How to Start a Hospital

Hospitals, obviously, are vital to any community. In recent years, hospitals and clinics faced bed shortages due to the pandemic and struggled to keep up with demand. Now the industry is growing and most markets would welcome a new hospital. 

Starting a hospital is an expensive and demanding undertaking, but all that investment is worth it, as it goes toward saving lives. You can also make good money in what is a trillion-dollar industry. 

But before you start exploring your financing options, you’ll need to understand the process of starting a business. Fortunately, this step-by-step guide details everything you need to know to launch a successful hospital. 

Step 1: Decide if the Business Is Right for You

Pros and cons

Starting a hospital has pros and cons to consider before deciding if it’s right for you.

Hospital industry trends

Industry size and growth

• Industry size and past growth – The US hospital industry is worth $1 trillion in 2022 after declining 1.2% annually the last five years.((https://www.ibisworld.com/industry-statistics/market-size/hospitals-united-states/)) 
• Growth forecast – The US hospital industry is projected to grow 3.4% in 2022.
• Number of businesses – In 2022, 2,385 hospital businesses are operating in the US.((https://www.ibisworld.com/industry-statistics/number-of-businesses/hospitals-united-states/)) 
• Number of people employed – In 2022, the US hospital industry employs 5,149,728 people.((https://www.ibisworld.com/industry-statistics/employment/hospitals-united-states/))

Trends and challenges

Trends in the hospital industry include:

• Artificial Intelligence (AI) is being used more and more in healthcare to analyze data and enable faster diagnoses. 
• Virtual health care is becoming common, allowing hospital staff to conduct follow-up care remotely.

Challenges in the hospital industry include:

• Many hospitals are not able to tap into the new technologies available that could improve health care due to the high costs.
• Cybersecurity is a huge concern for hospitals due to the need to protect patients’ healthcare data.

Demand hotspots

• Most popular states – The most popular states for healthcare administrators are Nevada, Oregon, and Ohio.((https://www.ibisworld.com/industry-statistics/employment/hospitals-united-states/))
• Least popular states – The least popular states for health care administrators are Arkansas, Tennessee, and Florida.

What kind of people work in hospitals?

• Gender –  75.7% of health care administrators are female, while 24.3% are male.((https://www.zippia.com/health-care-administrator-jobs/demographics/))
• Average level of education – The average healthcare administrator has a bachelor’s degree. 
• Average age – The average hospital administrator in the US is 45.6 years old.

How much does it cost to start a hospital business?

Startup costs for a hospital range from $28 – $100 million. The bulk of the cost is for the construction of the hospital. You’ll also need a large operating budget to start with. 

If you do not have hospital administration experience, most colleges and universities offer online degrees in healthcare administration and management. 

You can access many resources by becoming a member of the American Hospital Association. 

You’ll need many items to successfully launch your hospital business, including: 

• Computer system
• Hospital beds, gurneys
• Testing and diagnostic equipment
• Surgical equipment
• Medical and life-saving equipment
• Kitchen equipment

Start-up Costs	Ballpark Range	Average
Setting up a business name and corporation	$150 - $200	$175
Business licenses and permits	$2,000 - $3,000	$2,500
Insurance	$20,000 - $30,000	$25,000
Website setup	$10,000 - $20,000	$15,000
Hospital construction	$25,000,000 - $100,000,000	$62,500,000
Computer system	$50,000 - $100,000	$75,000
Beds and equipment	$1,000,000 - $2,000,000	$1,500,000
Labor and operating budget	$2,000,000 - $4,000,000	$3,000,000
Total	$28,082,150 - $106,153,200	$67,117,675

How much can you earn from a hospital business?

You’ll need to form relationships with insurance companies so that your medical services will be covered. The average emergency room cost is $2,500 and the average hospital stay is $15,000. Hospital operations are expensive, so your profit margin will be about 10%. 

In your first year or two, you might have 100 emergency room visits per month and 50 inpatients, bringing in $12,000,000 in annual revenue. This would mean $1,200,000 in profit, assuming that 10% margin. As your hospital becomes more well known, those numbers could triple. With annual revenue of $36,000,000, you’d make a tidy profit of $3,600,000.

What barriers to entry are there?

There are a few barriers to entry for a hospital. Your biggest challenges will be:

• High startup costs of construction, equipment, and medical supplies
• The experience necessary to start and run a hospital

Step 2: Hone Your Idea

Now that you know what’s involved in starting a hospital, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Market research will give you the upper hand, even if you’re already positive that you have a perfect service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.

Understand your competitors

Analyzing your competitors is an essential part of starting a successful hospital business. Research hospitals in your area to examine their services, price points, and customer reviews.

