GUIDE FOR ENHANCING THE

REVENUE GENERATION
CAPACITIES OF LGU HOSPITALS
Outline
— Rationale and objectiv es
— Diagnosis of hospital capacity to generate
revenues
— Issues on and Strategies for:
◦ Maximizing PhilHealth revenues
◦ Setting correct rates for hospi tal services
— Introduction to hospital financing forms
Local Government Code
Health service provision

Ø RHUs and BHS: managed by

municipalities and cities
Ø Provincial, district and municipal/
community hospitals and the PHO:
managed by the provincial government
 Funding Source

Retained Hospital Devolved Hospitals

§ National government § Allocations in the

subsidies provincial budget
§ Utilization of their § PhilHealth
revenues Reimbursement?
Objectives of the Guide
ØMaximize PhilHealth reimbursements
ØSet correct prices for hospital services

Intended Users
Ø Chief of devolved hospitals
Ø Provincial Health Officers
Assessing the hospital capacity to generate revenues

See advocacy for the

1a. Is your catchment
PhilHealth enrollment
1. Has your population enrolled in
NO of indigent families in
PhilHealth? If yes, go
hospital to 1b.
your locality on pp. 9-
12
maximized its
1b. Are your hospital
PhilHealth See PhilHealth
and doctors PhilHealth
NO accreditation of health
revenues? If accredited? If yes, go
providers on p. 12
to Question 1c.
yes, go to
1c. Does your hospital See maximization of
Question 2, charge the maximum PhilHealth
NO
otherwise, go PhilHealth Fees? If reimbursements on pp.
yes, go to Question 1d. 14-17
to 1a 1d. Does your hospital
See retention &
retain and utilize its
NO utilization oh hospital
revenues? If yes, got to
revenues on pp. 21-22
Question 2.
 See different
2a. Is your approaches for
2. Does your hospital able to securing equipment:
hospital have obtain the Guide on Supplies Tie-
the necessary equipment it needs NO up on page 36
supplies and despite limited Joint Venture option on
funds? If yes, go to page 37
equipment to Question 2b. Outsourcing hospital
provide health services on page 37
care services? 2b. Does your Try consignment, see
If yes, go to hospital have funds pages 30, 33, 56, 75,
to buy medicines and 82
Question 3,
and medical NO
otherwise, go supplies? If yes, go Secure & Manage
to 2a to Question 3. Revolving Funds, see
page 31
 3a. Does your
3. Do you hospital have a See guide on rate
policy on rate NO
make hospital setting? If yes, go setting on page 23
prices viable to 3b
and
competitive? If 3b. Are low cost
yes, go to medicines and
medical supplies See Pool and bid
Question 4,
available in your NO your supplies on
otherwise, go hospital page 29
to 3a. pharmacy? If yes,
go to Question 4
 4a. Does your See Guide on
hospital allow NO payment-in-kind on
4. Is your payment in kind? page 38
hospital able
to recover 4b. Does your See Guide for
cost of hospital get monitoring
PhilHealth NO PhilHealth
services
reimbursements reimbursement on
rendered? If on time? pp. 17-21
yes, go to 4c. Does your See discussion on
Question 5, hospital provide NO management of
otherwise, go for private private rooms on
to 4a. rooms? page 39
 5a. Does your
hospital See Guide for
systematically recording results
record the result of of hospital
5. Is your its operations? If operations on page
hospital able to yes, go to 5b 40
capture the
5b. Is your hospital NO
cost of care able to monitor &
See monitoring
you provided? evaluate results of
and evaluation of
its operation? result of
operations on page
43
MAXIMIZING PHILHEALTH REIMBURSEMENTS

COH/PHO needs to advocate with LCEs

budgetar y allocations for:
◦ Enrollment of indigent families
◦ Investments needed to comply with PhilHealth
accreditation requirements
Getting LCE suppor t
◦ Compare potential benefits (projected hospital
income from PhilHealth reimbursements) with
investments in PhilHealth enrolment & accreditation
◦ Show hospital annual budget allocation by the
Province vs. hospital income
Facilitate availment of PhilHealth benefits

• Provide PhilHealth Desk

• Designate adequate trained Philhealth
clerks/assistants
• Allow PhilHealth Clerks to attend seminars for
update
• Social Worker to take active participation in the
orientation
• Advertise services available in the hospital
Maximizing support value and reimbursements
Causes of delays in processing PhilHealth claims:

