Healthcare finance fundamentals and applications

¶ … constitute itself as a business plan for a heart hospital, with a determine goals to establish the main factors and outcomes that may determine both the outlet's utility and its success as an economic entity. We will aim to analyze the reason for investing in a heat hospital, the financial assumptions we are dealing with, as well as the risks associated with such a project.

From the very beginning, we need to point out towards the distinct specificity that such a business project implies. When referring to the specificity of a heart hospital, we tend to include it in the larger category of healthcare facilities, where a distinct approach is needed in order to correctly blend the two different levels of description we will describe below.

First of all, any healthcare centre and a heart hospital in particular is designed to help the patients improve their health condition. As such, the main goal of any such a hospital would be to provide the best healthcare services to its patients, at the highest levels.

On the other hand, and this is the second pillar we are referring to, a healthcare facility is also a business unit. As a business unit, it functions as any other facility on the market and we ma notice that the patients become consumers or customers, the heart hospital is competing on the market with the services provided by other heart hospitals in the world etc. Further more, as a business unit, our heart hospital needs to deal with all the gruesome details any business facilities controls. We are referring here especially to issues such as costs, maintaining a reasonable level for them in order to be able to boost profits etc.

So, as a business unit and healthcare facility, the heart hospital will need to be able to find the proper means of expression that will allow it to retain the profit maximization goal any company or business unit normally has with respecting the interest of the patient. Given the fact that the quality of service and what the hospital has to offer in terms of equipment and staff is what will mainly differentiate its services from those of other outlets in the market, giving way to a higher number of consumers and better profits, this may pro-less difficult than believed.

Market Analysis and Evaluation

Any proper evaluation for a business unit begins with a market analysis, especially in terms of the targeted segment of consumers, their size and socioeconomic factors that may influence their decision. According to statistics, the diseases of the heart are the number one cause of death in the United States, with 28.5%

of all total deaths.

For 2005, the statistics show yet more troubling data. Approximately 1.2 million Americans will have a first or recurring coronary attack and predictions show that about 494,000 of these people will die because of it

. On the other hand, statistically and historically speaking, about 7.1 million Americans over the age of 20 have survived a heart attack. Our mission must be to improve these figures and reduce the number of heart disease related deaths. Unfortunately, no matter how morbid, we need to be aware of the fact that a growing number of heart diseases are likely to increase hospital revenues. Trends are likely to be ascending in this area, but, on the other hand, the hospital's prevention activity will act as a hedging measure if this trend will be inversed.

Following this brief statistical incursion, we may point out the hospital's activity will be aimed at two different directions: prevention and implication in limit situations. The latter activity will probably only intervene in distinct cases, as it is most likely to occur for patients that have been on the hospital's list. We are referring here to patients that are treated by the hospital staff and that may suffer a hear attack. We are to believe that it is quite likely they will chose to go to the hospital where they have been treated rather than choose a normal emergency room.

On the other hand, we have the prevention activity, where we are referring to day-to-day activity on treating people who have a heart condition of some gravity. Further more, the prevention activity can be extended in the direction of courses and seminars on risk factors for heart diseases, how to lead a healthy life and avoid major impact sources etc.

The segment of consumers we are addressing can be defined in terms of income levels, level of education and other socioeconomic factors. First of all, because the quality of the human resources used and the equipment that will be purchased imply recurring costs that need to be justified and somehow recuperated, we are targeting a segment of consumers ranging in the upper middle layer, probably in the $75,000 - $90,000 a year segment. This income level is characterised by individuals who are not only willing to use a heart practice when they are sick, but also those interest in protecting their health in the long run and ensuring that the possible conditions that may lead in the future to heart problems are eliminated in due time. These are also consumers who like to have their checked at least three or four times a year and who are willing to invest in expensive treatments in order to fight any heart conditions they may have.

In terms of social factors, our targeted segment of consumers most likely have a higher education, proportionally probably around 80% are likely to have gone to college or university. As previously mentioned, their interest in health issues is likely to be higher than average.

