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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Updated on May 10, 2023
Investment range
$28,082,150 - $106,153,200
Revenue potential
$12 million - $36 million p.a.
Time to build
12 – 18 months
Profit potential
$1.2 million - $3.6 million p.a.
Industry trend
Growing
Commitment
Full-time
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.
Looking to register your business? A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple.
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Starting a hospital has pros and cons to consider before deciding if it’s right for you.
Trends in the hospital industry include:
Challenges in the hospital industry include:
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:
| 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 |
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.
There are a few barriers to entry for a hospital. Your biggest challenges will be:
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.
Research hospitals in your area to examine their services, price points, and customer reviews. 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.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as surgical procedures or patients who receive Medicaid.
This could jumpstart your word-of-mouth marketing and attract clients right away.
Analyzing your competitors is an essential part of starting a successful hospital business. Here are some steps you can follow to conduct competitor research:
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.
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.
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.
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:
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.
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:
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.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
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.
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:
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.
Choose Your State
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.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
There are several specific types of financing for hospitals that you may be able to access.
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.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
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.
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.
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:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
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.
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 services like WordPress, Wix, or Squarespace. 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.
They 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.
Some of your business will come from the casual passerby or online visitors, but you should still invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.
Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:
Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:
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:
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.
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:
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.
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.
The top five most profitable parts of a hospital are:
Your services will mainly be dictated by standard industry prices which are what insurance companies will cover. Check service prices in your area.
The top CEOs of for-profit health systems are paid upwards of $20 million. Even the CEOs of non-profit hospitals are paid nearly that much, which is somewhat controversial.
Becoming a smart hospital involves a digital transformation investment. You’ll invest in things like AI tools and interconnected medical devices.
Starting a hospital is quite a complex undertaking. Building the facility, purchasing equipment, and hiring staff take much work and capital.
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