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Cost containment
1.
2. Definitions.
Essentiality, challenges and ways of achieving it?
The global scenario.
Improvement areas of hospital :
i. Infrastructure.
ii. Operations.
iii. Information technology.
iv. Material management.
v. Finance.
vi. Human resources.
vii. Marketing.
Summary
3. Cost Containment :
A detailed plan and process of maintaining organizational cost and
purchased prices within certain specified target limits over a
period of time.
Cost Avoidance :
An effort to prevent or reduce supplier price increases and ancillary
charges through the use of value analysis, negotiations, and a
variety of other techniques.
Cost reduction:
A reduction in the costs incurred by an organization which has
tangible results; i.e., a reduction in outside spend and/or the
availability of funds that can be used for purposes other than
originally intended.
4. Rising material cost.
Increments for staff.
Less availability of manpower.
Requirement of star players.
Other increments: electricity,.etc.
Quality : Accreditation.
Reduction of income:
- Government schemes trying to cap bills.
- Poor reimbursement rates.
- Hospital only source of revenue is patients.
5. All hospitals are faced with challenges in today’s economic
climate.
These include:
1. Containing spend and reducing costs are the highest
priorities.
2. Accomplish this containment and reduction with less help.
3. Achieve results without jeopardizing on quality.
4. Targets need to be achieved in a timely manner.
6. Accomplishing these cost containment and cost reduction
objectives requires:
1.Experience.
2.Functional Knowledge.
3.Strong project management.
4. Correct business analysis skills.
5. Ability to effectively manage the change and make it stick.
7.
8. There are four key areas where providers need to
focus to succeed:
1. Be clear about the patients to be served and the
business model.
2. Have highly efficient processes based on
standardization and flow.
3. Develop models for workforce, technology,
buildings and logistics that drive quality and
lower costs.
4. Create systems to manage this and drive
continuous improvement.
12. Building orientation and structure.
Scope for change and adaptability.
Layered hospital:
1. Hot floor
2. Hotel
3. Office
4. Factory
13. Design approaches
• Minimizing waiting and circulation space.
• Limiting the number of different room
types in favour of adaptable rooms to
reduce patient transfers (which increase
delays and costs).
• Reducing the use of water and energy
and using sustainable sources of energy.
15. Devolved management with flat structures.
Deployment of lean techniques to
eliminate waste and maximize quality.
Strong governance with and independent
knowledgeable oversight by a properly
qualified board.
Measurement systems.
The ability to compare performance
against others so learning can be adopted
from elsewhere
16. Strong relationship between a number of
factors and effective management practices:
• Competition helps to improve managerial
standards.
• Having senior, clinically qualified managers
improves results.
• Larger hospitals invest more in management
and appear to be better managed .
17. Developing the right set of metrics and
reporting standards .
Real time availability and having the
competences to interpret and act on this
information.
Willingness to prototype and pilot new ideas.
Business intelligence models.
Healthcare IT.
18.
19.
20.
21. Proper inventory control:
1. Setting up of various stock levels:
a) Re-ordering level.
b) Maximum level.
c) Minimum level.
d) Avg stock left.
e) Danger level.
f) Economic order quantity.
2. Preparation of inventory budgets.
3. Maintaining perpetual inventory system.
22. Inventory Turnover Ratio:
(a) Slow moving Inventories.
(b) Dormant Inventories.
(c) Obsolete Inventories.
(d) Fast moving inventories.
ABC analysis.
Just in time.
Planned preventive maintenance.
24. Improve the working capital management:
i. Maintaining efficient levels of both components
of working capital, current assets and current
liabilities, in respect to each other.
ii. Ensures a hospital has sufficient cash flow in
order to meet its short-term debt obligations
and operating expenses.
iii. The two main aspects of working capital
management are ratio analysis and
management of individual components of
working capital.
25.
26.
27.
28.
29. Planning level rational assessment of manpower
requirements by WISN (work load indicators of staffing
needs):
1. Determine how many health workers are required to cope
with actual workload in a given facility.
2. Estimate staffing required to deliver expected services of a
facility based on workload.
3. Calculate work load and time required to accomplish tasks
of individual categories.
4. Compare staffing between health facilities and
administrative areas.
5. Understand workload of staff at a given facility.
6. Fair workload distribution establishment amongst staff.
7. Assess the workload pressure of the health workers in the
facility.
31. ƒHealthcare costs are increasing and cost growth is
speeding up
ƒTraditional cost containments strategies can cut costs but
won't slow cost growth.
ƒCosts should be contained at the healthcare system level
by:
–Containing technology adoption, the most important factor
of growth.
–Containing hospitalization costs, the most important spend
area.
ƒCosts can be contained at the hospital levels by:
–Improve clinical staff efficiency .
–Outsourcing of non-core functions.
–Excel in operations.
–Adopt IT.
