How can you run your healthcare business better?

Starting with this issue, Rajeev Tatkar, Principal Consultant, 21st Century Health Management Solutions, shares his insights on Business Process Improvement in the healthcare industry. In the first of a six-part series, he sets the stage, making a case for having such a process in place.

It does not matter whether you are a "for profit" organisation, a "not-for-profit organisation", a "charitable institution", or a "welfare organisation", your end goal remains the same. To be an affordable, accountable and efficient service delivery platform Principal Consultant

Irrespective of being a small clinic, a laboratory, a diagnostic centre, a hospital or a pharmacy or for that matter anyone who needs to work with patients, your primary aim is to provide a service. The service is to resolve the problem for which your patient came to you. It is equally important that you make profits, not because it happens to be the reason for your existence in business, but because that's the only way your business can run. Address it as a service, a profession, a vocation or by any other name that pleases you. The bottom line is that your role is to provide an efficient service to the patient, at an affordable price that too in a manner, such that it ensures you can continue to provide the service better, as a profitable venture, keeping in mind your employees and associates enjoy what they do.

It does not matter whether you are a "for profit" organisation, a "not-for-profit organisation", a "charitable institution", or a "welfare organisation", your end goal remains the same. To be an affordable, accountable and efficient service delivery platform.

In this and the upcoming features slated to be published in the due course of time, we invite you on a journey towards improving the way your business can run. It is a journey without any ending, for improvement has no limits, except your own thought process.

From where does the money come?

Anyone who has been running a healthcare facility knows that the money comes in from the surgeries, diagnostics, pharmacy, bed charges and nursing charges. These are the services, for which the patient pays the most. The money comes from patients, insurance, corporate organisations who cover their employees and their dependents, and other financers like private and public trusts, government and good samaritans who donate generously.

Introspecting on your healthcare organisation inwards, you need to provide the services efficiently, maximise delivery at the lowest cost. Looking outwards, you need to be a good public relations organisation managing relationships with insurance, corporate organisations, government, trusts and the members of the society.

Where does the money go?

The single largest cost of running a healthcare organisation undoubtedly is the cost of manpower. This fact holds largely true for organisations that provide a service. At times, the cost of finance, the cost of materials and the cost of maintenance of the organisation may also compete with cost of manpower, often depending on the nature of the organisation, its age and location, its mode of financing, its policies and its efficiency.

That is where the money is spent though not intended. Where the money goes as ''waste'' may well be unpaid bills, loss of efficiency of the staff, pilferage, breakage and misuse of materials, losses due to delayed payments to vendors and delayed receipts from customers, Concessions and cancellation of wrongly billed services and materials for which the patient was never billed.

How much money could you be losing?

If you could quantify the money that you may be losing on account of the aforementioned parameters, it is indeed an indication to take a fresh look at your work style and approach. Here is a small check list of how much money you are losing which is not based on arithmetic calculations, but on the impact it has on your business:

• How much money have you lost due to concessions, cancellations and write offs? All amounts to a dead loss.
• How much money have you lost on account of delayed payments? For every Rs 1000 delayed by one week you lose Rs 3.50.
• How much stock went unaccounted? How much did you lose because the physical stock was lower than the stocks as per your books of account?
• Are you overstocked on inventories? Every Rs 100000 of additional inventory costs you Rs 15000 per annum.
• Every time you delayed payment to your vendors by one week your effective cost of materials will be more by at least three per cent.
• Are you losing money due to misuse of materials? Look at items that should not be consumed in such a high quantity. Often this figure may be of the order of two to 10 per cent depending on how good your systems may be.
• How much money are you losing because your costly equipment is lying under-utilised? These figures are anywhere from bet ween five to 25 per cent or more.
• Are you conducting diagnostic tests where the reagents are under-utilised? Are you getting only 10 tests done from a kit that can be used for 50 tests? That loss can well be 10 per cent of the total cost of kits or more.

