Financing health services

1. Gilu Francis

2. i. estimates of income and expenditure
ii. methodical recording of income and expenditure (accounting)
iii. stores records and accounts
iv. inventory records and accounts
v. cost accounting and value analysis
vi. generate periodical reports and returns of accounts
vii. budget formation and budgetory control
viii. salary and wage administration
ix. organisation of financial procedures
x. maintaining creditors and debtors accounts
xi. financial statistics and management information
xii. establishment of cost and revenue centres
xiii. review of new projects and investments.

3.  Financial planning should begin with an
analysis of trend.
◦ external analysis
 covering actual and potential opportunities
◦ internal organisational analysis
 covering the hospital’s limitations, strengths,
utilisation and financial performance.
◦ long-range planning
 Projections of future work loads and activities must
be done as realistically as possible.

4.  Are the current financial resources and income
capable of supporting its operations?
 How are the programmes likely to be operated in
the future due to changing technology, service
mix or client characteristics?
 Are there any anticipated external happenings
which will change what the hospital is offering
now ?
 Is the hospital willing to offer new services or
reach new client groups ?
 Would the hospital be willing to make the
necessary changes in structure, programmes or
facilities?

5.  Capital formation is the process of securing
long-term capital in the form of debt or as
equity.
 It is a process involving a continuous
assessment of the long-term sources of
finance and the appropriate mix of
investment options.

6.  Financial feasibility means structuring a financial
package so that an institution can secure full financing
for a proposed project and can then, over the useful life
of the project, repay any debt incurred in constructing
the project while, at the same time, meeting full
operating costs.

7.  The Changing Character of Services
 Lack of Commitment
 Technology Development
 Changing Health Status
 Increasing Proliferation of Specialists
 Defensive Medicine
 Lack of Awareness of Economy and Productivity
 Reimbursing Practices
 More Costly Facilities

8.  Asset
 Account Payable
 Accounts Receivable
 Accrual Accounting
 Average Cost
 Balance Sheet
 Benefit-cost Ratio
 Book Keeping
 Budget
 Budgetary Control
 Cash Accounting
 Capital Expenditure
 Chart of Accounts

9.  Charge Slips
 Cost
 Cost Finding
 Depreciation
 Income and Expenditure Statement
 Liabilities
 Marginal Cost
 Operating Cost
 Overheads
 Prepaid Expenses
 Revenue Centres
 Revenue Expenditure
 Standard Cost

10.  Revenue Centres
i. daily patient service—e.g. medical, surgical, paediatric,
obstetrics, outpatients, intensive care, etc.
ii. professional service—operating rooms, delivery suite,
emergency and casualty
iii. technical support service—laboratory, X-ray, blood
bank, ECG, physiotherapy, pharmacy, etc.
 Cost Centres
Admitting office, House staff, Billing , Medical records, Coronary
care , Medical supplies, Anaesthesia, Hotel and housekeeping ,
Delivery room, Operating room, ECG, EEG, Laboratories,
Emergency, Radiodiagnosis/imaging, General supplies, IPD, ICU ,
Pharmacy, Neonatal ICU, Physical medicine, Nursing,
Miscellaneous

11.  STANDARD COSTING
 Standard cost is an estimated cost determined in advance of
production or supply
 COST FINDING
 Costing or cost finding is determining the cost of a
procedure or service
◦ Direct Costs
 costs incurred in running a department or service for
fulfilling the primary purpose of that department or
service
◦ Indirect Costs
 Indirect costs are the costs incurred by other departments
or service in support of the primary function of direct
patient care.

12. ◦ Operating Costs
 Operating costs are the actual overal costs incurred by a
department to generate patient services and other
functions of the department
◦ Fixed Costs
 Fixed costs are the expenditures incurred irrespective of
the quantum of workload.
◦ Variable Costs
 Variable costs are costs which vary in proportion to
changes in volume of service
◦ Semivariable Costs
 A semivariable cost may increase or decrease
continuously, but the percentage change in cost may be
less than in the level of activity.

13. ◦ Allocating Indirect Costs
There aretwo methods of allocating indirect costs.
1. Costs can be classified by departments, individual cost items are charged
to the revenue producing departments to which they can be traced.
2. Costs can also be classified by objects of expenditure, e.g. supplies and
materials, salaries, rent, insurance, maintenance, etc.
 DEPRECIATION
◦ Depreciation is the notional loss suffered by fixed assets due to wear and tear
and ageing.
 Straight Line Method
 Accelerated Rate

14.  RATE SETTING
◦ Approaches to Rate Setting
i. relative values,
ii. cost plus a percentage,
iii. hourly or time-based rates, and
iv. gradation of accommodation and facilities.
 Relative Values
 Cost Plus a Percentage
 Hourly Rates
 Gradation of Accommodation and Facilities

15.  Financial Requirements of Hospitals
◦ Capital funding
◦ Operating needs
◦ Reserves
 An effective budget presupposes the following—
◦ Clear understanding of the hospital’s financial and service goals
◦ An hospital organisation with clearly defined responsibilities for
each department
◦ A system of accounting designed to provide a measure of
performance
◦ Active participation of staff members in the preparation
of the budgets.

16.  The budgetary plan results from the accounting plan, and
includes:
i. the operating budget
i. Forecast of operating expenditure
ii. Salaries and wages
iii. Materials and supplies
iv. Utilities:
v. Maintenance:
vi. Other overheads
ii. the capital budget
 Capital budget is the estimated fund requirements for capital
items needed for growth, for providing new facilities, and for
replacement of worn out equipment, machinery, and furniture.
iii. the cash budget.
 budget that records the forecasted cash inflows from various sources
and also records the forecasted demands for cash.

17. 1. To prepare assumptions, in statistical terms, about the kinds of services
(outputs) the hospital expects to provide (produce)
2. To prepare the economic forecasts in respect of new developments to outline
the budget goals and policies as per the directives of the governing board or
board of trustees and in consultation with the finance officer, which will
constitute a tentative outline of the financial plan.
3. To outline the budget goals and policies as per the directives of the
governing board or board of trustees and in consultation with the finance
officer.
4. To prepare a budget package incorporating written instructions regarding the
framework for the budgeting process, procedures to be followed,
accompanied by illustrative forms and calculations, also containing the goals
and policies, assumptions, schedules and past data applicable to the
department
5. The fifth step is for each department head to analyse financial and statistical
data generated by his department as well as provided to him by the
administration or finance department, to critically assess the department’s
operations and performance, and develop indices for planning and control

18.  The seventh step is for the Finance Officer to develop the department’s
revenue budget, summarise departmental expense budget, and forward the
department’s budget hearing summary to the concerned department head
 The eighth step is for the Finance Officer to prepare a preliminary
operating revenue budget for the whole hospital, by summarising and
collating the individual department’s budgets.
 The ninth step is for the Finance Officer to summarise the total budget
(including capital budget and cash budget) into a proper budget format
including statistical summaries.
 In the final step, the budget is presented by the Finance Officer to the
governing board or board of trustees or to the finance committee for their
approval.

19. Budget control can be achieved through:
i. keeping a constant watch over the budget in action,
ii. Periodically reviewing of actuals with the budget,
iii. Analysing deviations in actual performance,
iv. taking remedial action where indicated,
v. revising the budget if conditions warrant.
The ultimate financial statements that result

20.  Sakharkar, B. (2009). Principles of hospital
administration and planning. New Delhi: Jaypee Brothers
Medical Publisher