Book Review

Handling Healthcare Finances

Book: Financial Management for Hospital Administration Authors: GR Kulkarni, P Sathyashankar and Libert Anil Gomes Publishers: Jaypee Brothers Medical Publishers (P) LTD Pages: 268

In the current scenario when the concept of healthcare in India is fast changing from just charity to profitability, a guide on financial management for hospital administration is always advisable to all who manage the finances of the hospitals.

'Financial Management for Hospital Administration' is a book which deals with financial visibility, costing and efficiency for today's breed of modern and corporatised healthcare institutions. Anticipating the changing scenario in Indian healthcare arena, the book has tried to deal with all the nitty-gritties of financial management, keeping in mind the needs of hospital administrators and management staff who are assigned the daunting task of administering the institutions managed by them as financially viable units.

In lucid and practical approach to this otherwise very arid and theoretical arena, the book deals with a gamut of topics related to financial and cost management of hospitals and has included hospital budgeting, pricing of hospital services, hospital information system, sources of funds, investment decisions, working capital, accounting controls, TPAs, medical tourism and marketing. The descriptive language used in the book simplifies the accounting complexities to quite an extent for the readers.

The introductory chapter starts with an example of how a hospital bill can be possibly completely ignored in super sensitive episodes that often occurs in a hospital. Taking into consideration the soaring costs of healthcare, the concepts of management and leadership become critical when the organisation deals with a large number of persons who are not in the best of physical and mental frame. According to the authors (GR Kulkarni, P Sathyashankar and Libert Anil Gomes), handling such people requires a careful balance of public relations, high quality healthcare service and cost containment.

The book dabbles in the changing cost dynamics of healthcare in the current scenario and tells how one has to think to make the services affordable without sacrificing quality so that the large mass of the population is not denied medical care. As hospitals have to be efficient and cost-effective, they have to consider alternate medicine and the manner in which it is provided. The infrastructure that is readily available is capable of offering quality medical care to larger segment of population.

The same chapter has further emphasised on the need of more effective use of existing resources to minimise idle time and waste, for which accounting concepts like cost accounting and budgetary control can help both public and private healthcare players in making healthcare services a little more affordable. While talking about the ways of making healthcare financially viable, the book suggests matching high cost and to be able to provide medicare of acceptable standard, the hospital management have to look for their requirements of part of their funds from non-traditional sources. It could offer its surplus facilities to patients of other nearby hospitals at a higher rate. Some 'free' hospitals have already introduced the concept of paying patients.

The second chapter in the book has revised all the basics of accounting like types of accounts, principle of double entry, cash basis and accrual basis of accounting, bank reconciliation and capital and revenue expenditure. It has mentioned the reasons why a balance sheet of a hospital may not truly reflect its true worth, as the assets are valued at the original purchased cost. They are not valued at the current or replacement cost. If considerable time has elapsed, the current cost of land is likely to be several times of its book value. The other reason is the hospital balance sheet does not include the value of the senior medical personnel and in the patients' outstanding- there could be sizeable bad debts. An entire chapter in the book deals with the potential budgeting issues in the hospital and has tried to cover all the touch points in the hospitals. The chapter speaks about the types of budgets like flexible budgets, performance budget, negotiated budget and zero-based budget. The authors says that one of the complaints against use of budget as a control device is that it assumes a 'static' situation as regards to level of activity. There is a considerable time lag between the date on which a budget is formulated and the actual period when the action takes place. During this period, several events take place, which affect some of the assumptions made at the budget formulation stage. Actual activity may be different from what was assumed when the

budget was formulated, both in terms of numbers and product mix. Some of the expenses vary with level of activity. Therefore, it would be irrational to compare two sets of costs, each related to different level of activity. And for better control, the expenses should be matched with matching activity levels of a department which would again depend upon capacity, hours worked, efficiency and demand.

A chapter on cost accounting explains the cost accounting procedures and different costing concepts. This chapter tries to tell that by penny pinching, one can not ensure that the hospital resources are effectively used and there are no wastages or leakages. It mentions that often arbitrary ceiling is imposed on purchases as cost saving measures which results only in reduced services to lesser number of patients. The chapter gives strategies to streamline the area of utilisation of resources, keeping in mind their cost impact. It says that when considering purchase of an equipment, the hospital authorities could consider only the basic price payable to the vendor of the equipment, ignoring additional costs such as taxes, packing, freight and also the cost of infrastructure needed to install the machine and its operating expenses on employees, space, power and air conditioning during its pre-operating period. To compute the impact of 10 per cent increase in the activity on costs and revenues of a department, one can consider which costs are relevant to a particular decision.

A chapter on pricing of hospital services discusses the pricing rationale. It states that each possible rate structure has different implications on gross income, number of patients making use of services offered and cash flow. Therefore, whilst finalising the rate structure, the hospital management should be clear as to what it is trying to achieve in terms of medicare, social objectives and financial viability. The section on sources of funds covers all the important aspects of funding for hospitals, starting with the nature of funds, promoter's capital, share capital, donations and grants, loan funding, leasing, debentures, hire-purchase and so on.

The book has also included an entire chapter on investment decisions, which is a key to the financial viability of a hospital. In the chapter on Third Party Administration (TPA), authors discuss about low awareness among policyholders about the existent TPAs.

Even though the book has not elaborated on the techniques like Activity Based costing and Zero-based budgeting, it makes a sincere attempt to offer more practical solutions and accounting applications with regards to management of finances, rather than just concentrating on theory. Minimum use of accounting jargons makes the book more approachable to the people from diverse backgrounds. The take away messages that the book has tried to give to the reader is to prepare a plan of action for immediate future period in quantitative and in financial terms with departmental managers, understand financial implications of their decisions and actions on costs and revenues, establish costs for various services rendered by the hospital and derive unit rates which are equitable, rational, cost based and easily understood by the patients. The book is overall a worth read for all those who are keen on knowing the financial aspects of the hospital.

Sonal Shukla