Impact of Financial Down Turn on Hospital Industry.case Study on Egyptian Private Hospital by...

7/27/2019 Impact of Financial Down Turn on Hospital Industry.case Study on Egyptian Private Hospital by Puruhutjit Surjit

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Impact of financial downturn on

healthcare industry

Case study on Egyptian private

hospital

Prepared By,

Puruhutjit Surjit

[email protected]


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Contents

Executive Summary...............................................................................2

Introduction..........................................................................................3

Methodology..........................................................................................4

Effect of financial Downturn.................................................................11

Recommendations...............................................................................13

Conclusion...........................................................................................16

References...........................................................................................16


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Executive Summary

The objective of the project is to explain the impact of global financial down turn in Al Salam

hospital, Egypt.

Al-Salam hospitals have been affected significantly by the Nations economic crisis due to

the financial down turns in the global market. The hospital is experiencing declining in a)-

margin)-non operating income-day cash on hand, d)-patient revenue.

Investment income has declined dramatically, increased cost of borrowing, Decreased

access to capital financing.

The economic crisis is affecting patients in need of care. Admissions and elective procedures

have declined, Increases in emergency visits and patients with behavioral health care

needs. Increases in patients without health care coverage and needing financial help.

Access to physician care is further threatened. More physicians are seeking financial support

from hospitals. More physicians are seeking employment.

Hospitals are taking steps to address the financial impact by reducing administrative

expenses. Reducing staff. Postponing or reducing capital investment in building renovation

and information technology. Enhancing productivity and efficiency increasing efforts to

protect and expand volume changing debt structure


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Introduction to the topic

Recession-Recession is a period of business cycle where the real GDP of the country is

decreasing successively for the two quarters.

Recession impact in Hospital Industry-Egypt has a pluralistic, segmented health

system, with many different public and private providers and financing agents. There are

three main financing agents:

The government sector-

The Insurance sector

The private sectors

Due to the current account deficit on the back of decline in the outlook for export of goodsand services and a slowdown in remittance growth, the overall trade deficit will widen from

US$ 23.4bn to US$ 29.9bn, it will have major impact on government spending towards

healthcare and it will affect the patient flow to the private hospital who are providing the

services on behalf of government funds.

Health Insurance Company accounted 8% of the healthcare expenditure in Egypt.

In Egypt 70% of the patient paid their healthcare expenditure from out of pocket. Due to

the global financial meltdown the per capital income has declined and the unemployment

has increase and the people loss there heal insurance coverage, it has a major impact on

selected surgeries like cosmetic surgery and bariatric surgery etc.

Due to the global financial meltdown and decrease in real GDP the healthcare expenditure is

expected to decrease from 6.3% of total GDP to 4% during the financial year 2009.

Table 1. Egyptian Health Expenditure: Use of funds. Source:

Users of Funds Percent of Total Health Expenditure

Pharmacies 36%

Ministry of Health services 19%

Private providers 27%

University and teaching hospitals 10%

Health Insurance Organization services 8%


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Table 2. Egyptian Health Revenues: Sources of finance. Source:

Recession impact in other industries-Since the second half of last year, Egypt's

economy growth rate has witnessed setbacks due to negative impacts of the prolonged

global financial crisis on the economy of the populous country in the Middle East and North

Africa.

Originating from the turmoil of the U.S. financial sector, the financial crisis has been

spreading to most areas in the world, including Egypt.

In the second half of 2008, the negative consequences of the financial crisis began to bite

the Egyptian economy in many fields, particularly the prime sectors which contributed to the

country's revenues. Such as

Tourism sector

Energy exports

Suez Canal tolls

Remittance from expatriate workers

Tourism industry has always been one of the major industries of Egypt. In 2008, it was

reported that some 12.8 million people all over the world travelled to Egypt and brought

some 11 billion U.S. dollars to the country's revenue, or some 8.5 percent of the Egyptian

Gross Domestic Product (GDP).

But statistics indicate that the growth rate of foreign tourists has dropped since last

October. The booking rate of the hotels in the Red Sea resorts was only some 40 percent.

According to the Egyptian Travel Agencies' Association, increase of foreign tourists in the

next four years is only predicted at 6 percent, compared to some 16.6 percent in the past

four years.

In the fiscal year of 2007-2008 (as of June, 2008), remittances from expatriate workers

reached 8.56 billion dollars. But most Egyptian emigrant workers live in Gulf countries,

Source of Finance Percent of Total Health RevenuesHouseholds 51

Ministry of Finance 35

Social insurance contributions 6

Firms 5

Foreign donors 3


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which are also struggling to get rid of the negative impacts of the financial crisis.