It does not take a qualified college degree in financial management to know that if your total costs are 10 million you may be losing anywhere between three million rupees of the total costs due to such a waste. If you are losing under one million, we would like to learn from you, how you are managing your business.

Help Me!!

Can we teach you how to run your business better? Yes, No or Maybe.
Yes, because that's what we are going to talk about in the rest of the series of these articles. We will guide you through these articles to help you run your business better.

No, because you know how to run your business. No one can do it for you.

Maybe because if you would like to run it better, help is always available.

The question is how? The forthcoming features will include articles that will give you an outline on how to set business objectives, understand your current state, and plan for the future. We will also help you to create a business process improvement project plan, select the right tool for change, facilitate you to put that plan into practice and finally prepare a road map to success.

About the author:
Rajeev Tatkar is an expert on Business Process Re-engineering and has over three decades of experience in implementing "Best Practices" in the Healthcare industry. He has been a Management Consultant to the Govt. of Maharashtra for their UNFPA funded project for the Public Health Department Health Information System. He has been instrumental in designing and implementing a comprehensive Hospital Management System including PACS and LIS at the prestigious Tata Memorial Hospital at Mumbai. Tatkar is a B.Tech from IIT Bombay with a PGDM from IIM Calcutta.
Readers can mail feedback to the author at rajeev.tatkar@21chms.com

Read the full story

Importance of Costing Systems in Hospitals

Modern day hospitals provide a variety of services to patients under one roof. It is akin to a large service organization considering the number of personnel involved and the capital-intensive nature of the business be it the civil structures, operation theaters & equipment, diagnostic and therapeutic equipment, resuscitation equipment, gas lines, surgical instruments, consumables, etc. Moreover, it is a 24 x 7 operations with people playing a vital role in the well being of the patients in the hospital.

Unlike hotels or the hospitality industry, there are several distinguishing factors in a hospital such as:

• It provides a fundamentally humanitarian service. Thus, hospitals cannot turn away needy patients just because they do not have money to pay or because it is a Medico-legal case. Hospitals have to factor in costs incurred during such a scenario in the financials.
• Corporate hospitals have a profit motto. However, they also have a Corporate Social Responsibility in which they serve certain sections of the population, at no or little cost.
• Other than corporate hospitals, we have either Government run or charitable trust run institutions. So, public funds which is involved needs to be efficiently deployed so that healthcare needs of a large mass of the population is met. This is true even if the objective of the institution is not to make profits.
• Certain class of hospitals, which are predominantly trust run or enjoy municipal / Government benefits are supposed to reserve a proportion of beds for the economically weaker section and/or for patients below the poverty line. Hospitals have to create an Indigent Patient Fund to cater to these patients.
• Services provided by hospitals are the same across classes of patients; however, hospitals tend to cross-subsidize general patients by charging higher to deluxe class patients.
• Hospitals today service corporate as well as insurance / TPA patients. Because of the commitment to serve large number of beneficiaries, they tend to demand and get discounts on rack rates.
• Pharmacy stores are also to be differentially charged to BPL patients compared to regular patients.
• “Packages” also form a mainstay in the business especially in the cardiology, orthopedic, gynecology and obstetrics specialties as also routine daycare surgeries such as cataract, appendectomy, hydrocele, pilectomy, renal calculi or hernia.
• Hospital Accreditation and quality standards ensure that hospitals follow documented policies and this helps hospitals in having predictability of outcomes.

The above complexities necessitates that the hospital management put in place robust costing systems. However, traditional hospital managements have not given serious thought to the same. The corporate world has adopted and benefited from good costing systems, since the early 1930’s. The same holds true of modern day corporate hospitals, who believe in providing cost effective services to patients and ensuring patient loyalty to the healthcare provider.

It is sad to see that in most hospitals, even today, the process of fixing the Schedule of Charges has no scientific basis. They simply survey nearby hospitals for their rates and fix their rates a tad above or below the other hospitals, depending on the Management Philosophy / Marketing Strategy.

