Home care, day care, digital clinics: which formats add margin

Every year a new delivery format arrives at the executive committee dressed as a strategy. Home care, because the patient wants to recover at home. Day-care surgery, because the insurers want shorter stays. Digital clinics, because everyone has a phone. Health checks, because the corporates are asking. Pharmacy and diagnostics, because the standalone chains are taking a business the hospital thinks is its own. The pitch for each of them is compelling and largely true. That is what makes them dangerous.

The question is not whether the format is real. It is whether it adds margin to the group, adds volume that costs margin, or exists to protect the core from someone else eating it. Those are three different reasons to build something, they demand three different business cases, and mixing them up is how a group ends up with six formats, none of which anyone can defend in a P&L review.

I have built the demand case for several of these and sat in the reviews that followed. What follows is how I now judge a format — on its unit economics, not on the conference it was fashionable at.

Three reasons to build a format

Margin formats earn more per unit of capital or clinical time than the core does. They are rare, and when they exist the reason is usually that they move a procedure out of an overbuilt, overstaffed acute setting into a leaner one.

Volume formats bring patients into the group’s orbit at low or negative contribution, and pay for themselves only if enough of those patients convert downstream to something that does earn. They are feeders. Their economics belong to the funnel, not to the format.

Defensive formats exist because if you do not offer them, someone else will, and that someone will use them to intercept your patient before they reach your hospital. Their business case is a loss avoided, not a profit made — and a committee has to be told that plainly, because a defensive format pitched as a margin format will be judged a failure at the first review.

Every format below can be any of the three depending on how it is built. The job is to decide which one you are building, and to write that decision into the case.

Home care

Home care looks like margin — no beds, no building, a nurse and a kit. It is usually volume. The cost of a trained nurse travelling to one patient at a time in city traffic, with a supervisor, a scheduling system, consumables and the liability of a clinical event in a bedroom, adds up faster than the tariff a family will pay. Standalone home-care businesses have struggled with this for a decade.

Where home care earns is as an extension of the group’s own discharges: post-surgical care, physiotherapy, dialysis and chemotherapy at home for patients who came through the hospital and whose payer — insurer or corporate — will fund the substitution because it is cheaper than a bed day. Here the acquisition cost is close to zero, the clinical protocol is the hospital’s own and the format shortens length of stay at the flagship, which frees a bed for a higher-acuity case. That is a real contribution. It is invisible in the home-care P&L and visible in the flagship’s.

Judge it on: cost per nursing visit fully loaded, revenue per visit by payer, share of patients originating from group discharges, and bed-days released at the source unit. If the last number is not being counted, the format will look like a loss-maker when it is not — or like a business when it is only a service.

Day-care surgery

This is the format most likely to add margin, and the one most likely to be resisted from inside. Cataract, hernia, arthroscopy, ENT, a range of gynaecological and urological procedures and an expanding list of others do not need a tertiary hospital. Doing them in a lean day-care centre with a dedicated theatre team, standardised kits and a discharge protocol takes the cost out and, with the right payer mix, keeps the price.

The resistance comes from the flagship, whose surgeons and theatres currently do this work, and whose P&L will lose it. The medical director will note that the easy cases subsidise the theatre time for the difficult ones. That is true. The answer is that the released capacity must be refilled with higher-acuity work — and the day-care case must show the unit’s plan for doing that, agreed with the unit head, not assumed on their behalf.

Judge it on: procedures per theatre per day against the flagship’s equivalent, contribution per procedure, the share of volume that is new against moved from the core, and — the number nobody puts in — the rate at which enquiries that came for a day-care procedure were referred up for something more complex.

Digital clinics and teleconsultation

A digital clinic is a feeder. It is not a business. The teleconsult fee rarely covers the consultant’s time once the platform, the contact centre and the follow-up are loaded, and the standalone teleconsult companies have demonstrated at length that scale does not fix this. Inside a hospital group it is still worth running, for two reasons that have nothing to do with the consult fee.

The first is retention. A follow-up done on video keeps the patient in the group’s care rather than losing them to a clinic nearer home. The second is reach: a Tier 2 patient who can see the group’s cardiologist on a screen this week is more likely to travel for the angiography next month. Both of those show up as admissions somewhere else in the group. Neither shows up in the digital clinic’s P&L.

Judge it on: downstream conversion to OPD and admission within ninety days, retention of follow-up patients who would otherwise have lapsed, and cost per consult fully loaded. Do not judge it on teleconsult revenue. And be honest about cannibalisation: a paid OPD follow-up replaced by a cheaper teleconsult is a loss unless the OPD slot is refilled.

