Hospitals for Bharat report reveals that Indian healthcare facing an impending crisis

SME hospitals deliver 60 per cent of India’s healthcare and account for over 90 per cent of hospital beds. However,  they face mounting pressures that threaten their sustainability.

Introduction:

Investment banking and consulting firm, LoEstro Advisors and leading healthcare consulting firm Medium Healthcare released their inaugural “Hospitals for Bharat” report, the first in-depth analysis of India’s Small and Medium Enterprise (SME) hospital sector, revealing both an impending crisis and untapped opportunities in India’s healthcare delivery system.

The report unveils a stark reality: while SME hospitals deliver 60 per cent of India’s healthcare and account for over 90 per cent of hospital beds, they face mounting pressures that threaten their sustainability. This comes at a time when India’s healthcare spending remains at a concerning 2.4 per cent of GDP, ranking 174th globally.

“SME hospitals are the unsung heroes of Indian healthcare, especially in tier 2 and 3 cities,” says Rakesh Gupta, Managing Partner, LoEstro Advisors. “Yet they operate with 40 per cent lower revenue per bed compared to large chains while managing longer patient stays and higher operational costs. Our report is an endeavour to help these hospitals survive and thrive through the challenges by providing practical advice. “

Ratan Jalan, Managing Director, Medium Healthcare, adds, “The squeeze on SME hospitals from both premium chains and specialised clinics isn’t just a business challenge – it’s a brewing healthcare access crisis. As large chains focus on metropolitan areas, SME hospitals remain crucial for delivering affordable care to millions of Indians who need quality healthcare in close proximity”

Research methodology: 

The “Hospitals for Bharat” report was created using an extensive research methodology that combined primary and secondary data collection to provide a comprehensive view of the SME hospital sector in India.

Primary research involved extensive surveys with hospital administrators, healthcare professionals, and patients to gather insights on operational challenges and patient experiences, along with in-depth interviews with hospital promoters, medical directors, and investors to understand market dynamics and financial strategies.

Secondary research included a thorough review of academic literature, industry reports, and healthcare regulations to contextualise findings, while rigorous data validation and analysis ensured accuracy and relevance.

SME hospitals’ share in the entire Indian hospital industry pie: 

• SME hospitals, defined as those with less than 200 beds, account for 60 per cent of healthcare delivery in India and over 90 per cent of total hospital beds.  
• SME hospitals dominate India’s healthcare market, primarily supported by private ownership which has a 69 per cent revenue share.
• SME hospitals are growing at a 12.9 per cent CAGR, outpacing the overall hospital market CAGR of 11.3 per cent, fueled by: 
  • Localised treatment preference: Growing preference for receiving medical care within micro markets instead of travelling to metro cities.
  • Demand for niche specialities: Rising demand for single specialties such as orthopaedics, critical care, and oncology.
  • Affordable healthcare: Uninsured patients gravitate towards SME Hospitals for affordable care, driving higher patient volumes.
  • Government support: Government initiatives like Ayushman Bharat supply volumes to these hospitals.
  • Price increment: Rising healthcare prices lead to a higher average price of treatment and care.
• Accredited private hospitals are typically preferred over government facilities, which are frequently perceived as offering lower-quality services. However, only 2 per cent of hospitals are NABH accredited. 

Competition faced by SME hospitals:

Shifting preferences of patients across income groups:

1. High-income groups opt for premium healthcare and large hospital chains, prioritising brand reputation and luxury.  
2. Middle-income groups choose to balance cost and quality, preferring local private clinics or specialist doctors, with growing insurance awareness.  
3. Low-income groups depend on government schemes like Aarogyasri for affordable care and opt for SME hospitals but often delay non-urgent treatments.  

Large Chains’ Expansion: Large hospitals are acquiring SME hospitals and expanding to Tier-II and Tier-III cities, drawing affluent patients away from SMEs.  

In conclusion, high and middle-income patients are shifting away from SME hospitals, impacting their business performance.

Challenges faced by SME Hospitals: 

PROBLEM 1: High marketing spending by larger chains and shifting patterns of patient acquisition 

With an increase in smartphone usage, the dynamics of patient acquisition are shifting. Patient acquisition is the amalgamation of all the strategies a healthcare practitioner implements to attract new patients to their practice. It is the initial step of a patient journey and is done through a combination of marketing efforts.

Larger hospital chains prioritise marketing through traditional ads, digital platforms, branding, and targeted campaigns. This is significantly outspending SME hospitals (₹422K vs ₹10K per bed in FY24). SME hospitals’ marketing remains minimal, limiting visibility and patient engagement.

PROBLEM 2: SME hospitals struggle with low occupancy levels and high average length of stay

SME Hospitals have on average ~40 per cent less ARPOB and 33 per cent more ALOS than large private chains.

Average revenue per occupied bed (ARPOB)

• ARPOB helps to find the revenue that hospitals attain for every occupied bed. This ARPOB calculation can be done based on the inpatient revenue and number of days the beds have been occupied.
• Large hospitals reported an average ARPOB of INR 50,000 in FY24 seeing an increase from INR 45,800 in FY23.
• Small hospitals report far lower ARPOB of ~INR 25K- 30K on average owing to lesser high-ticket procedures and charges.

