Disclaimer
This book is primarily addressed to those who are pursuing various courses relating to hospital administration or who are part of a hospital management team. In the book, the authors have shared their knowledge and expertise with readers. It may be useful to medical personnel also who would like to widen their know-how beyond health matters to include financial viability, costs and efficiency.
The book contains information, statements, opinions, statistics and other material that have been obtained from sources believed to be reliable and the Authors/Publishers have made best efforts to avoid any errors/omissions. However, the Authors/Publishers make no guarantees/warranties of whatsoever expressed or implied regarding the timeliness, completeness, accuracy, adequacy, fullness, functionality and reliability of the information, statistics, statements, opinions and other material contained in and/or expressed in the book or of the results obtained directly or consequential from use of such information/materials from the book. Authors and Publishers neither certify nor endorse the information to the readers.
The work is published with the understanding that Authors/Publishers are supplying information, and the contents of the book are not intended to serve as professional advice. Authors/Publishers take no responsibility or liability expressed or implied whatsoever for any decisions made or taken by readers of the publication based on its contents. Readers are strongly advised to verify the contents before taking any decision based on the contents of the publication. This publication is meant for general reading purposes only and not to serve as professional guide. Readers should exercise due caution and/or seek independent professional advice before entering into any commercial or business relationship or making any decision/entering into any financial obligation based on information contained in the publication. Readers may refer to professional consultants for any further information they would like to acquire on topics covered by the book.
GR Kulkarni Dip MA FICWA
Cost Accountant
Mumbai, Maharashtra, India
P Satyashankar MD
Medical Superintendent SDM College of Medical Sciences and Hospital
Dharwad, Karnataka, India
Libert Anil Gomes MD
Associate Professor Department of Hospital Administration Kasturba Medical College and Hospital
Manipal, Karnataka, India
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Financial Management for Hospital Administration
© 2009, Jaypee Brothers Medical Publishers
All rights reserved. No part of this publication should be reproduced, stored in a retrieval system, or transmitted in any form or by any means: electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the authors and the publisher.
First Edition: 2009
9788184486247
Typeset at JPBMP typesetting unit
Printed at Ajanta Offset
5Preface
This book is written keeping in mind the requirements of hospital administrators and management staff who are entrusted with the responsibility of administering the institutions managed by them as financially viable units. The objective is not to make their accountants better book keepers. In 1990s, when the work on this book was first initiated, hospitals were regarded more as a part of welfare activity, owned and managed by the Government/States or by Charitable Trusts and other NGOs. They were mostly run on no-profit no-loss basis. The book was titled Management Accounting for Hospitals and the contents of the book were focused on Cost Accounting. During subsequent decade, several of the non-Government hospitals transformed themselves into commercial ventures. If not done so already, they are in the process of doing so. On their drawing board, they will be planning chains of hospitals which will include some speciality hospitals. Their geographical spread covers several States and include towns, with no particular locational advantage. Rarely one heard or read of these ventures having financial problems. The title of this version of the book has been changed to Financial Management for Hospital Administration to reflect the changing scenario.
In the past, a hospital was culmination of successful career of a renowned doctor or funded by religious or charitable trust. For the last few decades, initiative for starting private hospitals was taken by members from medical profession who could tap their families’ accumulated wealth. Recently, other companies in their group, business associates, public investors and international capital venture funds made additional contributions. Consequently, they are less dependent on the State or private charities for funds. They look upon the State more for a large track of land at strategic locations at below the market rates. Their activities are conducted on business lines. They focus on long-term growth in economic value, rather than on short-term financial viability. Their promoters do not hesitate to spend large sums on infrastructure, payments to medical specialists and vast range of services they provide. They prefer their medical staff interacting with foreign consultants and ordering latest state-of-the-art equipment which would take several years to break even.
