MH0054 - Finance, Economics and Planning in Healthcare

Q.1 Give an account of incentives available to healthcare sector under the

income tax
act.
Answer: Healthcare sectors in India:
The healthcare industry in India is experiencing gradual transition from paper files
to electronic mediums. The Indian healthcare assisted by IT market has been
growing tremendously over the past few years. It is expected to grow at a CAGR of
around 22.7 per cent during the period 2013-2015.The hospital and diagnostics
centre in India received foreign direct investment (FDI) worth US$ 1,914.28 million.
Healthcare comprises hospitals, medical devices, clinical trials, outsourcing,
telemedicine, medical tourism, health insurance and medical equipment. The
Indian healthcare sector is growing at a brisk pace due to its strengthening
coverage, services and increasing expenditure by public as well private players
The Indian healthcare sector is expected to register a compound annual growth rate
(CAGR) of 22.9 per cent during 2015-20 to US$ 280 billion. Rising income level,
greater health awareness, increased precedence of lifestyle diseases and improved
access to insurance would be the key contributors to growth.
The private sector has emerged as a vibrant force in India's healthcare industry,
lending it both national and international repute. It accounts for almost 74 per cent
of the countrys total healthcare expenditure. Telemedicine is a fast-emerging trend
in India; major hospitals (Apollo, AIIMS, Narayana Hrudayalaya) have adopted
telemedicine services and entered into a number of public-private partnerships
(PPP).The telemedicine market in India is valued at US$ 7.5 million currently and is
expected to grow at a CAGR of 20 per cent to reach US$ 18.7 million by
2017.Further, presence of world-class hospitals and skilled medical professionals
has strengthened Indias position as a preferred destination for medical tourism.
The Government of India aims to develop India as a global healthcare hub. It has
created the National Health Mission (NHM) for providing effective healthcare to both
the urban and rural population. The Government is also providing policy support in
the form of reduced excise and customs duty, and exemption in service tax, to
support growth in healthcare.
Investment in healthcare infrastructure is set to rise, benefiting both 'hard'
(hospitals) and 'soft' (R&D, education) infrastructure.

Q.2 Define health economics. Discuss the role of economists in healthcare

industry.
Answer: Meaning of health economics :
Health economics is a branch of economics concerned with issues related to
efficiency, effectiveness, value and behaviour in the production and consumption of
health and health care. In broad terms, health economists study the functioning of
health care systems and health-affecting behaviours such as smoking.
Health Care Economics is a new branch of Economics concerned with how to apply
the Economics Tools for heath care issues and explain its different aspects to make
them more analyzable. It also offers measures to determine if a certain policy will
increase or decrease the economic efficiency and the equitable distribution of health
care services. Of course, economic analysis cannot help in all the concerns of health
professionals and the general public in the area of health care services. Different
problems need different training and experiences. The particular problems suitable
for economic analysis are those related to scarcity of resources. In this respect,
economics can explain the most preferable choices of the society when its available
resources are not enough to satisfy all its needs. That is usually the case in all
societies because of the strong competition between the different needs of each
society such as education, health care, security, defense, roads etc.
1- Economics Tools:
The most used two economics tools for the analysis of health care
services are:
1- The marginal analysis which deals with optimization problems.
2- Supply and demand analysis which is used for predicting the new
equilibrium situations.
These two economics tools are quite interrelated. Supply and demand
analysis assumes that consumers and producers try to maximize a certain
objective (utility in the case of consumers and profit in the case of producers)
subject to a certain budget. It also determines the measures of welfare
resulting from different government and private policies on the equitable
distribution of wealth and the effects of the different market structures such
as competitive markets and monopoly.
However, in some instances the use the economics tools leads to
predictions different than what is observed in reality. The reason for that may

be lack of or the unrealization of one or more of the expected assumptions,

such as the lack of perfect competition which is assumed by the economic
theory to exist in all markets. In this case, the role of government policy is
both possible and desirable to correct the market deviations and
imperfections.