A market outlook will not be complete without an investigation of possible competition in the field. There are several layers that need to be analyzed, with a comparison of the response the hospital is likely to have at hand in each separate case. First of all, we have the hospitals for other types of diseases. This is not a relevant market segment in which the hospital is going to have a response, as it is addressing a specific group of consumers, patients with a heart condition or prevention activity in this field.

On the other hand, we have other similar private facilities, facilities that target the same income segment. Additionally, these are also likely to have similar strategies as our own health facility, with an increased attention towards the quality of service and equipment. The response in this case is similar to what any other company would do in similar conditions on the market: a differentiation strategy. The concern of our hospital should be to always offer something extra with regards to the competition in the exact same market segment. This can take several forms, from the employment of well-known specialists in the area to the use of techniques unavailable in other similar hospitals. We will be able to further refer to these aspects when discussing the service philosophy and internal issues.

Third of all, we have public health facilities and other places where heart conditions, including severe attacks, can be treated. Again, competition in these areas is not relevant for the consumer segment we have identified. Indeed, these are health facilities for people with a lower income and, generally, individuals who are less willing to pay more for better medical services.

Development Plan

The service philosophy comes in close connection with the mission statement we have previously referred to. Indeed, the heart hospital we are planning to build will be constantly aiming to provide the highest quality in all services it offers to its patients. As shown before, this is also included in a larger differentiation strategy the hospital will be using against competition. The fact that the main philosophy of the hospital only refers to offering highest quality services leaves quite a lot of manoeuvring means. We are not interested in practicing lower prices, but, on the other hand, we may be interested to have a financial policy that will be able to properly control costs so that the hospital can achieve sustainable revenues. Further more, a highest offered quality policy implicates a long-term strategy that is determined to build a market share rather than make short-term profits. One needs to keep in mind the fact that the initial investment is definitely not negligible, especially if we consider the equipment and investment in human resources. We need to expect a longer period of amortization for all equipment.

The hospital can build for itself the image of a market leader and trend definer in this field. There several means we have thought of in this sense. First of all, by paying higher salaries or offering other potential financial benefits, it can gather a team of well renowned specialists in heart diseases in the country, working thus on its reputation that the hospital ignores costs when it comes to offering the best and highest quality services to its patients. Second of all, a department can be created in charge with the newest discoveries in the field. This department can operate similar to a research and development department in any other institution. The company could boast in its marketing program and promotion campaign with the large sums of money it is allocating for this special R& D. department, determined to discover or apply the newest techniques in the area. Again, these marketing methodologies are all used in order to create a brand and the image that the hospital cares only about its patients and the quality of the services provided to them.

The promotion campaign should be axed exactly on the category of consumers we are targeting. Presentations are the first means of promotion the hospital could use. These can be done at thematic seminars or elsewhere. Additionally, the company can advertise its services in areas where consumers we are targeting are likely to be spending their time. One such example would be the golf or tennis courts. Further more, in order for the brand to be known, the hospital can sponsor or even organize public events where the targeted consumers will be present or be invited.

Other methods of promotion may include specialized personnel in search of new clients. This would mean that a team of individuals will be in charge of drawing up a list of people who might be interested in our services and contacting each in part. The idea would be to obtain a brief encounter with the respective person and have the time to give a short presentation of what the hospital has to offer. This does not necessarily have to be directed to the people suffering from heart diseases. The agents can emphasize that the hospital also has programs to prevent heart diseases or can present the idea that it is also useful to have your heart checked.

Finally, we could also use people who will be present at different events where our targeted segment participates (business seminars, receptions, other public events), bled into the ground and casually mention in the conversation the hospital and the services it offers. Additionally, in time the hospital can also emphasize the presence among its patients/clients of celebrities, people well-known to the crowd and who may increase the interest for the facility.

Top quality patient care we aim to achieve at our facility relies, as previously shown, on two main pillars: equipment and human resource, to which we can add investment in research and development. All of these cost and, as we have seen, cost reductions would not necessarily be a goal for the hospital, as long as it can cover higher costs with solid revenues.

