Financial Outcomes

Task

You are required to answer ALL of the questions below based on the following CASE STUDY.

Subang Jaya Memorial Hospital

Management Committee of the Subang Jaya Memorial Hospital was meeting under crisis conditions. The Hospital had moved into a financial deficit and most of the key participants in the decision making process could not agree on the best way to resolve the crisis.

The Hospital was located in the less affluent part of a Petaling Jaya city. It was a large general purpose hospital which served a stable population. Its revenue came mainly from the central government in the form of a grant, based on the size of population served and the actual surgical and medical work carried out. Central government grants accounted for about 65% of total revenue, and the remainder was almost equally split between two other funding bodies. Firstly, the local city council provided about RM20 million of grants and secondly, private medical insurance companies paid a similar amount for treatment of their insurance holders.

This gave total annual revenue of some $115 million but costs had risen to $125 million with all parts of the cost structure, including medicines, salaries and materials, seeing increases above the level of inflation. Unfortunately, the outlook did not look good for the Hospital.

Revenue from central government was under pressure as the government sought to reduce public expenditure in order to fund significant tax cuts. Grants from the city council were linked to the level of the central government grant and consequently revenue from this source was not expected to increase. Even more depressing for the Hospital was its failure to attract private healthcare patients. They were choosing to go to a neighbouring hospital with a better reputation for patient care and more attractive facilities. Consequently, income from medical insurance was likely to decline further.

The Management Committee estimated that if the situation did not improve the Subang Jaya Memorial Hospital would have a deficit of $75 million within three years. Action needed to be taken urgently. The Management Committee was made up of a number of coalitions. One was led by Michael Gonzales, the Chief Executive of the Hospital. He was an administrator and an accountant by training. His concern was that the Hospital should be run efficiently. To him, and his fellow administrators on the Management Committee, it was important that the Hospital should be financially viable. However, efficiency and effectiveness are not always the same thing. In fact, some of the actions taken may also lead to further ineffectiveness or inefficiencies elsewhere. An indication of this dilemma was the administrators’ wish to reduce the length of time patients spent in hospital so as to reduce costs.

However, sending patients home early could result in them requiring home visits from nursing staff for up to four or five extra days and in some circumstances this early release might require a re-admission to the Hospital. Consequently, initial savings might be eroded by further unanticipated costs. Furthermore, some medical staff suspected that these administrators were more concerned with short-term financial concerns than with medical ones. Certain medicines may be rationed or withheld to reduce costs and patients might be denied treatments such as physiotherapy or occupational therapy in a similar drive for cost savings.

Another group was represented by Stan Lee, a consultant surgeon. He was in favour of developing “leading edge” micro-surgery. For Stan and his fellow surgeons, the Subang Jaya Memorial Hospital was losing out to its rival hospital because it was seen as old-fashioned and out of touch with modern medicine and surgery. This was affecting its ability to attract the affluent private healthcare patient. Unfortunately, the Hospital would require substantial capital investment to implement such a high-tech medical strategy.

A third group was influenced by the Mayor of the city, Martin Goodman. This group was made up mainly of councillors (local politicians) who sat on various Hospital committees and were anxious to see the Hospital kept open and effectively serving the city’s medical needs. Surprisingly, the city council had recently threatened to cut back its funding as a means of avoiding an increase in local taxes. The local news media had attempted to embarrass the local ruling party about this policy but the councillors involved, led by Mrs Fuller, were in no mood to give in to media pressure. There was a real fear that strategy might now be formulated in response to media headlines rather than rational argument.

Naturally the local population in the catchment area of the Hospital wanted it to continue its function as a viable concern and even invest in more modern facilities. Unfortunately, this stakeholder group had little power or influence.

The residents were socially disadvantaged and were unable to bring concerted pressure to bear on the Hospital’s decision-makers. There was one other important pressure group that was very vocal in its support of the Hospital. These were the employees, including the nurses and the general medical and support staff (not the high-ranking surgeons). Their interests were not political or financial, or even professional, unlike the surgeons who were looking to expand their power and influence. This employee grouping was primarily concerned with the maintenance of an efficient and effective hospital for the local population who could not afford private medical insurance and who relied mainly on government funded healthcare provision.

As one might have expected with these divisions, the Management Committee found it difficult to agree on an acceptable strategy to solve the financial crisis. Eventually the one chosen reflected the power wielded by the surgeons. These senior medical staff (the surgeons) had threatened to resign if the Committee did not agree to a capital investment programme designed to enhance the Hospital’s surgical reputation. The Hospital would effectively cease to function without its surgical teams. Unfortunately, the trade-off for this investment was to reduce the number of beds in the Hospital. It was argued that this reduced provision reflected the current utilisation patterns. Unfortunately, this did not reflect the latent demand in the community. There were a significant number of patients who were not being given the treatment they needed as they did not have private healthcare insurance. Furthermore, waiting times for seeing the appropriate consultant surgeon or for being admitted to the Hospital were lengthening for this disadvantaged group of patients.

Required:

(a)	It is apparent that the goals and objectives of the senior medical staff have profoundly influenced the chosen strategy. Discuss the factors which have enabled this group to dominate the other stakeholders. Explain the main arguments which the other groups might have used to promote their objectives.(40 marks)
(b)	Assess the other strategic options open to the Management Committee.(35 marks)
(c)	When dealing with issues concerning health care, financial outcomes are not the only criteria to be considered. Ethical factors must also be taken into account. Discuss the role that social responsibility might play in this context.(25 marks)