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7/27/2019 Impact of Financial Down Turn on Hospital Industry.case Study on Egyptian Private Hospital by Puruhutjit Surjit
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Impact of financial downturn on
healthcare industry
Case study on Egyptian private
hospital
Prepared By,
Puruhutjit Surjit
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Contents
Executive Summary...............................................................................2
Introduction..........................................................................................3
Methodology..........................................................................................4
Effect of financial Downturn.................................................................11
Recommendations...............................................................................13
Conclusion...........................................................................................16
References...........................................................................................16
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Executive Summary
The objective of the project is to explain the impact of global financial down turn in Al Salam
hospital, Egypt.
Al-Salam hospitals have been affected significantly by the Nations economic crisis due to
the financial down turns in the global market. The hospital is experiencing declining in a)-
margin)-non operating income-day cash on hand, d)-patient revenue.
Investment income has declined dramatically, increased cost of borrowing, Decreased
access to capital financing.
The economic crisis is affecting patients in need of care. Admissions and elective procedures
have declined, Increases in emergency visits and patients with behavioral health care
needs. Increases in patients without health care coverage and needing financial help.
Access to physician care is further threatened. More physicians are seeking financial support
from hospitals. More physicians are seeking employment.
Hospitals are taking steps to address the financial impact by reducing administrative
expenses. Reducing staff. Postponing or reducing capital investment in building renovation
and information technology. Enhancing productivity and efficiency increasing efforts to
protect and expand volume changing debt structure
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Introduction to the topic
Recession-Recession is a period of business cycle where the real GDP of the country is
decreasing successively for the two quarters.
Recession impact in Hospital Industry-Egypt has a pluralistic, segmented health
system, with many different public and private providers and financing agents. There are
three main financing agents:
The government sector-
The Insurance sector
The private sectors
Due to the current account deficit on the back of decline in the outlook for export of goodsand services and a slowdown in remittance growth, the overall trade deficit will widen from
US$ 23.4bn to US$ 29.9bn, it will have major impact on government spending towards
healthcare and it will affect the patient flow to the private hospital who are providing the
services on behalf of government funds.
Health Insurance Company accounted 8% of the healthcare expenditure in Egypt.
In Egypt 70% of the patient paid their healthcare expenditure from out of pocket. Due to
the global financial meltdown the per capital income has declined and the unemployment
has increase and the people loss there heal insurance coverage, it has a major impact on
selected surgeries like cosmetic surgery and bariatric surgery etc.
Due to the global financial meltdown and decrease in real GDP the healthcare expenditure is
expected to decrease from 6.3% of total GDP to 4% during the financial year 2009.
Table 1. Egyptian Health Expenditure: Use of funds. Source:
Users of Funds Percent of Total Health Expenditure
Pharmacies 36%
Ministry of Health services 19%
Private providers 27%
University and teaching hospitals 10%
Health Insurance Organization services 8%
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Table 2. Egyptian Health Revenues: Sources of finance. Source:
Recession impact in other industries-Since the second half of last year, Egypt's
economy growth rate has witnessed setbacks due to negative impacts of the prolonged
global financial crisis on the economy of the populous country in the Middle East and North
Africa.
Originating from the turmoil of the U.S. financial sector, the financial crisis has been
spreading to most areas in the world, including Egypt.
In the second half of 2008, the negative consequences of the financial crisis began to bite
the Egyptian economy in many fields, particularly the prime sectors which contributed to the
country's revenues. Such as
Tourism sector
Energy exports
Suez Canal tolls
Remittance from expatriate workers
Tourism industry has always been one of the major industries of Egypt. In 2008, it was
reported that some 12.8 million people all over the world travelled to Egypt and brought
some 11 billion U.S. dollars to the country's revenue, or some 8.5 percent of the Egyptian
Gross Domestic Product (GDP).
But statistics indicate that the growth rate of foreign tourists has dropped since last
October. The booking rate of the hotels in the Red Sea resorts was only some 40 percent.
According to the Egyptian Travel Agencies' Association, increase of foreign tourists in the
next four years is only predicted at 6 percent, compared to some 16.6 percent in the past
four years.
In the fiscal year of 2007-2008 (as of June, 2008), remittances from expatriate workers
reached 8.56 billion dollars. But most Egyptian emigrant workers live in Gulf countries,
Source of Finance Percent of Total Health RevenuesHouseholds 51
Ministry of Finance 35
Social insurance contributions 6
Firms 5
Foreign donors 3
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which are also struggling to get rid of the negative impacts of the financial crisis.
Some Egyptian workers in Gulf countries have been laid off due to shrinking investments. It
is reported that some 30,000 Egyptian workers in Gulf countries are expected to return
home and join the unemployed.
