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THE FINANCIAL INDICATORS OF HOSPITALS - A TESTIMONY OF EFFECTIVE
MANAGEMENT
Petrova-Gotova Ts.
Professor in the Department of Health Economics, Faculty of Public Health „Prof. Tzekomir Voden-
icharov,
MD, DSc", Medical University - Sofia Atanasov A.
Doctoral candidate in the Department of Health Economics, Faculty of Public Health „Prof. Tzekomir
Vodenicharov, MD, DSc", Medical University - Sofia DOI: 10.5281/zenodo.7247591
ABSTRACT
The development and existence of any economic activity is impossible without competent and purposeful financial management in the conditions of a competitive market. Analyzing the financial situation of hospitals is of great importance for their future. The purpose of this article is to examine some indicators that are used in the analysis of the financial status of medical institutions (in this particular case, we will analyze the indicators of the "Aleksandrovska" Hospital for a ten-year retrospective period - from 2011 to 2020) and to make specific conclusions regarding solvency and efficiency. The Covid 19 pandemic and the measures taken to overcome it have put all medical facilities in an unfavorable economic situation. Regardless of the increase in budget funds in recent years, they experience a serious shortage of financial resources, related both to the increase in their expenses for basic products and services - fuels and energy, medicines, insurance, etc., and to the opportunities for financial motivation of the employees.
Keywords: financial indicators, hospitals, health economics, financial management.
Introduction
The development and existence of any economic activity is impossible without competent and purposeful financial management in the conditions of a competitive market. Effective financial management is impossible without financial and accounting analysis, as it gives us information about the financial condition of the medical institution, about the reasons that determine it and development trends.
Analyzing the financial situation of hospitals is of great importance for their future. Based on this analysis, conclusions can be drawn and certain decisions can be made by the management, the owners, potential investors, banks, etc.
The goals of medical institutions from a financial point of view can, to some extent, be perceived as conflicting in terms of their social purpose - on the one hand, they must achieve a positive financial result in order to continue their activities, on the other hand, however, the success of a medical facility should be measured by how effectively and efficiently it addresses the needs of users of hospital services. Thus, hospitals find themselves in the extremely complex situation of combining market and social principles at the same time in conditions of scarcity of resources,
regulated rules and heightened public and political attention [3; 5].
The purpose of this article is to examine some indicators that are used in the analysis of the financial status of medical institutions (in this particular case, we will analyze the indicators of the "Aleksandrovska" Hospital for a ten-year retrospective period - from 2011 to 2020) and to make specific conclusions regarding solvency and efficiency.
Materials and methods: For the implementation of the set goal, situational analysis was used as well as documentary method, economic analysis, comparative analysis and graphical analysis.
Results and discussion
"Alexandrovska" University Multidisciplinary Hospital for Active Treatment is the oldest hospital and one of the largest in the Republic of Bulgaria. It is a leading national university and treatment center providing 24-hour medical assistance for diagnosis, treatment and rehabilitation of persons with acute and chronic diseases, injuries and conditions requiring operative treatment in hospital settings.
"Alexandrovska" Hospital is the country's largest base for development, clinical testing and application of modern highly effective methods and technologies for diagnosis and treatment.
The improvement of the financial situation of any economic organization is achieved with effective financial management, which is based on financial analysis. Through it, a general assessment of the financial situation is carried out on the basis of certain indicators and directions. It is the financial analysis that reveals those areas of economic activity where weaknesses have been admitted and opportunities for elimination and improvement should be sought. The results and conclusions of the financial analysis provide information for the construction of the most important indicators and balance sheets and outline the possibilities for the development of the activity in perspective.
