Financial Management in Hospitals 1229578157209264 1

7/31/2019 Financial Management in Hospitals 1229578157209264 1

1/41

Financial Management in

hospital

Some observations for the presentand the future


2/41

12/1/2008 Parama Healthcare P Ltd 2

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


3/41


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


4/41


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


5/41


The service providers

Government

PrivateNGO/Notfor profit


6/41


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


7/41


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


8/41


Finance Management stages

Projects

Operations

Costing and cost control


9/41


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


10/41



Real estate participation by the realty

owners

Hospital and Physician partnership

Relevant and affordable technology

Medium size or small size OPD andDiagnostic Centers


11/41



Design has an impact capital cost perbed

Design follows function, faulty or baddesign follows increased cost of

function and higher levels of BEP


12/41


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.


13/41


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.


14/41


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


15/41


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


16/41


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


17/41


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


18/41


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.


19/41


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.


20/41


Areas of outsourcing

House Keeping and waste disposal

Bio medical equipment maintenance

Laundry


21/41



Food and Beverages

CSSD

Blood Bank


22/41



Lab and Diagnostic Center

Pharmacy

Consignment purchases

IT Both hardware and software


23/41



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


24/41



Corporate and Insurance BillProcessing

Payroll processing Security

Maintenance Department

Electronic Medical Records


25/41


Equipment Leasing

Operational leasing for expandinghospitals

Ideal for Single or dual verticalmedical practice while establishing

more centers


26/41


Equipment Leasing

Suitable for medium sized multispecialty hospital expanding in

certain specialties in other centers

Short term or seasonal trendmanagement of increased load


27/41


Unfunded liabilities

Pension Fund Obligations

Gratuity Fund

Encashment of leave benefits

Medical Malpractice Claims


28/41


Financing Operations

Factoring corporate and insurancepatient bills U.S. Example ofaggregation and buying Pharmacybills

Care Credit Card


29/41


Participants in patient revenue

Insurance companies

Corporate/Employers

Self Paying patients

Co Paying Patients


30/41


Factoring patient bills ( Corporateand Insurance bills)

Pre authorized bills of corporate andinsurance companies.

Bills backed by the corporate and

insurance companies


31/41



Normal period for small and mediumsized hospitals ranges from 45 to 90days including processing ofdocuments


32/41



Factoring company specializes inprocessing the bills and realizes thepayments from corporate andinsurance

Recourse to the hospital when facedwith disallowances


33/41


Care Credit Cards

Specifically for healthcare treatmentsand procedures

Payment options under no interest

option and extended paymentsoptions


34/41


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


35/41


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


36/41



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


37/41



Developing different pricing modelsfor different patient segments

Helps in evaluation and measuringperformances

Especially when outcome basedpayments are to be introduced


38/41



Identify and economize use ofmaterials

Capacity utilization of wards, servicedepartments and equipments.


39/41


Some methods and techniques

Top Down Approach/Case MixApproach

Bottom Up approach/Micro Costing or

Activity Based Costing


40/41


Some methods and techniques

Marginal costing very useful in pricingfor generating additional patient loadas a marketing strategy


41/41


Thank you

S.Manivannan

Director

Parama Healthcare P [email protected]

Financial Management in Hospitals 1229578157209264 1

Documents

Transcript of Financial Management in Hospitals 1229578157209264 1