Currently, significant changes are taking place in the field of health care domain. Many superspeciality hospitals have already started functioning. One is not sure of the quantum of capital employed in the industry and the extent of their utilization. One may take satisfaction that the health care business is in sound hands and the capabilities of doctors and nurses are unchallenged and considered one of the best in the world. Health care in private sector is now termed as a sunrise industry with 6enormous potential for growth in spite of limited support from health insurance. It is considered recession-proof, a sick person has to be given medical care, recession or no-recession. Technological advances have provided opportunities to medical service providers to offer clinical process support to US and other advanced countries in the West. It is now possible for US hospitals to send X-ray, ultrasound, computerized tomography, magnetic resonance, fusion and 3D images to the global and technology supported centres, for reading the images, and sending back diagnosis thereof to the respective hospitals. Globalization, introduction of technology, provision of international quality standards and facilities comparable to the Western countries are going to benefit the patients as well.
Loans have replaced grants, scholarships and charities as primary source of capital funds. In future, interest payment would be a major cost. Hospitals in economically advanced countries depend more on grants, charities and endowments for their requirements of capital funds. These have no obvious costs. The general purpose hospitals have lost their attraction. In spite of availability of huge infrastructure in the form of district, panchayat and ESIC hospitals, the storehouse of medical talent, and latent unfulfilled demand, the existing per capita expenditure on health care incurred is more in private domain rather than public system. The Government is looking to private corporate sector and NGOs to take additional interest in public health.
Some features are unique to hospitals, which justify a book on Hospital Administration. This book is addressed to all categories of hospitals— whether owned and managed by the Government, public authorities, voluntary private organizations or corporate bodies; looking for profit or operating on no-profit no-loss basis; small nursing homes with 10–20 beds and managed by wife and husband doctors’ team or high-tech hospitals. Government funding of health care has not kept pace with inflation, technological upgradation and need for research. The capital and operating expenses of newer facilities are disproportionately high and continue to rise at a faster rate than per capita income of an average citizen. Medical personnel play leading role in the management of modern hospitals. Other professions such as personnel, engineering, finance and general management are also active. Executive authority is wielded by bureaucrats and politicians whose interest in health care institutions is limited to personal gain. Concepts and techniques whose use would enable hospitals to improve their overall performance and operating efficiency are low down in their priority.
To enable maximum number of persons connected with health care make use of the book, minimum use of accounting jargon has been made. The emphasis is on management rather than on accounting, applications rather than on theory. With management support, cooperation from operating personnel and some additional inputs, the book will enable the hospital authorities to:7
- Prepare a plan of action for immediate future period in quantitative and financial terms, with departmental managers, they contribute to this exercise, by making their own projections regarding activity levels, resource requirements, income and costs.
- Understand financial implications of their decisions and actions on costs and revenues.
- Establish costs for various services rendered by the hospital and derive unit rates which are equitable, rational, cost based and easily understood by the patients.
- Design a management information reporting system which enables management at various levels to learn about their current performance. Its comparison with what was planned in an analytical manner facilitates corrective action.
- Institute a system of investment appraisal. One needs to be careful that these measures do not result in unmanageable strain on its financial, managerial and manpower resources.
- Ensure proper management of capital as well as working capital funds.
Though strictly not a part of the subject Managerial Accounting, the book will also help:
- Understanding of accounting controls to ensure proper safeguard of the assets owned by the hospital; and expenditure is incurred genuinely for running the hospital and income that is generated is promptly and correctly brought into accounting books.
- Suggest cost-effective computerization of accounting records to provide better service to patients; reduce clerical effort, and generate management information avoiding usual but avoidable pitfalls.
- Provide a chart of accounts to facilitate a meaningful analysis of costs and income for better control and facilitate inter-hospital comparisons.
We could not do justice to the techniques of Activity-based Costing and Zero-based Costing for want of live data. Though these techniques help establish theoretically more accurate cost, their utility in assisting management for taking decisions where alternatives need to be evaluated are not significant.
GR Kulkarni
P Satyashankar
Libert Anil Gomes