IT’S A SLAM DUNK: INVEST IN A HOSPITAL; WHAT COULD GO WRONG?! I have been fortunate to meet and work with many unique and inspiring health service entrepreneurs worldwide. Many have built successful and sustainable businesses. A key contribution to success is understanding and then managing risk. Below are some common risks that many sponsors overlook when planning a new health service project. Who pays – How will services be paid for? Is there social or private insurance? What level of co-pay? All cash? Any economic conditions impacting the ability to pay? Understand your market and ability to pay complexities from the outset. Greenfield breakeven and ramp-up – In most cases, a new standalone greenfield hospital will NOT breakeven in year one of operation. Depending on the context, it will likely take longer, often three years or more. Plan 5 years from build (2 years) to financial breakeven. Do you have access to the necessary working capital or access to finance? Access to health professionals – Most projects WILL have a shortage of health professionals. Align financial assumptions with the availability of professionals otherwise, utilization will fall below planned. If you are employing ex-pats, they often want to be paid in dollars, pounds, and euros. Patients will primarily pay in local currency. Realistic medical equipment needs – Not all hospitals require the latest and most fantastic equipment. What is suitable for the majority of the market you will serve? Can you get an adequate return on investment? Push for contracts that offer more than one-year-only warranties and, ideally, include maintenance plans. Alignment of investors – Do some of your core investors have previous health sector experience? Ideally, at least one of your investors should have a track record in the health services sector. One person can't do it all – With growth comes the requirement to invest in people. Not just health professionals but management. If you grow from one hospital to a network of hospitals, it can no longer be managed by the owner-operator. Invest in appropriate management structures. Watch those management fees – Using a management company makes sense if you have skill gaps. However, ensure they share the risk, get rewarded on merit and do not not take excessive payment upfront. Internal controls and process – Health services entities are process businesses. Work towards coordinated processes aligned with the correct use of technology to drive efficiency. Adopt a strong use of internal controls to help mitigate risk. Don't forget quality - Make sure the core fundamentals of quality management are in place and measured. Don’t cut and paste – Because a business model has worked in country A, never assume it can automatically be applied in B, C, and D. Understand market nuances and associated risks. Many of these and more will be discussed at the IFC Global Private Health Conference in Cape Town February 2023!
Great post Charles - issues we deal with almost daily in health planning. Would be interested on your thoughts on data availability and quality to develop robust plans for new facilities - our experience varies by country and runs anywhere between "ok" to "just not available" and it's pretty much a crap-shoot on what's available. This just drives up pre-development costs which stalls many good projects from the get-go. I'm surprised and disappointed that large international representative associations for hospitals haven't tackled this, despite many attempts to get them to invest in this area.
Great post Charles. Agree with all your points especially the minimum of 3 years to break even. In my experience so many investors develop a 2 year plan to break even and almost all fail. Changing clinician and patient habits takes time even with the best quality on offer.
Thanks for posting!
Very realistic. As advisor to a public sector bank to evaluate TEF, have seen some crazy projections and break evens on Greenfield projects.
A very educative piece here. Thank you. Ensuring availability of working capital in the period before break even is crucial. Yet it still remains a challenge accessing financing for working capital as a start up. How does one go about this?
MeduProf-S and MPS Health Group (track record since 1996) are the lead companies to assist in feasibility, equipment advice and capacity building to make a hospital work!
Thank you for sharing this wonder insight!
Well said!
Very useful especially in countries lacking robust health insurance systems.
Healthcare Quality & Patient Safety Specialist
9moReport
Report
*Hospital Start-up Essentials* Thank you for sharing these what I am calling 'Hospital Start-up Essentials by Charles Dalton'. There is a huge deficit in healthcare services provision in Africa. Many healthcare providers want to step in to fill the gap and we applaud their efforts. It is therefore vital that they get is right. Otherwise, dreams and resources may be wasted. What you have shared are vital elements for success to be considered and I recommend this writeup to all who are thinking of setting up a healthcare facility.... Thanks again Charles. I know there is a lot more where this came from. Please keep sharing and shedding light.