Healthcare finance principles and practices

Healthcare Finance: What is the break-Even analysis approach and its application in health care organizations?

Unfortunately, hospital and health care budgeting of resources has become increasingly important in this cost-conscious era of health care. The last decades of cost-controlled medicine have required fiscally conscious approaches to the healthcare for many organizations, often at the expense of patient services. A financial analyst must strive to minimize this, yet still keep the organization afloat. A segment that does not make money or at least break even for the health care provider may have to be eliminated.

Health care facilities may take longer to break even on their initial investment than other forms of businesses. Also, the break-even period for primary care is different compared to tertiary care. Still, developing any break-even action plan begins with a clear understanding of any significant shortfalls against benchmark, with a special focus on provider productivity in terms of visits, relative value units (RVUs), and net patient revenue. Ideally, office or site managers can assist in the development of a break-even action plan using break-even analysis to ensure that patients are inconvienenced as little as possible.

Remember, if break-even analysis is not effective, the entire operation may be comprimised. In fact, "some hospitals are divesting themselves of their group practices." But "others are attempting turnaround strategies to help them break even on their investment. Ensuring that expenses do not exceed revenues in a primary care network can be achieved by implementing initiatives on network-wide and practice site levels and may require draconian measures." But by being willing to set "a financial target of break-even, primary care practices can experience dramatic improvements." (Halley & Lloyd, 2000)