Healthcare

Key Performance Indicators For Hospitals

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<p>In a multispecialty hospital, the CFO is responsible for the delivery of P&amp;L. Hence, every CFO has to understand the variables on which the profitability of the hospital depends on. They are often known as the&nbsp;<em>key performance indicators</em>. These indicators not only helps in driving the profitability but also provide early warning whenever something is not going in the appropriate direction. Therefore it is mandatory for a CFO not only to understand the KPIs but also maintain a systemic discipline to calculate the same initially on daily basis to tap the financial pulse and intervene as soon as inappropriateness is noticed.&nbsp;&nbsp;Some of the critical KPIs are as follows:</p><ol><li><strong>Average Hospital Stay</strong>: In top-performing multi-specialty hospitals, the stay of any normal surgical patient varies from 4 days to 7 days while the average stay of a non-surgical patient varies from 2 days to 14 days based on the ailment and condition of the patient. The length of the stay has a direct impact on the profitability of the hospital as well as the total bill the patient has to pay.&nbsp;&nbsp;</li><li><strong>Bed Occupancy Rate</strong>:&nbsp;&nbsp;Bed occupancy for multi-specialty hospitals is generally between 60-70%. But it can be upto 75% if the hospital has a strong marketing and sales department. The hospitals must leverage on their strengths like the quality of treatment, nursing care, patient facilities, and ambiance. Today's consumers seeking healthcare facilities not only look for treatment but also the entire gamut of allied services.&nbsp;</li><li><strong>Medical Equipment Utilization</strong>: Medical equipment are high capex items with a relatively higher depreciation rate also. Under-utilization of the equipment will lead to far lower cash balance as compared to the potential. Hence one of the primary role of a CFO in a hospital is to calculate the current equipment utilization and work with doctors, marketing, and sales to improve the utilization of the equipment by arriving at a pricing to attract patient volumes.</li><li><strong>Patient Drug Cost Per Stay</strong>: Drugs prescribed and administered to the patient during the treatment is also a source of income. On an average drugs provide a 15%-20% margin. However, if the consumption is high the margin can be improved to 25%-30% by negotiating the pricing directly with the pharmaceutical companies or its major distributors. The CFO needs to have a keen check on the total drug charges in the patient bill and the average margin hospital made on the same. If it is lower than 25% then the financial controller, pharmacist, pharmacy purchase manager and doctor have to work together to find the alternative brands with the same formulation and efficacy but with an improved margin to be prescribed to patients.</li><li><strong>Treatment Costs</strong>: Costing team under CFO must compute and keep handy the cost of rendering services per bed in all different room types, per test for all different pathology/histopathology/radiology test done and cost per surgical/bedside procedures to arrive at optimum pricing. Keen monitoring and scrutinizing for every bill so that profitability can be ensured.&nbsp;</li><li><strong>Average Revenue Per Occupied Bed (ARPOB)</strong>: ARPOB is generally calculated as ARPOB per day. It is the average revenue realized per inpatient per day. It is a two stage process. First per day ARPOB is calculated as per the bed classification (class) as the charges for a particular service varies with the bed classification. Then the weighted average of all the class-wise ARPOB per day is calculated to arrive at the average ARPOB for the Hospital. This is an essential metric as the ARPOB trend provides insights about the profitability, positioning of the hospital and marketing effectiveness.</li><li><strong>Current ratio</strong>: The ratio is an important metric from a financial perspective. To maintain a healthy cash balance and manage the finances of the hospital seamlessly this ratio should be greater than or equal to 1.</li><li><strong>Patient Satisfaction</strong>: The feedback from the patients gathered at the time of discharge should be analyzed for areas of strength and identification of gaps related to treatment, nursing services, facilities, comfort and ambiance. The rating in each of the divisions will help the hospital to improve and reposition themselves to the premium segment which has an impact over the ARPOB and bed occupancy rate.</li></ol><p>&nbsp;</p>
KR Expert - Rajat Sarkar