Fools make hospitals and wise work in the hospitals. Some say that running hospitals is not a very profitable business but it has become evident that if doctors and entrepreneurs join hands then they can make it a profitable investment. Experienced doctors know well how to maintain the image and service level of the hospital and entrepreneurs know which business model to follow to gain profit. An indepth conversation on the hospital business in Pakistan with the Executive Director of Hearts International Hospital, Rawalpindi.
Hearts International Hospital- Background
The land for Hearts International Hospital was purchased in 1987 but it started functioning in early 90s. This health facility is both for Armed Forces and Civilians. The Armed Forces and Ministry of Defense also help in the running of this hospital on various aspects.
This investment opportunity is only profitable if the investor has some knowledge of this field in advance. Normally, the investor only invests the money and waits for break even and profit period but the real operations of the hospitals are in the hands of medical experts or senior doctors/surgeons who know how to run a hospital. If an entrepreneur and competent doctors join hands then it is definitely a great investment opportunity. On the other hand if only doctors invest to start a hospital without having a business minded person with them, then it would not be a very profitable investment.
Hospitals chiefly earn from patients. Patients only visit those hospitals which have a good reputation and where they can trust the doctors. The reputation of the hospital is built by the staff working there especially, the doctors. If some experienced doctors are associated with the hospital then more patients will prefer visiting that hospital.
The success of a hospital depends upon its doctors, environment, the staff and its location. Usually, there are 3 kinds of hospital facilities; primary, secondary and tertiary. In tertiary hospitals, complex diseases are treated as they require sophisticated machines, high end care and technology. Primary care facilities are common everywhere which includes all small clinics. One can find these facilities at every nook and corner of a city. In such facilities, competition is very high. Secondary facilities include medium sized hospitals which do not have very advanced technology and machines.
The investor should be very careful in selecting the workforce of the hospital and the specialists who will be employed there. There are proper contracts with physicians and doctors with certain terms and conditions. The physicians and doctors can also sponsor the machineries which they use in their departments and earn from those machines in addition to the patient’s fees. The hospital earns majorly from the occupancy of the hospital. It is actually a combined effort of doctors and investors. The investors purchase the land and construct the building and then doctors invest their money by purchasing the machineries. But earning mechanism of doctors and investors vary from hospital to hospital and terms and conditions being finalized among doctors and investors.
In a hospital different departments are operated by various kinds of staff. For example, Radiology department is operated by a Radiologist who has taken the space from the hospital and earns from his department and gives a certain percentage to the hospital for utilizing their space. Similarly, pathologist runs the pathology lab and CT scan technician runs the CT scan department.
The hospital provides the administrative support to all of these departments which includes infrastructure, cleanliness, and other facilities. In this way, the income is shared among the investors and the doctors depending upon their individual investments and agreed terms. But in big hospitals, hospitals have own staff and machineries who run these departments.
Availability of Qualified Doctors in Pakistan
We have a dearth of specialists in Pakistan but general doctors and young specialists are easily available. These days there is an increased demand of doctors in the Middle East and other countries, therefore most of the experienced doctors leave the country to earn more.
Comparison with Western Hospitals
Western countries are very advance in terms of technology, equipment, machines and especially the staff training. We lack trained people and the sophistication level in our hospitals. Especially, the nursing standard is very poor as compared to western countries. Our attitude and patience level is not up to the mark.
Investment Required for Primary and Tertiary Care
A primary facility having all kinds of required equipments and monitoring systems requires an investment of approximately Rs. 10 million. Secondary hospitals require an initial investment of around Rs. 50 to 100 million depending upon the equipment and machines being used and also on the facilities such as whether the hospital is centrally air conditioned/ heated or not, the finishing of the construction etc. The investment amount depends on the quality of care being offered in the hospital. Large hospitals require billions of rupees and are not constructed at once. They are established and expanded gradually. The amounts mentioned for initial investment does not include the land cost as it varies from location to location.
It takes a hospital around 5 years just to start generating good business as it takes time for patients to trust the hospital, its management and the doctors. If the hospital is managed properly and patient satisfaction rate is high then the breakeven point can be reached in less than 10 years. It is a long term investment but is very profitable.
Some hospitals also offer the services of PANEL to a number of organizations. The employees of such organizations can have free treatment and the organization bears the expenses. This is a viable strategy to have a regular clientele.
Advice to New Investors
The investor has to wait for the return on the investment. It is a capital intensive business and requires intensive labor, expertise, power and infrastructure. The investor should have patience to get the return from the investment.