The proposal to benchmark hospital room tariffs based on nearby three-star hotel rates is an opportunity to discuss a broader healthcare affordability discussion.
A hospital bed is not a hotel room; a hotel is about hospitality, wine and dining that people actively choose and perhaps even look forward to. A hospital has to have clinical ability around that bed, often 24×7, even if every bit of that capacity is not utilised. A delay in hotel service may inconvenience a guest; a delay in hospital care can impact a patient’s health and, in some situations, their life.
Behind a hospital room are doctors, nurses, emergency readiness, operating theatres, ICU, diagnostics, medical equipment, infection control, medical gases, pharmacy, biomedical, technology, accreditation and a massive support infrastructure.
The economics of a hospital are therefore very different.
What does a hospital bed really cost?
Hospital costs are driven by a lot more than the room itself. Land, medical equipment, skilled manpower, maintenance, technology, compliance and quality systems require huge investments. Cost varies substantially by location. A hospital in Mumbai, Delhi or Bengaluru has very different land, talent and operating costs than one in a Tier 2 or Tier 3 city.
Unlike a hotel, a hospital also has to maintain capacity for emergencies. An ICU bed, operating theatre, diagnostic equipment or specialist team can’t be switched off because demand is temporarily less.
There is an additional cost that is often overlooked: talent. Healthcare is a people intensive industry. The availability of good doctors, nurses and allied professionals directly affects both quality and cost. Specialist talent is heavily concentrated in urban centres.
Doctors and nurses are people with families, aspirations and lifestyle needs. If quality talent is expected to move to smaller cities, the supporting ecosystem has to move with them: reliable roads and transport, electricity and water, schools, housing, shopping and entertainment. This becomes particularly important if public hospitals in smaller cities are expected to attract and retain specialists.
India also needs to continue expanding medical and nursing education. There has been substantial progress, but shortages of doctors, specialists and experienced nurses are a challenge. A limited talent pool inevitably increases the cost of healthcare manpower and, ultimately, the cost of delivering care.
The additional burden on charitable hospitals
Charitable trust hospitals have another responsibility that is easy to overlook when comparing them with hotels.
In Maharashtra, eligible charitable hospitals are required to reserve 10% of operational beds for indigent patients and another 10% for weaker-section patients, with treatment provided free or at concessional rates. They are also required to contribute 2% of applicable gross billing to the Indigent Patients Fund.
Imagine asking a hotel to reserve 20% of its operational capacity for people who cannot afford to pay, provide those rooms free or at heavily concessional rates, and additionally contribute 2% of its applicable billing towards that social obligation. A hospital does this while continuing to fund doctors, nurses, equipment, maintenance and 24×7 clinical services.
For a charitable trust hospital, therefore, the economics cannot be assessed purely through commercial room tariffs.
Capacity matters more than the number of beds
Hospital economics are closely linked to how effectively existing capacity is used. A well-run hospital does not necessarily want a patient to stay longer. Appropriate Average Length of Stay, or ALOS, allows the same bed to serve more patients while maintaining clinical quality and safety.
Occupancy, ALOS, OT utilisation, diagnostic utilisation and equipment productivity therefore matter alongside room tariffs. Faster and clinically appropriate discharge can increase effective bed capacity without constructing another building.
This is also why better execution can improve affordability. Better scheduling, fewer cancellations, faster discharge, improved equipment utilisation, lower inventory wastage and stronger revenue-cycle management can reduce avoidable costs without compromising care.
Why do patients choose private hospitals?
The more fundamental question is why patients choose private hospitals in the first place.
It is not simply because a private hospital has a better room. Patients often choose private care because of access to specialists, shorter waiting times, availability of diagnostics under one roof, predictable appointments, perceived quality, cleanliness, privacy and overall patient experience.
If a patient can see the required specialist today, complete investigations quickly and receive treatment in a predictable environment, they may consider that access worth paying for.
The answer to healthcare affordability, therefore, cannot be to look at room tariffs in isolation. India also needs strong public healthcare infrastructure so that government hospitals become a genuine alternative for patients across income groups.
The public-private equation
The same imbalance is reflected in the present scenario. The latest NSS 80th Round health survey shows that around 64% of hospitalisations nationally take place in private facilities, showing that patients significantly rely on private healthcare.
In some states, private facilities account for as much as 77% of hospitalisations, leaving only a small proportion of patients choosing public facilities.
This highlights that strengthening public healthcare is not simply about adding capacity. It is about creating public hospitals that patients actively choose for their quality, accessibility, specialist availability and patient experience.
