This study investigates the impact of patients' payment methods on hospitals' discharge process. Patients' payment methods, particularly the use of third‐party payers, are documented to impact hospitals' behavior. However, evidence is still missing on how differences across payment categories affect hospital discharge, a complicated and poorly standardized process. Data are derived from a single case study carried out in 2014 at the Mazumdar Shaw Medical Center at the Narayana Health City Campus in Bangalore, India. A mixed‐method approach has been adopted. First, process mapping for different payment categories was conducted using unstructured interviews with staff and on‐the‐floor observations. Second, linear regression analysis was applied on a sample of 1000 discharges that occurred in January 2014 to investigate the impact of patients' payment categories on discharge turnaround time. The qualitative evidence highlights substantial variation in the discharge process across payment categories. Regression analyses reveal that the sequential process used to discharge community health insurance patients results in a significantly shorter discharge turnaround time and that cash‐paying patients do not experience any significantly shorter discharge duration. For hospital managers, this study provides important evidence that patient utilization of a third‐party payer does not hamper hospital efficiency. This finding should also encourage policy makers and third‐party payers to work towards expanding the medical insurance system, particularly in India and particularly community‐based schemes. At the same time, our findings document a strong fragmentation of discharge processes, which should spur hospitals and third‐party payers to cooperate in order to set standards and minimize disruptions to patient flows. Copyright © 2015 John Wiley & Sons, Ltd.