Financial Management in hospital :Financial Management in hospital Some observations for the present and the future


Interesting times ahead??? :12/10/2008 Parama Healthcare P Ltd 2 Interesting times ahead??? “May you live in interesting times” a old proverb is more a curse than a good wish!! We are facing interesting times which are unsettling, harsh and often unpleasant with deep recession


“Haves and Have nots” :12/10/2008 Parama Healthcare P Ltd 3 “Haves and Have nots” There is a widening gap between Have and Have Nots in healthcare organizations Haves do have the size, revenue diversity, generate cash flows and have balance sheet strength to raise capital to meet renewal and expansion


“Haves and Have nots” :12/10/2008 Parama Healthcare P Ltd 4 “Haves and Have nots” The other healthcare organizations including private hospitals struggle to meet critical capital needs They need to depend on their regular cash flows, bank lines of credits and joint efforts with NGOs and Government to set up the infrastructure


The service providers :12/10/2008 Parama Healthcare P Ltd 5 The service providers


Concepts for the service providers :12/10/2008 Parama Healthcare P Ltd 6 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 cents will be towards administration The trend now is to make surplus and plough back for maintaining and expanding the unit since donors are difficult to find


Concepts for the service providers :12/10/2008 Parama Healthcare P Ltd 7 Concepts for the service providers For Profit Hospitals – Out of every dollar, you spend only 70 cents, setting aside 30 cents towards return on investment or dividends


Finance Management stages :12/10/2008 Parama Healthcare P Ltd 8 Finance Management stages Projects Operations Costing and cost control


Project Funding Observations on bringing down the capital cost :12/10/2008 Parama Healthcare P Ltd 9 Project Funding Observations on bringing 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 up the space and bring down the cost of the project


Project Funding Observations on bringing down the capital cost :12/10/2008 Parama Healthcare P Ltd 10 Project Funding Observations on bringing 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 and Diagnostic Centers


Project Funding Observations on bringing down the capital cost :12/10/2008 Parama Healthcare P Ltd 11 Project Funding Observations on bringing down the capital cost Design has an impact capital cost per bed Design follows function, faulty or bad design follows increased cost of function and higher levels of BEP


Project Funding institutional reforms :12/10/2008 Parama Healthcare P Ltd 12 Project Funding institutional reforms Industry status- Institutional lending as a priority sector and classification of small and medium scale industries. Infrastructure Industry status: In other infrastructure projects like roads, bridges, Power, airports & hotels etc, utilization kicks in early. In hospitals it takes time. Hence access to capital and tax holidays at relevant periods are important.


Project Funding institutional reforms :12/10/2008 Parama Healthcare P Ltd 13 Project Funding institutional reforms Tax break- Presently it is not adequate. Give a choice of block of years to claim the tax holiday Free from all VAT, import duty and Service tax implications.


Project Funding some trends… :12/10/2008 Parama Healthcare P Ltd 14 Project Funding some trends… Public Private Partnership Medical collages ( both government and private colleges) opening pay wards or corporate wards Focus on selected verticals in specialties and partner with others for other verticals


The focus is on now….. :12/10/2008 Parama Healthcare P Ltd 15 The focus is on now….. Capital cost per Bed since it takes about three to five years for a complete break even Size and stage wise expansion and break even at every stage


Project Funding :12/10/2008 Parama Healthcare P Ltd 16 Project Funding Traditional funding Outsourcing as a method of reducing capital cost and getting economies of scale – leads to a situation where in initial capital cost per bed is lower Equipment leasing


Outsourcing as a means of finance :12/10/2008 Parama Healthcare P Ltd 17 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 hospital achieves the economic scale. Brings down the upfront investment in equity and debt to begin with the project


Outsourcing some criteria :12/10/2008 Parama Healthcare P Ltd 18 Outsourcing some criteria Though one may want to own many of the major capital equipments, a tight outlay may lead to avoiding upfront investment in equipments An outsourcing partner will have employees who have been in leadership position in healthcare organizations.


Outsourcing some criteria :12/10/2008 Parama Healthcare P Ltd 19 Outsourcing some criteria They are able to understand the department’s needs unique to the hospital. Evaluate the department’s efficiency to improve revenue and reduce the costs Already has the infrastructure and experience in supporting number of units.


