Financial Management in Hospital for students of Healthcare and Hospital Management.

1. Financial Management in Hospital
Brigadier General Dr Zulfiquer Ahmed Amin
M Phil, MPH, PGD (Health Economics), Fellow HA (AIIMS, Delhi), MBBS

2. Finance and Economics
Finance and Economics are related, but not identical disciplines. They
are interrelated and impact one another. Finance can thus be
considered a subset of economics.
Finance includes studying and managing money-related aspects like
assets, investments, financial institutions, etc. On the other hand,
economics explores how individuals, businesses, and governments
make decisions about the production, allocation, distribution, and
usage of goods and services.
Economics is the study of the distribution of scarce resources.
Finance is the study and implementation of the management of
money, funds, and other assets which can yield objective value.

3. Economics analyzes the behaviour of individuals or groups about
what makes people act on certain choices. Governments of all
countries are advised by economists to implement various policies to
run the country well.
While Finance deals with smaller day-to-day concepts, Economics
subject deals with topics like economic policies, exchange rate,
demand and supply of products, GDP, Inflation, etc.
Similar to the difference between physics and engineering.
Engineering uses the findings of physics to accomplish desired ends.
Finance uses the findings of economics to accomplish desired ends.

4. Financial Management means planning, organizing, directing and
controlling the financial activities, such as procurement and
utilization of funds of the enterprise. It means applying general
management principles to financial resources of the enterprise.
What is Financial Management

5. Functions of Financial Management

6. Investment Decisions include outflow of cash, Financing Decisions
includes an Inflow of cash (through borrowing, or investment from
outside sources), and Dividend Decision includes distribution of
profits to shareholders.

7. 1. Investment decisions:
A firm needs to decide where to invest in order to gain the highest
returns. The decision of investing funds in the long term assets (Fixed
Assets) is known as Capital Budgeting. The investment made in the
current assets or short term assets is termed as Working Capital
Management.

8. 2. Financing Decision
Financing decision is, concerned with the decisions about how much
to be raised from which source for execution of investment decision.
The main sources of funds for a firm are shareholders funds (Equity
capital and retained earnings), and borrowed funds, raised as
debentures or other forms of debt.

9. 3. Dividend decision:
The finance manager has to take decision with regards to the net
profit distribution. Net profits are generally divided into two:
• Decision of amount of Dividend for shareholders: A dividend is a
token reward paid to the shareholders for their investment in a
company's equity, taken from a part of company's net profits.
• Decision of amount of Retained Profits: Retained Profit is the part
of the profit which is retained for future expansion and
diversification plans of the enterprise.

10. Responsibilities of Finance Manager
1. Financial Planning
2. Identification of sources of fund
3. Analyzing and selecting sources of fund
4. Raising of funds
5. Investment of funds/ Utilization of fund
6. Protection of funds
7. Distribution of profit
8. Record keeping of financial functions

11. Financial Planning
Financial planning is the process of documenting a business' current
financial situation, scanning the environment for opportunities,
identifying financial goals and determining how the business will
achieve them.

12. Identification of Sources
A source of finance, refers to where a business gets money from to
fund their business activities. A business can gain finance from either
internal or external sources.

13. The factors affecting the choice of sources of funds are the cost that
will incur to raise funds, the purpose and the duration for which the
funds are to be raised and the risk that a company has to bear to raise
those funds.

14. Investment of Funds
Investment of fund is the decision to utilize money to do business.

15. 1. Debt
2. Equity: On a company's balance sheet, the difference between its
liabilities and assets shows how much equity the company has.
3. Term loans: A term loan is a monetary loan that is usually repaid
in regular payments over a set period of time.
4. Working capital loans: A working capital loan is a loan that is
taken to finance a company's everyday operations. These loans are
not used to buy long-term assets or investments.
5. Retained earnings
6. Letter of credit: A letter of credit, or a credit letter, is a letter
from a bank guaranteeing that a buyer’s payment to a seller will be
received on time and for the correct amount.
Sources of Finance

16. Protection of Fund
Asset protection is about protecting the business assets from the
threat of business liabilities, such as debt obligations, and
misappropriation etc.

17. Distribution of profits
Profit distribution decisions - relating to the proportion of profits
earned that should be retained to finance development and growth
of the company and the proportion which may be distributed to
owners as immediate returns.

18. Record Keeping of Financial Functions
A Balance Sheet is a financial statement that reports a company's
assets, liabilities, and shareholder equity. It provides a snapshot of a
company's finances (what it owns and owes).
The balance sheet is based on the fundamental equation:
Assets = Liabilities + Equity.

19. The balance sheet is divided into two sides (or sections). The left side of the balance
sheet outlines all of a company’s assets. On the right side, the balance sheet
outlines the company’s liabilities and shareholders’ equity.

20. Glossary of Terms in Balance Sheet
• Assets:
An asset is anything of value or a resource of value that can be
converted into cash. eg, hospital building, land, goods, machineries,
equipments, vehicles, cash, investments, materials.
• Cash equivalents:
Cash equivalents are any short-term investment securities with
maturity periods of 90 days or less, eg, treasury bills (A short-term
financial instrument issued by the government), govt bonds.
• Inventory:
Inventory is the raw materials used to produce goods, as well as the
goods that are available for sale.

21. • Accounts Receivable:
Accounts receivable (AR) is the balance of money due to a firm for
goods or services delivered or used but not yet paid for by
customers.
• Prepaid Expense:
Prepaid expenses are future expenses that are paid in advance. On
the balance sheet, prepaid expenses are first recorded as an asset.
After the benefits of the assets are realized over time, the amount is
then recorded as an expense. e.g. Advance Rent.

