Healthcare services model: hospital operator
Beds, adjusted admissions, payer mix, labour, returns. Build a hospital operator from its beds: patient days, admissions and adjusted admissions, revenue by payer with price concessions on self-pay, labour from staffing ratios and contract labour, supplies, EBITDA, then free cash flow, a buyout’s debt and the sponsor’s return, and read what a payer mix shift or a labour shock does to each.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: healthcare services model: hospital operator.Updated 4 November 2026
Who builds it, and for whatThe model a healthcare services analyst builds for a hospital operator, and the one a leveraged finance team or a private equity fund rebuilds before lending to or buying one. Equity research uses it to forecast volumes and margins quarter by quarter; bankers use it to value the business and size its debt; buyers use it to test what a drift in payer mix or a year of agency staffing would do to coverage and to the return.
Every sheet below, in your browser, with its outputs and checks
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| A | B | C | D | E | F | G | H | I | J | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1 | Assumptions | |||||||||
| 2 | $m unless stated. Admissions, patient days and visits in thousands; revenue per admission and costs per unit in dollars. | |||||||||
| 4 | Year | Unit | FY0 | FY1 | FY2 | FY3 | FY4 | FY5 | Notes | |
| 5 | Year number | # | 0 | 1 | 2 | 3 | 4 | 5 | FY0 = 0. Drives price and cost growth. | |
| 7 | Scenario | |||||||||
| 8 | Scenario | # | 1 | 1 = base, 2 = payer mix shift to government, 3 = labour shock. Sets the payer mix shift, wage inflation and contract labour from FY1. | ||||||
| 10 | Beds, occupancy and length of stay | |||||||||
| 11 | Licensed beds, FY0 | beds | 2400 | Eight acute-care hospitals at the end of the base year. | ||||||
| 12 | Beds added | beds | 0 | 60 | 60 | 40 | 0 | A new patient tower and two expansions, opened evenly through the year. | ||
| 13 | Occupancy of licensed beds | % | 70.0% | 70.5% | 71.0% | 71.5% | 72.0% | 72.0% | Patient days / (average licensed beds x days). | |
| 14 | Days in the year | days | 365 | |||||||
| 15 | Average length of stay | days | 4.90 | 4.88 | 4.86 | 4.84 | 4.82 | 4.80 | Inpatient days per admission. A shorter stay frees beds for more admissions. | |
| 16 | Outpatient visits, FY0 | '000 visits | 2,300.0 | Emergency, surgery, imaging and clinic visits not followed by an admission. | ||||||
| 17 | Outpatient visit growth, annual | % | 3.5% | |||||||
| 19 | Payer mix and pricing | |||||||||
| 20 | Commercial share of admissions, FY0 | % | 32.0% | Employer and individual insurance. The same mix is applied to outpatient visits. | ||||||
| 21 | Medicare share of admissions, FY0 | % | 44.0% | Including Medicare Advantage. Self-pay is the remainder. | ||||||
| 22 | Medicaid share of admissions, FY0 | % | 14.0% | |||||||
| 23 | Commercial share moved to government payers, base | pp a year | 0.0% | |||||||
| 24 | Commercial share moved to government payers, payer mix shift | pp a year | 1.2% | Percentage points of admissions a year, cumulative from FY1. | ||||||
| 25 | Commercial share moved to government payers, labour shock | pp a year | 0.0% | |||||||
| 26 | Commercial share moved to government payers, selected scenario | pp a year | 0.0% | |||||||
| 27 | Share of the commercial shift that goes to Medicaid | % | 40.0% | The rest goes to Medicare. Also used by the sensitivity grid. | ||||||
| 28 | Revenue per admission, commercial, FY0 | $ per admission | 26000 | Before price concessions. Negotiated rates; the highest of the four. | ||||||
| 29 | Commercial rate growth, annual | % | 3.5% | |||||||
| 30 | Revenue per admission, Medicare, FY0 | $ per admission | 15500 | Set by the federal payment system by diagnosis group. | ||||||
| 31 | Medicare rate growth, annual | % | 2.5% | |||||||
| 32 | Revenue per admission, Medicaid, FY0 | $ per admission | 9500 | Set by each state; often below the cost of care. | ||||||
| 33 | Medicaid rate growth, annual | % | 1.5% | |||||||
| 34 | Revenue per admission, self-pay, FY0 | $ per admission | 18000 | Billed to the patient, before the price concession. | ||||||
| 35 | Self-pay rate growth, annual | % | 3.0% | |||||||