Editor's Notes
. (Although cost-avoidance efforts prevent increased spending, they do not result in a tangible budget savings and there is a continuing debate over how reporting of cost-avoidance savings should be handled.)
It is essential in the current scenario because:Improve the bottom line ,i.e reducing expenditure.
A company's bottom line is its net income, or the "bottom" figure on a company's income statement.
The top line refers to a company's gross sales or revenues. Therefore, when people comment on a company's "top-line growth", they are making reference to an increase in gross sales or revenues.
•A willingness to challenge accepted approaches
•High-quality leaders with a strong vision.
•The development and rigorous application of a methodology by skilled professional management.
•Detailed attention to input costs – workforce, supplies, buildings and technology
•Systematization, simplification and standardization of many aspects of services, processes and ways of working – including some limits to clinical autonomy.
•Making bold and imaginative use of technology.
•Learning, experimentation, continuous improvement and using feedback and information to support this
•Providers who have chosen to focus on a narrow range of services or population.
Glocal, which has chosen to deal with only the most common conditions in the population, allowing significant economies while avoiding the costs of being prepared to deal with rare conditions.
Standardization facilitates a smooth flow of patients, reducing costs from errors, staff down time, delays for patients and the amount of inventory that needs to be carried. Care pathways are an effective tool to ensure care is delivered in the right place, at the right time and to the right standard. Life spring hospitals.
Labour is the largest cost in any provider or health system and essential in creating a low-cost system.
In India, more than 70 percent of all healthcare to the MOP population is provided by private providers.
Building orientation and structure: Hot and dry : heavy walls with the long orientation facing north to south with the ends of the blocks containing staircases.
Construction: NH Mysore: A pre-fabricated structure with minimal RCC construction was used except in the
operation theatres, catheterization lab, radiology & diagnostic services and ICU areas.
The Netherlands Board for Health Care Institutions proposes a ‘layered hospital’.
1. A “hot floor” with all the capital intensive functions unique to the hospital, including operating rooms, diagnostic imaging and intensive care facilities 2. Low care nursing departments where, in addition to care, the residential function plays a primary role – similar to a hotel .
3. All office facilities, administration, staff departments and outpatient units.
4. Factory facilities – supporting production line functions such as laboratories and kitchens. These are particularly suitable for outsourcing
Off the shelf : modular.
Research from the London School of Economics (LSE) shows that improved management practices in hospitals are associated with significantly lower mortality rates and better financial performance.
Business intelligence refers to a computer-based set of processes business owners and managers use to capture and analyze data related to their companies.
A business intelligence model comprises the specific applications that help transform raw business data into understandable and relevant information in order to support business decisions relating to operational improvements or selecting new business opportunities.
An intelligence model helps companies spend less time sorting through information and and allows them to develop applications that are easily repeatable for future business decisions.
These models are typically related to economics or accounting, mixed with some performance analysis techniques.
ADT – Admit, discharge, transfer.
ADT messages carry patient demographic information for HL7 communications but also provide important information about trigger events (such as patient admit, discharge, transfer, registration, etc.). Some of the most important segments in the ADT message are the PID (Patient Identification) segment, the PV1 (Patient Visit) segment, and occasionally the IN1 (Insurance) segment
Hospitals adoption of IT is increasing and covers every aspect of their value chains from support to patient services.
1. Setting up of various stock levels:
To avoid over-stocking and under stocking of materials, the management has to decide about the maximum level, minimum level, re-order level, danger level and average level of materials to be kept in the store.
These terms are explained below:
(a) Re-ordering level:
It is also known as ‘ordering level’ or ‘ordering point’ or ‘ordering limit’. It is a point at which order for supply of material should be made.
This level is fixed somewhere between the maximum level and the minimum level in such a way that the quantity of materials represented by the difference between the re-ordering level and the minimum level will be sufficient to meet the demands of production till such time as the materials are replenished. Reorder level depends mainly on the maximum rate of consumption and order lead time. When this level is reached, the store keeper will initiate the purchase requisition.
Reordering level is calculated with the following formula:
Re-order level =Maximum Rate of consumption x maximum lead time
(b) Maximum Level:
Maximum level is the level above which stock should never reach. It is also known as ‘maximum limit’ or ‘maximum stock’. The function of maximum level is essential to avoid unnecessary blocking up of capital in inventories, losses on account of deterioration and obsolescence of materials, extra overheads and temptation to thefts etc. This level can be determined with the following formula. Maximum Stock level = Reordering level + Reordering quantity —(Minimum Consumption x Minimum re-ordering period)
(c) Minimum Level:
It represents the lowest quantity of a particular material below which stock should not be allowed to fall. This level must be maintained at every time so that production is not held up due to shortage of any material.
It is that level of inventories of which a fresh order must be placed to replenish the stock. This level is usually determined through the following formula:
Minimum Level = Re-ordering level — (Normal rate of consumption x Normal delivery period)
(d) Average Stock Level:
Average stock level is determined by averaging the minimum and maximum level of stock.