In terms of equipment, as mentioned, we should incline to use only the best equipment available on the market. This implies several different aspects. First of all, a consistent sum of money to be spend in the very beginning, due to the necessity to purchase a set of basic equipment when the hospital begins its operations. Second of all, an investment in high tech equipment will increase the fixed assets value on the balance sheet for the hospital. Third of all, because of the high value of these products and technologies, considering we will be using a linear depreciation scheme, the period of time before these products are fully amortized will be quite long, as it may range up to 20 years in some cases.

As for human resource, the recruitment and motivation policies the hospital will be using are essential in determining the formation of a solid group of individuals who can be a real asset for the company. First of all, recruitment will be done in several different fields. One of them is other hospitals, especially public hospitals, where real professionals can be found. Given the fact that the salaries in these institutions tend to be somewhat lower than what we could offer, recruitment could be induced by offering higher wages. Additionally, the hospital offers a simulating and competitive environment, as well as the best conditions in which to work and operate. The other important recruitment centre would be the universities and medical colleges. These would ensure the consolidation of a strong group of young and promising individuals, who will represent the base for the future human resource group used in the hospital.

As previously mentioned, in an attempt to consolidate the hospital brand and improve the outlet's image in the market, a couple of well-known heart specialists could be employed to lead the different departments in the hospital. Higher costs would incur here, as it is most likely that these well-known doctors are already receiving significant financial benefits in the hospitals they work in now, but it is a financial effort that could have important results in the medium and long runs.

As for motivation, there are several means to be used here. The financial benefits are the first to be worth mentioning. Our hospital can practice a premium to the general wages in the field, a premium that can vary according to the categories of human resource previously mentioned. As such, for students, the premium can be close to zero: the motivation here is more inclined towards the future, with the students and graduates being given the capacity and possibility to promote and rise in the hospital's hierarchical scheme. In the case of doctors from other hospitals, the premium should be at a high enough level to ensure that these doctors will be choosing the new hospital over others. As for the "star" doctors, here the premium is more consistent, because these individuals have already grown used to a certain level of income.

The second motivating pillar to be used is the adherence to a common mission and goal. The medical staff will be inclined to be motivated by working in a hospital that promotes top quality care for its patients and spends all efforts in this sense. The commitment towards a common set of values and goals, as well as the ability to bring something new and change things in the industry would be the main motivating factors.

The research and development department can be included as a separate department in the organizational scheme (see below) and can be financed not only through the hospital's own budget, but also through sponsorships or joint cooperation with other research centres in the country. One cannot ignore the technological aspect here as well and, even most important given the developments in the field in the last 20 years, the informational one. For the beginning, we can also consider investing in high tech computer programs that can ease the medical activity. One such program, for example, can be used to determine the risk of having a heart disease in the subsequent period of time, with the implementation of several variables that change according to the patient's lifestyle. Another important pillar in the research and development department would consist in researching different new techniques, perhaps also medications that can be used in heart diseases. Additionally, the R& D. department should rely greatly on he experience of patients and, in this sense, specific focus groups can be constituted and used in understanding more about the specificity of each heart disease and patient suffering from it.

In terms of management and starting from the top of the pyramid, we have the Board of Directors, led by a chosen CEO. Each director on the board will have in his direct administration one of the departments in the scheme. These departments will include a research and development department, a human resource department (in charge with establishing the possible future candidates for positions in our hospital, as well as the means to fully achieve the delivery of the best individuals to the resources, an important mean to achieve the top quality care we have referred to), an operational department (in charge with treating day-to-day patients), as well as a prevention department, in charge with the development of communication channels that will help people know how to avoid heart diseases. The financial department would also be included as one of the departments.

A financial analysis for the future period of time is quite a different task because we can estimate demand, but we are still facing a challenge in understanding whether or not the market will have the proper response to the solutions we are proposing, something every company in its initial stages of development faces.