Financial planning, a much talked about aspect of planning, does not receive the serious attention it deserves, as evidenced from the fact that a majority of hospitals have only the annual budget, but do not have long-term plans.
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Financial planning should begin with an analysis of trend. This analysis should cover both the external analysis covering actual and potential opportunities, and internal organisational analysis covering the hospital’s limitations, strengths, utilisation and financial performance.
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In long-range planning, projections of future workloads and activities must be done as realistically as possible.
The hospital should ask itself—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 clientele 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 clientele groups? Would the hospital be willing to make the necessary changes in structure, programmes or facilities?
From observing the budgeting process and techniques of a large number of hospitals, it appears that they are not motivated to develop technically efficient budgets.
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The net results are widespread increase in costs without any type of effective regulatory mechanism. In many cases, no real review of existing programmes is undertaken. So the current budget represents a repetition of previous year’s budget.
Capital:
Financing of ongoing activities, expansion of existing services, acquiring new technology, and equipment and manpower financing are the broad areas-among others- where funds are required by hospitals.
There will be various sources for acquisition of capital required by hospitals. 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.
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Current trends indicate that hospitals are increasing the capital intensity of their services by such measures as expanding the scope of outpatient facilities, upgrading the quality of intensive care services, modernizing the facilities more frequently, and employing the latest technological innovations.
Besides the capital going into construction costs of new projects, almost 25 per cent goes for financial reserves for paying interests during construction and to meet the hospital’s initial working needs.
An understanding of the notion of “return on investment” which was lacking in the medical care field till lately, is now gradually building up. It has equal relevance in the nonprofit voluntary hospitals as in corporate hospitals.
The surplus generated in the operations of the hospital is reinvested in new or expanded services, and a successful hospital is one that can demonstrate a long history of adding to the comprehensiveness of available services.
This is as much a return on investment as paying dividend to stockholders in a business organisation. In this case, the return is in the form of services rather than money.
It is argued that the sale of medical care as a commodity makes it unavailable to the poor who need it most, and causes damage to the science and art of medicine by making its practitioners tradesmen instead of members of a liberal profession interested in the wellbeing of man on the other hand, the State has been unable to fully bear the medical care costs.
Due to constantly rising costs of medical care, fund” and financing is getting difficult. Would it be possible for the State alone?
The budget needed to operate the hospital, system alone may absorb up to 2 to 3 per cent of the GNP which almost equals the total budget of the entire he all services.
It is apparent that the funding of hospitals in future has to depend increasingly on nongovernmental sour the sources would like
1. To earn revenue just enough to cover total expenses” financially autonomous organisations running the hospital on no-profit no-loss basis
2. To estimate costs and earn revenue over and above costs financially autonomous concern making profit (services priced in advance).
3. Revenue collected by government authority which takes over the budget and covers deficit by subsidies.
There is a need to channelise the ability of a large part of the (urban) population to choose and pay for services.
Private hospitals and nursing homes are exploiting this ability in most of the towns and cities, benefitting individual patients.
Needless to say, the cost of care has to be high, and obviously those who utilise such services can afford to pay for them without assistance.
However, a great number of patients who are willing to pay for services would like their burden to be eased out to certain extent, possibly through pooling of costs or on a prepayment basis.
Hospitals should try to explore the possibility of financing their operations through these methods for non organised sector of society.
Investor-owned companies are posing a challenge to nonprofit organisations and community hospitals in USA, where profit making companies who believe that medicine is a calling for businessmen as well as doctors, now own or manage more than 20 per cent of all US hospitals.
Such companies are also moving into affiliated areas such as health maintenance organisations, satellite clinics and neighbourhood clinics providing services and procedures that do not require hospitalisation.
It is of interest to note that the revenues of the Hospital Corporation of America, one of the biggest chains, is in the region of over $ 8 billion and the profits of Humana, another corporate-owned conglomerate having 91 hospitals in 22 states, ran over $ 200 million in profit.
Financial Feasibility:
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.
Whenever there is a need for borrowing capital for starting a new hospital project or adding new services, a financial feasibility study becomes a must. The study should consider the market environment, and the market share that the proposed hospital can capture.
The focus will be on whether the estimated utilisation/demand is sufficient to support the required level of debt the hospital is going to incur in financing the project, over the useful life of the project.