Strategic Healthcare Spending and Finance: Recommending Financial Strategies
Background
Secure and sustainable financing in health can be taken as an important aspect of attaining the crucial population goals of health. Healthcare spending and financing that arranged appropriately helps the national administration in the mobilization of sufficient health financial resources distribute them sensibly and ensure that they are used effectively and equitably. Pro-poor and impartial policies in health financing promote universal access to essential health services. They are also contributors in social protection and strengthening of nets for social safety in the socioeconomic environments which is changing rapidly. In these broad contexts the health care financing contributes to the general process of economic and social development.
Healthcare has become very costly in developing as well as developed countries. The increased medical services use together with the increased technological input has become the foremost factors in the increase of healthcare costs. The extensive service fees application and poor resource and service management are other main aspects that drive costs in developing countries (World Health Organization, 2010).
Failure to have public financing has resulted in cost recovery, which largely promote user fee charging at communal healthcare facilities. In some of the areas and countries the user fee gas been used as a policy for strengthening the market forces role in the health sector. Some of the measures of health sector reform support the role of the private sector in the health services provision and financing. These comprise of public health facilities privatization. Through the initiatives of the supply side, some medical services and products like pharmaceuticals, minor surgery, and hi-tech diagnostic services have been extensively offered at partial or full or cost to patients. Non-communicable and chronic disease management is common concern in many parts of the world. Long periods of treatment and the complications severity result to high costs treatment. These costs burden the patients as well as the healthcare sector.
Many countries spend a significant part of their budget on treatment in other countries on chronic diseases that in many times is not justified in relation to health returns. Future spending on health can be reduced significantly through efficient measures in health promotion and prevention. The private financing share in the total spending on healthcare in many countries has increased significantly in the past decade; this is mostly because of mean payments. Several studies have indicated that mean payments is an inefficient and inequitable way to mobilize healthcare resources.
There is sufficient data indicating that families with low income spend a higher percentage of their income on health in comparison to households with high incomes. Increased out-of-pocket health spending by households is seen as one of the major cause of poverty. Populations with low income mostly stretch the financial resources that include discarding their fruitful assets so as to pay for the essential health care. However, most people are not able to afford the increased user charges. Poor health prompts an increased number of individuals unable to afford the healthcare cost into poverty (Grauman, & Harris, 2008).
There exist considerable discrepancies in the health status and behavior of care seeking between the poor and the rich, between rural and urban populations and between genders. The poor have poorer health statuses and they most depend on public health financing. It is estimated 1% increase in public financing on health normally reduces child mortality among the poor by twice in comparison to the rich.
There is an increased interest in assessing of various health financing arrangements in relation to population access, health outcome, service coverage, and equity in financing. In relation to this demand, the WHO provided a report regarding improving performance of health systems. This report offered a functional framework for financing of health system. Undoubtedly a health system whereby individuals are to pay from their pockets when taken ill creates concerns of equity. It normally promotes poorest members exclusion from the health services use in return restricts access to only those that can afford the fees.
Contrastingly, a health system that if funded predominantly by public sources, including general taxes as well as social health insurance offers excellent and impartial access by all to the basic health services. Effectually, risks on health and corresponding funds are pooledtogether to act as a safety net for the members hence offering the need for paying at times of illness or use. This financing type based on prepayment arrangement normally separates payment from employment, reduces unnecessary financial burdens and contains the health services costs (Raethel, & Deborah, 2009).
Health care financing strategy
Investment and public spending on health enhancement
Many countries usually rely on health insurance, external funding, government budget, andprivate sources that include non-governmental arrangements and out-of-pocket payments. Irrespective of there been varied financing sources, the level of health spending in many regions is somewhat low. Most of the areas and countries spend less than 5% of their gross domestic product on health and per capita health spending is much less than $30 per individual annually. Failure to have financial resources for health is just part of the problem.
The significant proportion of the limited and inadequate funding for health is usually spent on sickness but not health. Presently majority of countries and areas struggle to enhance and maintain their government’s role in funding and provision of services with public health importance.
To enhance public spending on health there should be shifting of financial resources toward cost-effective heath programs. Increasing investment in health so as to provide a universal access and affordable health care; financial sustainability should be ascertained from more stable funding sources, provision of adequate funding for high priority national programs. Ensuring that linkages between health policy and health care financing are strengthened (Shoemaker, 2009).
To achieve increased public spending on health the strategies to be put in place comprise of achieving a balanced mix of public and private financing for priority health programs; improving of the level of equity and access to quality health services; increase the public funding for health promotion and prevention; estimating the financial implications of proposed health policies with matching funding resources and strengthening of the national policy and capacity in health care financing.
