The modern CFO in healthcare faces a critical question: are strong hospital financial performance KPIs revealing true profitability or masking deeper financial risks?

Sandhya Sriram, Group CFO of Narayana Health, engaged in a conversation with Thiruamuthan, Correspondent at Finance Outlook India, discusses how healthcare CFOs balance financial discipline with affordable patient care, evaluate hospital performance, make strategic investment decisions, and ensure long-term financial sustainability.

With over 2 decades of experience in finance and business leadership, Sandhya Sriram has held senior roles at Narayana Health, Wipro, and Hindustan Unilever, specializing in financial strategy, risk management, and healthcare financial sustainability.

What has your journey across consumer, technology and healthcare taught you about making finance a stronger business partner?

People often assume that moving from consumer to technology to healthcare means starting over each time. In many ways, it didn't. Finance business partnering is remarkably fungible across industries. Understanding how a business makes money, where value leaks, how capital gets deployed and what really drives the P&L travels well from one sector to the next.

What doesn't travel automatically is context. Every business has its own nuances, and you have to deep dive to understand them. For consumers, it was brands, distribution, manufacturing and the economics of the shelf. In technology, it was optimizing the customer value chain in the most efficient way. In healthcare, it is clinical pathways, payor contracts and the reality that every number has someone probably going through pain in the real meaning of the word behind it.

The bigger lesson for me, though, goes beyond the business model. You have to understand the strategic goals, the values and the purpose of the organization. You cannot be a strong business partner if you are not aligned with the purpose of the organization. When you are, the questions you ask change. You stop asking only what something costs and start asking whether it takes the organization closer to where it wants to be.

What has your experience as a healthcare CFO taught you about balancing financial discipline with the realities of delivering quality patient care?

I consider myself fortunate. I get to be part of a mission called NH, which is focused on making accessible, affordable care a reality while balancing the expectations of every stakeholder: patients, doctors, employees, payors and investors.

It is important that healthcare organizations are financially sustainable, because charity is not scalable. If we want to reach many more patients, we need surpluses to reinvest. That is how the next hospital gets built, the next machine gets bought, and the next generation of clinicians gets trained.

But that doesn't take away from the fact that this is a very, very complex problem to solve. Consider what goes into running a hospital:

• You have to invest in talent, which is scarce and rightly expensive.

• You have to invest in technology, and keep investing as it upgrades. Every upgrade brings cost escalation with it.

• You have to buy real estate at commercial real estate prices. Nobody gives you a discount because you are building a hospital.

• You are heavily exposed to currency, since so much of the equipment and many consumables are imported.

And yet most of the country cannot afford healthcare. On the revenue side, payor mixes are skewed and contracts are not always standard in terms of what you actually recover. The same procedure can realize very different amounts depending on who is paying.

Within all of this, we chose to become India's first JCI enterprise, we chose to become a tech-first hospital, and we chose to become an insurance provider also. Making that kind of investment in quality, safety, technology and future focus, while keeping prices low is a really tough balancing act. Financial discipline in this context is not about cutting corners. It is about running every part of the system so efficiently that we never have to cut corners on care.

I see it as my privilege to be part of this righteous challenge.

A principle that guides her decisions: Ambition should always be greater than resources, driving her to find innovative ways to make affordable healthcare accessible to all.

What are the most important financial KPIs for measuring hospital performance?

I look at it in two halves: what you realize for the care you deliver, and what it costs you to deliver it.

Realization. We measure this as ARPIP, average revenue per inpatient and ARPOP, average revenue per out patient. It tells you what you actually earn for every patient you treat, and it quietly captures a lot in one number: case mix, pricing, payor mix, discounts and leakage. When ARPIP moves, you have to ask why, because the answer is rarely just price.

Costs. We split these into variable and fixed, because they behave very differently.

• Variable costs: consumption (drugs, implants and consumables), variable operating costs, fee-for-service payouts to doctors and the cost of pay-per-use arrangements.

• Fixed costs: infrastructure, people and fixed overheads.

The split matters because hospitals are a business of operating leverage. What is left after variable costs has to absorb a large fixed base. Once that base is covered, every additional patient contributes strongly to margins. When volumes dip, the same leverage works against you, and it works fast.

How do hospitals measure profitability and financial health?

There is a lot of focus on EBITDA in our industry, and it is a useful view of operating performance. But for hospitals, the real measure is PAT, because depreciation and interest are very real costs for us.

Hospitals are built on land, buildings and equipment, much of it funded with debt, and that equipment has to be replaced on a cycle. In fact, depreciation doesn't even cover the replacement cost of the assets. When a cath lab or an MRI comes up for replacement, it costs far more than what was paid for it a decade ago. A hospital that looks healthy at EBITDA but thin at PAT is quietly eating into its own future.

The second measure is cash flow. Profit on paper means little if it is locked up in receivables from insurers and government schemes. The question I keep coming back to is simple: can the business fund its maintenance capex, service its debt and still have something left to grow?

What is ARPOB in hospitals, and how does it affect hospital profitability?

