Hospital costs



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Hospitals costs:

Some of the hospitals costs are hospital stay cost,cost hospital standard,Average hospitalscosts.

1) Salaries, Wages and Employees’ Benefits: Wages and Salaries Paid to employees cover nearly 50-60% of the total expenses of the Hospital.

2) Supplies and Others: Supplies, contract labor and lease expenses make up the second largest category of hospital expenses covering nearly 30% of Hospital costs.

3) Depreciation and Amortization: The fixed assets bought by the Hospital are expensed for their expected for their expected lengthy of use this process is called Depreciation. The Hospital also purchases non-physical assets such as goodwill, copyright and patents etc., these assets. The process of expensing the costs over the expected length of its life is called amortization.

4) Interest: Hospitals often take loans for mortgages and other large purchases. Interest expense is the amount a hospital must pay in the current accounting period for borrowing funds.

5) Bad Debt Expenses: Bad Debt is the service charge for which a hospital is expected to collect but does not receive payment. For instance if the patient can afford to pay only a half of his total bill, the hospital costs is expected to write off the remaining amount as bad debt or record it as an expense.

Financial performance of the hospital:

Hospitals also need a regular Financial Health Check-up. Their Financial performance and financial health is checked and evaluated using the following indicators.

1) Ratio Analysis: Ratios evaluate 3 aspects of financial performance of the Hospital:

a) Profitability: It raises questions as to – How much surplus money is left with the Hospital at the end of the year? Is the Hospital working smoothly or is it having problems in covering its costs?

b) Liquidity: Liquidity is the Hospital’s ability to fulfill its short-term commitments. For instance the Hospital should have enough funds to pay its bills.

c) Solvency: Solvency is the Hospitals ability to fulfill its long-term commitment. Such as having enough funds to pay back its mortgage.

2) Multi– Year Cash Flow Analysis:

A cash flow analysis is the illustration of a pattern of cash sources and uses over a period of time. Hospitals usually indulge in Operating Activity, Financing Activity and Investing Activity. Cash Flow analysis helps up to compare the revenues generated by all 3 modes of activity and confirm the state of its financial health. Since a financially healthy hospital is the one who generates funds from its operating activities, while an unhealthy hospital uses debt financing or depreciation as a large source of cash and uses the amount for unprofitable operations.

3) Affiliate charts: Affiliate Charts help to evaluate the organizational structure of the system to which the hospitals belong. It illustrates of the Hospital is self-sufficient or not i.e if the hospital supports other entities or if the hospital itself is supported by other entities. These charts also help to analyze trends in ratios and explain impacts on cash flows.

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