Health Care Finance

This document discusses the importance of financial control in health settings, including tools of control such as budgeting, hospital cost control, and financial statement analysis. It also explores variance analysis and sensitivity analysis as methods for analyzing financial statements. The document further delves into one-way sensitivity analysis and its application in decision-making. A case study of a tertiary care hospital is provided to illustrate the concepts discussed. The conclusion emphasizes the role of sensitivity analysis in economic evaluations and the importance of accurate results in decision-making.

Running head: Health care finance 1
HEALTH CARE FINANCE

Health care finance 2
INTRODUCTION
Financial control in health settings is regarded as a proper accounting system for funds and
equipment which laid down certain standards of performance against which actual
performance would be measured (Dong, G. 2015)
Tools of control areBudget, hospital cost control and financial statement analysis
The difference between actual prices and the standard prices is called a variance and in order
to obtain the detail in depth information abount the financial statement flexible budgeting
variance analysis is a good method.
According to this method variance is of three types volume , quantity or use and price .
The variance caused by a difference between actual workload and anticipated workload is
known as volume variance, whereas use variance occurs due to the difference between the
original quantity and the budgeted quantity of input. On the contrary, price variance basically
is the total amount of variance caused due to the differences between the actual price of the
input and its expected price (Hyett, K et al., 2007) . These different sorts of variances can be
dealt by variance analysis which can operated through two ways 2-variance analysis and 3-
variance analysis
These procedures of analysis can be applied to both budget types flexible as well as static.
There is a potential tool which is sensitivity analysis , which basically identifies and
quantifies the future aspects , if what is thought does not happens. So this tool becomes an
integral part of the plan as it measures the degree of uncertainty , as the future cannot be
absolutely predicted.
SENSITIVITY ANALYSIS REPORT
It is the application of various situations which uses the preposition what if, to model an
array of possible outcomes. It is mainly used to evaluate various formal decisions,
employing different beliefs about variables. A comparatively useful aspect of sensitivity
analysis is to locate those variables that can have an unusually large impact on the
outcome of the analysis. The policy maker of the person taking decisions can then
evaluate the probability of the variables experiencing probable changes. The result
reported is a better understanding of the risks associated with an investment.
One way sensitivity analysis is an effective method of dealing with the system output and
parameters by using statistical analysis in which output variable say ‘y’ is plotted against
each respective parameter say ‘x’ and the plot obtained is attributed to statistical analysis

Health care finance 3
after when is divided into several clusters (Kleijnen, J.2013) . This method is a more common
way of one-way sensitivity analysis since it does not have the linearity assumption between
dependent and independent variables therefore this is a independent method (Saltelli, A.,et al
2014). Sensitivity analysis manager’s tools (Plehn, G. et al. 2016) involving sensitivity
analysis include, contribution margin & income statement ,target operating income using the
contribution margin method and looking for the break-even point.
EXAMPLE- TRIDENT- A TERTIARY CARE HOSPITAL
Trident has a developmental plan which is more extensive. Currently 60% of facilities are
emergency care and 40% are specialist health care facilities . Newer facilities and
equipment’s costs 75000-80000USD. Health workforce cost is 300 per hour. Annual fixed
cost is 25000 including insurances charges. The hospital authority needs to borrow 45% of
the money with 9.5% interest rate. The hospital may charge 250-300$ per day for newer
amenities or 110$ per person for already engaged highclass facilities. Hospital predicts that it
will make a revenue of substantial amount by working for 2000 hour per year excluding non-
functioning of staff or maintenance during certain days pertaining to absence of workforce.
MODELING THE PROBLEM
Alternatives:
1. Renting the latest technological equipment .
2. Investing in a little low quality systems.
Objectives- Hospital expansion and generation of more profit.
VARIABLES-
1. Workforce cost per hour
2. Operating and maintenance cost per hour
3. Insurance
ONE WAY SENSITIVITY ANALYSIS-
 Which variables causes variations or alterations in decisions.
 Logic behind application of different interest rates.
 Is it appropriate that the hospital can set the thickest or highest price for different
newly employed world class technologies and treatments.

Health care finance 4
CONCLUSION
Sensitivity analysis is used to demonstrate the level of confidence that may be
associated with the conclusion of an economic evaluation. (Plümper, T., &
Traunmüller, R. 2018) It is performed by changing main assumptions which are made
for evaluating the impact on the output of the evaluation. In order to reach a
conclusion from the results of a model, the kind of question to be asked and address
for those whom you want to benefit from what you have done is something like this:
"What if our estimate and how much would that have altered our conclusions?" The
more detailed and accurate the results are the less they will be affected if the estimates
are incorrect by such factors.

Health care finance 5
REFERENCES
1. Dong, G. (2015). Performing well in financial management and quality of care:
evidence from hospital process measures for treatment of cardiovascular
disease. BMC Health Services Research, 15(1). doi: 10.1186/s12913-015-0690-x
2. Hyett, K., Podosky, M., Santamaria, N., & Ham, J. (2007). Valuing variance: the
importance of variance analysis in clinical pathways utilisation. Australian Health
Review, 31(4), 565. doi: 10.1071/ah070565
3. Kleijnen, J., & Helton, J. (2013). Statistical analyses of scatterplots to identify
important factors in large-scale simulations, 2: robustness of
techniques. Reliability Engineering & System Safety, 65(2), 187-197. doi:
10.1016/s0951-8320(98)00090-8
4. Saltelli, A., Tarantola, S., & Chan, K. (2012). A Quantitative Model-Independent
Method for Global Sensitivity Analysis of Model Output. Technometrics, 41(1),
39. doi: 10.2307/1270993
5. Plehn, G., Butz, T., Maagh, P., Oernek, A., Meissner, A., & Plehn, N. (2016). Is it
time to rebalance the case mix? A portfolio analysis of direct catheterization
laboratory costs over a 5-year period. European Journal Of Medical
Research, 21(1). doi: 10.1186/s40001-016-0238-5
6. Plümper, T., & Traunmüller, R. (2018). The sensitivity of sensitivity
analysis. Political Science Research And Methods, 1-11. doi:
10.1017/psrm.2018.30