Health checks

Health checks are the corporate gateway and one of the most reliable feeders in the group. Their standalone margin is thin, the packages are discounted hard for corporates, and the diagnostic chains compete on price. What they deliver is a stream of new patients with a fresh set of results, many of which need a consultation.

The economics live entirely in the follow-through. A health-check operation that hands the report to the patient and says goodbye is a cost centre. One in which every abnormal finding generates a consultation booked before the patient leaves, and a call from the contact centre if they do not turn up, is a demand engine. I have spent more time on that follow-through workflow than on any pricing decision in the format, and it mattered more.

Judge it on: abnormal findings per check, consultations booked per abnormal finding, admissions within six months per hundred checks, and corporate renewal rate.

Pharmacy

In-hospital pharmacy is core, and its margin is already in the unit P&L. A retail pharmacy chain outside the hospital is a different business — competing with organised chains and online players on price, working capital and delivery — and a hospital group has no structural advantage in it except a brand and a prescription flow it can direct.

Where it makes sense is as a defensive and retention play: the discharged patient who fills their prescription with you, with home delivery for refills, is a patient whose chronic-care relationship you keep. Judge it on retention of the group’s own prescription volume and margin per prescription. A pharmacy vertical that pitches itself on walk-in retail growth is competing in the wrong market with the wrong cost base.

Diagnostics

Diagnostics is the most contested. The standalone chains have built collection-centre networks, low-cost processing and consumer pricing that a hospital lab cannot match on a walk-in basis. But the hospital’s own diagnostic volume — in-patient, OPD and health-check — is substantial, its lab is already NABL accredited and its radiology is already invested in. Extending that outward into collection centres and home collection is a defensive move first: it keeps the group’s own patients from having their tests done elsewhere and their reports sitting in somebody else’s app.

The offensive version — a diagnostics chain that wins new consumers on price — is a fight with players whose whole business is that fight. Judge diagnostics on: share of the group’s own prescribed tests captured, cost per test at scale, reports delivered into the group’s own patient record, and referrals generated from outside physicians. Be very cautious about the consumer-acquisition case, however good the brand slide looks.

The five questions for any format

• What is the fully loaded contribution per unit of service? Per visit, per procedure, per consult, per test — with brand, contact centre, IT, clinician time and working capital allocated.
• Where does the patient come from, and what did it cost to get them? If the answer is the group’s own discharges, the format is cheap to fill and probably a service. If the answer is marketing, it needs a funnel economics case, not a format case.
• What does it do to the core? Volume moved out, capacity released, whether the unit can refill it, and the net.
• What happens if we do not build it? If a competitor or a standalone chain intercepts the patient, the loss avoided is the case. Say so.
• What is the downstream conversion, and who measures it? If nobody owns the number, the format will be judged on its own P&L, and most of them will lose.

The mistakes I have watched, and made

Launching a feeder format and then reviewing it as a business. A teleconsult service judged on consult revenue is dead in a year. Launching a margin format without agreeing the core’s refill plan, so that the flagship’s margin drop is attributed to the new format and the format is quietly starved of consultants. Launching a defensive format with an aggressive growth target, so that it is a failure by its own measure while doing exactly what it was built for. And launching too many at once, so that the contact centre, the CRM and the digital team — the shared infrastructure every format depends on — are stretched across six half-built things and none of them gets the follow-through that makes it work.

The one I would take back is a format I argued for on volume. The volume arrived. The downstream conversion I had promised did not, because the workflow that was supposed to turn a low-margin encounter into a consultation was never built — it was assumed. The format survived a year on the strength of its top line and was then cut, correctly, by a CFO who had done the arithmetic I should have done first.

The order of operations

1. Classify each candidate format as margin, volume or defensive before building any case. Get the executive committee to agree the classification.
2. Fix the data first: source, payer and downstream conversion tracked on every encounter, across the group’s entities. Without this, feeder formats cannot be defended.
3. Start with the format that extends the group’s own patient flow — post-discharge home care, health-check follow-through, diagnostics capture — because acquisition cost is lowest and the case is easiest to prove.
4. Build day-care surgery only with the flagship’s refill plan agreed and the medical director’s name on it.
5. Treat digital clinics as retention infrastructure and fund them as such.
6. Review each format quarterly on its own classification’s metrics, not on a generic P&L template.

A format is not a strategy. It is a bet on unit economics, and the numbers do not care what was fashionable at the conference.

Questions people ask