Many SME hospitals in India trace their origins to obstetrics and gynaecology. Maternity was, and remains, a predictable and continuous community need. Many of these institutions began as trust hospitals, charitable facilities, or small, promoter-led nursing homes embedded within local communities. Even when they operated as for-profit entities, pricing was generally moderate, and the institutional ethos was closer to service provision than to corporate healthcare. Clinical reputation, community trust, and doctor networks formed the backbone of their legitimacy.
As demand grew, additional services were gradually layered, including paediatrics, general medicine, minor surgery, orthopaedics, ICUs, ventilators, and diagnostic labs. Expansion was largely organic, capital was promoter-funded, governance structures were informal, and growth followed reputation rather than strategic planning.

Marketisation in Indian Healthcare

Over the past fifteen years, however, Indian healthcare has undergone significant structural change. Large corporate multi-specialty hospital chains have rapidly expanded their presence. As a result, marketisation—the entry of market logic into fields that were previously governed by professional, community, or charitable logics—is increasingly governing the sector, introducing mechanisms of competition, consumer choice, and price-based differentiation.  Many of the existing SME hospitals were caught unaware in this changing trend.

Insurance Reshaping the Economics

The expansion of health insurance coverage in India has significantly reshaped Indian healthcare. One of the earliest drivers of this shift was the growing penetration of private health insurance, particularly employer-sponsored insurance plans. Large corporate hospitals typically maintain extensive insurance tie-ups and dedicated claims processing infrastructure, enabling smoother cashless admissions for insured patients. As a result, insured patients have increasingly gravitated towards large hospital networks, where administrative processes are more streamlined, and coverage acceptance is more predictable.
Over time, this trend has been further reinforced by large government health insurance programs such as Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (PMJAY) and various state-level schemes such as the Rajasthan Government Health Scheme (RGHS) and the West Bengal Health Scheme (WBHS), among others. While insurance has expanded access to healthcare services, it has also altered pricing structures, patient flows, and financial dynamics across hospitals. These changes carry particularly important implications for SME hospitals, which typically operate with thinner margins, limited financial buffers, and limited administrative process mechanisms and capabilities.
One of the keyways in which insurance has reshaped the ecosystem is through standardised reimbursement structures combined with delayed claim settlements. Under government insurance schemes, procedures are reimbursed at pre-determined package rates, limiting hospitals’ ability to price services according to their cost structures. For instance, a normal delivery that may have been billed at around ₹ 25,000 in a tier-two or tier-three private hospital setting may receive reimbursement of only ₹ 7,500–12,500 under various state and central government packages. Such standardised pricing compresses margins significantly for smaller hospitals. At the same time, reimbursements often take several months to process, leading to the accumulation of receivables and creating working capital pressures. For SME hospitals operating with limited financial buffers, these delays can disrupt cash flows, delay physician payouts, and lock up promoter capital. Reflecting these challenges, nearly 30% of hospitals exited the PMJAY scheme after November 2024.
Taken together, these dynamics have reshaped both the financial and competitive landscape of hospital care. For SME hospitals, navigating insurance participation is therefore a delicate balancing act between securing patient volumes and preserving already constrained margins.

Consumer Expectations

Consumer expectations in healthcare have also evolved significantly. Patients today place greater emphasis on institutional brand, advanced infrastructure, and service experience. Many now expect comprehensive and sophisticated care delivered under one roof—ranging from diagnostics and specialist consultations to emergency support and advanced procedures. The growing prevalence of corporate health insurance coverage has further reinforced this shift. A large share of salaried patients is covered through employer-sponsored insurance plans that are typically empanelled with large hospital chains, enabling seamless cashless hospitalisation. As a result, patients often gravitate towards these networks, where the treatment journey—from admission to billing—is perceived to be more integrated, technologically enabled, and administratively convenient.
Consequently, the patient who earlier chose primarily between government hospitals and local SME hospitals now considers an additional option: large private hospital chains that are professionally managed, brand-driven, and capital-backed institutions. Healthcare delivery, therefore, has progressively shifted from a primarily community-oriented service ecosystem towards a more competitive and market-driven landscape.

