Tier-2 hospitals are built on doctors, not beds

Most hospital feasibility studies I have read, including several I wrote as a young consultant in Mumbai, begin in the same place. They take a district's population, apply a figure for beds per thousand people, compare it with the beds already registered and find a shortfall. They then estimate the share of that shortfall a well-run private hospital could fill, multiply it by an expected revenue per occupied bed, and arrive at a project that pays back in seven or eight years. The land is identified, the architect is briefed, and the board is asked to approve a building.

I no longer think this sequence describes how a hospital in a smaller Indian city succeeds or fails. Demand in these cities is rarely the problem. When we studied Chandrapur in 2021, roughly six in ten patients from the district who needed cardiac, cancer or kidney care were travelling to Nagpur or further to get it, often with a relative who lost a week's wages to accompany them. The beds were needed. What was missing was a cardiologist, a medical oncologist and a nephrologist willing to live there for ten years.

The constraint the feasibility study leaves out

A specialist deciding whether to move to a city of four lakh people weighs things a bed-density model cannot see. There are the schools their children would attend and the work their spouse could find. There is whether they will operate often enough to keep their skills, whether colleagues will share the night calls, and whether they can keep teaching or publishing. Pay matters, but in my experience it decides fewer of these choices than hospital boards assume.

Our Bilaspur hospital taught me this expensively. It opened in 2019 with 200 beds and a plan for 24 specialities. Fourteen months later we had filled seventeen. Neurology, gastroenterology and urology were covered by consultants visiting from Raipur two days a week, and patients who needed them on the other days were transferred or turned away. Occupancy stayed below 50 per cent for two years, not because patients did not come, but because the doctors they needed were not there every day. When I led the hospital's first post-investment review in 2021, its return was 6 per cent against our 15 per cent hurdle. I had supported the project, and the review was as much about my judgement as anyone's.

The pattern is not peculiar to us. Specialists in India are concentrated in the metropolitan cities and the larger state capitals, where the teaching hospitals and the highest case volumes are. A private hospital in a smaller city competes for them against higher pay elsewhere, but also against the isolation of being the only practitioner of a discipline for a hundred kilometres. A cardiologist who is the only one in town is on call every night of the year. Few stay long on those terms, and when one leaves, a department leaves with them.

Underwrite the doctors before the land

When I became chief strategy officer in 2021, our listing documents described three 250-bed multi-speciality hospitals in smaller cities at about ₹310 crore each. We changed the order of the work before we changed the plan. For each candidate city my team now builds the clinical case first: which specialities the district's outward referrals actually need, how many full-time specialists each requires to provide round-the-clock cover without exhausting anyone, and where we would find them.

That last question has practical answers. We map the specialists already practising in the region, the doctors from the district who trained elsewhere and might come home, and the consultants in our larger hospitals who might move for a senior role. We ask candidates what would make them stay, and we cost what they tell us: housing, a fee floor for the first eighteen months while volumes build, a monthly rotation to Nagpur for complex cases, and places in the postgraduate training programmes our larger hospitals run. Only when we can describe the first team, at least by source and seniority, does a site reach our investment committee.

The answers changed the hospitals. At Chandrapur, Yavatmal and Durg we built 140 to 160 beds organised around cardiac care, cancer day-care, dialysis and kidney care, orthopaedics and trauma, and mothers and newborns. Each needed about fourteen full-time specialists rather than the thirty or more a full multi-speciality hospital requires. Neurosurgery, transplants and complex surgery stay at Nagpur and Raipur, reached through a stabilise-and-transfer protocol and dedicated critical-care ambulances. The three hospitals cost ₹505 crore together instead of ₹930 crore, and reached EBITDA breakeven in an average of 21 months, against the 38 the original plan assumed.

This approach has costs I should not understate. A focused hospital sends away work a larger one would keep, and its emergency department must transfer patients it cannot treat. In 2023 a head-injury patient at Chandrapur waited three hours and forty minutes for transfer. Our medical director, who had argued against leaving neurosurgery out, was right to treat it as a failure of design rather than of execution. We now fund a neurosurgeon and a stabilisation protocol there at about ₹9 crore a year. Planning around doctors does not remove clinical risk from the format; it names the gaps, so they can be managed instead of discovered by patients.

What a board should ask before approving beds

Directors usually see a hospital proposal as a capital project: land, construction cost per bed, equipment, a ramp-up curve and a payback period. Those figures matter, and boards are good at challenging them. Staffing usually arrives as an operating assumption buried in the ramp-up curve. In a smaller city it is the investment case itself.

Before asking about payback, I would want a board to ask how many full-time specialists the hospital needs in its first year, how many have been identified by name or by source, and what it will cost to keep them for five years. I would add three questions. Which departments depend on a single doctor, and what happens to patients and revenue if that doctor leaves? How does the ramp-up change if recruitment takes six months longer than planned, as it usually does? And what will the hospital transfer, to where, and how quickly, on a bad night?

None of this makes a hospital in a smaller city easy. It makes the difficulty visible at the point where a board can still change the plan. A building can be finished on time and to budget and still stand half empty if the people who make it a hospital do not come. I would rather present a board with a smaller hospital that its doctors have already agreed to run than a larger one that waits for doctors who may never arrive.