Q. 3 Discuss the importance of financial information in healthcare

organisations.
Answer : Financial information :
Data such as credit card numbers, credit ratings, account balances, and
other monetary facts about a person or organization that are used
in billing, credit assessment, loan transactions, and other financial activities.
Financial information must be processed in order for business to be conducted, but
it must also be carefully handled by businesses in order to
ensure security for customers and to avoid the litigation and bad publicity that can
stem from negligent or improper use.
Business owners and organization leaders spend a significant amount of time and
effort making sure they have the appropriate accounting practices in place. This is
especially true for health care organizations that need to meet the reporting
requirements of multiple governmental and state agencies. And the cost of not
complying with these requirements can be extremely high.
t is important for health care organizations to use accountants who understand the
nuances of the health care field, due to the constantly changing regulations and
requirements. This can be particularly difficult for small to medium-sized providers
and rural providers, many of whom struggle to find accounting personnel that have
the depth of industry knowledge they need.
Leveraging accounting and reporting to outsourced professionals with health care
knowledge can strengthen and enhance internal controls by providing a deeper
level of segregation. In addition, the health care knowledge can improve the results
of cost reporting due to having on-site expertise with a full knowledge and
awareness of critical reimbursement issues that come from the cost report.
The health care industry is particularly dynamic, and can experience growth or
reductions in short periods of time. Outsourcing can help those facing quickly
increasing growth by providing support to the organizations current financial team.

Rapid growth rates can stress resources, and outsourcing can provide the board
and management with greater confidence that finances are being adequately
maintained. Outsourced accounting individuals can help the organization catch up
on the backlog of work as well as develop enhanced reporting capabilities.
In addition, owners can be relieved of the burden of managing the accounting
function, and focus on increasing the business and managing the growing
operations.
Meaningful financial statements
The key to good financial statements is allowing the reader to easily interpret and
identify key business issues and problems before they become irreparable.
Having accurate and timely financial statements is a critical component of any
organization. An outsourced accounting teams new perspective on the current
process allows them to provide logical and useful information to the users in an
improved format.
In addition, an outsourced accountants experience working with a range of financial
statements can benefit an employer by, for instance, transforming fragmented
monthly financial statements into a simpler and more understandable format that
eliminates many cumbersome and unnecessary processes.

Q.4 Explain different methods of evaluation of healthcare services.

Answer : Health care evaluation is the critical assessment, through rigorous

processes, of an aspect of healthcare to assess whether it fulfils its objectives.
Aspects of healthcare which can be assessed include:
Effectiveness the benefits of healthcare measured by improvements in
health

Efficiency relates the cost of healthcare to the outputs or benefits obtained

Acceptability the social, psychological and ethical acceptability regarding

the way people are treated in relation to healthcare

Equity - the fair distribution of healthcare amongst individuals or groups

It is usually impossible to maximise all these factors.

Healthcare evaluation can be carried out during a healthcare intervention, so that

findings of the evaluation inform the ongoing programme (known as formative
evaluation) or can be carried out at the end of a programme (known as summative
evaluation).

Evaluation can be undertaken prospectively or retrospectively. Evaluating on a

prospective basis has the advantage of ensuring that data collection can be
adequately planned and hence be specific to the question posed (as opposed to
retrospective data dredging for proxy indicators) as well as being more likely to be
complete. Prospective evaluation processes can be built in as an intrinsic part of a
service or project (usually ensuring that systems are designed to support the
ongoing process of review).
There are several eponymous frameworks for undertaking healthcare evaluation.
These are set out in detail in the Healthcare Evaluation frameworks section of this
website and different frameworks are best used for evaluating differing aspects of
healthcare as set out above. The steps involved in designing an evaluation are
described below.
Having identified what the evaluation is attempting to achieve, the following 3 steps
should be considered:
Study designs include:
a) Randomised methods

through the random allocation of an intervention confounders are equally

distributed. This is usually carried out prospectively. Randomised controlled trials
can be expensive to undertake rigorously and are not always practical in the
service setting.
b) Non randomised methods

Cohort studies - involve the non-random allocation of an intervention, can be

retrospective or prospective, but adjustment must be made for confounders

Case-control studies investigate rare outcomes, participants are defined on

the basis of outcome rather than healthcare. There is a need to match controls
however the control group selection itself is a major form of bias.
c) Ecological studies

cheap and quick, cruder and less sensitive than individual level studies, can
be useful for studying the impact of health policy
d) Descriptive studies

used to generate hypotheses, help understand complexities of a situation and

gain insight into processes eg case series.
e) Health technology assessment

examines what technology can best deliver benefits to a particular patient or

population group. It assesses the cost-effectiveness of treatments against current
or next best treatments. See economic evaluation section of this website for more
details.
The choice of measure will depend on the study design or indeed evaluation
framework used as well as the objectives of the evaluation. For example, the
Donabedian approach considers a programme or intervention in terms of inputs,
process, outputs and outcomes.

