Deepti Singh
Head of Finance Services, CIHSR
There are fundamentally three personas that are involved in the healthcare industry – Management, Service Providers, and Service Recipients. The financial implications, rights, and responsibilities of the respective persona are explained below.
For the Management of the Institution:
Hospital finances are a crucial aspect of managing a healthcare facility. It involves handling financial resources, generating revenue, and ensuring compliance with regulations. Here are some essential elements of hospital finances that every hospital administrator must know:
Revenue Sources: Hospitals primarily generate revenue through patient services, such as medical treatments and procedures. They also receive payments from health insurance companies and government healthcare programs. Apart from Ayushman Bharat, we have the Chief Ministers Health Scheme. Empanelment of Corporates is another option to consider.
Budgeting: Hospitals create annual budgets that include expected revenues and planned expenses to efficiently manage resources. Budgets are prepared for both operations and capital expenditures. The operational budgets cover categories like personnel costs, medical supplies, and facility maintenance. The capital budget covers equipment, furniture, and buildings.
Cost Control: Managing costs effectively is crucial for a hospital's financial sustainability. This includes negotiating better prices for medical supplies and equipment while maintaining quality patient care. This also includes the cost of services and pricing them at competitive rates to cover costs.
Financial Reporting: Hospitals are required to prepare regular financial statements, including income statements and balance sheets. These reports help assess the financial health of the institution. These reports are important for management decision-making and for stakeholders to assess the financial position.
Compliance and Regulation: Hospitals must adhere to various financial regulations and standards, such as healthcare laws, regulatory laws, and accounting standards. They may undergo audits to ensure compliance. Ensuring statutory compliance in hospitals entails following governmental laws and regulations. It is essential in the healthcare industry to safeguard the patients' safety, welfare, and rights, as well as to maintain the hospital's efficient functioning while ensuring compliance with labour laws as well.
Direct and Indirect Tax: Unless the hospital is a not-for-profit entity, the income of the hospital is subject to income tax. Income tax is levied on the income.
Goods and service tax is an indirect tax that is levied on the transaction where there is an exchange of goods and services.
Caution, being exempt from Income tax does not exempt the hospital from GST.
Insurance: Healthcare providers should have professional liability insurance to protect themselves in the event of legal claims related to medical negligence this is called as Professional indemnity insurance.
Furthermore, it is imperative to have all the capital assets insured against natural calamities, fire, theft, and insurgencies.
Capital Expenditures: Hospitals often require significant investments for infrastructure development, technology upgrades, and medical equipment. Financial planning involves assessing the need for these expenditures and securing funding. Providing for the replacement of assets at the end of life is prudent planning.
Debt Management: Managing debt levels and repayment plans is crucial for a hospital's financial stability. This may involve taking on debt to finance projects or cover expenses.
Natural disasters and pandemics: Natural disasters and pandemics can have a significant impact on a hospital's revenues and expenses, making effective financial management crucial. This involves finding a balance between generating revenue, controlling costs, and complying with regulations.
Ultimately, hospitals must prioritize both financial sustainability and providing top-notch healthcare services. By carefully managing their finances by way of reserves, hospitals can continue to serve their communities and make a difference in people's lives despite the natural calamities.
Fundraising and Donations: Fundraising and donations are crucial for hospitals to continue providing quality healthcare services. Many hospitals rely on the generosity of individuals, corporations, and foundations to support their projects and cover operational costs. This support allows hospitals to continue their important work and make a positive impact on their communities. In addition to fundraising, hospitals must also have financial plans in place to prepare for emergencies.
Finances of the service receiver: Financial constraints are another hurdle in the path of healthcare in Northeast India. Many people in the region face economic challenges, which limit their ability to seek timely medical care. As a result, they may delay seeking treatment, which can worsen their health conditions. This is a concerning issue that requires empathy and understanding from healthcare providers to bridge the gap and ensure that everyone has access to quality healthcare.
Hospitals have the opportunity to work hand in hand with insurance providers to create customized health insurance plans that are tailored to the unique economic conditions of the local population. This not only helps individuals have access to essential healthcare services but also alleviates any financial burden that may come with seeking medical treatment.
Through collaborations between hospitals, government agencies, and private organizations, resource constraints can be overcome. Public-private partnerships can be formed to improve infrastructure, implement healthcare programs, and enhance skill development.
For the recipients of services (patients) in the hospital:
To the average person, comprehending the intricacies of hospital finances may appear daunting, but there are a few key aspects that carry significant importance and warrant understanding:
Medical bills and insurance: Gain an understanding of how medical bills are formulated, encompassing expenses for services, procedures, medications, and room stays. Familiarize yourself with your health insurance coverage, including co-payments, deductibles, and out-of-pocket expenses. This knowledge can aid in planning for potential costs.
