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ECONOMICs` impact on healthcare

The increasing financial burden of hospitals

Hospital systems sometimes sit uncomfortably between a production and human services enterprise. On the one hand, they are dedicated to patient care and bound to the oath of Hippocrates, which requires full, sometimes even selfless commitment to the wellbeing of the patients. On the other hand, hospitals need to earn money to sustain their services. Even worse, patients become more and more demanding for hotel-like standards and services in hospitals, for which they are, however, not willing or able to pay hotel-like rates.

But in the face of increasing medical tourism, hospitals are forced to raise their standard of services to persevere in this new growing local, regional, and even global competition.

Additionally, governments continue to implement healthcare transformation reforms that drive costs down. Of course, there is a vital need for economically reasonable business behavior. Hospitals will not be able to provide healthcare services anymore when they are insolvent. But either way, the balance between medicine and finance should always be straightforward.

Professor Giovanni Maio sees a series of risks for the patients and the healthcare providers in such an economic logic: “The more physicians are evaluated solely based on the number of procedures and documented parameters, the more they will forget that they achieve more than is reflected in these numbers.”

In such evolving and turbulently uncertain conditions, it is imperative to understand the basics of medical and financial control measures.

Entrepreneurial risk management in hospitals

Risk management in hospitals has been generally limited to topics around patient safety, medication errors, and the like. But the entrepreneurial view on risk management for the organization hospital hasn’t received widespread attention in healthcare professionals.

Since the balance sheet is one of the most important factors of entrepreneurial prosperity, we would like to give you some economic insights to empower you for daily balancing of medicine and finances.

Scope of the course

You will appreciate the balance and tensions that exist between finance and medicine. We will provide you with a toolset to stay in control of the most relevant economic numbers. Perhaps, this economic competency will even trigger better medicine in your organization.

Section 1: Economic fueling of healthcare providers` mindsets

Understanding the current detrimental impact of economics on healthcare
The first step of this module is understanding the need for health economics in your hospital. How do you measure efforts and results today? What numbers are relevant and why? Do the hospitals` economics already have an impact on your clinical work and what are the future perspectives in this regard?

Accepting the economic-medical correlation
The influence of economic constraints on medical processes, culture, and outcomes cannot be disregarded in the world`s healthcare systems today.

You should appreciate the medical-ecnomomic correlation and prepare yourself to tackle the dilemma professionally.

  • Understanding the sources of conflicts between hospital economics and medicine
  • Understanding and incentivizing healthcare professionals
  • The impact of consumerism and positioning on hospital economics and profitability

Section 2: Basic economic principles in healthcare

Mastering the numbers
You will be introduced to relevant accounting principles and tools for medical and financial controlling. Tools for cost-performance analysis are essential to gain an overview of the respective key parameters. After all, understanding the status quo is a prerequisite to interpreting the numbers and deducing measures for optimal balancing between medicine and economics.

We present the numbers in action to visualize the impact of balance sheets on healthcare performance. The length of stay, e.g., directly affects income, profitability, and safety.

Economic key performance indicators
Hospital management should, in part, be data-based decision making. But what numbers are relevant in clinic management and how can the required intelligence be obtained?

An introduction to costing and break-even analysis in hospitals is the foundation of farsighted management. Established tools like the balanced scorecard may further help to organize the hospital`s broad spectrum of key performance parameters.

Creating your controlling toolkit
You will better understand business and financial risks and its impact on capital structure with this simple yet comprehensive framework

Profit and loss behavior
Profound knowledge about the profit and loss behavior, finally, opens ways to enhance profitability without affecting safety for the patients and the personnel.

  • Hospital economics
  • Costs and costing in hospitals
  • The hospital Return-on-Investment circuit
  • The Balanced ScoreCard (BSC) and key financial indicators
  • Interpreting balance sheets and the impact of EBITDA on hospital management

Your step-by-step action plan for your strategy project

This section aims for the configuration of your personal finance and controlling toolbox. We guide you in setting up a pragmatic and applicable financial and risk management system for your clinic.

The optional writing of financial templates for clinical projects/ investments, the preparation of numbers for negotiations with the hospital`s board and administration, as well as creating compelling business plans can be the closing of this section.

We provide a step-by-step action plan facilitated by the templates and tools from our Hannover Medical Management Manual.

Section 3: Pricing in healthcare

Value in healthcare
How do you set values in healthcare?
For the patient, the most important values are the achievement of medical goals with the lowest possible complication rate. Alongside this, the quality of comfort, hotel services, and organizational quality contribute to the perceived value.

The pricing of hospital services can now be based either on the value-added for the patient (fee for service) or on the costs incurred by the hospital as a result of the treatment (DRG).

Content of the section: Pricing models
In this section, we would like to present the different pricing models with their respective advantages and disadvantages. The aim is to explain the DRG system and also to provide a methodology for a fair, transparent, and at the same time profitable pricing for your services, given that the legal framework in your country permits a free pricing.

Some suggestions are lessons learned from the DRG system and its impact on healthcare quality; others derive from out-of-pocket and private financing systems. We bring advantages and drawbacks up for discussion and maybe find a way to combine the best parts of both systems.

  • Value in healthcare
  • Pricing and RCM
  • The DRG system

Section 4: Investing, disinvesting, and capital management

Laser-focused investments
The investment strategy should always be a function of the corporate or business strategy. Given limited financial resources, the aim is to place potential investments effectively. Because of the inevitable initial impact on cash flow, investments should be geared toward maintaining or strategically expanding the range of medical services.

However, especially in times of crisis and in the chronically underfunded healthcare system, hospitals tend to increase their liquidity by cutting costs across all service areas too sweepingly. They, indeed, increase the liquidity in the short term, but by trimming even profitable departments, hospitals jeopardize competitiveness and growth opportunities for the post-crisis phase in the long term.

Understanding basic economic principles to align medical and financial experts
To develop a forward-looking medically and economically resilient investment strategy, the hospital’s medical and financial experts should understand their counterparts’ positions. Both sides should evaluate aspects such as depreciation, accruals, CAPEX, current assets, fixed assets, or marginal costs against the background of clinical potential.

Thereby, the hospital can make targeted investments in more promising business areas and expand its contribution margin as well as its medical performance.

Combine structural investments with a consequent process optimization campaign
Especially in times of crisis, it may be indicated to focus on the core business to obtain the necessary leeway here. This can be loss-making areas due to hospitals’ social duty of care.

The investment strategy should be closely interlinked with process optimization and efficiency enhancement in these cases. The alignment of structural optimization with process adjustments creates opportunities to further improve medical quality in the interests of patient care.

For example, investing in point-of-care infrastructure for blood tests analysis can reduce the unnecessary administration of blood substitutes or blood reserves and thus save considerable costs in the long term. The patients will benefit medically from faster diagnostics and more precisely adjusted therapies

Time is crucial in the quickly evolving healthcare environment
The time frame plays an important role in all investments and disinvestments. In this respect, you will benefit from developing a robust and operationally sound investment strategy from the outset to respond to the dynamic changes in the healthcare sector as quickly as possible.

What can you expect from this section?
In this section, we provide you with the tools to develop a viable investment strategy. You will be put in a position to discuss your investment plans in a well-founded manner with the finance department or the board of directors of your hospital.

This competence in argumentation may ultimately, in many cases, even increase the likelihood that your plan will be considered despite limited investment funds.

  • Capital structure and financing
  • Valuation of hospitals
  • Financial behavior and responses during a crisis

* You can take the FREE edition of the course now without making any payment.