Innovative Financial Management for Hospitals

A CPD 2019 for members of PHA

Widus Hotel and Casino,

Clark, Pampanga, 17 February 2019

What can I Share?

• Experience heading a social enterprise. Where innovations in Financial Management are necessary in order to survive. With the following characteristics:

1. HEALTH SERVICE SECTOR TO POPULATION, especially the poor

2. Using PUBLIC FUNDS as Revolving Capital

3. SELF SUFFICIENT OPERATIONS – no subsidy

What I cannot Share

• Experience managing a hospital – never been there the way all of you are

• UHC Bill. If ever we mention it here, it is merely as a “SCENARIO WITH WHICH TO ANCHOR OR APPLY” our Topic on Innovative Financial Management

Therefore this session is a Conversation

What can we get

from you?

My Experience in Innovative

Financial Management

which you may adapt

YOU ME

Baseline 1: Your Hospital Worth

% OF Participants who knows hosp worth

Know your hospital worth

Don’t Know your hospital worth

Not Interested

Baseline 2: Your Hospital Financial Operations

% of Participants who know their Financial operations

Know

Don’t Know

Don’t Care

• Innovative Financial

Management

(that maybe adapted)

for Hospitals

Now on to Our Topic

Introduction Innovate for what?

• What financial goals does the local chief executive has for LGU hospitals?

• What financial goals do the owners of the corporation have if the hospital is owned by a corporation.

• What financial goals does the owner of a single-proprietory hospital have?

• What financial goals does DOH have for DOH retained hospitals?

Chances are the Financial Goals are:

• Self-sufficient operations

• Profitable operations

• Minimal subsidy

Wherever you are in the equation,

• Each hospital needs Financial Management, and in order to optimize minimal resource, let us discuss how to Innovate in Financial Management of Hospitals.

Lets start with Definitions

A. Financial Management entails

planning (Budgetting)

implementing (Receive and Disburse)

monitoring (Record, Financial Reports & Analysis)

evaluating (Comparing Entries)

controlling (audit and reviews)

the acquisition and use of funds so as to maximize the value of the hospital

( adapted from Essentials of Managerial Finance, 7th edition, Weston & Brigham)

Lets start with Definitions

B. Innovation can be defined as the

application of better solutions that meet

new requirements, inarticulated needs, or

existing market needs.

Will it lessen cost? Increase revenue?

Improve service quality?

Life-Cycle of Innovation in Financial Management

Discover and Develop

Practice and Use

Innovate

Public Fin Management

PrivateFin Management

Hybrid aka GOCC/SOCIAL ENTERPRISEFin Management

Why Innovate?

• There is a new requirement.

• There is a new need.

• There is an existing market Need,

Especially soon to be brought about by the Universal Health Care Act 2019???

Can Anyone Innovate?

• YES IF ONE HAS

1. Basic Understanding of what to Innovate

2. Creativity to engage in innovations “outside of the box”

3. Vision to direct innovations

4. Patience to keep creativity and achieve the vision.

UHC ACT 2019 AS TRIGGER for Innovative Management for Hospitals

The New Challenge for Innovative Financial Management

E.g. New Requirement Under UHC Act

1. (Sec. 9) All Filipinos are entitled to immediate eligibility for health benefit package, where no co-payments shall be rendered for basic accommodation; where co-payments and co-insurance are regulated by DOH and Philhealth.

In short, Main Source of Hospital Revenue shall be paid for by Philhealth, HMO or Private Health Insurance.

E.g. New Requirement Under UHC Act

2. (Sec. 16 b) Philhealth shall endeavor to shift to paying providers using performance-driven, close-end, prospective payments based on disease or diagnosis related groupings and validated costing methodologies and without differentiating facility and professional fees, develop differential payment schemes that give due consideration to service quality, efficiency and equity.

E.g. New Requirement Under UHC Act

3. (Sec. 25 c) All health Care providers and facilities shall be required to make readily accessible to the public and submit to DOH and Philhealth all pertinent, relevant and up-to-date information regarding the prices of health services, and all goods and services being offered.

