Challenges of Healthcare CXOs Trained in Medicine

In the Indian hospital industry, many CXOs possess extensive medical expertise, often complemented by their experience as doctors. Given this background, it is important to ensure that complex IT systems, ERP solutions, and advanced costing packages are presented clearly and straightforwardly to the CXOs. Providing accurate and accessible cost inputs will empower these leaders to make informed and effective organizational decisions.

Implementing user-friendly cost analysis tools can significantly support these healthcare leaders in navigating the financial complexities of running a hospital efficiently. Hospitals can enhance their operational efficiency and strategic planning by bridging the gap between medical expertise and financial acumen, ultimately improving patient care and overall organizational performance.

Importance of Cost-Efficient Healthcare Delivery

The sector faces significant cost challenges amidst demographic shifts, escalating out-of-pocket expenses, and persistent issues like a low physician-to-people ratio and inadequate hospital bed capacity.

Average occupancy rates of hospitals in India is an eye opener:

Inpatient Occupancy

Category A Hospitals:  Bed Occupancy Rate: 60-75%, Capacity Utilization Rate: 70-80% Category B Hospitals: Bed Occupancy Rate: 55-65%, Capacity Utilization Rate: 65-75% Category C Hospitals: Bed Occupancy Rate: 40-55%, Capacity Utilization Rate: 50-65%

Outpatient Occupancy

Category A, B, and C Hospitals: Clinic Utilization Rate: 60-75%,

With such low occupancy rates, how can hospitals operate profitably?

Adapting to these dynamics while optimizing costs will be crucial for hospitals and healthcare providers to navigate and thrive in India’s evolving healthcare landscape.

Reshaping the Healthcare Ecosystem

Several key developments are shaping the future of healthcare in India:

1. Ayushman Bharat and ABHA Card (Ayushman Bharat Health Account Card)

Ayushman Bharat is one of the government’s most powerful initiatives to achieve the vision of Universal Health Coverage (UHC). This program provides accessible and affordable healthcare services to all citizens, particularly those from vulnerable sections of society.

The program’s main objective is to strengthen the primary healthcare system of the country and create the paths for a healthier India. From bolstering primary healthcare infrastructure,  establishing and upgrading existing Health sub-centres to Ayushman Arogya Mandirs (AAMs) across the country, to providing comprehensive primary care, including preventive and promotive healthcare, and a wider range of services than traditional healthcare facilities.

The ABHA card creates a digital repository for all health records and facilitates cashless treatment at network hospitals. It creates a singular identity for people accessing healthcare providers and facilitates easy access to health records across locations.

The objective of Ayushman Bharat is to provide equitable access to healthcare services and reduce the financial burden on vulnerable populations. With schemes like Pradhan Mantri Jan Arogya Yojana (PM-JAY),  access to quality healthcare expands while ensuring reduced financial burden on vulnerable populations.

Impact on cost for the hospital Industry

The Ayushman Bharat initiative and ABHA Card significantly impact hospital costs. Increased patient volumes require efficient resource allocation and investment in IT infrastructure for managing digital health records and facilitating cashless treatments. While initial operational costs may rise, long-term efficiencies through streamlined processes and government reimbursements under schemes like PM-JAY can enhance financial viability. Proper management and tracking of treatment costs are essential for hospitals to remain sustainable and compliant.

Opting in for this scheme will increase occupancy at low price realization where as opting out will reduce occupancy rates. What cost inputs are needed to take the decision? If a decision is taken how do we continue to operate profitably?

2. Price standardization 

In a landmark directive, the Supreme Court of India took up a significant plea regarding hospitalization rates. This decision underscored the importance of driving healthcare affordability and transparency.

The directive has urged the central and state governments to establish standard pricing for healthcare procedures and reduce the wide variation in the cost of treatment between government and private healthcare facilities.

Private hospitals and healthcare providers are concerned over these developments as they demand them to carefully evaluate their cost structures, optimize operations, and focus on value-based care delivery while navigating the complexities of healthcare systems.

Costing Impact of Supreme Court’s Directive on Hospitalization Rates

The Supreme Court of India’s directive to standardize pricing for healthcare procedures significantly impacts hospital costs. Private hospitals must carefully assess their cost structures, optimize operations, and focus on value-based care delivery to align with this policy. This mandate requires transparency in pricing and may initially increase administrative costs due to the need for detailed cost analysis and restructuring. However, in the long run, it promotes affordability and uniformity, potentially increasing patient trust and streamlining healthcare expenses across both government and private facilities.

3.The Rising Demand for Cost Justification

Insurance companies in India are becoming more stringent in their cost-containment efforts. They are increasingly demanding detailed proof and justification for the premiums that hospitals charge. This requirement stems from the need to ensure that the prices charged by hospitals are fair, transparent, and commensurate with the quality of services provided. Insurers are particularly focused on ensuring that premium charges are justified when compared to other hospitals with similar capabilities and offerings.

Impact on Hospitals

• Lower Claim Reimbursements: The immediate and most significant impact of this development is the reduction in claim reimbursements. Hospitals that fail to justify their premium charges adequately are facing lower reimbursement rates from insurers. This financial strain can affect their cash flow and overall financial health, leading to challenges in maintaining high-quality patient care.
• Pressure to Standardize Pricing: Hospitals are under pressure to standardize their pricing structures to align with industry benchmarks. This involves conducting thorough cost analyses and ensuring that their pricing is competitive yet reflective of the services and quality they provide. Hospitals must now balance the need to remain financially viable with the demand for cost transparency and fairness.
• Increased Administrative Burden: Justifying premium charges requires hospitals to invest in robust data collection and analysis systems. This administrative burden can be significant, requiring additional resources and expertise to compile and present the necessary documentation to insurers. Hospitals must now allocate time and effort to gather detailed information on their cost structures, service quality, and patient outcomes.

