Financial Management in Hospitals 1229578157209264 1
Transcript of Financial Management in Hospitals 1229578157209264 1
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Financial Management in
hospital
Some observations for the presentand the future
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Interesting times ahead???
May you live in interesting times aold proverb is more a curse than agood wish!!
We are facing interesting times whichare unsettling, harsh and often
unpleasant with deep recession
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Haves and Have nots
There is a widening gap betweenHave and Have Nots in healthcareorganizations
Haves do have the size, revenuediversity, generate cash flows andhave balance sheet strength to raise
capital to meet renewal andexpansion
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Haves and Have nots
The other healthcare organizationsincluding private hospitals struggle tomeet critical capital needs
They need to depend on their regularcash flows, bank lines of credits and
joint efforts with NGOs and
Government to set up theinfrastructure
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The service providers
Government
PrivateNGO/Notfor profit
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Concepts for the service providers
Government Hospitals - Out of every dollar,
100 cents will be spent
NGO/Not for Profit Hospitals Out of every
dollar, 90 cents will be spent and 10 centswill be towards administration
The trend now is to make surplus and
plough back for maintaining and expandingthe unit since donors are difficult to find
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Concepts for the service providers
For Profit Hospitals Out of everydollar, you spend only 70 cents,setting aside 30 cents towards returnon investment or dividends
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Finance Management stages
Projects
Operations
Costing and cost control
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Project Funding Observations onbringing down the capital cost
Decide the cost at which you want to bring
the product to the market
Decide the cost of the project based on
above
More OPDs with advanced technology,shorter LOS and more day care will free upthe space and bring down the cost of theproject
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Project Funding Observations onbringing down the capital cost
Real estate participation by the realty
owners
Hospital and Physician partnership
Relevant and affordable technology
Medium size or small size OPD andDiagnostic Centers
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Project Funding Observations onbringing down the capital cost
Design has an impact capital cost perbed
Design follows function, faulty or baddesign follows increased cost of
function and higher levels of BEP
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Project Funding institutionalreforms
Industry status- Institutional lending as a
priority sector and classification of smalland medium scale industries.
Infrastructure Industry status: In other
infrastructure projects like roads, bridges,Power, airports & hotels etc, utilizationkicks in early. In hospitals it takes time.
Hence access to capital and tax holidays atrelevant periods are important.
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Project Funding institutionalreforms
Tax break- Presently it is notadequate. Give a choice of block ofyears to claim the tax holiday
Free from all VAT, import duty and
Service tax implications.
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Project Funding some trends
Public Private Partnership
Medical collages ( both governmentand private colleges) opening paywards or corporate wards
Focus on selected verticals inspecialties and partner with others forother verticals
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The focus is on now..
Capital cost per Bed since it takesabout three to five years for acomplete break even
Size and stage wise expansion andbreak even at every stage
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Project Funding
Traditional funding
Outsourcing as a method of reducing
capital cost and getting economies ofscale leads to a situation where ininitial capital cost per bed is lower
Equipment leasing
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Outsourcing as a means of finance
Outsourcing leads to conversion of fixed
cost in to variable cost.
This leads to availing of better rates based
on economies of scale till the hospitalachieves the economic scale.
Brings down the upfront investment inequity and debt to begin with the project
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Outsourcing some criteria
Though one may want to own many
of the major capital equipments, atight outlay may lead to avoidingupfront investment in equipments
An outsourcing partner will haveemployees who have been in
leadership position in healthcareorganizations.
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Outsourcing some criteria
They are able to understand the
departments needs unique to the hospital.
Evaluate the departments efficiency to
improve revenue and reduce the costs
Already has the infrastructure and
experience in supporting number of units.
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Areas of outsourcing
House Keeping and waste disposal
Bio medical equipment maintenance
Laundry
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Areas of outsourcing
Food and Beverages
CSSD
Blood Bank
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Areas of outsourcing
Lab and Diagnostic Center
Pharmacy
Consignment purchases
IT Both hardware and software
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Areas of outsourcing
Outsourcing certain areas of medicalpractice with equipment
Oncology
Cardiology and CT
Dental
Ophthalmology IVF Centers
Ideal for small &
medium sizedhospital with
specialization in twoor more verticals
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Areas of outsourcing
Corporate and Insurance BillProcessing
Payroll processing Security
Maintenance Department
Electronic Medical Records
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Equipment Leasing
Operational leasing for expandinghospitals
Ideal for Single or dual verticalmedical practice while establishing
more centers
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Equipment Leasing
Suitable for medium sized multispecialty hospital expanding in
certain specialties in other centers
Short term or seasonal trendmanagement of increased load
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Unfunded liabilities
Pension Fund Obligations
Gratuity Fund
Encashment of leave benefits
Medical Malpractice Claims
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Financing Operations
Factoring corporate and insurancepatient bills U.S. Example ofaggregation and buying Pharmacybills
Care Credit Card
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Participants in patient revenue
Insurance companies
Corporate/Employers
Self Paying patients
Co Paying Patients
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Factoring patient bills ( Corporateand Insurance bills)
Pre authorized bills of corporate andinsurance companies.
Bills backed by the corporate and
insurance companies
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Factoring patient bills ( Corporateand Insurance bills)
Normal period for small and mediumsized hospitals ranges from 45 to 90days including processing ofdocuments
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Factoring patient bills ( Corporateand Insurance bills)
Factoring company specializes inprocessing the bills and realizes thepayments from corporate andinsurance
Recourse to the hospital when facedwith disallowances
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Care Credit Cards
Specifically for healthcare treatmentsand procedures
Payment options under no interest
option and extended paymentsoptions
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Care Credit Cards
Can be used for procedures generallynot covered by health insuranceprograms
Under first option, payment is made in3,6,12 and 18 months. The plan to pay
under different pay periods is offeredby the service provider
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Care Credit Cards
The extended payment option attractsinterest on outstanding.
The payment can be made in 24,36,48 & 60months.
Hospitals, nursing homes and doctors canparticipate as merchant establishments
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Costing and cost control
Costing is an important tool inmanagement of finances
Decision to outsource or not
Decision on investment to start or setup new departments and buying newequipments
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Costing and cost control
Developing different pricing modelsfor different patient segments
Helps in evaluation and measuringperformances
Especially when outcome basedpayments are to be introduced
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Costing and cost control
Identify and economize use ofmaterials
Capacity utilization of wards, servicedepartments and equipments.
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Some methods and techniques
Top Down Approach/Case MixApproach
Bottom Up approach/Micro Costing or
Activity Based Costing
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Some methods and techniques
Marginal costing very useful in pricingfor generating additional patient loadas a marketing strategy
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Thank you
S.Manivannan
Director
Parama Healthcare P [email protected]