— Final diagnosis not indicated in PhilHealth Form

— Discrepancy in the entries in the form
— Overlapping of confinement period
— Incomplete suppor ting documents
— Late submission of documents to PhilHealth
Maximizing support value and reimbursements
Common causes of claims reduction:
— Medicines not in the PNDF list, generic form
— Medicines not indicated for the illness
— Overmedication
— Over utilization of lab and other diagnostic
examination
— Incorrect case-typing of illness
— Inconsistent data
— Items claimed not r eimbursable
— Patient not eligible
Preventing claims reduction/non -reimbursement
— Capacitate key hospital personnel on PhilHealth
claims & defined r esponsibilities
Ø Doctors- proper statement diagnosis
Ø PhilHealth Clerks - completeness of documents
Ø Billing Personnel- accurate charging
Ø Nursing – forms are properly filled-up
Ø Administrative officer- proper super vision of
the team
— Maintain tracking system for PhilHealth -
PhilHealth Ledger
Lobby for hospital revenue retention
and utilization
• Ensure availability of funds for hospital
operation
• Facilitate implementation of plans &
programs
• Less red-tape and faster transaction
SETTING PROPER RATES FOR
HOSPITAL SERVICES
— Availability of quality low cost drugs and
medical supplies
— Availability of hospital services
— Proper rate setting and cost determination
for hospital Services
Making quality low -cost drugs and medical
supplies available

◦ Procurement through competitive bidding

◦ Utilize a pooled bulk procurement system
◦ Consignment
◦ Establishment of Revolving Fund
◦ Procurement through Philippine International
Trading Corporation
Pooled bulk procurement sy stem
— a process where municipalities join
together their requirements and sourced
these supplies through competitive
bidding.
— Advantages
ØLower Cost because of volume
requirement.
ØLower administrative cost because of
single bidding for the whole
requirement of the province.
 Consignment
Advantages
– Enhance the availability of low-cost, high quality
drugs and medicines
– Income may be used for the improvement of
hospital operations
– Free funds for other equally important needs of
the hospital
– No budgetary allotment and notification of cash
allocation is required
– Optimum waste and inventory management
Revolving fund
— a fund established to finance a cycle of
operations which reimbursements and
collections are returned for reuse in a
manner such as to maintain the principal
of the funds
— Advantages
ØAvailability of the needed supplies
ØGuarantee cost recovery
Benefits of procurement through PITC:

— No need for bidding

— Value for money
— Reasonable payment terms
— Quality of all drugs and medicines
HOSPITAL SERVICES WITHOUT
CAPITAL INVESTMENT

◦ Supplies tie-up
◦ Joint Venture
◦ Outsourcing of Services
 Supplies tie-up
— Advantages
Ø Ensures availability of state of the art
diagnostic equipment
Ø Efficiently maintains diagnostic
equipment
Ø Price freeze of supplies
Ø Freed up funds for other hospital
requirements
Joint venture
— a contractual arrangement whereby a
private sector entity and a government
entity contribute money/capital services,
assets (including equipment, land or
intellectual property) or a combination of
any or all the forgoing for a common goal.
Outsourcing
— is the transfer of management and/or day-
to-day execution of a business process to
an external service provider
— Advantages
ØAvailability of laboratory test
ØCost Savings
ØProvides a channel through which
business can find readily available high-
level expertise at affordable rates.
OPTION FOR COST RECOVERY :

PAYMENT IN KIND
— Voluntary Service by an individually or by a
group as in community volunteers.
Costs =Current wage rate
— Vegetables or other farm products of the patient
or community.
Cost=current market of the product.

INTRODUCTION OF PRIVATE
ROOMS
 COSTING
METHODOLOGIES
 COST DETERMINATION
— Activity that determines the cost of
producing the item, goods, product or the
cost of providing the services
 TYPES OF COSTING
METHODOLOGIES

— Direct Costing
◦ Driven mainly by materials or supplies utilized
in the production of the product
◦ Ideally used for production of goods
— Activity Based Costing
◦ Traces the cost element based on activities as it
is conducted
◦ Ideal for costing activities or services
 What is Activity-
Activity -Based Costing
It is a means of identifying the resources –
money, people, assets – consumed by each
activity that is performed in a company

It identifies the events or drivers

that cause each activity
to be performed

These drivers and their

relationship to products, services
and customers are used to assess products, service and customer
cost and profitability.
The Basic Accounting Equation

Revenues – Costs = Profits

Revenues reflect monetary value recognized by the entity
in the exchange for the goods or services it sells ;
they net out allowances for unrealizable elements.

Costs are the totality of resource expenditures incurred to

make and sell products and services ; they
recognize timing limits.

Profits are net of revenues and costs ; they net out taxes.
Objectives for the ABC Effort
• Understand true costs of our
products and services.

• Setting of organizational
priorities for individual
improvement projects.

• Developing information to
make better management
decisions.
Principles of Activity-
Activity -Based Costing

1. Resources consume Cost Elements

(Labor, Materials, Expenses)

2.Activities consume Resources

3. Cost Objects consume Activities

Definitions
PROCESS
A series of activities that are linked
to perform specific objective.