Traditionally, hospitals used Bed Occupancy as the yardstick of measurement of performance. With the advancements in medical technology, the average length of stay (ALOS) is reducing and hence, bed occupancy is not the main performance measure any longer. The increased utilization of costly resources, e.g. equipment in operating theatres, ICUs, Cath-Lab, Pathology Lab etc. & Doctors’ times are the key to success in hospitals.

Importance of a good costing and management accounting system

The scenario in the past few years has changed dramatically within the healthcare industry. Established names in the industry are facing tremendous competition from the newcomers. Thus, each hospital has to be competitive both in terms of the quality of services as well as cost management.

Until a few years ago, it was practically absurd to think of a Marketing function within a hospital. That situation is passé with almost every hospital worth its salt employing marketing professionals to attract new corporates. Hospitals also employ Loyalty Cards, Discount Health cards to attract and retain customers.

The advent of health insurance companies has also queered the pitch. With the costs of treatment going up and the privatization of the insurance industry, the hospitals are forced to give quality service at highly competitive prices as the insurance companies will pay only for the services that are desired and will also monitor the services that are rendered closely. This leads to deductibles, co-payments and all claims by hospitals do not get settled hundred per cent. There is also a time element involved as costs are incurred upfront and outstanding amount is received only after a couple of months.

It is therefore imperative for hospitals to have a system to control the costs, while at the same time providing high quality service to the patients.

The Costing Problem

Patients undergoing treatment receive services of varied nature from different departments. The hospital has to recover the expenses of the direct departments as also of the support departments from the patients availing of these services.

Nowadays, any composite hospital with latest facilities for advanced medical/surgical procedures in the various areas of treatment will have nearly 50 or more revenue centers and about 10 to 15 supporting service centers. Furthermore, most of the revenue centers, particularly, in-patient wards, will have classification depending on the level of services for different class of patients according to their monetary or other needs. Again, each department, other than Wards, undertakes several types of procedures/operations etc.

All these make the list of procedures and classification of services quite large. It is for this reason that ascertaining true costs of various services and fixing of the Schedule of Charges becomes extremely complex. Costing needs to be done after careful analysis of past data, comparative data from other hospitals, study of utilization of capacities. Costing techniques shall be applied to provide acceptable costs and charges, enabling optimization of capacity utilization, which, in turn, result in better overall revenues and leave adequate funds for growth and development of newer and advanced facilities.

Setting up a Costing System

Unlike in other industries, where pricing of products / services is generally uniform except in special cases such as exports, institutional sales etc., in hospitals most of the services rendered are charged at different rates based on class of patients. Besides, a category of patients are given free or semi-free treatment, where the charges are nil or kept very low.

Thus, the final charges or pricing has no direct relevance to ‘costs’ individually. But, the overall revenue expected from the charges recovered from all patients has to cover the total costs incurred, to make the procedure or department self-supporting. This matching of expected revenue and costs can be done only on the basis of exhaustive analysis of past quantitative and financial data. Thus, detailed statistics play an extremely important role in Costing of services and fixing of schedule of charges.

Based on such analysis, discussions with medical personnel of each department, regarding the practical problems and expected quantum of each procedure withclass-wise level of patients and detailed budgeting of revenue has to be made. This forms the broad structure for cost allocation to the various cost centers and fixation of individual charges. Keeping in mind the purpose and its importance to the hospital in recovering all expenses incurred, the procedure for cost allocation should be designed so as to obtain accurate and realistic results. We shall not go into the intricacies of these procedures in this article but limit ourselves to the basic steps for the purpose of ascertaining the final costs to obtain the desired results.