ARPOB is the average revenue per occupied bed. Since such a large part of a hospital's cost base is fixed, ARPOB measures how efficiently you are utilizing those fixed costs. The more revenue each occupied bed generates, the better your margins.

But we believe ARPIP is a better measure. ARPOB is a bed-day metric, and it can move for reasons that have little to do with how well you are serving patients.

ARPIP looks at the whole patient episode, which is how patients and payors actually experience the cost of care. For an organization whose purpose is affordability, that is the right lens. Our aim is not to maximize what each bed earns per day. It is to deliver the best outcome for each patient at a price they can afford, and still run a sustainable hospital.

How do hospital occupancy rate, revenue per bed, and EBITDA work together to measure performance?

I think of them as three questions asked in sequence. Occupancy asks how much of your capacity you are using. Revenue per bed asks how much value each bed in use generates. EBITDA asks how much of that revenue you actually keep after running the hospital.

Read alone, each one can mislead you:

• High occupancy with low revenue per bed can mean long stays or a case mix that doesn't match what the hospital was built for. The beds are full, but the expensive infrastructure is underused.

• High revenue per bed with low occupancy can mean a strong clinical program that hasn't yet found its volumes. The fixed costs are still running regardless.

• Strong occupancy and revenue per bed with weak EBITDA usually point to the cost side: consumption creeping up, costs out of line or payor contracts that realize less than the bill suggests.

Together, occupancy and revenue per bed tell you how hard your assets are working. EBITDA tells you whether that work is converting into margin. You also have to read them against the maturity of the hospital. A new hospital is on a ramp, so the trajectory matters more than the absolute number. A mature hospital has no such excuse.

In our own reviews, we pair these with ARPIP and average length of stay. But it's not so simple. There are a multitude of KPIs that we track at every level. That combination tells us whether a change in revenue came from more patients, more complex patients, longer stays, or better pricing and those are very different stories.

What are the key benchmarks CFOs should use to evaluate hospital financial performance?

The first rule of benchmarking is to compare like with like. A hospital's numbers depend heavily on its age, its city, its specialty mix and its payor mix. Comparing a five-year-old tertiary care hospital in a metro with a two-year-old hospital in a tier 2 city tells you very little.

Within that discipline, these are the benchmarks I would watch:

• Utilization: occupancy and average length of stay, tracked against the hospital's own maturity curve.

• Realization: ARPIP and ARPOB trends, read against case mix and medical inflation rather than in isolation.

• Cost ratios: consumption, people costs and doctor costs. These are where margins are won or lost.

• Margins: EBITDA and, more importantly, PAT margins by hospital.

• Returns: return on capital employed against the cost of capital, and the payback period on each new hospital or major investment.

• Cash: receivable days by payor category and operating cash conversion.

• Balance sheet: net debt to EBITDA, DSCR and the share of maintenance capex the business funds from its own cash.

The external benchmark matters, but your most honest benchmark is your own trajectory. Are you getting better every quarter at turning capacity into care, and care into sustainable returns?

Looking ahead, where is hospital financial management headed, and what should CFOs implement now to stay prepared?

Healthcare is a very heavy, capital-intensive industry. The ability to look into the future and make the right capital choices is really the most important role a hospital CFO plays. A hospital you commit to today will serve patients for decades, getting that call right, on where to build, what to buy and when to replace, shapes the organization long after the decision is made.

The second part of the role is ensuring a continuous balance of all the parameters: realization, cost, quality, access, cash and returns. None of them can be optimized in isolation, and the balance has to be reset every year as technology, payor dynamics and patient expectations shift. Key levers for financial management in a hospital are

1. A disciplined capital allocation framework, with scenario planning built into every investment case.

2. Granular costing, so pricing and contracting decisions rest on real numbers.

3. Strong data and analytics that let you see performance close to real time.

4. Sharper payor contracting and analytics, because what you bill and what you recover are not the same thing.

5. A relentless focus on cash, because in a capital-intensive business, cash is what buys you the right to invest in the future.

What’s your personal leadership mantra?

Ethical, values-driven execution. Empower your team. Build a holistic perspective on business outcomes. And always strive to do better.

Values come first because in finance, and especially in healthcare, trust is the foundation of everything else. Empowerment matters because no CFO can be in every room, and a team that owns its decisions will always outperform one that waits for permission. A holistic perspective keeps finance from optimizing one number at the cost of the whole. And the drive to do better is what stops a good team from settling.

Five key pieces of advice for emerging leaders:

1. Stay hungry. Curiosity and appetite are what keep you learning long after the formal learning stops.

2. Build tech-driven execution skills. Technology is no longer a support function to finance. It is how finance gets done. Leaders who can harness data and tools will move faster and see further.

3. Smart working is as important as hard working. Effort matters, but knowing where to apply it matters more.

4. Take a long-term view of your career. Not every role will look like a step up on paper. Some of the most valuable ones build the breadth you will need later.

5. Focus on who you become every day. Titles come and go. The person you are building, through every decision and every conversation, is what stays with you.