Areas of outsourcing :12/10/2008 Parama Healthcare P Ltd 20 Areas of outsourcing House Keeping and waste disposal Bio medical equipment maintenance Laundry


Areas of outsourcing :12/10/2008 Parama Healthcare P Ltd 21 Areas of outsourcing Food and Beverages CSSD Blood Bank


Areas of outsourcing :12/10/2008 Parama Healthcare P Ltd 22 Areas of outsourcing Lab and Diagnostic Center Pharmacy Consignment purchases IT Both hardware and software


Areas of outsourcing :12/10/2008 Parama Healthcare P Ltd 23 Areas of outsourcing Outsourcing certain areas of medical practice with equipment Oncology Cardiology and CT Dental Ophthalmology IVF Centers Ideal for small & medium sized hospital with specialization in two or more verticals


Areas of outsourcing :12/10/2008 Parama Healthcare P Ltd 24 Areas of outsourcing Corporate and Insurance Bill Processing Payroll processing Security Maintenance Department Electronic Medical Records


Equipment Leasing :12/10/2008 Parama Healthcare P Ltd 25 Equipment Leasing Operational leasing for expanding hospitals Ideal for Single or dual vertical medical practice while establishing more centers


Equipment Leasing :12/10/2008 Parama Healthcare P Ltd 26 Equipment Leasing Suitable for medium sized multi specialty hospital expanding in certain specialties in other centers Short term or seasonal trend management of increased load


Unfunded liabilities :12/10/2008 Parama Healthcare P Ltd 27 Unfunded liabilities Pension Fund Obligations Gratuity Fund Encashment of leave benefits Medical Malpractice Claims


Financing Operations :12/10/2008 Parama Healthcare P Ltd 28 Financing Operations Factoring corporate and insurance patient bills – U.S. Example of aggregation and buying Pharmacy bills Care Credit Card


Participants in patient revenue :12/10/2008 Parama Healthcare P Ltd 29 Participants in patient revenue Insurance companies Corporate/Employers Self Paying patients Co Paying Patients


Factoring patient bills ( Corporate and Insurance bills) :12/10/2008 Parama Healthcare P Ltd 30 Factoring patient bills ( Corporate and Insurance bills) Pre authorized bills of corporate and insurance companies. Bills backed by the corporate and insurance companies


Factoring patient bills ( Corporate and Insurance bills) :12/10/2008 Parama Healthcare P Ltd 31 Factoring patient bills ( Corporate and Insurance bills) Normal period for small and medium sized hospitals ranges from 45 to 90 days including processing of documents


Factoring patient bills ( Corporate and Insurance bills) :12/10/2008 Parama Healthcare P Ltd 32 Factoring patient bills ( Corporate and Insurance bills) Factoring company specializes in processing the bills and realizes the payments from corporate and insurance Recourse to the hospital when faced with disallowances


Care Credit Cards :12/10/2008 Parama Healthcare P Ltd 33 Care Credit Cards Specifically for healthcare treatments and procedures Payment options under “no interest option” and extended payments options


Care Credit Cards :12/10/2008 Parama Healthcare P Ltd 34 Care Credit Cards Can be used for procedures generally not covered by health insurance programs Under first option, payment is made in 3,6,12 and 18 months. The plan to pay under different pay periods is offered by the service provider


Care Credit Cards :12/10/2008 Parama Healthcare P Ltd 35 Care Credit Cards The extended payment option attracts interest on outstanding. The payment can be made in 24,36,48 & 60 months. Hospitals, nursing homes and doctors can participate as merchant establishments


Costing and cost control :12/10/2008 Parama Healthcare P Ltd 36 Costing and cost control Costing is an important tool in management of finances Decision to outsource or not Decision on investment to start or set up new departments and buying new equipments


Costing and cost control :12/10/2008 Parama Healthcare P Ltd 37 Costing and cost control Developing different pricing models for different patient segments Helps in evaluation and measuring performances Especially when outcome based payments are to be introduced


Costing and cost control :12/10/2008 Parama Healthcare P Ltd 38 Costing and cost control Identify and economize use of materials Capacity utilization of wards, service departments and equipments.


Some methods and techniques :12/10/2008 Parama Healthcare P Ltd 39 Some methods and techniques Top Down Approach/Case Mix Approach Bottom Up approach/Micro Costing or Activity Based Costing


Some methods and techniques :12/10/2008 Parama Healthcare P Ltd 40 Some methods and techniques Marginal costing very useful in pricing for generating additional patient load as a marketing strategy


Slide 41:12/10/2008 Parama Healthcare P Ltd 41 Thank you S.Manivannan Director Parama Healthcare P Ltd smvchary@gmail.com