Average length of stay (ALOS)

• ALOS refers to the average no. of days that patients spend in the hospital. It is measured by dividing the total number of days stayed by all inpatients during a year by the number of admissions/ discharges.
• Large hospitals strive to reduce ALOS for better patient turnover and lesser variable cost per patient. The industry average revolves around 4 – 4.5 days for listed players.
• With a very heavy focus on OB-GYN by SMEs, ALOS averages between 5 – 6 days.

PROBLEM 3: Long wait times and operational inefficiencies 

• Patient dissatisfaction stems primarily from operational inefficiencies: Top reasons being long wait times, staff behaviour issues, and hygiene and facility management concerns
• The traditional patient journey is centred around a physician-driven treatment approach that often oversimplifies how patients manage their condition, overlooking the emotional, behavioural, and psychographic factors that influence disease diagnosis, treatment, and ongoing care.
• Patients additionally prefer NABH-accredited hospitals, whereas only 2 per cent of the hospitals have accreditation. 

Approach adopted to solutioning:

The report introduces a balanced scorecard framework that provides SME hospitals with a systematic approach to transformation. The framework weighs key performance dimensions – Shareholder Returns (40 per cent) focusing on revenue and efficiency, Patient Delight (30 per cent) emphasising experience and quality, Employee Satisfaction (20 per cent) covering workforce management and retention, and Compliance (10 per cent) ensuring regulatory adherence. This structured approach enables hospitals to balance immediate operational improvements with long-term sustainability goals.

Practical Solutions to help SME Hospitals:

SOLUTION 1: Revenue growth – Make specialised units and price optimisation by bundling services

• Currently, general medicine accounts for 45 per cent of volumes; surgery (e.g., obstetrics and gynaecology) drives 65 per cent of surgical revenue in smaller hospitals.  
• Introducing specialities like cardiology, orthopaedics, oncology, gastroenterology, and neurosurgery improves revenue through higher ARPOB (₹50K–₹150K) and contribution margins (30 per cent-70 per cent). Focusing on these high-demand specialties and Centers of Excellence (CoE) boosts profitability, reputation, and resource utilisation.
• Price optimisation and effective strategies to ensure the right prices can be achieved via bundling diagnostics with therapy, tiered bundling of services, market benchmarking and pricing transparency and expanding ancillary services. 
• In-house pharmacies and diagnostics contribute 40-45 per cent and 15-30 per cent respectively to patient bills, representing untapped revenue potential for most SME facilities.

SOLUTION 2: Group purchasing strategies to negotiate better with vendors

• Centralised Purchasing: Consolidates orders, reduces procurement time, and lowers administrative costs.  
• Collective Negotiation: Leverages buying power for better pricing and vendor relationships.  
• Access to Diverse Products: Ensures variety and quality through broad supplier networks.  
• Cost Transparency: Enables informed decisions via tools for spending analysis and budgeting.  

For example, a group of small hospitals and nursing homes in Mumbai, India have come together to have a combined procurement of high-value items, helping ease administrative burden and reduce procurement costs for some commonly used products in hospitals in Mumbai.

SOLUTION 3: Improve high-impact patient experience through staff training and infrastructure upgradation

• Training enhances patient satisfaction by refining communication, empathy, and clinical expertise. Well-trained staff deliver accurate, empathetic, high-quality care, boosting patient experience. 
• Intervention areas where staff training is required include reception, doctor-patient communication, nurse-patient communication, billing and discharge departments
• Infrastructure also plays an important role. Infrastructure improvements include changing lighting and increasing access to outdoor spaces, reduced noise, real-time patient satisfaction monitoring, upgraded amenities and enhanced privacy for patients.

SOLUTION 4: Adoption of digital technologies for patient-centred care

• The adoption of digital technologies transforms the patient journey into a more connected, patient-centred experience. It integrates proactive data usage, reduces inefficiencies, and empowers patients with readily available information for informed decision-making. 
• From symptom evaluation to post-discharge care, digital tools enable online appointment bookings, diagnostic results access, remote monitoring, digital insurance checks, and app-based follow-ups, ensuring holistic and seamless healthcare delivery.
• The adoption of Health Information Systems and EHRs improves the management of patient data and healthcare workflows.
• The implementation of smart ICUs can substantially enhance patient access to high-quality, continuous care across multiple hospitals and ICUs, driving improved clinical outcomes and operational efficiency at scale.
• Teleradiology has the potential to bridge the gap between urban and rural healthcare by providing expert radiology services remotely. This enables patients in remote areas to receive accurate diagnoses without the need for travel.

SOLUTION 5: Focus on accreditation: Patients prioritise certified hospitals

• Patients often use accreditation as a key factor when choosing a hospital, associating it with higher service quality and better care.
• Accredited private hospitals are typically preferred over government facilities, which are frequently perceived as offering lower-quality services. This trust in accreditation drives many to seek care from institutions that meet recognised healthcare standards.
• The implementation of NABH standards leads to significant improvements in patient feedback and overall experience for both OPD and IPD patients. 
• Improvements after accreditation included better communication skills of hospital staff, enhanced patient education, reduced waiting times, improved medication information, and more comprehensive discharge processes, all of which resulted in higher patient satisfaction. 

The way forward:

As India aims to increase its healthcare spending from its current 2.4 per cent of GDP (ranking 174th globally), SME hospitals will play a crucial role in expanding access to quality healthcare. Their success in navigating current challenges while capitalising on emerging opportunities will significantly impact India’s progress toward universal health coverage.