- revenue streams
- 5
- billing system tied to the ledger
- 1
- TDS on fees, by VAT status
- 1.5% or 15%
Where the money leaks
Unbilled services. Tests done, procedures performed or bed days that never reach the bill. The fix is a daily reconciliation of orders in each department to bills issued.
Discounts and waivers. Free or reduced care is part of many institutions' mission. Approvals and reporting must be explicit, or the discounts become a channel for loss.
Doctor and consultant payments. Visiting doctors paid per patient or as a share of fees. The agreement, the calculation sheet and the tax deduction must match.
Pharmacy and consumables. Expired stock, unrecorded issues and purchases above need all cost money. Stock counts and expiry tracking pay for themselves.
Equipment. High-value machines need a register, maintenance record, depreciation and a clear policy on service contracts.
Tax points
TDS on fees paid to doctors and consultants: 1.5% if the recipient is VAT-registered, 15% if not, with the base set by the VAT-exclusive amount; see TDS rates.
VAT: health services are generally outside VAT, but some supplies and services are taxable, and input credit rules follow the mix. Get the split reviewed.
Payroll and SSF for clinical and support staff; see SSF compliance.
Depreciation on equipment by block; use the depreciation calculator.
Income tax and exemptions: the position depends on whether the entity is a company, a trust or a non-profit. Check the Act for your form.
Controls we put in place
A billing-to-ledger reconciliation per department and per day.
A discount and waiver register with approvals.
A payment calculation per doctor, signed off each month.
A pharmacy stock count and expiry report each month.
A department profit report, so you see which service lines earn their keep.
A cash forecast for equipment purchases and supplier terms.
The approach is the same as for schools and colleges: a regulated service with mission and margin to balance. Our virtual CFO and internal audit services build these controls and report monthly. This note is general; confirm tax and licensing rules for your type of institution.
A worked example: a 30-bed hospital's monthly picture
A 30-bed private hospital has outpatient, diagnostics, a pharmacy, inpatient services and operating theatres. In one month, the illustrative numbers are as follows.
| Line | Billed (NPR lakh) | Collected (NPR lakh) | Notes |
|---|---|---|---|
| Outpatient consultation | 18 | 18 | Cash or card at the counter |
| Diagnostics | 22 | 21 | Some reports pending payment |
| Pharmacy | 30 | 30 | Margin depends on purchase terms |
| Inpatient and procedures | 55 | 44 | Insurance and corporate accounts pay late |
| Total | 125 | 113 | 12 lakh in receivables |
Costs: doctors and consultants NPR 32 lakh, nursing and staff NPR 28 lakh, drugs and consumables NPR 35 lakh, utilities and maintenance NPR 8 lakh, rent and administration NPR 7 lakh and other costs NPR 5 lakh, for a total of NPR 115 lakh. Profit is NPR 10 lakh on billing of NPR 125 lakh, which is 8%.
Two observations. First, a small fall in collections or a small rise in the cost of drugs changes the result materially. Second, the average margin hides large differences: the pharmacy may earn a modest margin on a high turnover, diagnostics may earn more, and inpatient services depend heavily on occupancy and on how efficiently operating theatres are used. The hospital needs a department-level profit report, not just a total.
Revenue completeness: the daily routine
Revenue leakage is the largest controllable loss in many hospitals. A simple daily routine reduces it.
Orders to bills. Each department lists the services ordered and performed that day: tests, procedures, consumables used and bed days. The billing team matches each to a bill.
Bills to cash. The cashier's report is matched to the bills, by payment mode.
Discounts and waivers. Each discount has an approval and a reason, and the total is reviewed daily.
Pending bills. Inpatients' bills are updated daily, so that final bills are accurate at discharge.
Insurance and corporate accounts. Claims are submitted with complete documents and followed up, with rejections analysed.
Summary. A one-page daily report shows billed, collected, discounts and receivables, and goes to the administrator.
Many hospitals find that a month of this discipline recovers more than the cost of a finance person.