Some Egyptian workers in Gulf countries have been laid off due to shrinking investments. It

is reported that some 30,000 Egyptian workers in Gulf countries are expected to return

home and join the unemployed.

The revenue of the Suez Canal, which hit a record 5.2 billion dollars last year, has been one

of the most stable sources of the Egyptian income. The revenue has also dropped recently

due to decreased numbers of ships via the international waterway caused by the global

crisis and the fears over the pirates off the Somali coasts near the Red Sea waters.

According to the state MENA news agency, Suez Canal revenues stood at 301.8 million

dollars in February, or some 25 percent drop compared to the 408-million-dollar income the

same period of last year.

Egyptian economy registered a 7.2 percent growth in the fiscal year of 2007-2008 and a 7.1

percent increase in the fiscal year of 2006-2007.

It is estimated that the current global financial turmoil will slow down Egypt's economic

growth rate from more than 7 percent to less than 4 percent.


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Methodology

We have taken five major department of the hospital and made comparative study between

1st

quarter of 2009 and 2008.some of the analysis are showing below with the graphicalpresentations.

A. Outpatient DepartmentThere is 14% decline in outpatient traffic in the first quarter of 2009 as compare with the

same period in 2008.The decline was due to the major decline in insurance (1275) and cash

(812) due to the retrenchment and it leads to loss of insurance policy. Cash patient has

decline due to the reduction in per capital income. (Refer to graph outpatient traffic)

3802

12671

4197

2129

22799

3476

11396

3385

1459

19716

0

5000

10000

15000

20000

25000

Corporate Insurance SelfPaying Patient Syndicate Grand Total

Out patient traffic Y to Y (Qtr-1)

2008

2009


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B. Laboratory DepartmentThere is overall 11% decrease in laboratory referrals due to the direct cash patient flow.

There is increase in patient flow from insurance category due to the offer of more discounts

to the insurance companies. The referrals from the corporate patient has been decline due

to the reduction in the healthcare budget in the corporate sector due to the stagnant of the

production (Refer chat laboratory order)

7410

4597 4711

1729

18447

57965117

4236

1166

16315

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

Corporate Insurance SelfPaying Patient Syndicate Grand Total

Laboratory order Y to Y ( Qtr-1)

2008

2009


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C. Radiology departmentThere is also reduction in radiology procedures noticed. The above reduction is due to the

less referral from orthopedics consultant to the radiology department. The consultants are

referring only to the highly necessary procedure in case of out patients for inpatient there is

no choice but due to the decrease in trauma cases the overall referrals from emergency has

come down. (Refer to the chat Radiology)

D. Cosmetic surgery department

There is a huge decrease in cosmetic, plastic and bariatric surgery. Naturally the price of the

cosmetic surgery is quietly high as compare with other surgery in the same category.

Due to the declining in the PPP of the consumer the consumers are postponing the surgery.

In Salam international hospitals the majority of the cosmetic surgery from the healthcare

tourism and most of the patient flow from western Europe, united states and gulf region.

Experts view the global meltdown as a considerable threat to the booming medical tourism

industry in Egypt. As a consequence of recession many people in the West will no longer be

able to afford insurance, and thus medical tourism will also take a beating as people will try

and priorities their healthcare needs and wait for economic conditions.(Pls refer chat

cosmetic surgery)

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Corporate Insurance SelfPaying

Patient

Syndicate Grand Total

2306 2438

3110

489

8343

1568

26192201

374

6762

Radiology Y to Y(Qrt-1)

2008

2009


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E. Increase in volume in life saving procedure and surgery

There is marginal increase in the life saving procedure/surgery during the 1st quarter of

2009 as compare with 2008.

Unlike luxuries like certain consumer goods or services. Ill health always prompts people to

seek medical care, irrespective of the state of the economy.

When someone needs cardiac care, they would not worry about recession or market

conditions. In fact, due to rise in stress levels, the need for immediate healthcare would

escalate further. Healthcare is a recessionproof industry and hence the impact is limited in

this segment.

0 50 100 150 200 250

Rhinoplasty

Face lift

Abdominoplasty

Total

43

41

131

215

31

17

46

94

Cusmetic surgery Y to Y (Qrt-1)

2009

2008


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2008

20090

50

100

150

200

250

300

Cardiathorasic

Cardiology Neuro surgeryGLS

131

214

71

233

106

268

87

262

Increase volume in life saving procedure

2008

2009


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The effect of global financial down turn

A. Decrease in net revenue per caseDue to the change of case mix between the corporate and self-paying patient the per case

yield has been declining year to year despite of the inflation effect.

Corporate clients are asking more discounted service due to the financial down turn and

keep their healthcare budget low.