Broadly, the steps needed are:

1. Identify the various cost centers in the Institution and arrange them into:
• Revenue producing centers by charging to patients for the services and
  
• Supporting non-revenue producing centers
2. Allocate direct expenses to all centers by analysis of each element of cost
3. Develop cost allocation criteria for allocating costs of supporting cost centers to other supporting cost centers and revenue producing centers, ultimately bringing all costs into revenue producing centers, do this on the basis of services rendered for other centers.
4. Now, each revenue center has the total direct costs of the center and indirect costs representing the allocated expenses of the supporting centers.
5. The total costs thus arrived at for each of the revenue providing centers is to be appropriately distributed among the various services rendered to the patients by that center. This involves not only finding the nature of the services but also learning the general application of the services to the patients. This should be done in conjunction with the medical personnel and modalities determined for each type of service.

Once the costs are available for each profit & cost center, they can be used for the various purposes identified earlier. Typically, to arrive at the above costs, one needs to setup various monitors across the hospital, which will give the necessary data for computing the costs. Computerization could significantly simplify the process of data collection and analysis. A good Hospital Management System software should form the basis for the costing system.

Objectives of a costing system

Utilization of resources:
A costing system should monitor the resource utilization across the hospital. These resources can be infrastructure, equipment, materials or personnel.
Each department has a key driver and the system should track these drivers on a continuous basis. This will ensure that each department is efficient.

Department-wise profitability analysis
A good costing system should enable generation of this very valuable information on an on-going basis. Managements can take corrective steps using this data. It enables fixation of responsibilities and monitoring them. Coupled with a budgeting system, hospital management will have full control over the working of the hospital.

Fixation of doctors’ honorarium
This is a very touchy subject for most hospital management. The honorarium systems can be very complex, with some hospitals adopting honorarium calculations, for each individual consultant. With a costing system, they can negotiate a fair rate for the doctors for each service rendered. The doctors also will be assured of a reasonable and scientific basis for their remuneration.

Fixing Schedule of Charges
This document also called the Rate card can make or break a hospital. The costing system should provide inputs to fix the charges for the various services rendered for each class of patient.
For purchases of new equipment or infrastructure, the costing system should enable the managements to arrive at the feasibility of the project, based on hard data. More importantly, the system should keep track of the status of the projects after they are commissioned. Generally, at the time of feasibility stage, certain estimates & assumptions are made. But almost never are they monitored after commissioning.

Monitoring of factors affecting pricing
The costing system will keep a tab on all factors affecting pricing. For example, material costs directly affect prices. Any major variation in material costs should be highlighted and price changes effected immediately after ascertaining the impact of the variation on margins.

Summary

Whatever be the philosophy of the Management, they need to ensure efficient utilization of costly resources and they should take informed decisions on pricing. A scientific Costing system is a very important tool for Managements to fulfill these needs and hence, is imperative for the successful running of a Hospital.

About the Author: Mr Ravi Mani is the CEO of 21st Century Health Management Solutions and has over two decades of experience in designing robust solutions in the Healthcare vertical. Mr Ravi Mani has a Bachelor’s degree in Engineering and is a qualified Cost Accountant.

Read the full story

Paradigm shift in the healthcare delivery

- Identifying transformational changes in healthcare sector

This is the first of a ten-part series of articles connected to healthcare ICT. These thought leadership based articles will be featuring healthcare delivery, technology and industry challenges. This will provide invaluable insight into new technology developments, tips and techniques that healthcare service providers can adopt to help increase their patient service & quality, improve operational efficiencies and drive greater margins.

We would be covering topics such as the trends in the healthcare segment and the PARADIGM SHIFT in the current business models, Healthcare Market Delivery and who are all the players in each segment, CHALLENGES that would come with respect to managing such business models, APPROACH to such challenges, Details of ISSUES of such challenges function, HOW should a ICT plan for such hospital enterprises can be done, What are the direct benefits for Management Information Systems and DASHBOARDS?, What are technology transformations required for such a model (Decentralised and Centralised), What are the Implementation and Training Transformation and What are the scalability / maintainability and many more niche areas within theoperational effectiveness.