The revenue of the Suez Canal, which hit a record 5.2 billion dollars last year, has been one
of the most stable sources of the Egyptian income. The revenue has also dropped recently
due to decreased numbers of ships via the international waterway caused by the global
crisis and the fears over the pirates off the Somali coasts near the Red Sea waters.
According to the state MENA news agency, Suez Canal revenues stood at 301.8 million
dollars in February, or some 25 percent drop compared to the 408-million-dollar income the
same period of last year.
Egyptian economy registered a 7.2 percent growth in the fiscal year of 2007-2008 and a 7.1
percent increase in the fiscal year of 2006-2007.
It is estimated that the current global financial turmoil will slow down Egypt's economic
growth rate from more than 7 percent to less than 4 percent.
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Methodology
We have taken five major department of the hospital and made comparative study between
1st
quarter of 2009 and 2008.some of the analysis are showing below with the graphicalpresentations.
A. Outpatient DepartmentThere is 14% decline in outpatient traffic in the first quarter of 2009 as compare with the
same period in 2008.The decline was due to the major decline in insurance (1275) and cash
(812) due to the retrenchment and it leads to loss of insurance policy. Cash patient has
decline due to the reduction in per capital income. (Refer to graph outpatient traffic)
3802
12671
4197
2129
22799
3476
11396
3385
1459
19716
0
5000
10000
15000
20000
25000
Corporate Insurance SelfPaying Patient Syndicate Grand Total
Out patient traffic Y to Y (Qtr-1)
2008
2009
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B. Laboratory DepartmentThere is overall 11% decrease in laboratory referrals due to the direct cash patient flow.
There is increase in patient flow from insurance category due to the offer of more discounts
to the insurance companies. The referrals from the corporate patient has been decline due
to the reduction in the healthcare budget in the corporate sector due to the stagnant of the
production (Refer chat laboratory order)
7410
4597 4711
1729
18447
57965117
4236
1166
16315
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
Corporate Insurance SelfPaying Patient Syndicate Grand Total
Laboratory order Y to Y ( Qtr-1)
2008
2009
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C. Radiology departmentThere is also reduction in radiology procedures noticed. The above reduction is due to the
less referral from orthopedics consultant to the radiology department. The consultants are
referring only to the highly necessary procedure in case of out patients for inpatient there is
no choice but due to the decrease in trauma cases the overall referrals from emergency has
come down. (Refer to the chat Radiology)
D. Cosmetic surgery department
There is a huge decrease in cosmetic, plastic and bariatric surgery. Naturally the price of the
cosmetic surgery is quietly high as compare with other surgery in the same category.
Due to the declining in the PPP of the consumer the consumers are postponing the surgery.
In Salam international hospitals the majority of the cosmetic surgery from the healthcare
tourism and most of the patient flow from western Europe, united states and gulf region.
Experts view the global meltdown as a considerable threat to the booming medical tourism
industry in Egypt. As a consequence of recession many people in the West will no longer be
able to afford insurance, and thus medical tourism will also take a beating as people will try
and priorities their healthcare needs and wait for economic conditions.(Pls refer chat
cosmetic surgery)
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
Corporate Insurance SelfPaying
Patient
Syndicate Grand Total
2306 2438
3110
489
8343
1568
26192201
374
6762
Radiology Y to Y(Qrt-1)
2008
2009
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E. Increase in volume in life saving procedure and surgery
There is marginal increase in the life saving procedure/surgery during the 1st quarter of
2009 as compare with 2008.
Unlike luxuries like certain consumer goods or services. Ill health always prompts people to
seek medical care, irrespective of the state of the economy.
When someone needs cardiac care, they would not worry about recession or market
conditions. In fact, due to rise in stress levels, the need for immediate healthcare would
escalate further. Healthcare is a recessionproof industry and hence the impact is limited in
this segment.
0 50 100 150 200 250
Rhinoplasty
Face lift
Abdominoplasty
Total
43
41
131
215
31
17
46
94
Cusmetic surgery Y to Y (Qrt-1)
2009
2008
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2008
20090
50
100
150
200
250
300
Cardiathorasic
Cardiology Neuro surgeryGLS
131
214
71
233
106
268
87
262
Increase volume in life saving procedure
2008
2009
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The effect of global financial down turn
A. Decrease in net revenue per caseDue to the change of case mix between the corporate and self-paying patient the per case
yield has been declining year to year despite of the inflation effect.
Corporate clients are asking more discounted service due to the financial down turn and
keep their healthcare budget low.
B. Decrease in occupancy levelThe average occupancy level almost 20% down as compare with the first quarter of
2008.During march 2009 the 33% of the day the hospital occupancy level has been fall
down below average.