B. Decrease in occupancy levelThe average occupancy level almost 20% down as compare with the first quarter of

2008.During march 2009 the 33% of the day the hospital occupancy level has been fall

down below average.

0%

50%

100%

2008 2009 Decrease

357 3259.0%

10580 97258.1%

7653 6395 16.4%

Decrease in net revenue per case Y to Y (Q-1)

Non Surgical

Surgical

OPD

132 132136

130124 125126 127

130

121 118122

130

117121

114110

10298

107 107103

109

123120

111 109

130 127123

111

0

20

40

60

80

100

120

140

160

180

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

Decline in daily census (Mar-09)

Daily

Average

Max

Min


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C. Days cash in hand decliningDue to the increase in receivables and increase in debtor collection period there is

continuous decline in cash on hand since October 2008.

E. Decreasing in Operating MarginHospital is facing decrease in operating margin in the first quarter of 2009

Decline in PBIDT

Particulars 2008(Qrt-1) 2009(Qrt-1)

Deduction and discount 6.19% 14%

Direct cost 34.85% 35%

Doctors fees 12.30% 14%Indirect cost 25% 28%

PBIDT 21.66% 9.50%

Series 1

0.000

0.100

0.200

0.300

Oct Nov DecJan

FebMar

0.215 0.1820.168 0.167

0.163

0.142

Days cash(mn) in hand declining contineously

Series 1


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Recommendations

To overcome the present global financial down turn hospital management should implement

the following policies:-

A. Creating budget contingency planB. Reducing capital spendingC. Changing debt structureD. Reducing non labor costE. Containing labor costF. Enhancing productivity and efficiencyG. Engaging staff in financial performance improvementH.Protecting cash flowsI. Increasing effort to protect or expand volumes

A. Creating budget contingency planBy implementing budget contingency plan one can control/monitor

Change in patient revenue/volume, Operating margin targets, Sustain declines consecutive

performance below target, Failure to meet debt covenants

Strategy within contingency budget are linked to financial situations

Good sense strategy-Prudent in any environment

Riding the storm out strategy-Difficult but possible temporary expense reductions.

Hard choice strategy-Permanent expense reduction that become necessary in

challenging financial situation or to adjust to lasting business downturns.

B. Reducing capital spendingSpending cuts-Reduction in capital spending

Spending delays-Deferred purchases of capital equipment; only replacing equipment

that becomes inoperable.

Spending reviews-Capital spending while approved the budget process requires review

for every expenditure before purchase must be approved by all senior management.


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C. Changing debt structureTo convert the Account receivable within the granted period

D. Reducing non labor costAcross the board hold or reduction:-Across the board 1% reduction mandated

Vendor price negation-Negotiation of all vendors for price reduction

Focus on vendor pricing freeze

Stringent purchase reviews

Equipment purchase must be authorized by CEO

Stringently review of all purchases. Limiting purchase order approvals to only immediately

needed items. Only buy in bulk where there is a price break.

E. Containing labor costHiring freeze or analysis-In depth analysis of all open positions

To make number of cost cutting measure such as a hiring freeze and replacing a clinical

position only if volumes justify it.

Increase potential hours-to reduce the potential hours by eliminating abnormal working

hours.

Matching staffing to volumes-Hold managers accountable more than ever before for

staffing correctly

Eliminate incentive pays for working additional, unscheduled shifts

F. Enhancing productivity and efficiencyInvest in tool and training-Make investment to improve your own efficiency and

productivity

Ensure profitable service lines have the tools they need

Redesign and monitoring-Reengineering services to reduce costs

Reviewing and changing productivity standards-Implement a tighter productivity

standards for daily monitoring


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Engaging staff in financial performance improvement-Develop a committee of senior

managers that meets monthly to review the capital projects and fixed expenditure.

G. Protecting cash flowImproving billing and collection- Increase focus on revenue cycle management and

bad debt reduction.

Increase effort to help cash patient to increase the cash flow.

Focused on opportunistic growth

Revenue department should prepare a business plan to increase volume and revenue at

least by 10%.


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Conclusions

Healthcare is resilient industry

The market challenges of today could lead to efficiencies and investment that enable

hospitals to provide more value to their communities in the future.

Few sector of the economy have faced-and weathered-as much continuous financial tension

as the hospital sector, which must regularly adjust to payment and regulatory changes.

Hospital financial leader must, once again, marshal all of their assets to face current

realities and use their considerable expertise to provide what is best for their communities.

References

1. Partnerships for Health Reform. A new Egyptian Health Care Model for the 21stCentury, Bethesda, MD and Cairo: Partnerships for Health Reform for the Ministry of

Health and Population of the Arab Republic of Egypt, 1999.

2. World Bank.Egypt, Arab Republic at a glance,

3. Hospital finance management association

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