22. • Investments:
An investment is an asset or item acquired with the goal of
generating income or appreciation. Appreciation refers to an increase
in the value of an asset .
• Intangible Assets:
An intangible asset is a non-physical asset that has a multi-period
useful life. e.g. patents, copyrights, literary works, trademarks, and
broadcast rights.

23. • Liability:
A liability is how much the hospital owes, recorded on the right side
of the balance sheet. Liabilities are incurred in order to fund the
ongoing activities of a business. Examples of liabilities are wages
payable, taxes payable, loans, mortgages etc.
• Accounts Payable:
Accounts payable (AP) are amounts due to vendors or suppliers for
goods or services received that have not yet been paid for, shown as a
liability on a company's balance sheet. It does not accrue interest.

24. • Notes Payable:
A note payable is a written agreement, when a borrower obtains a
specific amount of money from a lender and promises to pay it back
with interest over a predetermined time period.
• Accrued Expenses:
Accrued Expenses are expenses that have been incurred and for which
the payment has not yet been made. This expense is recorded in the
expense book, but paid later. eg, taxes, commission etc
• Deferred Revenues:
Deferred revenue is money received in advance for products or
services. Advance money received for flat, before erection of building.

25. • Equity:
Equity measures the value of ownership. In other words, it's how
much someone could get paid for selling something they own.
• Common Stock:
Common stock, is typically the stock held by founders and
employees. eg, share of a company.
•Additional Paid-in Capital
Additional Paid in capital also known as Capital surplus, is the excess
of amount the company receives over and above the par value of
shares, from the investors during the time of an IPO. eg, share value
10 Tk, investors buy at 50 Tk per share.

26. • Retained Earnings:
Retained earnings are the cumulative profits that remain after a
company pays dividends to its shareholders. These funds may be
reinvested back into the business for expansion of business.
• Treasury Stock:
A treasury stock is stock which is bought back by the issuing company
from the public investors, reducing the amount of outstanding stock
on the open market.

27. Hospital Budget
Estimation of revenue and expenses for a particular period of time is
Budgeting. Budgeting is 3 types of budget.

28. Causes of Increased Healthcare Cost
- Change in disease pattern due to life style changes.
- Shifts in patients demand (eg, Preventive to Curative services)
- Increased competition for core patient services (eg, MRI/CT Scan)
- Repercussions of any pandemic (eg, ICU/HFNC in COVID-19)
- A lack of transparency allows providers to charge arbitrary amounts
for services

29. - Malpractices (Unnecessary diagnostics, privileges taken from
Pharmaceuticals)
- Changes in global economy (Increase price of all commodities)
- The changing character of the service (eg, Profit mongering)
-Defensive medicine (eg, Polypharmacy, Increased Caesarean Section)
- Lack of awareness of economy and productivity
- Demographic Shift: Ageing population

30. - Technology development (eg, High tech equipments)
- Changing health status (Increased heart diseases due to junk-food)
- Fear of malpractice lawsuits (Some doctors prescribe unnecessary
tests or treatment out of fear of facing a lawsuit).
- Lack of information to patients.
- End of life care

31. Cost Containment
Cost containment is the practice of controlling expenses, and
offering healthcare services at a reasonable price.
1. Reduce cost of input resources. eg, Labor, and consumables.
2. Bulk purchase of raw materials.
3. Shared services, eg, laundry, diet, CSSD etc
4. Efficient Material Management.
5. Making better use of IT
6. Wastage control
7. Reducing operating expenses that don’t contribute to better care.
8. Diminishing redundancies in diagnostic testing
9. Ethical practices by the professionals
10. Incorporating telemedicine and virtual care
11. Increase in the proportion of outpatient surgery

32. 12. Strong government control and oversight.
13. Improve efficiency
- Reduction of unnecessary staffs, machines, procedures etc
- Elimination of duplications
- Investment in capital expenditures reviewed thoroughly.
14. Reduce operation cost. eg, Energy conservation.
15. Volume reduction. eg, Reduce duration of hospital stay.
16. Emphasis on OPD services.
17. Eliminate pilferage.
18. Use of Cost-Benefit and Cost-Effective analysis.
19. Use of Generic Prescription Drugs.

33. 20. Value Engineering: Value engineering promotes the substitution
of materials and methods with less expensive alternatives, without
sacrificing functionality.
21. Developing in-house servicing and maintenance facility.
22. Good security and vigilance.
23. Develop cost-containment awareness among all staffs of
hospitals.
24. value-based care is that it allows hospitals to emphasize on
prevention than cure.

34. Health Financing Problems in Bangladesh
-Lack of fund: Proposed 5.4% of budget in heath for 2022-23 (WHO
Recommend: 12-15%), which is only 0.84% of GDP (WHO
Recommend: 5%; India: 2.1%)
-Mal-distribution of resources
-Rising cost of medical care
-Inappropriate use of resources
-Inefficiency in spending
- Inability to spend budgeted money

35. -Lack of Healthcare Management
-Corruption.
-Absence of Health Insurance Mechanism.
-Out-of-pocket healthcare expenditures of households in Bangladesh
comprise 64.3% share of the total health expenditure.
-Catastrophic healthcare expenditure (more than 10% of annual
income) pushes 0.5 million into poverty every year in Bangladesh.

36. Financial Management by GOB
Any public procurement in Bangladesh is regulated by Public
Procurement Act-2006 and Public Procurement Rule-2008 to
regulate transparency of financial activities. To ensure a best
possible health outcome from limited resources, a strong financial
management system with competent human resources in health
sector policy is a must.