Given the above 3 new requirement…

What Possible Innovations in Financial Management shall hospitals resort to?

First things First

• Let us understand the Financial Position of the Hospital as the base or Anchor of our Discussion

• How is the Financial Structure of the Hospital Presented?

• Let us look at the basic Financial Statements of an Entity

Let us Look at the Financial Statements of any Entity (Hospital)

Balance Sheet

ASSETS

LIABILITIES

OWNER’S CAPITAL

NET PROFIT(LOSS)

REVENUESEXPENSES

Income Statement

Measure of Hospital’s WORTH/VALUEMEASURE OF HOSPITAL’S TURN-OVER/OPERATIONS

SCENARIO 1: All of you Know your Financial Position

• You know your financial goals

• You have a vision why innovate

• You need to apply existing tools and innovate in order to adapt to UHC.

Scenario 2:

WE go by the first step of Drawing Up

Financial Goals

SCENARIO 2: STEP ONE

1. KNOW YOUR HOSPITAL’S WORTH.

1.1. TOTAL ASSETS Php

1.2. TOTAL LIABILITIES Php

1.3. NET WORTH Php

WHEN YOU SUBSTRACT LIABILITIES FROM ASSETS, THE RESULT IS THE NET WORTH OF THE HOSPITAL.

SCENARIO 2: STEP TWO

2. LOOK AT YOUR OPERATIONS OR TURN-OVER.

2.1. REVENUES2.2. EXPENSES2.3. NET PROFIT (LOSS)

WHEN YOU SUBTRACT EXPENSES FROM REVENUES AND THE RESULT IS POSITIVE, THEN YOU REALIZED NET PROFIT, IF NEGATIVE, THEN YOU REALIZED NET LOSS…

STEP THREE

3. COMPARE BALANCE SHEETS FROM DIFFERENT PERIODS.

0

2

4

6

8

10

PERIOD 1 PERIOD 2 PERIOD 3 PERIOD 4

ASSETS

LIABILITIES

NET WORTH

SCENARIO 2: STEP FOUR

4. COMPARE OPERATIONS THROUGH PERIODS

-2

-1

0

1

2

3

4

5

6

7

8

9

PERIOD 1 PERIOD 2 PERIOD 3 PERIOD 4

REVENUE

EXPENSES

PROFIT/(LOSS)

SCENARIO 2: STEP FIVE

5. DETERMINE YOUR BASELINE “THE NOW…”

5.1. YOUR PRESENT VALUE

5.2. YOUR PRESENT TURN OVER

5.3. ARE YOU GROWING? OR DECREASING?

5.4. CAN YOU GROW GIVEN THE NEW REQUIREMENT OF THE UHC ACT?

SCENARIOS ! & 2: VISION AND GOAL

CHART THE BEST STRATEGIC PATH:

6.1. INCREASE REVENUE (MORE PATIENTS)

6.2. REDUCE COSTS (AFFORDABILITY AND EFFICIENCY OF COSTS)

6.3. EXPAND CAPITAL (IMPROVE BUILDING, FACILITIES, SERVICES)

INNOVATIONS TO INCREASE REVENUE

IF ALL PATIENTS ARE PAID FOR BY Philhealth UHC PROVISION, HOW CAN YOUR hospital attract more patients than the other hospitals in the vicinity/area?

1. Attracting patients who avail only of basic accommodation? Zero Out of Pocket/NBB.

1. Attracting patients who are willling to pay additional amenities at what cost? Co-insurance/co-pay

Innovations to Increase Patients in the Hospital

1. Offer to Primary Care Providers that serve as gate-keepers….

2. Incentives for the gate-keepers if they offer, e.g. A portion of the case rate?

3. Private-publi- partnerships (PPP) for ancillary services in the hospitals to draw in more patients? E.g. South Cotabato experience...

Innovations to: REDUCE EXPENSES/COSTS

REDUCING COST PER TYPE OF PATIENT PER CONFINEMENT?

