The concept of “profit” had been an anathema for hospitals till recently. Barring government hospitals, no nonprofit hospital can survive without prudent financial planning and management.
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For corporate hospitals and other privately owned hospitals, profitability is the key to their continued survival.
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Therefore, there should be no need for hospitals to get embarrassed by any positive level of profit. Totally subsidised model of health care has been a failure because of overall resource constraints of the government.
Although the fee for service concept has not been implemented in government hospitals in totality, the outlook of health services as total charity services has changed.
If a hospital cannot generate profit, the invariable result is dilution in the quality of care because of the poor resource support, and long-term viability of the hospital comes in jeopardy.
In improving profitability of hospitals, look into the areas of revenue generation and take appropriate measures in improving the efficiency of hospital operations.
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There are four elements in improving the financial health of a hospital:
1. Improvement in patient services revenue
2. Increasing other operating revenue
3. Increasing no operating revenue
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4. Controlling operating costs.
1. Improvement Inpatient Revenue:
Any change in workload and in the rate of scheduled charges will affect patient revenue. Since income from patient revenue, viz. room, nursing care, professional charges, investigations, and operations represents the largest (up to 80%) part of hospital revenue, a rise in workload, widening the scope of services and an upward revision of scheduled charges are the ways to achieve it. However, charges have to be within the paying capacity of the clientele.
2. Increasing other Operating Revenue:
The sources of non patient revenue and other operating revenue are as follows.
i. Fees from education and training programmes
ii. Rental of hospital space
iii. Cafetaria
iv. Gift shop
v. Parking fee, etc.
It makes good sense to increase non patient operating revenue by efficient management of these assets.
3. Increasing Non operating Revenue:
Non operating revenue arises from gifts, endowments and from investment income. Many health care institutions are thriving on sound financial philanthropic support.
Funds set aside for depreciation, retirement benefits, and similar other available funds must be invested in a way that they yield maximum returns, by prudent investment strategy.
4. Controlling Operating Costs:
Costs of operating the various services and facilities can be kept in check by a good materials management system with appropriate control over supplies, utilities, maintenance expenditure, and reduction of wastage. Cost awareness must be inculcated into the minds of all hospital functionaries.