Frequently Asked Questions about Hospital Finances asnwered by Dana Forgione 

Hospitals in good financial health are better equipped to administer excellent patient care. But juggling all those overhead and personnel costs can be daunting. Dana A. Forgione, Ph.D., has some ideas on how to help. Forgione is a certified public accountant (CPA), a certified management accountant (CMA), and a certified fraud examiner (CFA). At the University of Texas at San Antonio (UTSA), he is the Janey S. Briscoe Endowed Chair in the Business of Health and professor of accounting. He is also an adjoint professor of public health at the UT-Austin, School of Public Health. His books are used in more than 74 colleges and universities throughout the U.S.

Q. What are the biggest cost issues facing hospitals today?

A. Healthcare is a very labor-intensive profession. Personnel salaries and wages are always a hospital's biggest cost items. There are also inefficiencies. One expert on hospital efficiency recently estimated that 30 percent of a hospital's costs could be eliminated if outmoded or unnecessary steps were eliminated. A more basic issue is our society's emphasis on treating illness, rather than on preventing illness. If we changed the way healthcare providers are funded, so that we rewarded preventative care, it would go a long way toward reducing overall costs.

Q. Are there new methods for improving supply chain performance?

A. One of the most up-and-coming, yet controversial, developments is payers who outsource hospital and medical care from providers in developing countries. This started with private medical tourism . Then large health insurers discovered that quality care can be obtained from other countries at a fraction of the cost in the U.S. Doctors in Singapore, India, Thailand and other countries may be trained in the U.S. or Europe and be licensed to practice medicine in both the U.S. and their home country -- or even in multiple countries. Their foreign hospitals may also have U.S. accreditation. The downside is that most developing countries do not have medical malpractice protections, the prescription drug markets are flooded with counterfeit medications, infectious diseases are far more prevalent, and blood supplies may not be as well-screened or protected. This is one area that should be watched very closely.

Q. How can the role of physicians help manage hospital costs?

A. Physicians' decisions drive about 80 percent of a hospital's costs. They come from different medical schools and prescribe different medications for the same illnesses. Physicians can help reduce hospital costs by all agreeing to use a certain set of medications, called a formulary. That reduces the hospital's purchasing, inventory storage and security costs, without affecting patient care outcomes.

Q. What is a common financial mistake hospital administration makes?

A. Hospitals must remain financially viable to continue serving their communities. However, our payment systems are riddled with conflicting incentives. Hospital administrators sometimes respond to those incentives by focusing on providing the set of treatments, services and amenities that appear to maximize financial performance. I think that contributes to the view that healthcare is a market commodity, rather than a professional service that puts the best interest of the patient first. As the baby boom generation ages in this country, we are dropping from seven workers per retiree a few years ago, to only three workers per retiree by 2020. That's less than half the relative earning power, at a time when our national debt exceeds $80 trillion, including all of the Medicare, Medicaid, Social Security and other post-retirement obligations. It's 40 percent more than our entire net worth as a nation. That is just not sustainable. A strong focus on preserving life, and treating the most intense medical priorities will no doubt need to become our primary focus.

Q. Is there a real-life example of a hospital that tried an innovative approach and reaped financial rewards?

A. I recently coauthored a project that documented multimillion-dollar cost savings achieved by the Palestinian Ministry of Health by changing to a prescription drug formulary. We found that over a four-year period, the number of different drugs purchased and kept in inventory was reduced by 36 percent. This allowed for bulk purchases of a limited number of drugs. In combination with generic drug substitution, we found that costs and utilization were reduced by more than $5 million across 17 healthcare centers in nine provinces (Nablus, Ramalla, Jericho, Jenin, Tulkarem, Salfit, Qalqilia, Beit Lahem, and Hebron). The quality of healthcare also improved at the same time because ineffective medications and over-medication practices were substantially eliminated.


Source: San Antonio Business Journal