The main task of the financial situation analysis is to establish whether and to what extent, during the analyzed period, the institution has reached its goals: profitability, liquidity, financial security (stability), and financial independence, bearing in mind that the optimal relationship between these criteria provides the institution with the specified financial balance. The results of the financial analysis outline development
The total liquidity ratio of "Alexandrovska" Hospital is greater than 1 only in the first two years of the analyzed period (2011 and 2012), after which its values fall below 1 and remain so until the end of the period.
trends, provide an answer to the reasons that led to the observed results and serve as a basis for management strategies and decisions to improve the efficiency of the overall activity [1; 8].
We must emphasize that the indicators are mutually related and the improvement of one type of indicators, for example the purely financial ones, would give an opportunity to improve the health indicators achieved by the activity of the medical institution [2; 4; 6].
Indicators for financial analysis are extremely diverse and can be classified according to many different indications, but we will focus on only 3 of them: liquidity, efficiency and profitability [9].
Liquidity analysis is a prerequisite for the institution's solvency. Liquidity ratios show the company's ability to pay its current liabilities with available short-term assets.
If the liquidity ratio is equal to or greater than 1, it means that the company covers its current liabilities with the available short-term assets.
A slight increase is observed in 2020, but nevertheless the values are below the minimum required levels. This shows that the potential of the company to meet its obligations is constantly decreasing.
1.37
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Figure 1: Total liquidity ratio
Figure 2: Immediate liquidity ratio
The immediate liquidity ratio is also less than 1 throughout the analyzed period, and from 2015 to the end of the period it is extremely low. The values of this coefficient show that the medical facility does not have sufficient financial resources to quickly cover its current liabilities and cannot cover its operations with its available liquid assets.
We can also judge the inefficiency of the company's work through the cost efficiency ratio, which is calculated as the ratio of revenues to the costs of the company's activities. For the activity to be effective, the coefficient should not be less than 0.98.
Figure 3: Cost efficiency ratio
During the assessed period, the values of this coefficient were close to the minimum required levels only in 2011 and 2012, and from 2013 they started to decrease, which shows that the company is working inefficiently.
The cost efficiency ratio is closely related to the profitability ratio. For the period from 2011 to 2020,
"Alexandrovska" Hospital has mainly suffered losses, which is why its profitability is negative.
Profitability based on costs is calculated as a percentage ratio between the financial result of the company and the incurred costs.
Figure 4: Profitability based on costs
Profitability based on revenue is calculated as a percentage ratio between the financial result and the
revenue of the company.
2.00 0.00
0.03
2011' 2012 2013 2014 2015 2016 2017 2-00 -1.50
-4.00 -6.00 -8.00 10.00 12.00
-5.78
9.64
2018 2019
1l-1
2020
1
-3.43
-8.56
-8.69
' -10.41
11.34
11.17
Figure 5: Profitability based on revenue
Profitability of the operating income is calculated as a percentage between the financial result and the net operating income of the company.
Figure 6: Profitability of the operating income
As can be seen from the figures above, the coefficients of profitability have negative values, since the financial result is a loss, and show the rates of decapitalization of the company.
Conclusion
From the analysis of the financial indicators, we can summarize that, at this stage, "Alexandrovska" Hospital is not able to develop its activity stably in the market of medical services. It is imperative to take the necessary measures and actions to achieve lasting stability in the development and financial condition of the company.
The Covid 19 pandemic and the measures taken to overcome it have put all medical facilities in an unfavorable economic situation [7]. Hospitals are forced to make significant additional financial expenses for protective equipment, disinfectants, additional equipment and consumables. Regardless of the increase in budget funds in recent years, they experience a serious shortage of financial resources, related both to the increase in their expenses for basic products and services - fuels and energy, medicines, insurance, etc., and to the opportunities for financial motivation of the employees.
The conditions of the market economy require such profitability that the company, after paying taxes, covers all its costs, including those for expanding its activities. For this, the hospital should strive to improve its profitability by taking actions to improve the efficiency of the hospital activity performed, and the efforts should be focused mainly on increasing revenues and optimizing costs by introducing even stricter measures for planning and their control.
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https://financealphabet.blogspot.com/2014/09/blog-post.html