Development of prepayment schemes that include social health insurance
Development of prepayment schemes like social health insurance (SHI) is faced with various challenges. There are long lead times for institutional development of SHI agencies; difficulties are experienced in expansion of health insurance coverage to the informal sector and as well as the self-employed. Low awareness concerning the SHI along with misconceptions amongst the decision makers and stakeholders is also a problem andfinally there is no sufficient technical expertise for designing and implementing SHI.
The policy objectives for developing of prepayment schemes comprise of increasing the capacity for implementation of prepayment schemes, expansion of insurance coverage of the population and strengthened health financing policies in line with broader social protection policy.
The strategies for achieving development of prepayment schemes include expansion of coverage of existing schemes, development, and piloting of new prepayment schemes. Strengthen national capacity in SHI by increasing funding for training and education. Enhancing knowledge and sharing country and regional experiences. Establishing consensus-based process and doing systematic analysis of extant health financing policies.
Those at the management level should undertake pilot prepayment and SHI schemes; they should make realistic plans for expanding coverage of existing programs; information should be shared and disseminated; institutional and human capacity should be built for management of prepayment schemes and SHI; clear responsibility lines should be established; capacity assessment should be undertaken; health care financing policy should be developed and refined for prepayment and SHI and consensus-based process with the key stakeholders should be defined (Grauman, & Harris, 2008).
Supporting of national and international health and development processes
The status of health has a high correlation with macro-economic indicators like unemployment, working conditions, income, poverty, and environmental factors. In supporting the national and international health and development processes various challenges and issues are experienced. These include lack of understanding of relationships between women empowerment, investing in health and education, health, and poverty, and health, and economic growth. There is also a strong need to have policy advocacy on emerging and international policy issues like social determinants of health (SDH), general agreement on trade in services (GATS) and trade and health.
The policy objectives on supporting of national and international health and development process have socio-economic development plans at country level integrating equity, gender, health, and poverty. Achieve commitment for increasing health investment for attaining millennium development goals (MDG) and ensuring that national policies for alleviation and eradication of health related poverty and gender issues are supported(Shoemaker, 2009).
Strategies for attaining the above-mentioned objectives will comprise of improving coordination of donor grants for the achieving MDG; assisting health ministries to build partnerships with other ministries and agencies; reduction of divergences between global and local health priorities and advocating global health and development goals. Those at the management levels should build accountability channels between the legislative and executive branches, decision makers, healthcare providers, and consumers; there should be formulation of policies and assessment of the financial impact for reduction of mortality and morbidity among the poor and the disadvantaged. There should be efforts to increase awareness concerning the links between economic development and health.
Drivers for the strategies of healthcare spending and financing
Workforce
The largest trend for the workforce in healthcare is the diminishing pipeline of skilled clinical staff going into the industry. There has been a decline in the number of nurses and physicians and more than one-third of the outlook respondents are convinced that the shortage of nurses will go beyond 20% within the next 10years. Despite that the current economic downturn is offering some relief as nurses without employment are re-entering the workforce. This has a higher likelihood of having a short-term or momentary change.
An implication of this healthcare provider’s trend that is after value strategy is that they will have to do more work with fewer workers. Providers are expected to balance the essence to have higher workforce productivity with the necessity for recruiting and retaining of skilled clinical staff. Skilled labor shortage will as well put an upward pressure on the costs of labor that enhances the productivity gain need (Shoemaker, 2009).
Payment system
Most people have the perception that payment in the future will be influenced strongly by outcomes of the patient; about 65% are convinced that Medicare that among the biggest payers will be paying for most care having a bundled or global payment by the close of the coming decade. Already there are pay-for-performance schemes linking payment to performance of specific measures of quality, and it has stopped hospital payments for occurrences not available at admission. There is still unevaluated bundled hospital and physicians’ payments for inpatient as well as post hospitalization care about orthopedic and cardiac patients.
On the private segment, respondents have been seeing a possible decrease in the insurance provided by employer and an increase in the self-pay patients. Among the healthcare reform proposals currently in circulation is creating of an option of public insurance that will be competing with private insurers on national exchange. This may be having a considerable impact on the level of self-pay patients particularly if the creation of this option goes together with an individual coverage mandate. However, it could be as well mean that the larger percentage of patient care will be paid back at similar levels to those of Medicare. The private insurers are as well watching payment based on outcome with attention and in some occasions they are undertaking their own researches (Raethel, & Deborah, 2009).
Physician integration
The increased physician shortage is already hastening hospitals to follow employment of physicians so as to ensure that there is call coverage by specialists in surgery and trauma. Respond to an expected move from free-for-service payment forms to bundled and outcome-based payments that depend on the efficiency and quality of the clinical staff. It is observed that there is a clear trend toward increased employment of major physicians.
