A few service lines fund the hospital. Most of the others run at a loss.
Hospitals rarely lose money evenly. A handful of high-margin procedures quietly carry the rest, and almost nobody can name them with confidence. Once cost follows the patient instead of the department, the cross-subsidy becomes visible, and so does the decision it forces.
Cost and Profitability Consulting · 150+ models since 2010 · TDABC
In a typical hospital, 30 to 40 percent of services are delivered below cost and cross-subsidised by a smaller number of high-margin procedures. Procedure-level margins range from minus 40 to plus 60 percent within the same hospital. Because step-down allocation hides this, most providers cannot say which service lines pay. TDABC makes the cross-subsidy explicit, turning a blended average into a defensible service-line P&L.
A blended average hides who pays.
Under blended accounting a service line looks like a single number, and that number averages a profitable, high-volume procedure with a complex one that runs well below cost. The mix is invisible, so the cross-subsidy is real but unmanaged: a few lines fund the institution, many sit below cost, and the people setting budgets cannot tell which is which. Fragmentation across clinical, billing and cost systems is consistently the number-one barrier to seeing it.
SERVICE LINES, RANKED BY CUMULATIVE MARGIN
Illustrative. The whale curve applies to service lines as much as to products: a few lines build margin well past 100 percent of the total, then a long tail of below-cost lines drags it back.
Roll up the cases, then load the line.
Aggregate the TDABC procedure costs from the case level to the service line, then load the cost-to-serve of the line itself: theatre access, imaging, ward intensity, readmissions. A line that looks profitable on charges can sit below cost once its real consumption is loaded. In one documented case, a European hospital rebuilt its management view on a balanced scorecard after a merger, precisely to see performance by line rather than by legacy department.
Roll up procedure costs
Sum case-level TDABC costs into each service line, measured the way reimbursement is paid.
Load the line's cost-to-serve
Theatre access, imaging, ward intensity, readmissions: the shared resources the line actually consumes.
Rank against funding
Lines sort by true margin against their tariffs and block contracts, exposing the cross-subsidy.
Fund, price or redesign
Fund the cross-subsidy deliberately, price it with payers, and remove cost that is waste rather than care.
The clinical answer is rarely "stop doing it." It is to fund the cross-subsidy on purpose, price it correctly, and strip the waste, not the care.
Frequently asked questions
- How many hospital services lose money?
- In a typical hospital, roughly 30 to 40 percent of services are delivered below cost and are cross-subsidised by a smaller number of high-margin procedures. Procedure-level margins range from minus 40 percent to plus 60 percent within the same hospital, and step-down allocation hides this, so most providers cannot say which service lines pay.
- Should a hospital stop loss-making service lines?
- Not automatically. These are patients, not products. The point of service-line costing is to make the cross-subsidy a conscious, funded decision, to price it correctly with payers, and to strip out cost that is waste rather than care, not to ration.
- How do you build a service-line P&L?
- Roll up TDABC procedure costs to the service line, then load the cost-to-serve of each line, theatre access, imaging, ward intensity and readmissions. A line that looks profitable on charges can sit below cost once its real consumption is loaded.
See which service lines actually pay.
The Profit Check takes five minutes and no data upload. It points to where your service-line cross-subsidy is most likely hiding, and what it is worth to make visible.