The combined effects of marketisation, expanding insurance coverage, and shifting consumer expectations have significantly altered the competitive landscape. While these changes have broadened access to healthcare and introduced greater patient choice, they have intensified pressure on SME hospitals. SME hospitals have often responded by adding more specialisations and infrastructure to become multi-speciality hospitals. However, they continue to be perceived as ‘nursing homes,’ where the patient does not expect specialised care outside of maternity services. In the process of such expansions, SME hospitals have also invested in improved infrastructure, including additional equipment, and have recruited more doctors on consultancy contracts. However, without the attendant perception changes, this has not resulted in increased footfall or service utilisation rates. As a result, many of them have experienced a heavy year-on-year decline in patient footfall and revenue.

What can the SME hospitals do? The SME hospitals can invest in management professionals who can systematically analyse and design solutions to face the above challenges. This begins with a change in the leadership team’s outlook to think beyond the already tested path. The marketisation and change in ecosystem require them to evaluate their organisation’s position and strategic directions. In response to marketisation, they should leverage their core advantage, which often is care, trust and community relationships while strengthening their digital presence. Evolving consumer expectations require targeted upgrades in patient experience, such as smoother admission and billing processes, basic digital integration, and improved service quality, ensuring that while they may not match corporate hospitals in scale, they remain competitive on convenience. In the meantime, the leadership team can start with certain operational fixes.

In this environment, SME hospitals must navigate a set of operational realities that directly influence their financial stability. The following operational strategies are commonly observed across most SME hospitals in India:

1. Insurance Empanelment
   SME hospitals in a stressed financial position can proactively pursue empanelment under relevant government schemes to stabilise occupancy and maintain cash inflows. Simultaneously, they can also prioritise empanelment with private insurers by investing in compliance and documentation systems that meet empanelment standards. The objective is not blanket participation, but a calibrated insurance strategy that balances volume stability with margin protection.
2. Human Resource Mobility and Talent Retention
   Human resources in healthcare have become increasingly mobile as the sector has expanded. Doctors and nurses today have significantly more employment options across large corporate hospital chains, specialty centres, and international opportunities. Many gravitate towards institutions that offer higher compensation, structured career progression, advanced infrastructure, and brand prestige.
   For SME hospitals, which often operate with tighter financial resources and less formal HR structures, attracting and retaining skilled professionals becomes challenging. Career trajectories may be less defined and incentive systems more ad hoc, making these hospitals frequent stepping stones rather than long-term workplaces. This creates recurring talent gaps that affect continuity of care, increase training costs, and can ultimately influence patient experience.
   Mitigation requires deliberate institutional responses such as structured onboarding, defined career pathways, retention-linked incentives, and periodic skill development programs that help strengthen professional engagement within the organisation.
3. Financial Planning
   In many SME hospitals, financial oversight operates at a macro level, where revenue and costs are monitored only in aggregate. Service-line contribution margins often remain opaque. Management frequently lacks clarity on:
   • Profitability by specialty
   • Bed occupancy rates by ward
   • Average revenue per occupied bed (AROPB)
   • Scheme versus cash patient mix
     Without granular visibility, capital allocation decisions become intuitive rather than analytical. Loss-making departments persist while profitable ones remain underinvested. Implementing simple monthly dashboards that track occupancy, AROPB, and payer mix can significantly improve decision-making. Strategy without financial transparency often becomes guesswork.
4. Defining Processes and Ensuring Compliance
   Accreditations such as NABH are increasingly becoming prerequisites for insurance empanelment and scheme participation. These accreditations require structured documentation, adherence to clinical protocols, and compliance discipline. In promoter-driven hospitals, doctors often prioritise clinical delivery over administrative documentation. Without strong managerial oversight, compliance can become inconsistent, leading to delays in accreditation and limiting participation in insurance networks.
   Addressing this requires:
   • Micro-trainings for clinicians
   • Administrative staff dedicated to documentation
   • Partial pre-filling of compliance templates by nursing teams
   • Clear accountability structures
5. Focusing on Improving Patient Experience
   Many SME hospitals were built on personal connections developed by the key physicians with patients and their family. Over time, as the hospitals have expanded, the connection has been lost. Consciously focusing on improving patient experience can help rebuild trust and credibility. Such initiatives can go beyond clinical needs. For instance, older SME hospitals find themselves in dense urban neighbourhoods where parking facilities are limited or absent. While seemingly minor, such frictions can influence patient perception and overall experience. Practical interventions—such as valet services using nearby parking facilities—can improve convenience at relatively low cost.
6. Marketing and Digital Presence
   Originally reliant on personal connections and word of mouth, SME hospitals have not undertaken systematic marketing activities in today’s ecosystem. In an increasingly digitised healthcare ecosystem, many SME hospitals still lack basic digital infrastructure such as functional websites, online appointment systems, and visibility on social media platforms. This limits patient awareness of the services offered and narrows the top of the patient acquisition funnel. Digital presence and marketing are no longer an optional sophistication; they have become baseline hygiene in the modern healthcare landscape.

