patients visiting the hospital
% of inpatients	You’re an inpatient starting when you’re formally admitted to the hospital with a doctor’s order. The day before you’re discharged is your last inpatient day.
% of outpatients	You’re an outpatient if you’re getting emergency department services, observation services, outpatient surgery, lab tests, or X-rays, or any other hospital services, and the doctor hasn’t written an order to admit you to a hospital as an inpatient. In these cases, you’re an outpatient even if you spend the night in the hospital.
% of Social Security patients	Helps understand the mix of patients and the positioning of the hospital.
Bed occupancy rate	Bed occupancy for multi-specialty hospitals is generally between 60-70%.
Patients follow up rate	Measure the care for your patients over time
Hospital readmission rates	Tracks the percentage of unplanned patient readmissions to a hospital out of the total number of readmission cases
Staff-to-patient ratio	The recommended staffing ratio in teaching hospitals is to have 1:3, and in general hospitals, 1:5
Cost by payer	Understand the type of health insurance of your patients
Average length of stay (ALOS)	The number of days (on average) that a patient spends in the hospital and it is often used as an indicator of efficiency.