By Proactive Solutech | TDABC & Management Costing Consultants, India

1. Why Margins Remain a Challenge in Healthcare
   • India’s healthcare sector is expanding rapidly, yet many hospitals — especially in Tier 2/3 cities and MSME segments — struggle to achieve consistent profitability. One of the core reasons? A lack of visibility into the true cost of care.
   • Without accurate costing, pricing becomes reactive — based on competitors, insurance reimbursements, or legacy assumptions. This leads to silent margin erosion, cross-subsidization of loss-making services, and stalled growth.
2. Costing & Pricing: The Twin Levers of Margin Growth
   • To improve margins sustainably, hospitals must treat costing and pricing as strategic levers — not just financial housekeeping. Here’s how they work together:
     • Costing reveals the actual resource consumption behind every service — from staff time and consumables to equipment usage and overheads.
     • Pricing, when informed by real cost data, ensures that services are not only competitive but also profitable.
   • When these two are misaligned, hospitals risk under-pricing high-cost services, overpricing low-cost ones, and making decisions based on flawed assumptions.
3. Where Costing Clarity Makes a Difference
   1. Inpatient Care
      Using average per-bed-day costs hides the vast differences in resource use between general wards and intensive care units. A more accurate approach maps costs by ward type, clinical intensity, and equipment usage — giving a clearer picture of where margins are made or lost.
   2. Outpatient Services (OPD)
      Outpatient departments can either be strategic funnels for admissions and diagnostics or silent drains on profitability. The key is understanding whether the downstream value justifies the cost of each visit — and adjusting strategy accordingly.
   3. Laboratory & Diagnostics
      Routine tests and specialized diagnostics have very different cost structures and margin profiles. Without granular costing, it’s easy to misprice services, overlook inefficiencies, or miss opportunities to optimize equipment utilization.
   4. Surgical Services
      Different specialties have unique cost drivers — from implants in orthopaedics to consumables in cardiac care. Understanding these drivers helps hospitals manage procurement, pricing, and profitability more effectively.
   5. Integrated Care Models
      In vertically integrated setups like women’s hospitals, some services may appear unprofitable in isolation but contribute significantly to long-term patient value. Costing should reflect the full care journey, not just individual encounters
4. Strategic Pricing: Beyond Gut Feel 
   • Just as costing must be accurate and service-specific, pricing must be intentional and data-driven. Many hospitals rely on competitor benchmarking or insurance rates, but these don’t reflect internal cost realities
   • A strategic pricing approach involves:
     • Bundled pricing for common procedures, ensuring transparency and profitability.
     • Tiered pricing based on service complexity or patient category.
     • Value-based pricing where pricing reflects outcomes, not just inputs.
     • Pricing should be reviewed regularly and aligned with competitor pricing and actual cost structures to avoid mis-pricing, and silent margin erosion.
5. Quick Wins: Start with a Free Costing Dipstick Assessment  
   • Before overhauling systems, hospitals can begin with a free dipstick assessment of their current costing practices. Proactive Solutech offers this as a no-obligation starting point to identify:
     • Untracked or underbilled consumables
     • Cross-subsidization between departments
     • Gaps in time or resource mapping.
     • This initial review often reveals actionable insights that can be implemented quickly for immediate impact.
6. Operational Efficiency & Asset Utilization: The Next Steps  
   • Once costing and pricing foundations are in place, hospitals can focus on:
     • Reducing avoidable delays and idle time in clinical and support services
     • Improving scheduling and throughput of high-investment assets like imaging equipment and cath labs
     • Maximizing utilization in clinical and support services
     • These improvements not only reduce cost per service but also enhance patient experience and revenue potential.
7. Illustrative Example  
   1. Before Scenario: A 100-bed hospital in a mid-sized Indian city was struggling. Profits were low. They used simple average costs for everything. Ortho surgeries lost money due to high implant costs. Cardiac procedures were underpriced. Labs scared away patients with high prices. Overall margins were just breaking even. Leaders felt stuck.
   2. Action Taken:
      Costing system audit was conducted using TDABC, they mapped real costs per service. They found ICUs cost much more than general wards for comparable activities. They fixed pricing: A new cardiac package was created by bundling 4 allied services and offered at a premium, Implant prices were a variable option given to patients, tiered OPD fees, and cut lab prices for routine tests. They also boosted equipment use from 62% to 85% with these changes.
   3. After Scenario:
      In six months, margins rose. Cardiac unit added significantly to their profits and was even marketed as their premium speciality. Total leaks stopped, worth tens of lakhs yearly. They negotiated better with insurers for more pay. The hospital grew strong, with happy patients and steady growth. Costing and pricing changed everything.
8. The Bottom Line
   • Without accurate costing:
     • You can’t price confidently.
     • You can’t identify where margins are leaking.
     • You can’t negotiate effectively with insurers.
     • You can’t build a sustainable, margin-positive business..
   • Costing isn’t just accounting — it’s strategy.
     At Proactive Solutech, we help hospitals turn costing into a competitive advantage using TDABC and proven frameworks tailored for Indian healthcare.
   • Interested in a free costing dipstick assessment?
     Reach out to us at info@proactivesolutech.com.