4.Telemedicine and Remote Monitoring

The COVID-19 pandemic brought the importance of digital health to the forefront. The rise of digital health technologies and healthcare innovations has impacted the Indian healthcare landscape and increased healthcare access.

Technologies such as remote patient monitoring, telemedicine consultations, and contact tracing efforts are improving healthcare delivery and easing patient management challenges. These technologies have also bridged the gap between healthcare providers and patients and enable access to essential healthcare services.

These technologies increase medical access to experts, diagnostic services, and disease treatment. This delivers significant advantages to the populations in underserved and rural areas.

Costing Impact of Telemedicine and Remote Monitoring

These innovations also introduce new cost implications for hospitals. Significant investments are needed for digital infrastructure, software, hardware, and secure data management systems. While telemedicine enhances operational efficiency and can lead to long-term cost savings, it requires adapting to new reimbursement models and ensuring adequate compensation from insurers. Additionally, training healthcare staff and patients on new technologies adds to operational costs but is crucial for maximizing the benefits of digital health solutions.

5.Global Digital Health Partnership (“GDHP”)

India has also become a part of the Global Digital Health Partnership (“GDHP”). This international collaboration of governments, government agencies, and multinational organizations, including the World Health Organization facilitates the effective implementation of digital health services.

The creation of the National Digital Health Authority and advocating for the integration of Aadhaar with individual health records, the Draft Digital Information on Security in Healthcare Act, and the establishment of the National Digital Health Authority and Health Information Exchanges are driving change in the healthcare landscape.

Costing impact of Global Digital Health Partnership

These measures enhance data security and interoperability but require significant investments in digital infrastructure and compliance, impacting healthcare costs and operational budgets.

6. Regulations and Compliance 

The Indian healthcare landscape is also being witness to several healthcare regulatory changes. The focus on health insurance penetration and the emergence of managed care models are altering the way healthcare is financed and delivered. It is also driving a shift towards managed care, enhanced patient engagement, and streamlined healthcare delivery.

These shifts are leading Hospitals and healthcare delivery centres to forge stronger partnerships with insurance companies and demonstrate cost-effectiveness to remain competitive.

Costing Impact of Regulations and Compliance

This transformation requires hospitals to strengthen partnerships with insurance companies and demonstrate cost-effectiveness to remain competitive. Compliance with new regulations involves significant investment in upgrading billing systems, enhancing patient engagement, and optimizing care delivery processes. While these changes can improve efficiency and patient outcomes, they also introduce substantial upfront costs and ongoing compliance expenses.

Navigating the New Landscape: Challenges and Opportunities

These shifts in the healthcare ecosystem can present significant challenges for hospitals and their chains.

Some of the main areas of focus are:

1. Adapting to Cost Pressures 

To operate in this ecosystem hospitals need to develop a deep understanding of cost drivers, the impact of activity times on costs, and overall cost structures,. Once these are identified, the hospitals need to set norms and have a method to monitor cost behavior in real-time. Based on these inputs hospitals need to identify and optimize processes, reduce waste, and increase operational productivity and efficiency to maintain profitability. Hospitals often engage expert cost management consultants to consult and draw a road map for them.

2. Technology adoption 

Technology is the driving force behind healthcare transformation. Continuous advancements in technology, digital health solutions, and increasing adoption of telemedicine, remote patient monitoring, electronic health records, and mobile health applications are essential for driving healthcare access and improving the healthcare delivery experience.

Apart from this, technology adoption has to spread across different departments to improve strategic & operational performance.

3. Building Patient Trust and Profits 

Healthcare facilities and hospitals have to work on elevating patient trust and experience. Upgrading the technology infrastructure, establishing strong foundations for data management, security, seamless connectivity, and technology integration enhance efficiency, increase transparency, and improve patient trust.

It is also vital to navigate the ever-changing compliance and regulatory landscape, have clear audit trails, and identify the key areas that impact the bottom line. Technology investments that enable cost per unit and net margin, cost reduction, cost control, pricing decisions, make-or-buy decisions, variance analysis, budgeting, simulation, and product and customer profitability can be a big support here.

In conclusion

Technology investments have to help hospitals identify where profits are stagnant and where they are increasing. They need to deliver capabilities to support customer-specific pricing, evaluate the impact of processes/activities on costs, identify under or overutilization of resources, and recognize revenue opportunities.

Understanding and optimizing costs is no longer a luxury, but a necessity for survival, for those operating in the healthcare sector. Hospitals and chains need to invest in robust cost analysis tools and processes to identify areas for improvement, opportunities for process and cost optimization, and enable strategic decisions with informed cost management. This also allows them to adapt to changing regulations, expand and improve healthcare delivery, deliver value-based care, and remain competitive in the evolving healthcare ecosystem.

Embracing these changes and proactively adapting their strategies are now crucial as change in this sector continues to proliferate. Hospitals and healthcare chains have to be on the path of digital transformation and optimization to not only survive but also thrive, in this new era of Indian healthcare.

Contact us to take the first step to getting your costing systems geared up for the new age of healthcare delivery in India.