0%
50%
100%
2008 2009 Decrease
357 3259.0%
10580 97258.1%
7653 6395 16.4%
Decrease in net revenue per case Y to Y (Q-1)
Non Surgical
Surgical
OPD
132 132136
130124 125126 127
130
121 118122
130
117121
114110
10298
107 107103
109
123120
111 109
130 127123
111
0
20
40
60
80
100
120
140
160
180
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Decline in daily census (Mar-09)
Daily
Average
Max
Min
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C. Days cash in hand decliningDue to the increase in receivables and increase in debtor collection period there is
continuous decline in cash on hand since October 2008.
E. Decreasing in Operating MarginHospital is facing decrease in operating margin in the first quarter of 2009
Decline in PBIDT
Particulars 2008(Qrt-1) 2009(Qrt-1)
Deduction and discount 6.19% 14%
Direct cost 34.85% 35%
Doctors fees 12.30% 14%Indirect cost 25% 28%
PBIDT 21.66% 9.50%
Series 1
0.000
0.100
0.200
0.300
Oct Nov DecJan
FebMar
0.215 0.1820.168 0.167
0.163
0.142
Days cash(mn) in hand declining contineously
Series 1
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Recommendations
To overcome the present global financial down turn hospital management should implement
the following policies:-
A. Creating budget contingency planB. Reducing capital spendingC. Changing debt structureD. Reducing non labor costE. Containing labor costF. Enhancing productivity and efficiencyG. Engaging staff in financial performance improvementH.Protecting cash flowsI. Increasing effort to protect or expand volumes
A. Creating budget contingency planBy implementing budget contingency plan one can control/monitor
Change in patient revenue/volume, Operating margin targets, Sustain declines consecutive
performance below target, Failure to meet debt covenants
Strategy within contingency budget are linked to financial situations
Good sense strategy-Prudent in any environment
Riding the storm out strategy-Difficult but possible temporary expense reductions.
Hard choice strategy-Permanent expense reduction that become necessary in
challenging financial situation or to adjust to lasting business downturns.
B. Reducing capital spendingSpending cuts-Reduction in capital spending
Spending delays-Deferred purchases of capital equipment; only replacing equipment
that becomes inoperable.
Spending reviews-Capital spending while approved the budget process requires review
for every expenditure before purchase must be approved by all senior management.
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C. Changing debt structureTo convert the Account receivable within the granted period
D. Reducing non labor costAcross the board hold or reduction:-Across the board 1% reduction mandated
Vendor price negation-Negotiation of all vendors for price reduction
Focus on vendor pricing freeze
Stringent purchase reviews
Equipment purchase must be authorized by CEO
Stringently review of all purchases. Limiting purchase order approvals to only immediately
needed items. Only buy in bulk where there is a price break.
E. Containing labor costHiring freeze or analysis-In depth analysis of all open positions
To make number of cost cutting measure such as a hiring freeze and replacing a clinical
position only if volumes justify it.
Increase potential hours-to reduce the potential hours by eliminating abnormal working
hours.
Matching staffing to volumes-Hold managers accountable more than ever before for
staffing correctly
Eliminate incentive pays for working additional, unscheduled shifts
F. Enhancing productivity and efficiencyInvest in tool and training-Make investment to improve your own efficiency and
productivity
Ensure profitable service lines have the tools they need
Redesign and monitoring-Reengineering services to reduce costs
Reviewing and changing productivity standards-Implement a tighter productivity
standards for daily monitoring
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Engaging staff in financial performance improvement-Develop a committee of senior
managers that meets monthly to review the capital projects and fixed expenditure.
G. Protecting cash flowImproving billing and collection- Increase focus on revenue cycle management and
bad debt reduction.
Increase effort to help cash patient to increase the cash flow.
Focused on opportunistic growth
Revenue department should prepare a business plan to increase volume and revenue at
least by 10%.
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Conclusions
Healthcare is resilient industry
The market challenges of today could lead to efficiencies and investment that enable
hospitals to provide more value to their communities in the future.
Few sector of the economy have faced-and weathered-as much continuous financial tension
as the hospital sector, which must regularly adjust to payment and regulatory changes.
Hospital financial leader must, once again, marshal all of their assets to face current
realities and use their considerable expertise to provide what is best for their communities.
References
1. Partnerships for Health Reform. A new Egyptian Health Care Model for the 21stCentury, Bethesda, MD and Cairo: Partnerships for Health Reform for the Ministry of
Health and Population of the Arab Republic of Egypt, 1999.
2. World Bank.Egypt, Arab Republic at a glance,
3. Hospital finance management association