Financial Management In Hospital

Objectives

1.      Provide financial resources for all essential services and then for other desirable activities

2.      Maintain the service charges within the reach of the people served by the hospital including free and concessional care for the poor and needy.

3.      Improve employee satisfaction by increasing benefits such as salaries, PF, gratuity, pension, housing, training loans etc.

4.      Reduce dependence on grants, donation or contributions,

5.      Provide for community health development work in the neighborhood if that is an institutional objectives.

Financial Planning

Hospital need both-short term and long term planning. Majority of the hospital do not have long-term (5years or more ) plan. Financial planning must be based on analysis of the hospital objectives,both in term of quality and quantity of services.

The policies influencing financial plan are :-

·         Service mix and decisions regarding specialization.

·         Pricing

·         Free and concessional care

·         Community health and involvement in social development activities

·         Training and research

·         Growth ,expansion and modernization

Budget

Budget is an important financial procedure, which must receive full attention by the administrator . Budget brings about guidance,stability, balance and direction. A budget is a financial planand it is usually a short-term(annual)plan.

Hospital budget is the process of expenditure and the means of financing this expenditure. A budget ia an operational plan expressed in monetary terms. The budgetary plan incorporates the operating budget.

·         Operating Budget

·         Capital Budget

Budgeting is an opportunity to consider better performance by the hospital. While planning a budget,we must apply our minds to think in terms of improved quality and quantity of care.

Different Kind of budget :

1.      Appropriation

2.      Forecast

3.      Flexible

Operating Budget

Operating Revenue Budget

Operating Expenditure Budget

Operating Revenue Budget

In order to have a proper operating revenue budget,we musy have full statistics dat.The prediction revenue is some what speculative even with good quality data. Any change in workload will effect revenues. It depends upon the rate or schedule of charges. The revenues come from the following activities of the hospital

1.      Patients service

2.      Activities incidental to patients services

3.      Income from investment

4.      Other income-donation,grant etc

Operating expenditure budget

Operating expenditure budget is required for the  operation or maintenance of facilitiesand services. The most important costs are for salaries and wages ,supply like drugs,dressing,reagent,fuel etc and wtilities including electricity,water,telecome etc and equipment maintenance and purchase of spare parts.

Capital Budget

Funds should be available for expenditure on capital (non-recurring) iteams. These are required for:

a)      Growth (new facilities being provided)

b)      Replacement of obsolete & worn-out equipmental,furniture and machinery

(new facilities may be of building,plant and machinery or equipment)

Capital b is the estimated fund requirements forcapital iteam needed for growth,for providing new facilities and replacement of worn-out equipment,machinery,and furniture.

Cash Budget

Cash budget is the budget that record the forecasted cash inflow from various sources and also records the forecasted demand of cash. The cash budget is usually broken down by monthly or quarterly period.

Categories of expenditure

The Hospital expenditures classified in three categories

Capital Vs Recurring (Revenue)

Capital Cost

Capital cost are initial one time expenses to make available a particular service.Example expense on building,equipment,instrument,fixture and furniture

Recurring Cost

Recurring cost are incurred on a continuing/periodical annual basis. Example salaries, consumables and supplies, water, electricity, maintenance and contingent(emergency) expenses .

  Fixed vs Variable

Fixed costs are those costs which do not vary with volume of output and hence fixed are defined in terms of time like per day, or per month, or per year.

Variable cost

Variable costs are those costs that changes directly with the production and hence they are defined in terms of units.

The following are examples of fixed costs and variable costs:

• Indirect labor- fixed costs could be variable under certain circumstances
• Indirect materials- variable costs
• Insurance on building- fixed costs
• Depreciation on building (straight-line)- fixed costs
• Overtime premium pay- variable costs
• Property taxes- fixed costs
• Polishing compounds- variable costs
• Depreciation on machinary (based on machine hours used)- variable costs
• Employer's payroll taxes- variable costs
• Machine lubricants- variable costs
• Employees' hospital insurance (paid by employer)- fixed costs
• Labor for machine repairs- variable costs
• Vacation pay- variable costs
• Patent amortization- fixed costs
• Janitor's wages- fixed costs
• Rent- fixed costs
• Factory electricity- fixed costs
• Plant manager's salary- fixed costs

Note : It is important to note that total fixed costs remain same but per unit fixed cost keeps changing while in case of variable costs total variable costs keeps changing depending on the level of output but per unit variable cost remains constant.

Direct vs Indirect  

Direct Cost

Direct Cost are costs incurred in running a department or service for fulfilling the primary purpose of that department or service. They can be apportioned direct  to the particular activity or procedure. Usually, these are expenditures incurred by the concerned department covering salaries and labour costs, and costs of supplies and stores in rendering the service.

Indirect Cost

Indirect cost are the costs incurred by the other department or service in support of the primary function of direct patient care. The same cost may be direct for one department but indirect for another . Ex maintenance supplies are direct costs to maintenance department, but indirect cost to CSSD or mechanized laundry .