| 36 | Outpatient revenue per visit, % of revenue per admission | % | 5.0% | By payer: a commercial visit earns 5% of a commercial admission. | ||||||
| 37 | Implicit price concessions, % of self-pay revenue | % | 85.0% | The share of self-pay charges not expected to be collected. Deducted from revenue. | ||||||
| 39 | Labour, supplies and other costs | |||||||||
| 40 | FTEs per adjusted occupied bed | FTEs | 5.00 | Full-time equivalent staff, employed and contract, per adjusted occupied bed. | ||||||
| 41 | Salaries and benefits per FTE, FY0 | $'000 a year | 105.00 | |||||||
| 42 | Wage inflation, base | % | 3.5% | Annual, from FY1. | ||||||
| 43 | Wage inflation, payer mix shift | % | 3.5% | |||||||
| 44 | Wage inflation, labour shock | % | 5.5% | |||||||
| 45 | Wage inflation, selected scenario | % | 3.5% | |||||||
| 46 | Contract labour share of hours, base | % | 4.0% | Agency and travelling staff. FY0 is at the base share in every scenario. | ||||||
| 47 | Contract labour share of hours, payer mix shift | % | 4.0% | |||||||
| 48 | Contract labour share of hours, labour shock | % | 8.0% | |||||||
| 49 | Contract labour share of hours, selected scenario | % | 4.0% | |||||||
| 50 | Contract labour premium over employed cost | % | 60.0% | Agency rates include the agency’s margin and travel. | ||||||
| 51 | Supplies per adjusted admission, FY0 | $ per adj. admission | 2600 | Drugs, implants and surgical and medical supplies. | ||||||
| 52 | Supplies cost growth, annual | % | 3.0% | |||||||
| 53 | Other operating expenses, % of revenue | % | 18.0% | Purchased services, professional fees, utilities, insurance, IT and non-income taxes. | ||||||
| 54 | Rent and lease expense, FY0 | $m | 70.0 | Leased buildings and equipment. Fixed. | ||||||
| 55 | Rent growth, annual | % | 3.0% | |||||||
| 57 | Capital spending and depreciation | |||||||||
| 58 | Net PP&E, FY0 | $m | 3,200.0 | |||||||
| 59 | Depreciation, % of opening net PP&E | % | 6.5% | |||||||
| 60 | Maintenance capital spending, % of revenue | % | 3.5% | Replacing equipment and keeping buildings to code. | ||||||
| 61 | Capital cost per bed added | $m per bed | 2.20 | Growth capital spending, paid in the year the beds open. | ||||||
| 63 | Working capital and tax | |||||||||
| 64 | Net working capital, % of revenue | % | 8.0% | Patient receivables and supplies less payables and accrued salaries. | ||||||
| 65 | Tax rate | % | 24.0% | |||||||
| 67 | Purchase and financing | |||||||||
| 68 | Entry multiple, EV / FY0 EBITDA | x | 9.0x | Paid at the end of FY0. | ||||||
| 69 | Transaction fees, % of enterprise value | % | 2.0% | |||||||
| 70 | Debt at entry, x FY0 EBITDA | x | 5.0x | |||||||
| 71 | Interest rate | % | 7.5% | On the opening balance. | ||||||
| 72 | Mandatory amortisation, % of original debt a year | % | 1.0% | |||||||
| 73 | Cash sweep, % of cash after debt service | % | 100.0% | |||||||
| 75 | Exit | |||||||||
| 76 | Exit multiple, EV / FY5 EBITDA | x | 8.5x | Sold at the end of FY5. | ||||||
Select a cell to see its row, its schedule and the type of cell. Font colours: blue for inputs, black for formulas, green for links to other sheets. Scroll sideways to see every period.
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Healthcare services model: hospital operator: the workbook
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- The worked model
- 10 sheets and 646 live formulas, all 9 schedules built and linked, every check reading zero. Change an input in Excel and the whole model moves.
- The starter
- The same inputs and layout with the hospital volumes and adjusted admissions left blank for you to build, each blank cell marked. The worked model is its answer.
What the base case says
- EBITDA margin, FY5
- 21.5%
- Equity IRR
- 14.8%
- Net revenue, FY5
- $5,353.2m
- EBITDA, FY5
- $1,150.6m
- EBITDA margin, FY0
- 21.6%
- Adjusted admissions, FY5 (thousands)
- $276.7m
- Net revenue per adjusted admission, FY5 ($)
- 19,344
- Labour cost, % of revenue, FY5
- 43.4%
- Free cash flow, FY5
- $542.4m
- Net debt / EBITDA, FY5
- 2.2x
- Enterprise value at entry
- $7,820.0m
- Multiple of money
- 2.0x
Read from the workbook as served, every input at its default. Periods: FY0, FY1, FY2, FY3, FY4, FY5. The figures are invented and move with whatever you type in.