Once operational foundations are stabilised, the strategic question emerges: What does growth look like for an SME hospital constrained by capital and scale? The healthcare delivery landscape is typically organised hierarchically to address varying levels of medical complexity. Different healthcare institutions play distinct roles in managing patient needs, from basic care to highly specialised interventions. Care is broadly segmented into three levels— primary care, secondary care, and tertiary care. SME hospitals in India broadly serve the secondary care segment. With large hospital chains prioritising super-specialisation and advanced tertiary services, SME hospitals have the opportunity to pursue a differentiated positioning built around family-centric care. By focusing on continuity of care, personalised attention, and long-standing doctor–patient relationships, these hospitals can cater to healthcare needs through a family-centric model. Core services such as obstetrics, paediatrics, and general medicine allow SME hospitals to serve as trusted healthcare partners for families, creating a relational and community-based model that contrasts with the highly specialised, technology-driven approach of large hospital networks.

There are three strategies that they can consider:

1. Deep Specialisation
   For hospitals where Ob-Gyn constitute the majority of cases, doubling down on this and paediatrics is the most defensible strategy. For instance, evolving into a comprehensive maternity and child-care centre offering (1) high-risk obstetrics, (2) neonatal ICU (NICU), (3) paediatric ICU, and (4) neonatal ventilator support, etc. can be the first choice. This should be supported by a structured clinical pool, typically 3-5 obstetricians and gynaecologists, at least 2 paediatricians, and a dedicated neonatologist, with an anaesthesiologist, radiologist, and pathologist to ensure round-the-clock continuity of care. This reduces clinical bottlenecks and strengthens patient confidence. A key strategic risk in this pathway is overreliance on a single anchor physician; concentration of revenue under one doctor can create significant volatility if those individual exits.
2. Family Hospital
   For hospitals that already operate across general surgery, internal medicine, paediatrics, obstetrics and gynaecology (Ob-Gyn) and orthopaedics, positioning themselves as a trusted “family hospital” that operates within the secondary care segment is optimal. The value proposition focused on multi-generational trust and affordable quality care can win the game. However, discipline is required. High-capex specialties such as cardiology or neurology—which require catheterisation labs or advanced neuro-imaging—should be avoided unless throughput justifies investment. Without volume, they become financial drains. A robust emergency backbone—including round-the-clock MD general medicine coverage—becomes critical in this model.
3. Capability-led Focussed Expansion
   This strategy holds the demand side of the equation. Where competitive conditions and talent availability permit, selective expansion into adjacent specialties may be viable. For example, palliative care, endocrinology, and oncology (with caution), can be tried. The trade-offs must be explicitly thought through. Palliative care may drive outpatient volumes but has limited impact on inpatient occupancy. Oncology offers higher revenue potential but is capital-intensive and carries significant break-even risk.
   The expansion decisions can be evaluated based on (1) catchment demand assessment, (2) talent pipeline availability, and (3) capex-to-throughput modelling. Additionally, diagnostics—often underutilised—represent low-hanging opportunity. Competitive pricing can drive outpatient footfall, potentially converting it into inpatient admissions.