1. FULL COMPUTERIZATION OF HOSPITAL OPERATIONS IN ORDER TO DISAGGREGATE ALL TRANSACTIONS AND CONDUCT COST STUDIES

2. PPP OR ENGAGING A private player to bear operating costs and offer to them the patients as market and the facilities to host the service in exhange of the private sector spending for cost of operations

3. Use of Break Even Analysis in order to identify Revenue Center and Cost Centers in the hospital

BREAK-EVEN POINT AS A TOOL

• WHAT IS BREAK EVEN?

The break even point is the production orservice level where total revenues equals totalexpenses. In other words, the break-even pointis where a hospital produces the same amountof revenues as expenses in any given period.

“HOW MANY PATIENTS DOES THE HOSPITALNEED TO SERVE AND BE PAID BY PAYOR INORDER TO RECOVER ALL COSTS?”

FORMULA FOR BREAK EVEN POINT

FIXED COSTS

CASE RATE – VARIABLE COSTSBE

This can asnwer the question: How manypatients does the hospital need to serve inorder to fully recover all costs?

SAMPLE COSTING (T. Tsilaajav consultant, EU TA HSPP, March 2009)

Direct costs

Medicines and supplies

cost 1,111 1,855 1,071 1,471 319 841 996

Diagnostics cost 614 1,459 850 1,034 547 178 626

Clinical staff cost 1,726 810 1,808 500 1,304 781 1,742

Indirect costs

Overhead costs 2,695 2,922 2,5601,924 1,572 1,864 1,937

Depreciation of capital assets 280 598 304 343 75 662 235

Average 6,426 7,644 6,593 5,2723,817 4,326 5,536

Hosp 2 Hosp 1

Unit cost components

Pneumonia Asthma SPD Acute

bronchitis

Hosp 1 Hosp 2 Hosp 1 Hosp 2 Hosp 1

COMPARE COSTING WITH CASE RATE OF PHILHEALTH…

IF UNIT COSTING IS LOWER THAN PHILHEALTH THEN HOSPITAL IS ON THE SAFE SIDE,

IF UNIT COSTING IS HIGHER THAN PHILHEALTH, THEN LOOK FOR AREAS WHERE HOSPITAL CAN REDUCE UNIT COSTS.

INNOVATION TO OPTIMIZE/EXPAND CAPITAL

• IS PRESENT CAPITAL OPTIMIZED?

1. IF NOT, WHAT SHALL YOU DO WITH THE NON-PERFORMING ASSETS (NPA) OF THE HOSPITAL?

2. If OVER OPTIMIZED THAT EXPANSION IS NEEDED, SOME INNOVATIONS ARE SWEAT EQUITY. SERVICE DELIVERY NETWORK (SDN)

IN SUM,

• Innovations in Financial Management entail 1. SETTING FINANCIAL TARGETS STARTING FROM YOUR

FINANCIAL STATUS AND DRAWING FINANCIAL GOALS;2. IF UHC be passed, there are changes in the structure of

the SOURCE OF YOUR REVENUE. THE MAIN DIFFERENCE IS THAT THE MAIN PURCHASER OF SERVICES IS PHILHEALTH AND THE PRICE OF SERVICE IS REGULATED.

3. UHC also requireS TRANSPARENCY IN COSTING OF SERVICES, THUS THERE IS NEED FOR INNOVATIONS IN COSTING AND OPTIMIZING HOSPITAL RESOURCES

4. THERE ARE SOME EXISTING TOOLS THAT ARE AVAILABLE, YOU CAN USE, ADAPT AND INNOVATE ON THESE.

Finally,

• It is your CREATIVITY

• Your VISION

• And PATIENCE

• THAT CAN STEER YOUR HOSPITAL’S INNOVATIVE FINANCIAL MANAGEMENT AND RIDE THE CURRENT OF THE NEW UHC Bill ONCE IT IS SIGNED INTO LAW!

POST TEST

% OF PARTICIPANTS

ALREADY INNOVATING

INTERESTED TO START

NOT INTERESTED