HOW TO INCREASE YOUR HOSPITAL PROFIT MARGIN AND MAKE MORE MONEY

INCREASE YOUR  HOSPITAL  PROFIT MARGIN

 Today, I will like to share with you some principles that can help you increase your profit margin and grow your money in the present economic era.

You do not need to be an Economist to realize that the current drop in the global crude oil prices will affect the world economy, your hospital inclusive.

The secret to business survival is not just in increasing your fees (though that may help) but in controlling your expenses. The most important point of control is Inventory Control.

Your inventory consists of drugs, materials and other consumables in your hospital. Most of your income is tied up in your inventory. If your staff pilfers your drugs, you will lose income and your profit will drop. If you overstock your pharmacy/store, you may run out of working capital to keep your business going. If you under-stock your store, you will have frequent stock-out episodes which can reduce your efficiency. You must therefore know how to strike the right balance in inventory management.

Pareto’s Principle

Controlling hospital inventory is a herculean task. Herculean because the amount of drugs, needles, syringes, etc used in running a hospital is enormous. How can you then keep track of them all and still have time to perform your clinical duties?

The answer was given by an Italian Economist, Vilfred Pareto in 1906. His principle is based on the "vital few and the trivial many" or the 80/20 rule. Applying this principle, 80% of your stock should usually consist of slow moving/inexpensive items. The remaining 20% of inventory are fast moving/expensive items. Think about that for a moment. Also, 80% of your hospital's total inventory cost is caused by only 20% of all items.

This means that YOU must identify the "vital" 20% in your inventory and actively monitor them. For the "trivial" 80% of items, you can assign an inventory manager to monitor their usage and report back to you. This will keep you on top of your inventory control while freeing more time for you to perform other duties.

In addition, it is important that you understand the six sigma concept. This is because providing high quality service is cheaper in the long run. The six sigma concept will guide you in your quest for quality.

                                               

                         

Six Sigma Concept

I want to introduce to you the SIX SIGMA CONCEPT in hospital management. It simply means striving for near perfection and attaining zero-defects in your hospital processes. It means that 99.9% is not good enough. Why? You may ask.

If 99.9% is good enough, Statisticians say we will have 1 hour of unsafe drinking water every month, 500 incorrect surgeries every week, 3000 iatrogenic neonatal injuries every year etc.
With the implementation of the SIX SIGMA CONCEPT, this will be reduced to only 10 neonatal injuries per year. How does it really work?

Here are some steps to achieving near perfection in hospital management.

Step 1: Identify your product or service e.g. Healthcare.
Step 2: Identify your customers and their needs e.g. Corporate bodies, General populace etc.
Step 3: Identify what you need to provide satisfactory service to your customers.
Step 4: Define the process for doing your work.
Step 5: Mistake-proof the process and eliminate wasted efforts.
Step 6: Ensure continuous improvement.

Let me share some excerpts on efficient and effective hospital management from the book, HOSPITAL MANAGEMENT MADE EASY.
                                                                                                               
"The goal of hospital management is to ensure the efficiency and effectiveness of
hospital operations.

Efficiency describes the relationship between input and
output in a production process. For example, if a hospital attends to 15
patients in the OPD daily, how much of hospital resources were deployed to
process these 15 patients? And how much was derived from these patients? If the
output outweighs the input, then the process is efficient. Another example
could be how many cannulae were used by the staff nurse before she could set up an IV line for a patient? Is there wastage in the process? If you notice wastage, then training will help to improve staff performance and ultimately improve efficiency.

Effectiveness on the other hand, relates to hospital methods. Some questions to ask in defining efficiency are “Are my methods achieving the right results the first time? How satisfactory are my methods to my patients? What can be done to improve my methods? How can my hospital get it right the first time?” An important factor in effectiveness is the quality of human resources that your facility possesses. A very important human resource is the hospital manager. How (S)He perceives the hospital and its products is critical to business success.

When the hospital is seen as an organization that produces and markets a product, it helps hospital managers to achieve organizational objectives. The product is the final output of the hospital process. The hospital process begins from the registration of the patient, to consultation with a doctor, to laboratory
investigations, pharmacy visit, nursing care and drug administration and
finally terminates at the patient discharge.  A good hospital manager will ensure that the patient is the king at each point of the hospital process. The patient should
leave the hospital process with the product he/she came for – Good Health. If the
patient leaves with anything less than this, you would have produced an unsatisfied
customer (patient). Such a patient may not agree to return for a follow – up
visit and will definitely not recommend you to someone else".
 

So, increasing your profit margin is a combination of eliminating waste (improving efficiency) and ensuring effectiveness in hospital operations.

Endeavor to read more about Pareto’s Principle and the Six Sigma Lean Concept.

Cheers!