In choosing the path to pursue, hospitals must evaluate three diagnostic questions:

• What is our identity today and what do we want it to be?

As marketisation intensifies competition, without a clearly defined identity, SME hospitals risk not being able to communicate the value they bring to patients. A well-defined identity enables strategic choices in terms of services, capital allocation, and consistent positioning.

• Are we leveraging our strengths (which often times is generational trust)?

As consumer expectations evolve towards brand and experience, often favouring larger players, recognising and amplifying trust allows SME hospitals to retain patient loyalty and differentiate based on continuity of care rather than infrastructure alone.

• Do we have access to more than one doctor while diversifying in the pathway we choose?

This becomes important because scaling services or diversifying specialties requires clinical bandwidth and continuity. Since many SME hospitals are heavily dependent on a few doctors who are often promoters, building a broader pool of clinicians not only supports growth but also aligns with rising patient expectations for availability, specialisation, and reliability of care.

The middle-market squeeze is real. It is structural, not temporary. Hospitals that choose decisively can still shape their destiny.

[1] Express Healthcare: Will consolidation among India’s hospital groups benefit all patients equally, December 2024

https://www.expresshealthcare.in/blogs/editors-blog/will-consolidation-among-indias-hospital-groups-benefit-all-patients-equally/447216/

[2] CRISIL Healthcare report, May 2025

[3] Aster, Press Release: Aster and Blackstone-backed Quality Care have merged to establish one of the top 3 Hospital chains in India with 10,150+ beds, November 2024

https://www.asterdmhealthcare.in/newsroom/detail/aster-and-blackstone-backed-quality-care-have-merged-establish-one-of-top-3-hospital-chains-india

[4] KPMG Healthcare TL – Multi-specialty hospitals in India, December 2025

https://assets.kpmg.com/content/dam/kpmgsites/in/pdf/2025/12/multi-speciality-hospitals-in-india-evolution-of-hospitals-deals-post-covid.pdf

[5] PIB Delhi, India’s Transformation into a Global Health Powerhouse, March 2026

https://static.pib.gov.in/WriteReadData/specificdocs/documents/2026/mar/doc202631807601.pdf

[6] Pierre-Yann Dolbec , Rodrigo B. Castilhos, Marcelo J. Fonseca, and Guilherme Trez: How established organizations combine logics to reconfigure resources and adapt to marketization: A Case Study of Brazilian Religious Schools, Journal of Marketing Research, 2022

https://www.researchgate.net/publication/349232001_How_Established_Organizations_Combine_Logics_to_Reconfigure_Resources_and_Adapt_to_Marketization_A_Case_Study_on_Brazilian_Religious_Schools

[7] LEK 2025 India Hospital Priorities Survey Findings, August 2025

https://www.lek.com/sites/default/files/insights/pdf-attachments/hospital-survey-india-2025.pdf

Subhasree Das
Subhasree is an MBA graduate from the Indian Institute of Management Udaipur (2024-26) with prior experience at Deloitte USI and interest in the field of strategy.

Prof. Vedha Ponnappan
Prof. Vedha Ponnappan is an Associate Professor at the Indian Institute of Management Udaipur. She serves as Co-Chair of the Centre for Healthcare at IIM Udaipur, with research interests in healthcare, health financing, nutrition, demand analysis, household consumption and production, and healthcare policy analysis.

Prof. Prakash Satyavageeswaran
Prof. Prakash Satyavageeswaran is an Associate Professor at the Indian Institute of Management Udaipur. He serves as Co-Chair of the Centre for Healthcare at IIM Udaipur, with research interests spanning healthcare, food marketing and consumption, marginalised populations, rural and women entrepreneurship, emerging markets, strategy and leadership, and B2B marketing.