The formula for determination of the level is as follows:
Average level =1/2 (Minimum stock level + Maximum stock level)
This may also be expressed by minimum level + 1/2 of Re-ordering Quantity.
(e) Danger Level:
Danger level is that level below which the stock should under no circumstances be allowed to fall. Danger level is slightly below the minimum level and therefore the purchases manager should make special efforts to acquire required materials and stores.
This level can be calculated with the help of following formula:
Danger Level =Average rate of consumption x Emergency supply time.
(f) Economic Order Quantity (E.O.Q.):
One of the most important problems faced by the purchasing department is how much to order at a time. Purchasing in large quantities involve lesser purchasing cost. But cost of carrying them tends to be higher. Likewise if purchases are made in smaller quantities, holding costs are lower while purchasing costs tend to be higher.
Hence, the most economic buying quantity or the optimum quantity should be determined by the purchase department by considering the factors such as cost of ordering, holding or carrying.
This can be calculated by the following formula:
Q = √2AS/I
where Q stands for quantity per order ;
A stands for annual requirements of an item in terms of rupees;
S stands for cost of placement of an order in rupees; and
I stand for inventory carrying cost per unit per year in rupees.
2. Preparation of Inventory Budgets:
Organisations having huge material requirement normally prepare purchase budgets. The purchase budget should be prepared well in advance. The budget for production and consumable material and for capital and maintenance material should be separately prepared.
Sales budget generally provide the basis for preparation of production plans. Therefore, the first step in the preparation of a purchase budget is the establishment of sales budget.
As per the production plan, material schedule is prepared depending upon the amount and return contained in the plan. To determine the net quantities to be procured, necessary adjustments for the stock already held is to be made.
They are valued as standard rate or current market. In this way, material procurement budget is prepared. The budget so prepared should be communicated to all departments concerned so that the actual purchase commitments can be regulated as per budgets.
At periodical intervals actuals are compared with the budgeted figures and reported to management which provide a suitable basis for controlling the purchase of materials,
3. Maintaining Perpetual Inventory System:
This is another technique to exercise control over inventory. It is also known as automatic inventory system. The basic objective of this system is to make available details about the quantity and value of stock of each item at all times. Thus, this system provides a rigid control over stock of materials as physical stock can be regularly verified with the stock records kept in the stores and the cost office.
(a) Slow moving Inventories:
These inventories have a very low turnover ratio. Management should take all possible steps to keep such inventories at the lowest levels.
(b) Dormant Inventories:
These inventories have no demand. The finance manager has to take a decision whether such inventories should be retained or scrapped based upon the current market price, conditions etc.
(c) Obsolete Inventories:
These inventories are no longer in demand due to their becoming out of demand. Such inventories should be immediately scrapped.
(d) Fast moving inventories:
These inventories are in hot demand. Proper and special care should be taken in respect of these inventories so that the manufacturing process does not suffer due to shortage of such inventories.
Accounts receivable are the amounts owed to a business by its customers, and are comprised of a potentially large number of invoiced amounts. Accounts receivable constitute the primary source of incoming cash flow for most businesses, so you should analyze these invoices in aggregate to ascertain the health of the underlying cash flows.
Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management.
Liquidity in the context of working capital management means having enough cash or ready access to cash to meet all payment obligations when these fall due. The main sources of liquidity are usually:
cash in the bank
short-term investments that can be cashed in easily and quickly
cash inflows from normal trading operations (cash sales and payments by receivables for credit sales)
an overdraft facility or other ready source of extra borrowing.
- So that they work to their full extent of their licensing and training. –
- Devolving tasks requiring lower level training.
- Higher paid staff concentrate on their area of expertise.
- Aravind eye hospital – pre surgical assessment and NH – nursing and OT assistants.
Autonomous teams with appropriate supervision.
Administrative roles removed from docs so that they get more time for patients. LifeSpring Women hospitals deliver 3 times more babies.
Performance standards and feedback create a workforce culture focused on productivity and continuous improvement. NH surgeons receive SMS every EOD on their performance and financial results.
A well-trained and flexible workforce is likely to make fewer errors and to have the skills to deal with patients and events that are out of the ordinary. Payment is at least the average of the other provider.
Recruitment from local community.
EHR, decision support systems, automated equipment, and imaging equipment that can be used by non-specialist staff.
Oursourcing
A request for information (RFI) is a standard business process whose purpose is to collect written information about the capabilities of various suppliers.
A request for proposal (RfP) is a solicitation, often made through a bidding process, by an agency or company interested in procurement of a commodity, service or valuable asset, to potential suppliers to submit business proposals.
An analysis of WISN results provides two different measures:
(1) the difference between current and required number of staff, and
(2) the WISN ratio