With due respect to government initiatives such as Ayushman Bharat, which has brought an important public-private partnership model into healthcare financing, there is a larger question worth considering.
When the government reimburses treatment delivered in empanelled private hospitals, it is using public funds to buy healthcare capacity that has been created and financed by the private sector. The cost of creating and maintaining that capacity varies across locations because land, capital expenditure, technology, skilled manpower, financing, taxes and operating costs differ.
Across OECD countries, government or compulsory schemes finance roughly three-quarters of healthcare spending, rising to around 80% across the EU. Countries such as the UK and several Nordic countries have predominantly government-funded healthcare systems.
The lesson for India is not that private healthcare should be replaced. It is that strong public capacity is essential for a healthy healthcare ecosystem. We should aspire to a system where patients choose public hospitals because they are excellent, not because they have no other option.
The economics of government schemes
Affordability through government schemes also depends on whether the reimbursement model is financially sustainable for the providers delivering the care.
Private hospitals have to fund the infrastructure before a patient arrives. They carry the cost of land, construction, equipment, manpower, maintenance and compliance, while reimbursement may come much later.
A low package rate combined with delayed payment can turn an apparently viable scheme into a significant working-capital burden.
The scale can become enormous. A leading hospital industry association representing more than 15,000 hospitals has, in recent years, repeatedly flagged mounting unpaid dues from both government schemes and private insurers, along with tariffs that have remained unchanged for years despite rising costs.
At one point, outstanding CGHS dues alone crossed ₹1,000 crore, while hospitals have reported reimbursement delays stretching from months to more than a year. More recently, a similar dispute with a private insurer centred on delayed and disputed settlements and outdated tariff rates.
The problem is equally visible in government-funded schemes: in March 2025, hospitals in Andhra Pradesh reported around ₹3,500 crore in pending NTR Vaidya Seva dues. For hospitals, these are not merely accounting issues.
Delayed reimbursement combined with stagnant package rates ties up substantial working capital while salaries, medicines, consumables and infrastructure costs continue to be paid on time.
The issue is therefore not simply whether government reimbursement should be higher. There needs to be a predictable mechanism that balances affordability for the government with the actual cost of maintaining quality infrastructure. Timely settlement is equally important. A hospital can absorb a lower margin more easily than it can indefinitely finance unpaid claims running into crores.
If more private hospitals are expected to participate in government schemes, particularly high-quality tertiary hospitals, reimbursement rates and payment timelines need to provide a viable operating model. Otherwise, the very hospitals with the infrastructure and specialists needed by beneficiaries may have little incentive to participate.
Insurance is another missing piece
Insurance is still an important gap in India’s healthcare financing. IRDAI data shows overall insurance penetration at 3.7% of GDP in FY2024-25, compared with a global average of 7.3%. Mature markets are substantially higher, with the US at around 12.1% and the UK at about 11.8%.
At the same time, out-of-pocket spending remains a significant burden. The latest National Health Accounts estimates show household OOPE at 43.4% of total health expenditure in 2022-23. This is still a very high burden for households, despite the substantial improvement seen over the longer term.
The national average also hides significant variation. In 2021-22, OOPE accounted for 63.7% of total health expenditure in the highest state, followed by 59.1% and 58.3% in two others. This highlights the need for greater insurance awareness and wider risk pooling.
Housing societies, alumni associations, professional bodies and community groups could explore affordable group health covers, similar to corporate schemes. Larger pools can spread risk and potentially negotiate better terms and premiums. Greater awareness can also encourage families to insure themselves before a medical emergency occurs.
But insurance must work for hospitals as well as patients. IRDAI requires an insurer to settle or reject a claim within 30 days of receiving the last necessary document. Where investigation is required, the stipulated period can extend to 45 days, with interest payable for delays beyond the applicable period.
Yet hospital industry discussions continue to highlight delays in final settlements, deductions and disputes after treatment has already been delivered. This can tie up substantial working capital for hospitals. Salaries, medicines, consumables, utilities and vendors have to be paid irrespective of when an insurer settles a claim.
The IRDAI Annual Report 2024-25 records that insurers processed 3.26 crore health claims during the year, of which 87% were settled, 8% were repudiated and around 5% remained pending at year-end and roughly one in every 12 claims not being paid with the reasons including exclusions, waiting periods, exhausted sum insured, deductibles, sub-limits and suspected fraud.
Better claims technology, standardised documentation, digital clinical records, automated verification and clearer settlement protocols can help insurers identify genuine exceptions while allowing straightforward claims to move faster.