A major concern in pursuing of physical-employment strategy is to avoid the earlier mistakes. During the early years, when hospitals employed physicians as a hedge against managed care the hospitals at last lost over $90,000 annually for every physician because the guaranteed physician payment tended to be reducing productivity. A strategy of employment currently ought to consider carefully how the compensation of physician will be linked to quality or productivity improvements (Grauman, & Harris, 2008).
For majority of healthcare systems and hospitals direct employment of physicians or physician practices ownership may not be the best solution to a strategy of integration. There are many alternatives ranging from soft to hard integration models with changeable affiliation and autonomy degrees. Organization of healthcare ought to evaluate the best strategy of integration that will serve best their strategic and operational strategies, specifically in the referral and growth areas along with on-call coverage, ancillary revenue, and quality initiatives (Davis, et al 2008).
Technology
There is need for healthcare organizations to come up with strategies that aligns information technology with the anticipated revolutions in structures of care delivery and payment. The essence of investing in healthcare information technology is very crucial, particularly in systems that can collect and help in analyzing of operational data, communicate with IT systems of other providers and payers and support patient electronic health records. However, most essential is the ability of organizations making the investments to respond to changes in the market (Raethel, & Deborah, 2009)?
Capital planning
The prospects for long-term access to capital are not certain. In the short-term, it is apparent that the days of cheap and broadly accessible capital are long gone. Providers are adjusting their capital and strategic plans so as to report on the probable long-term revenue shifts in cost of capital, revenue, and reexamining of the risk in their portfolios of investment. Many people perceive the long-term trend toward the industry consolidation if not a reduction in the hospital number. These consolidations will facilitate effectiveness gains and also poise the power managed care companies (Brancatelli, 2008).
Strategies on capital
With the continued ambiguity on the length of financial turmoil, the capital markets thawing, the investment returns rebound and the long-term utilization trends has made majority of healthcare organizations to freeze spending of capital. This freeze cannotproceed indefinitely, specifically in the competitive markets. At a number of times, delays in the required investment in capital will start eroding markets share or destroy the mission of the organization and the long-term potential. Hospitals should start by assessing capital spending feasibility realistically, and consider alternatives based on that assessment outcome.
The initial step will be a realistic capital spending potential. For instance a given system of healthcare had been faced with flat net patient revenues reduced operational profitability and returns on investment. Due to this the unrestricted cash position of the system had reduced by about $18 million and its day’s cash on hand reduced from 167 days to 139 days. The profitability margin showed financial stress and recent constraints capital spending had raised the average age of the physical plant from 11 years in 2005 to 14 years in 2009. This ability of attracting patients effectively from the immediate society was jeopardized (Clarke, et al 2009).
Conclusion
It is seen that issues that relate to capital planning, physician integration, technology, and the workforce and payment reform are already starting to affect healthcare organizations. A majority of hospitals and health systems have started adapting to these changes in ways that increase the strategic goals but hold down costs by optimization of existing resources, requesting for collaborations or careful assessing of the needs of capital spending. Hospitals must work to determine perfection areas and establish goals that can be attained.
As the management team investigates the probable problematic areas determined in an initial comparative analysis, the administration ought to be open to a full discussion on the results of the investigation. The investigation may ascertain that reduction of cist or improvement of quality can be achieved. In such a scenario a benchmarking analysis will assist in establishing the metrics by which the change initiative results can be measured.
As the trends in future turn into been realities of the present day, the measures required for analyzing the organization performance will change unavoidably. As one works with the administrative team on a long-term value strategy constant analysis process, metric updating, and when appropriate implementation of change will be critical to the success of the organization. The prevailing economic crisis will without doubt come to an end; however, the essentials of healthcare are going through a considerable transformation.
Healthcare organizations are expected to adapt to these changes; however, large and small hospitals show that these challenges can be solved. There is a shared focus on the strategy value, positioning themselves for the long-term by a careful assessing of the present and the future needs and moving forward with focusing on cost-efficiency, outcomes of the patients and the mission. In the healthcare industry value is a principle that is very crucial and the healthcare industry depends on it.
References
Brancatelli, J. (2008) Southwest’s seven secrets for success Portfolio.com
Clarke, R.L. et al (2009) beyond the burning platform: Value strategies for the long term, USA:
Boardroom press
Davis. K. et al (2008) Continuous innovation in healthcare: Implications of Geisinger experience
Health affairs, Vol. 27, Issue 5 p. 1235-1245
Grauman, D.M. & Harris, J.M. (2008) Durable strategies for physician alignment p56
Raethel, K. & Deborah, C.G. (2009) Tips for building sustainable cost-effective staffing strategy,
Healthcare cost containment, p14-15
Shoemaker, W. (2009) Benchmarking tools for reducing cost of care hfm p55-63.
World Health Organization (2010) Strategy on healthcare financing for countries of the western
Pacific and south-east Asia regions
World Health Report 2006 – Health systems: Improving performance
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