Financial Planning For A New Hospital

By Dr. Lisha Ruparel

Financial Planning .jpg

Planning for a new hospital is complex, a fine balance is be considered for allocating financial resources for various important components of a healthcare facility.


All doctors dream of owning and starting their own hospital. Doctors who setup their hospital have a specific vision of setting up a hospital in a particular manner. Financial planning for a new hospital is very important. A mismatch between the vision, planning and execution leaves a new hospital in peril. Many a times we have noticed hospitals left incomplete due to inadequate financial resources. This leads us to a ask a few key points to be kept into consideration while planning the hospitals and factors that will impact the cost of the project are size of the hospital, location of the hospital, building the hospital, level of technology adopted by the hospital, sources of funding. It is very important to take feedback and engage the services of professionals for planning a hospital as per the vision of the promoter and the healthcare requirements of the local demographic population.

What should be the first step while planning the hospital?

Mr.Narendra Karkera, Director of Hosmac, who has held various leadership positions in hospitals like Hinduja, Lilavati, Manipal and Wellcare Hospital (Dubai) emphasises on preparing a Project and Financial Feasibility Report. He says, “A feasibility report helps in converting ideas to a realistic plan and helps in visualization. The experts will advise on selection of the location, and if the ideas are as per the healthcare needs of the local population.” He further adds that a feasibility report helps in approaching investors and banks at the time of raising funds for the hospital.

Location of the hospital

Location of the hospital greatly impacts the financial planning for the hospital. If the hospital is to be built in a metro city the cost of the land will be one of the major expenses for the hospital. Alternatively leasing of the land to build the hospital can be considered.

In non-metro towns and tier II and tier III cities the cost of land is substantially lower thereby decreasing the financial impact on the cost of the project.

Planning, Building and Manpower Costs

Financial budgeting needs to be done for planning cost of the hospital that is hiring architects to design the hospital, engineers and other professionals involved in planning all the services of the hospital. The cost of the building and facilities offered should be planned to take into consideration the target patients. It should have a calming atmosphere to the ones seeking care.

Technology selection for the hospital

Expert Mr.Sagar Bauskar, Manager- Biomedical Services at Hosmac opines that, “To choose technology upfront has been uphill task nowadays as technology and its cost both has been varying with time. Few years back it was quite obvious to select technology to cater only to the clinical spectrum hospital needs but recently selection of technology has been influenced due to various external and internal factors other than just considering the clinical requirement the after-sale service.” He explains that the procurement decision of high value technology has been mostly influenced by  external constrains such as prevailing technology in the nearby area, the technology edge hospital wants to market to cater to a niche segment of patient pool and to attract the best human resource. While mid and low value technology are influenced mostly by cost and local market dynamics. Few other factors to consider while choosing technology are past trends, records it offers but also experience based on supplier, the change in government regulations, the associated certification for products, and most importantly the operational cost. The one of the factors that we had failed to incorporate in our methodology of selecting technology is variation in Dollar to Indian rupees.

Till yesteryear's technology in the detailed project report was limited to the medical equipment only, while today the hospitals moving towards minimizing the usage of paper, IT driven that is adaptation of artificial intelligence in various hospital operations, large data storage, electronic access, future IT ready system and digital screens. The overall cost in this segment is increasing multiple fold. Overall technology has been chosen and budgeted based on today’s prevailing prices with some diversity and past trends. The next level challenge lies in executing project in stipulated budget.

Other expenses

During execution of the project the hospital will incur other miscellaneous expenses in the form of deposits/ fees/ working capital etc. Planning should be done for the same.

Raising Funds for the New Hospital

Funding for the hospital can be raised by equity that is by raising funding from investors and by debt by means of loans from banks and other financial institutions.

Financing by means of equity results in investors owing the hospital and the promoter may not have complete control of the decisions made in the hospital on the basis of the equity ownership by the investors. Incurring debt leads to the burden of interest and loan repayment for a new hospital. The pros and cons of both these methods should be evaluated before making a decision.

Financial planning for a new hospital is enormous task. There has to be a balance of the above elements to provide the best possible care for the patients as serving the healthcare need and requirements of the patients is the most important mission in setting up a hospital.