Paying doctors fairly and correctly
Visiting doctors and consultants are often paid per patient or as a share of fees. Agreements should be in writing and cover:
The services covered and the rates or percentages.
Which charges the share is calculated on: gross fees, net of discounts or net of costs.
The timing of payment and the supporting statement.
Tax deduction: the rate depends on whether the doctor is VAT-registered; see TDS rates.
Treatment of cancelled or unpaid bills.
Dispute procedures.
Each month, prepare a calculation for each doctor from the billing system, have it checked by someone independent of billing and signed off by the administrator before payment. Disputes about doctors' shares are among the most common friction points in a hospital, and a clear process removes them.
Pharmacy and inventory
A hospital pharmacy holds substantial stock with short shelf lives.
Purchasing from licensed suppliers with invoices that meet tax rules, and with agreed credit terms.
Storage and handling as the regulations require.
Expiry management: report stock by expiry date monthly, and act on items within six months of expiry through returns to suppliers or promotions.
Issue controls: issues to wards and theatres recorded against patients, with returns recorded.
Counts: a cycle count each month and a full count at year end.
Pricing: a policy on mark-ups and checks on maximum retail prices where applicable.
Consumables and implants: a link between the item used in a procedure and the patient's bill, so that nothing is used without being billed.
Stock losses are commonly caused by weak controls over small items. A reconciliation of purchases, issues and stock each month reveals them.
Equipment and capital planning
Hospitals invest heavily in equipment. Good practice is to prepare a business case for each major purchase: expected volume, price, direct cost, financing, the payback period and the effect on other services. Maintain an equipment register with serial numbers, warranty, maintenance contracts and uptime. Depreciate by tax block and by accounting policy; see depreciation rates. Plan replacement funding through a reserve, rather than relying on emergency borrowing; see loan EMI calculator.
Questions people ask
Is a hospital's income exempt from tax? The treatment depends on the legal form, whether it is a company, trust or non-profit, and on the Act's provisions. Do not assume exemption; confirm for your entity.
Does VAT apply to medical services? Many health services are generally outside VAT, while some supplies and non-medical services may be taxable. A split review is needed to determine input credit.
How should we treat free care? Record it as a discount or a charitable service with approval, so that the costs and the benefit are visible to the board and donors.
How do we reduce receivables from insurers? Submit complete claims quickly, track rejections by cause, and negotiate terms with insurers and corporate clients.
What reports should the board see? Monthly: revenue by department, occupancy, average revenue per patient, collections and receivables, discounts, doctor payments, pharmacy margin, stock expiry, cash and capital plans.
We build the controls, reports and forecasts that hospitals and clinics need. See virtual CFO, internal audit and bookkeeping. Tax and licensing rules vary by institution type, so confirm them for yours.
Staffing, payroll and compliance in a hospital
Staff costs are usually the largest cost after drugs and consumables, and the workforce is complex: doctors, nurses, technicians, administrators and support staff, with different pay structures, shifts and overtime. Several practices help control cost and meet obligations.
Rostering linked to payroll. Shift and overtime records feed payroll directly, to avoid manual errors and disputes.
Clear classification of employees, visiting consultants and contractors, with contracts that match the reality; see SSF and labour compliance.
Tax deduction on salary and on fees at the correct rates; see TDS rates and the salary tax calculator.
Leave and gratuity accruals in the accounts; see the gratuity calculator.
Training and licensing records for clinical staff, since expired registrations can stop services.
Productivity measures, such as staff cost per bed day or per patient, to identify imbalances.
Planning for growth and quality
A hospital that wants to expand services, add beds or open a branch needs a plan that links clinical goals with finances. Start with the question of demand: which services do patients leave your area to obtain? Estimate the volume, the price and the direct cost. Check the facilities, equipment and staff needed. Build a forecast for three years that includes the investment, the ramp-up period and the working capital. Test the effect of lower volume or delays. Compare funding options: retained cash, bank loans and partners; see before opening a new branch and before taking a bank loan. A hospital with a clear plan, department reporting and honest numbers is more likely to win the support of lenders and investors, and more able to keep quality high while it grows.