Here are some steps you can follow to conduct competitor research:

• Identify your competitors: Make a list of all the hospitals in your area. This can include general hospitals or specialty hospitals that may offer services similar to yours.

• Analyze their size and scale: Look at the size of your competitors, such as the number of beds, staff, and range of services offered. Consider the facilities they have and how they may differ from yours.

• Analyze their services: Look at the range of services your competitors offer, such as emergency services, primary care, or specialized care. Consider their specialization and unique selling points.

• Analyze their reputation: Look at the reputation of your competitors, such as their patient satisfaction rates, accreditation status, and awards. Consider how they differentiate themselves from others in the market.

• Analyze their marketing strategies: Look at how your competitors market their services, such as website, social media ads, Google My Business profile, or print ads. Consider their branding, messaging, and how they differentiate themselves from others in the market.

• Create a competitive analysis report: Compile all the data you have gathered into a report. This report should include your competitors’ strengths, weaknesses, and opportunities. Use this report to create a plan for how you can differentiate yourself from your competitors.

Why? Identify an opportunity

You’re looking for a market gap to fill. For instance, maybe the local market is missing a medical center that offers outpatient surgical procedures or an emergency medicine specialty hospital.

What? Determine your products or services

You can specialize in certain types of hospital care such as emergency medicine or surgical procedures, but your best bet is to offer a full range of hospital services.

Offering a full range of services entails a multifaceted approach:

1. Emergency Services: Establish a 24/7 emergency department capable of handling acute conditions and traumas.
2. Inpatient Care: Create wards for patients requiring overnight stays, with facilities for various specialties such as surgery, internal medicine, and pediatrics.
3. Outpatient Services: Set up clinics for consultations, minor procedures, and follow-up visits that don’t necessitate hospital admission.
4. Diagnostic Services: Include laboratories for medical tests, imaging departments for X-rays, MRI, and CT scans, essential for accurate diagnoses.
5. Surgical Services: Equip operating rooms for a range of procedures from minor surgeries to complex operations, with post-operative care units.
6. Intensive Care Units (ICU): Prepare for critical care services with advanced monitoring and life support for patients in severe conditions.
7. Maternity and Newborn Services: Provide labor and delivery rooms, postnatal care, and neonatal intensive care units.
8. Specialized Centers: Consider adding centers of excellence such as cardiology, oncology, or neurology that offer cutting-edge treatments.
9. Ancillary Services: Ensure support services like pharmacy, physiotherapy, dietary, and counseling are in place for holistic patient care.
10. Administrative Services: Develop robust back-end support with medical records, billing, housekeeping, and facility maintenance.

How much should you charge for hospital services?

Your services will be mainly dictated by standard industry prices, which are what insurance companies cover. Your profit margin after the cost of all operations should be about 10%. 

Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

The primary target market for a hospital is patients who need medical care, whether for acute or chronic conditions, preventive care, or elective procedures. Patients can range from infants to elderly adults and may come from different demographic backgrounds and income levels.

Where? Choose a hospital location

Choosing the right location for a hospital business is pivotal and requires a balanced consideration of various factors. Start with comprehensive market research to understand the demographics, existing healthcare facilities, and specific community health needs. Ensure the site is accessible, with good transportation links, and ample parking, while also being in a safe and visible location. Consider the proximity to essential services and amenities, such as pharmacies and specialized medical services, and ensure the area has the potential for future expansion.

Pay close attention to regulatory and zoning requirements to avoid legal issues, and evaluate the financial viability of the location, taking into account the cost of land, potential return on investment, and any available government incentives. Foster community relations to gauge support and identify partnership opportunities, and ensure the area has reliable utilities and connectivity. Shortlisting locations based on these criteria will help in making an informed and strategic decision, setting a solid foundation for your hospital business.

Step 3: Brainstorm a Hospital Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “hospital” or “medical center”, boosts SEO
• Name should allow for expansion, for ex: “Premier Healthcare Alliance” over “Orthopedic Institute of New York”
• Avoid location-based names that might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Hospital Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

• Executive Summary: A high-level outline showcasing the hospital’s mission, the specific healthcare services it will offer, funding requirements, and projected financial outcomes to attract investors or partners.
• Business Overview: This section describes the type of hospital (e.g., general, specialty, teaching), its intended size, location, the need it will fill in the community, and the legal structure of the business.
• Product and Services: Detailed information on the medical care provided, including emergency care, surgical services, inpatient care, outpatient clinics, and any specialized services, highlighting how they meet patients’ needs.
• Market Analysis: An assessment of the healthcare demand in the targeted area, population demographics, disease prevalence, and an overview of patient needs to justify the hospital’s establishment and potential for growth.
• Competitive Analysis: An examination of existing healthcare providers in the region, their service offerings, strengths, and weaknesses to position the new hospital strategically in the market.
• Sales and Marketing: Strategies to attract patients and referring physicians, including advertising plans, public relations efforts, partnerships, and pricing strategies tailored to the hospital’s services.
• Management Team: Profiles of key team members, their qualifications, experience in healthcare management, and roles they will play in ensuring the hospital’s operational and financial success.
• Operations Plan: A description of the hospital’s daily operational procedures, including patient intake processes, staffing, healthcare delivery workflows, and quality control measures.
• Financial Plan: Detailed financial projections, including startup costs, operating expenses, revenue streams, profit margins, and break-even analysis to ensure sustainability and profitability.
• Appendix: Supporting documents such as resumes of the management team, legal agreements, detailed market study results, and any technical hospital design plans to provide credibility and context to the plan.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

 Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to hospitals. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your hospital will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your Articles of Organization, and answer any questions you might have. 

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Venture capital: Venture capital investors take an ownership stake in exchange for funds, so keep in mind that you’d be sacrificing some control over your business. This is generally only available for businesses with high growth potential.
• Angel investors: Reach out to your entire network in search of people interested in investing in early-stage startups in exchange for a stake. Established angel investors are always looking for good opportunities. 
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

Step 8: Apply for Hospital Business Licenses and Permits

Starting a hospital business requires obtaining a number of licenses and permits from local, state, and federal governments. Most states have a demanding hospital registration process that you must go through to become a licensed hospital. Check with your state for requirements. 

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your hospital business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks. 

You may want to use industry-specific software, such as brightly, eHospital, or Glorium, to manage your operations, records, compliance, staff, and invoicing. 

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.

You can create your own website using different website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Your customers are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

Marketing

Effective marketing strategies for a hospital are crucial for attracting patients, establishing a reputation, and competing in the healthcare market. By integrating both traditional and digital marketing efforts, a hospital can enhance visibility, engage with the community, and build a trusted brand. Here are various strategies to consider:

Digital Marketing

1. Content Marketing: Develop informative and empathetic content that addresses health concerns, which can position your hospital as a thought leader.
2. SEO: Optimize your website with relevant healthcare keywords to ensure it ranks high in search engine results, making it easier for potential patients to find you.
3. Social Media: Engage with users on platforms like Twitter for instant communication and updates on public health issues or hospital events.

Traditional Marketing

4. Community Outreach: Host free health check-up camps to increase community engagement and showcase your services.
5. Referral Programs: Encourage existing patients to refer friends and family, enhancing word-of-mouth marketing.

Public Relations

6. Press Releases: Announce new services, equipment, or staff hires through press releases to keep the hospital in news cycles.
7. Crisis Management: Have a plan for managing public relations in a crisis, ensuring transparent and timely communication.

Branding

8. Logo and Materials: Ensure your hospital’s logo and promotional materials are professional and reflect the quality of care you provide.
9. Testimonials: Share patient success stories and testimonials to build trust and credibility.

Local Marketing

10. Local SEO: Optimize for local search queries and ensure your hospital appears in “near me” searches for healthcare services.
11. Community Partnerships: Partner with local businesses and schools to offer health education sessions and workshops.

Engagement and Loyalty

12. Patient Feedback: Regularly gather and act on patient feedback to improve services and patient satisfaction.
13. Loyalty Programs: Create a loyalty program to reward repeat visits for non-urgent services like health checks or vaccinations.

Innovative Strategies

14. Telemedicine Services: Promote online consultation services for patients who prefer virtual visits, expanding your reach.
15. Healthcare Apps: Develop a mobile app for easy appointment scheduling, reminders, and health tracking to enhance patient engagement.

Educational Marketing

16. Seminars and Webinars: Host educational seminars and webinars on health topics to engage with the community and highlight your experts.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your hospital meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your hospital business could be:

• Patient safety and care are our top priorities
• Professional, full-service care to ensure your health
• Trusted healthcare in a loving environment

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a hospital business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in hospitals for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in hospitals. You’ll probably generate new customers or find companies with which you could establish a partnership. 

Step 12: Build Your Team

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a hospital business include:

• Hospital Registration Agents – register patients
• Physicians – provide medical care in various specialties
• Surgeons – perform surgical procedures
• Nurses – assist with medical care
• Orderlies – transport patients in the hospital
• Housekeepers – clean all areas of the hospital
• Kitchen Workers – prepare patient meals
• Security Guards – protect patients and staff

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Run a Hospital – Start Making Money!

Hospitals are a trillion-dollar US industry and a critical part of our society. Starting a hospital might seem daunting, but with a sizable investment and hard work, you can serve your community, save lives, and build a lucrative and rewarding healthcare operation.

Now that you know what’s involved from a business perspective, it’s time to be a local hero and start your successful hospital.