We are sure that this will interest anyone who are visioning industry leadership within their fraternity. Keep reading this series of articles and attain & share knowledge.

Be it Green or Brown field projects, Indian medical entrepreneurs are currently riding high over the wave of ‘new ventures’. Not to forget the fact that these ventures are grabbing headlines with announcements flowing in on a consistent basis since few years. Having contemplated and wondered over this seemingly positive and upward trend in our healthcare segment, I do tend to believe that this is an s a significant change in the healthcare scenario. I’m certain that it is the next milestone for our industry that has traveled quite far, from the times of being just a ‘defragmenter assortment’ of clinics and few ‘big’ hospitals. When healthcare is in this transcendental phase, I feel that it would be pertinent to share my thoughts on this important change.

Current Scenario: Advantage India
Consider this- The size of the middle class population of India so huge that it overtakes the population of United States! The expected life span has drastically improved and an ageing population means demand of more healthcare attention. Owing to education and lifestyle improvements, people are becoming health conscious and are demanding more quality healthcare. The development of new strains of infectious diseases and growing contagious diseases is another cause. The new-age lifestyle has led to new-age diseases, with stress-related disorders becoming more common. People are looking for quality healthcare services from the providers and are also expecting that these should be available near to them and must be customized to suit their expectations. Moreover many studies conducted by government and private research organizations indicate the need for more hospitals and healthcare facilities to tackle the growing demand. All these factors have resulted in rising demand of healthcare in India.

The Demand
India needs over 6,800 more hospitals in rural areas to provide basic health facilities to people, mentions the annual Economic Survey released recently. India's healthcare sector has been growing rapidly and is estimated to be worth $40 billion by 2012. Revenues from the healthcare sector account for 5.2 per cent of the GDP, making it the third largest growth segment in India. India has only 0.7 beds per 1,000 people - far below the global average of 2.6. India needs to add 2 million beds to the existing 1.1 million by 2027 to manage the increasing healthcare requirement of the population. All these factors have attracted hospital stock holders, industry leaders and private investors to hospital care delivery by leaps and bounds.



So Far, So Good
The initial statistics from ongoing studies indicate that there is a minor increase in the number of beds/1000. Corporate hospitals are moving into the rural soil and are becoming pioneers of the rural healthcare boom. The ease of service availability is the biggest achievement of this trend with multi-speciality hospitals succeeding in offering multiple services in one place. People no longer have to travel wide and far for different medical requirement. This move has also brought to the fore the cost effectiveness of the Indian healthcare industry in comparison with the other countries.

The healthcare industry has also focused a lot on improving the quality of services provided. In fact the success rates of the Indian healthcare providers equals to or at times much better than its counterparts even in developed countries. The new trend in the healthcare industry has increased employment opportunities. There are more than 5 million people employed in this industry and the healthcare sector is the largest employer in the country second only to the education sector.

The healthcare explosion has opened up a brand new vista – medical tourism. The cost effectiveness and high-quality medical services available in India have made our country the medical hub of the world. World-class treatments at unbeatable costs are provided at corporate hospitals and this has marked India on the global map as the preferred destination for complex medical and surgical treatments.

Foreign Direct Investments
Foreign Direct Investments (FDI) in Indian Hospitals: New generations of entrepreneurs are in the forefront whether, it is green field or brown, they are in the war footing to get funds. A good amount of investment is flowing for Indian Hospitals since the year 2000 or the past decade. And the good news is that this flow isn’t stopping yet with more FDIs expected to come into the healthcare business, be it the hospitals, clinics or diagnostic centers.

According to RBI note on Foreign Investments in India (April 1, 2007), ‘From January 2000, FDI is permitted up to 100 percent under the automatic route in hospitals in India’. This means that no government approval is required as long as the Indian company files with the regional office of the RBI within 30 days of receipt of inward remittances and file the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the nonresident investors. Controlling stake is also permitted in hospitals for foreign investors. Foreign Investment Promotion Board approval is currently required only for foreign investors with prior technical collaboration, but nevertheless it is allowed up to 100 percent.