Inputs - (also known as structure) describes what has gone into an

intervention to make it happen eg people, time, money

Process - describes how it has happened eg strategy development, a patient

pathway

Outputs - describe what the intervention or programme has produced eg

throughput of patients

Outcomes - describes the actual benefits or disbenefits of that intervention or

programme.
The table below gives some further examples of measures that can be used for
each aspect of the evaluation. Such an evaluation could measure process against
outcomes, inputs versus outputs or any combination.

The choice of qualitative versus quantitative data collection will influence the timing
of such collection, as will the choice of the evaluation being carried out
prospectively or retrospectively. The amount of data that needs to be collected will
also impact on timing, and sample-size calculations at the beginning of the
evaluation will be an important part of planning.
For qualitative studies, the sample must be big enough that enlargement is unlikely
to yield additional insights eg undertaking another interview with a member of staff
is unlikely to identify any new themes. Most qualitative approaches, in real life,
would ensure that all relevant staff groups were sampled.
For quantitative studies the following must be considered (using statistical software
packages such as Stata):

the size of the treatment effect that would be of clinical/social/public health

significance
the required power of the study
acceptable level of statistical significance

Q.5 Define cost accounting. Explain the various categories of costs.

Answer: COST ACCOUNTING :
Cost accounting is an accounting process that measures and analyzes the costs
associated with products, production and projects so that correct amounts are
reported on financial statements. Cost accounting aids in decision-making
processes by allowing a company to evaluate its costs.
VARIOUS CATEGORIES OF COSTS
Some types of costs in cost accounting are direct, indirect, fixed, variable and
operating costs.
A direct cost is related to producing a good or service. A direct cost is the material,
labor, expense or distribution cost associated with producing a product. It can be
accurately and easily traced to a product, department or project. For example,
suppose a worker spends eight hours building a car for a car manufacturing
company. The direct costs associated with the car are the wages paid to the worker
and the parts used to build the car.
On the other hand, an indirect cost is an expense unrelated to producing a good or
service. An indirect cost cannot be easily traced to a product, department, activity
or project. For example, a semiconductor company rents office space in a building
and produces microchips. The wages paid to the workers and the material used to
produce the microchips are direct costs. However, the electricity used to power the
entire building is considered an indirect cost because it appears on one bill and is
difficult to trace back to the semiconductor company.
A fixed cost is also associated with cost accounting. A fixed cost does not vary with
the number of goods or services a company produces. For example, suppose a
company leases a machine for production for two years. The company has to pay
$2,000 per month to cover the cost of the lease. The lease payment the company
pays per month is considered a fixed cost.
Contrary to a fixed cost, a variable cost fluctuates as the level of production output
changes. This type of cost varies depending on the number of products a company
produces. A variable cost increases as the production volume increases, and it falls
as the production volume decreases. For example, a toy manufacturer must
package its toys before shipping products out to stores. This is considered a type of

variable cost because, as the manufacturer produces more toys, its packaging costs
increase. However, if the toy manufacturer's production level is decreasing, the
variable cost associated with the packaging decreases.
An operating cost is an expense associated with day-to-day business activities and
may be variable or fixed. An example of an operating cost is a company's inventory.
Suppose a company produces and sells microchips. The microchips must be stored
and maintained, which is an operational cost to the company.

Q.6 What is financial reporting? Explain the need for financial reporting.
Answer : Definition of financial reporting :
Financial reports are the documents and records you put together to track and
review how much money your business is making (or not). The purpose of financial
reporting is to deliver this information to the lenders and shareowners (the
stakeholders) of your business. If someone else is supporting part of your business,
financial reporting must be part of the essential contract between you and them.
Financial reporting involves the disclosure of financial information to management
and the public (if the company is publicly traded) about how the company is
performing over a specific period of time. Financial reports are usually issued on a
quarterly and annual basis. This is different from management reporting, which is
financial information that is disclosed to those inside the company to be used to
make decisions within the company. Financial reports are included in a public
company's annual report.
Purpose
Financial reporting serves two primary purposes. First, it helps management to
engage in effective decision-making concerning the company's objectives and
overall strategies. The data disclosed in the reports can help management discern
the strengths and weaknesses of the company as well as its overall financial health.
Second, financial reporting provides vital information about the financial health and
activities of the company to its stakeholders including its shareholders, potential
investors, consumers, and government regulators. It's a means of ensuring that the
company is being run appropriately. You should note that if a company is publicly
traded, it is subject to some very strict reporting regulations enforced by the
Securities and Exchange Commission (SEC).