What this model is
A five-year model (FY1 to FY5, from an FY0 base year) of an invented operator of eight acute-care hospitals, bought at the end of FY0 with an acquisition loan and sold at the end of FY5.
Volume comes from capacity: licensed beds, occupancy and the average length of stay give patient days and admissions, and outpatient visits are added through adjusted admissions, the sector’s combined measure of inpatient and outpatient work.
Price depends on who pays. Commercial insurers pay the most per admission, Medicare less and Medicaid least; self-pay charges are mostly not collected and are reduced by implicit price concessions. A shift of patients from commercial to government payers lowers revenue per admission while the cost of treating them stays the same.
Labour is the largest cost: staff per adjusted occupied bed, a cost per employee that grows with wage inflation, and contract labour at a premium. Supplies follow adjusted admissions. EBITDA runs to free cash flow, leverage and the sponsor’s return.
Three scenarios (base, a payer mix shift to government and a labour shock) and two board-style sensitivity tables: FY5 EBITDA margin by commercial share and wage inflation, and equity IRR by entry and exit multiple.
Seats: Equity research and hedge funds, Investment banking, Private equity.
Careers that do this work: equity research, hedge funds, investment banking, venture capital, private equity.
How the schedules connect
Every row in the workbook is tagged with the schedule it belongs to; the inspector above shows the tag when you click a row. These are the schedules this model is made of and where each one lives.
Hospital volumes and adjusted admissions
Beds, occupancy, length of stay, adjusted admissions
Assumptions, rows 11–17 · Volumes, rows 6–12 · Volumes, rows 15–22
Payer mix and hospital revenue
Revenue by payer, self-pay concessions, net revenue
Assumptions, rows 20–37 · Revenue, rows 6–10 · Revenue, rows 13–16 · Revenue, rows 19–23 · Revenue, rows 26–30 · Revenue, rows 33–41
Hospital labour, supplies and EBITDA
FTEs per bed, wage inflation, contract labour, supplies
Assumptions, rows 40–55 · Operating Costs, rows 6–14 · Operating Costs, rows 17–21 · Operating Costs, rows 24–27
Capex and depreciation (PP&E roll-forward)
Opening, plus capex, less depreciation, closing
Assumptions, rows 58–61 · Cash Flow, rows 6–10
Working capital schedule
Receivables, inventory and payables in days
Assumptions, rows 64–65 · Cash Flow, rows 22–27
Sources and uses
What the deal costs and who funds it
Assumptions, rows 68–70 · Returns, rows 6–14
Debt schedule
Tranches, interest, amortisation and the sweep
Assumptions, rows 71–73 · Debt, rows 6–12 · Debt, rows 15–20
Returns analysis
Exit value, MOIC, IRR and the bridge
Assumptions, row 76 · Returns, rows 17–21 · Returns, rows 24–26 · Returns, rows 29–34
Sensitivity tables
Two assumptions at once, without a data table
Sensitivity, rows 5–7 · Sensitivity, rows 10–15 · Sensitivity, rows 18–23 · Sensitivity, rows 26–33
What you should be able to explain
- How beds, occupancy and the average length of stay give patient days and admissions, and why a shorter stay at the same occupancy means more admissions.
- What adjusted admissions are (admissions x gross patient revenue / gross inpatient revenue) and why per-unit revenue and cost are measured on them rather than on admissions.
- Why payer mix decides revenue per admission: commercial insurers pay the most, Medicare less, Medicaid least, and self-pay is mostly not collected.
- Why uncollectable self-pay charges are an implicit price concession that reduces revenue under ASC 606, rather than a bad debt expense.
- Why labour is the line that moves the margin, and how contract labour at a premium raises the cost of the same hours.
- How a buyout of a hospital operator is valued on EV / EBITDA and why leverage falls as EBITDA grows and the loan is repaid.
What a reviewer looks for
- Revenue per admission divided by admissions alone, so outpatient revenue inflates the inpatient price and a shift to outpatient care reads as a price rise.
- One blended revenue per admission, so a drift from commercial to government payers never reaches the forecast.
- Self-pay charges counted at full value in revenue, with the uncollectable share left for a bad debt line or forgotten.
- Labour as a flat share of revenue, so wage inflation above price growth and agency premiums never compress the margin.
- Growth capital spending for new beds left out while the beds and their admissions are in.
Conventions this workbook uses
Stated on the cover sheet too. A model is only as trustworthy as the decisions it tells you it made.
- Annual periods. FY0 is the base year, built from the same drivers as the forecast; the purchase is priced on its EBITDA at the end of FY0 and the business is sold at the end of FY5 on FY5 EBITDA.