The result of this rule is already noticeable, with small investments to the range of $1 to $2 million being received for several small or mid size hospitals to double digit funding for major medical city projects in India. It is worth studying the FDI in hospitals, According to one estimate, foreign investors have tapped only 10 percent of the Indian healthcare market and thus the scope for FDI remains large. There is huge potential for Indian entrepreneurs and medical leaders to bring this capital for Indian healthcare.

Paradigm Shift
Healthcare industry has gone beyond providing treatment and has created multiple other focus areas such as clinical protocols, clinical pathways, use of technology extensively from Computerized Physician Order Entry (CPOE), patient network & RFID, telemedicine, medical call centers, e-health, health on mobiles, knowledge portals, online medical simulation to improve quality of training for service staff and electronic medical records.

The industry is fueled by more corporate companies getting into healthcare, health insurance, corporatisation of the traditional hospitals, startup of health chains in both urban and rural areas, medi-cities and health tourism. There is a paradigm shift in healthcare delivery not only for the affluent but also the poor thanks to the public-private partnerships with the government for various health/subsidiary services contributing to improve the overall quality of care—such as ambulance services, facilities management, diagnostics, urban health facilities and mobile medical units for rural areas. All these players play respective roles in their business and this paradigm shift is a good start for the country.

The Impact
Overall, as a consequence of this paradigm shift, there has been an accelerated demand for high-quality systems & processes in healthcare enterprises. There has also been a marked increase in the number of enterprises/ organizations going for accreditation, like the NABH or JCI. In retrospect, Quality has become the order of the day. To cite an example, NABH accreditation is based on optimum standards and professional accountability, and it encourages healthcare organizations to pursue continual excellence. The objectives of this accreditation are patient safety, provision of high quality of care, and achievement of global standards. Achievement of these objectives needs not only accreditations but also a continuous mechanism for monitoring and evaluation.

Amidst this constant endeavor to raise the quality bar, the challenges for them are not just limited to maintaining high standards, but also maintain efficient systems and accurate processes to attain the objectives. The same challenges get magnified, in an enterprise environment with chain of hospitals functioning in a geographically dispersed state. While transformations occur, to face them, organizations have to closely work with people, process, and technology, thereby establishing a world-class infrastructure to meet global standards in healthcare.

Was this topic useful to you? What are your thoughts on this major trend in the healthcare industry? Do you agree that this is the onset of a huge change in the healthcare sector? Please do post your comments. In the next issue, I will be taking a quick walk through the giants in the healthcare industry and who are the pioneers & early game changers in healthcare service side Post me your queries or feedback on information@21chms.com

Read the full story

A Whitepaper on Cardiology Integration

It is a common observation in developed economies that rise in chronic lifestyle diseases is meteoric. And amongst these killer diseases, cardiac diseases have taken the Numero Uno position. Genetic predisposition compounded by rapid urbanisation, economic prosperity, changes in diet and lifestyle lack of adequate physical exercise is expected to further aggravate this situation. The mantra “Prevention is better than cure” is best applicable n case of lifestyle diseases. Preventive diagnostics helps a lot in early detection of the disease and can avoid a painful and risky course of treatment.

Advancement in the cardiac diagnostics are moving faster than one could imagine. A 128- slice-Cardiac-CT available today can scan a throbbing heart in a split second a workstation can reconstruct a 3D model of heart including small coronary vessels over the cardiac muscle. All this is done non invasively. While the clinical outcome of this remains a topic of debate in comparison with Coronary Angiogram, no one can deny the fact that imaging is getting more sophisticated than what we thought.

As the diagnostics are getting more sophisticated, need to cross correlate is naturally perceived strongly. Integration of digital data produced by medical equipment remains central to accurate diagnostics. 

Download the Whitepaper | PDF (268 KB)

Read the full story