Out-of-pocket expenditures: Acknowledge that not all medical costs may be covered by insurance. In some cases, expenses such as deductibles, co-pays, and non-covered services may need to be borne by the patient. It is crucial to be mindful of these potential expenses and plan accordingly.
Billing and payment arrangements: Educate yourself on the various billing and payment options available. Familiarity with these methods can assist in managing medical costs and making informed decisions.
Financial assistance or subsidy: Find out if the hospital offers any financial assistance programs for patients who fall below the poverty line. Some may have support for those with limited financial resources.
Understand your bill/invoice: Dedicate time to thoroughly examine your medical bills and statements. If there are any unfamiliar charges or errors, do not hesitate to seek clarification from the hospital's billing department.
Building an Emergency Fund: It is imperative as we age,we will require medical support. Realize the significance of having an emergency fund to cover unexpected medical expenses. Having a financial safety net can bring a sense of security and help you handle unforeseen healthcare costs.
Comparing Healthcare Costs: Appreciate that healthcare expenses can differ among various hospitals and providers. Whenever possible, compare costs for specific procedures or services to make informed choices about where to receive medical treatment.
Preventive care and wellness program: By recognizing the importance of preventive care, we can take steps to avoid more serious health issues. In fact, many hospitals offer wellness programs and screenings that can support overall wellness and potentially reduce long-term healthcare costs.
Patient advocacy cell: Financial counselors can assist you in understanding your bills, insurance coverage, and available financial assistance options.
Medical negligence: Medical negligence also referred to as medical malpractice, offers a legal avenue for those who have suffered harm at the hands of healthcare providers. When a healthcare professional fails to meet the standard of care, resulting in injury or harm to a patient, this can be classified as medical negligence. Pursuing compensation for such negligence typically involves several steps. Therefore, seeking the guidance of a qualified lawyer is essential for individuals seeking compensation for medical negligence. They can offer valuable advice and support throughout the process.
Understanding these basic financial aspects can empower individuals to make informed decisions about their healthcare and manage potential financial challenges associated with medical expenses. It's also important to communicate openly with healthcare providers about any financial concerns and explore available resources for support.
For the service providers (employees) of a hospital:
Every employee ought to know his / her benefits and the provisions of the labour laws. The employer is obligated to adhere to labour laws governing employment contracts, working hours, leave policies, and employee benefits.
Financial compliance under labour laws for еmployees in hospitals involves adhering to regulations related to compensation, benefits, and other financial aspects of employment. Here are key financial compliance considerations for hospitals concerning their employees:
Minimum Wages: One of the essential responsibilities of hospitals is to adhere to minimum wage laws, guaranteeing that all employees are fairly compensated and receive at least the established minimum wage for their specific location.
Overtime Pay: As per labour laws, hospitals are mandated to provide overtime pay to eligible employees who exceed standard working hours. It is important for hospitals to carefully adhere to these regulations, as overtime rates and eligibility requirements may vary.
Payroll Deductions: To ensure legal compliance, hospitals are required to abide by regulations that determine the acceptable deductions from their employees' wages. These deductions include taxes, insurance, and benefits, and they must strictly align with legal standards. Employee's contribution along with the employer’s contribution to the Employees Provident Fund and Employee State Insurance Corporation is a mandatory requirement for employees who fall into the eligibility criteria. These are saving schemes for the benefit of the employees.
Benefits Compliance: Employers in the healthcare industry often offer a range of appealing perks to their staff, such as comprehensive health insurance, retirement packages, and other benefits. To ensure lawful compliance, employers must adhere to specific regulations related to contributions and eligibility criteria for these benefits.
Leave entitlement: Ensuring adherence to the financial requirements of various types of leave, such as sick, maternity/paternity, and annual leave, is of utmost importance. In certain regions, it is mandatory to provide either full or partial payment during these periods.
Severance Pay: Employment regulations may dictate specific circumstances where employers are obligated to provide severance pay. It is crucial for hospitals to fully comprehend and adhere to these laws when letting go of employees on termination.
Tax withholding: Ensuring compliance with tax withholding requirements is crucial for hospitals. It is imperative for hospitals to accurately withhold the correct amount of income tax from employees' earnings and promptly remit these taxes to the appropriate tax authorities. Tax exemption certificate for the current financial year to be submitted by members of scheduled tribes under section 10(26) of the income tax act, to the employer to be exempt from income tax.
Equal Pay compliance: It is imperative that hospitals strictly adhere to equal pay legislation, which prohibits any form of salary bias based on gender or other protected attributes.
Compensation Reviews: Consistently reviewing and updating our compensation structures is a top priority to adhere to ever-changing labour laws and keep up with the competitive job market.
Finally, it all hinges on the collaborative effort of the management, service providers, and service recipients in making your hospital, a financially secure one and an institution that can be trusted for quality services for the vulnerable who come to be ministered and restored. Being compliant is not an option but an obligation of every law-abiding citizen.