- Beds added open evenly through the year, so patient days use the average of opening and closing licensed beds. Admissions are patient days / average length of stay.
- Adjusted admissions = admissions x (1 + outpatient revenue / inpatient revenue), with both revenues before price concessions. This is the industry definition, admissions x gross patient revenue / gross inpatient revenue, with revenue before concessions in place of gross charges. Adjusted patient days and adjusted occupied beds are scaled the same way.
- One payer mix applies to admissions and outpatient visits. An outpatient visit earns a fixed share of the same payer’s revenue per admission. Self-pay is the remainder after commercial, Medicare and Medicaid.
- Implicit price concessions on self-pay revenue are deducted from revenue, as ASC 606 requires for amounts the hospital does not expect to collect when it treats the patient. There is no separate bad debt expense.
- Labour cost = FTEs x salaries and benefits per FTE, with the contract labour share of hours at the premium over employed cost. FTEs = adjusted occupied beds x FTEs per adjusted occupied bed. Wage inflation applies from FY1.
- Scenarios change the payer mix, wage inflation and contract labour share from FY1 only, so FY0 EBITDA and the price paid are the same in every scenario.
- Depreciation is a rate on opening net PP&E. Growth capital spending is the beds added x the capital cost per bed, paid in the year they open.
- Interest is charged on the opening balance of the loan. Free cash flow after interest pays the mandatory amortisation and is then swept to repay the loan; cash builds only once it is repaid. Tax is charged on profit before tax, never below zero.
- The sensitivity tables recompute FY5 from the model’s own lines and hold the debt as sized; the centre of each equals the model.
What this model does not cover
Where its answer stops, so you know what to add before relying on it.
- Individual hospitals, markets and service lines. The network is modelled as one, with one payer mix and one length of stay.
- Supplemental payments, state provider taxes and disproportionate share payments, which can be material for a hospital with many Medicaid patients.
- Physician employment, ambulatory surgery centres and other outpatient businesses outside the hospitals.
- Bad debt on the copayments and deductibles of insured patients; only self-pay charges carry a price concession.
- Quarterly seasonality, a revolver, minimum cash and the tax shield of the purchase price.
- Professional liability claims, regulatory settlements and the effect of policy changes on reimbursement rates.
Build it yourself
The starter workbook
The Volumes sheet has been cleared: licensed beds, patient days, admissions, outpatient visits, adjusted admissions, adjusted patient days and adjusted occupied beds. Rebuild it from the Assumptions sheet, then watch revenue, labour, supplies and the return calculate again. The Checks sheet shows when the bed roll-forward and the adjusted volumes tie.
Blanks: Hospital volumes and adjusted admissions. Download it beside the worked model.
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Vocabulary: EBITDA, Leverage Ratio (Debt/EBITDA), Free Cash Flow (FCF), Maintenance CapEx, Enterprise Value (EV), Entry Multiple, Exit Multiple, IRR, MoIC.
Questions about this model
What are adjusted admissions?
Inpatient and outpatient volume in one number: admissions x (1 + outpatient revenue / inpatient revenue), the same as admissions x gross patient revenue / gross inpatient revenue. In the base year 2,400 beds at 70% occupancy give 613,200 patient days; at a 4.9-day average stay that is 125,100 admissions. Outpatient revenue is 92% of inpatient revenue, so adjusted admissions are 240,100, and net revenue per adjusted admission is $16,740.
Why does payer mix matter so much?
Because the same admission is paid very differently. Here a commercial insurer pays $26,000, Medicare $15,500 and Medicaid $9,500, while a self-pay patient is billed $18,000 and 85% of it is never collected. Commercial patients are 32% of admissions and 50% of net revenue. Moving 1.2 points of admissions a year from commercial to government payers takes the FY5 EBITDA margin from 21.5% to 18.3% and the equity IRR from 14.8% to 6.3%, with the cost of care unchanged.
What does a labour shock do?
Labour is 43% of revenue in the base case. If wage inflation runs at 5.5% rather than 3.5% and contract staff work 8% of hours rather than 4%, at a 60% premium, labour reaches 49% of revenue by FY5, the EBITDA margin falls from 21.6% to 16.0%, net debt stays at 3.8 times EBITDA rather than falling to 2.2, and the equity IRR falls to 2.0%.
How is this different from the biotech and medtech models?
The biotech model values drugs that may never reach the market, on probabilities. The medtech model values a device company on its installed base and the consumables each system pulls through. A hospital operator sells neither: it sells bed-days and procedures to whoever pays for the patient, so it is modelled from capacity, payer mix and the staff it takes to run the beds, and it is usually bought with debt.
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Questions about this model
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