There is also an access issue before the claim is even made. Hospitals can take considerable time to complete empanelment and activate cashless arrangements with insurers, particularly newer hospitals.
It is not uncommon for two hospitals in the same locality, with broadly comparable bed strength, accreditation, infrastructure and talent costs, to receive different commercial terms from insurers. Newer hospitals can sometimes spend months negotiating and activating cashless arrangements, leaving patients with fewer cashless choices even when a comparable facility nearby is already empanelled.
Greater transparency and standardisation in empanelment and onboarding could improve both patient choice and insurance utilisation.
A sustainable healthcare financing system therefore needs more than insurance coverage. It needs larger insurance pools, affordable premiums, transparent empanelment, reimbursement rates that reflect the cost of quality care and predictable, timely settlement of claims.
Finding the hidden capacity
Private healthcare also has to confront its own costs. The answer is not simply to argue that hospital tariffs cannot be reduced. Hospitals should continuously look for ways to deliver care more efficiently.
There is considerable hidden capacity in most hospitals. Improving bed and OT utilisation, reducing avoidable delays, strengthening procurement, improving equipment utilisation, reducing claim denials, controlling inventory losses and using technology to improve patient flow can all improve productivity.
But hidden capacity is not only operational.
Many hospitals do excellent clinical work but do not communicate it well. Clinical outcomes, scientific papers, research, quality initiatives and patient-safety work often remain within the hospital instead of reaching referring doctors, communities and patients.
India is already a major producer of scientific papers, but the impact of that research remains relatively low. Nature reported that India was the world’s third-largest publisher of research papers in 2022, but ranked only 153rd for citations per paper. UNESCO has also noted India’s relatively low research intensity and researcher density.
Hospitals can do more to publish meaningful clinical outcomes, participate in research and communicate their work. Community engagement and hospital social-media utilisation also remain below their potential. A hospital may be doing excellent work while its referral ecosystem knows very little about it.
Better communication of genuine clinical outcomes, stronger family-physician and community engagement, and better capture of internal referrals can improve footfalls without simply increasing advertising expenditure.
Even simple operational interventions can help. Error-free billing, better counselling at the admission stage or during a tariff enquiry for planned procedures, clear communication of treatment pathways, and regular market research on competitive tariff or service quality feedback can improve conversion, patient confidence and occupancy.
Poor patient experience, missed internal referrals and weak communication can otherwise compound revenue leakages.
Operational efficiency and trust therefore reinforce each other.
Making private healthcare more affordable
There is also scope for the government to reduce some structural costs of healthcare delivery through targeted incentives such as simpler tax treatment, lower property-tax rates, rational electricity tariffs, and lower biomedical-waste handling and other statutory service charges along with single-window clearances, make in india tech transfer policies for critical patented equipments could also reduce the time and cost involved in creating healthcare infrastructure.
These measures would not necessarily require large government subsidies, but could reduce some of the operating costs that ultimately find their way into the price of healthcare.
This is particularly relevant in Tier 2 and Tier 3 cities. Building a hospital there may involve lower land costs than a metropolitan location, but lower patient volumes, specialist shortages, recruitment challenges, equipment servicing and slower occupancy ramp-up can create a very different economic equation. A national, state or city-specific tariff cannot always reflect these local realities.
Where standardised or city-wide and state-wide tariff frameworks are considered, they should recognise differences in geography, infrastructure, quality standards, case mix and actual cost of delivery rather than imposing a single blunt tariff on every hospital.
The real benchmark
The real benchmark for healthcare should not be whether a hospital room costs the same as a three-star hotel room. It should be whether patients receive safe, timely and quality care at a cost that is sustainable for both the patient and the institution providing it.
India needs both a strong public healthcare system and a financially sustainable private healthcare sector. Public hospitals should offer world-class care and experience and become a genuine choice for patients. Private hospitals should continue to invest in infrastructure, technology and clinical capability while improving productivity and transparency.
The goal should not be to make private healthcare artificially cheap. It should be to make good healthcare accessible, efficient and sustainable.
A hotel sells a room that people choose, and perhaps even look forward to, to stay in. A hospital provides a clinical environment that, even if world-class, people in most cases hope they never have to enter. Hospital Is Not a Hotel. Period!
This article is written by Dr Akash Rajpal, Former COO, Jaslok Hospital and Masina Hospital.
(DISCLAIMER: The views expressed are solely of the author and ETHealthworld.com does not necessarily subscribe to it. ETHealthworld.com shall not be responsible for any damage caused to any person/organisation directly or indirectly)