ACTIVITY
FUNCTION Work performed within an
An organization organization. The aggregations of
structure which actions or tasks that are useful for
fulfills a specific activity-based costing purposes.
purpose.

TASK
Work elements or actions linked to
perform an activity.
 PROCEDURAL STEPS
— Identify the process that will undergo
activity based costing

— Define the different activities (steps and

process) involved to perform the service

— Gather relevant data on materials, labor

and overhead directly identifiable to the
activity (preferably done through interviews
and validation of output with resources used
Sample process to undergo activity-based costing

STEP ACTIVITY

1 Issuance of charge slip to the patient

2 Payment to the Cashier
3 Receipt of OR, recording in the logbook
4 Conduct of X-ray examination & processing
 BASIC FORMULA

LABOR + MATERIALS +
EQUIPMENT COST +OVERHEAD

= TOTAL COST PER ACTIVITY

 DIRECT LABOR COST

— Identify personnel actually in charge of the

activity indicating position title (not name
of staff)
— Determine working time required to
perform the activity (manhour)
— Compute for total personnel cost on a per
minute basis (annual basic salary plus all
allowances)
 DIRECT LABOR COST

— Compute the total personnel on a per

minute basis.
Personnel cost/month = Annual Basic Salary & Allowances
12 months
Personnel cost/day = Personnel Rare per Monthly
22 days
Personnel cost/hour = Personnel Cost per day
8 hours
Personnel cost/minute = Personnel Cost per hour
60 minutes
 DIRECT LABOR COST

FORMULA:

Direct Labor Cost = Personnel cost per

minute x required working time
DIRECT LABOR COST

PERSONNEL
STEP ACTIVITY ASSIGNED
Position Man- Cost
hours
1 Issue charge slip to the pt. Clerk 2mins 3.82

2 Pay to the Cashier Cashier 2mins 3.82

3 Receives OR, records in the

logbook RT 3mins 8.37
4 Conduct x-ray examination & 15
processing RT mins 41.85
 DIRECT SUPPLIES USED

— Determine supplies & other materials

needed for the activity to be done; can be
conveniently and economically traced to the
activity
— Determine quantity required providing unit
of measurement and unit cost to get total
supplies cost.
 DIRECT SUPPLIES USED

— FORMULA:

Direct Material Cost = Quantity of

Materials Used x Unit Cost of Materials
 COMPUTING THE SUPPLIES USED

PERSONNEL SUPPLIES USED

STEP ACTIVITY ASSIGNED
Position Man- Cost Item Qty. Unit Total
hours Cost
1 Issue charge slip to the Clerk 2mins 3.82 pen 6.00 .001
pt.
CS 1 0.75 .75
2 Pay to the Cashier Cashier 2mins 3.82 pen . 6.00 .001
OR 1 3.00 3.00
3 Receives OR, records in Log-
the logbook RT 3mins book . 60. .007
8.37
4 Conduct x-ray 15 devel
examination & RT mins oper 18.3 1 18.33
41.8
processing 3
5
 EQUIPMENT COST

— Identify specific office equipment used to

perform the activity
— Indicate number of working hours/minutes
equipment is used to perform the activity

Note: The working hours can be used to

compute for the power consumption per
kwh, water consumption per cu.m., etc.
 EQUIPMENT COST

— FORMULA:
◦ BASED ON VOLUM E
Equipment Depreciation Cost = ___Acquisition Cost__
Number of Useful life

Depreciation cost/month = Depreciation Cost per year

12

Equipment Utilization Cost = Depreciation per month

Volume of work/month
 EQUIPMENT COST

— FORMULA:
◦ BASED ON EQUIPMENT HOURS
Equipment Utilization Cost = Depreciation per month
26 days
= Depreciation /day
8 hours
= Depreciation/hour
60 minutes

Equipment Cost = Depreciation/minute x

Number of hours
 EQUIPMENT COST
PERSONNEL EQUIPMENT
STEP ACTIVITY SUPPLIES USED
ASSIGNED REQUIRED
Positio Man- Cost Item Qty. Unit Total Equipt Mach. Cost
n hours Cost . hrs
1 Issue charge slip to Clerk 2min 3.82 pen .000 6.00 .001
the pt. s 17
CS 1 0.75 .75
2 Pay to the Cashier Cashier 2min 3.82 pen .000 6.00 .001
s 17
OR 1 3.00 3.00
3 Receives OR, records Log-
in the logbook RT 3min book .000 60. .007
8.37
s 11
4 Conduct x-ray 15 devel x-ray 10
examination & RT mins oper 18.3 1 18.33 mach. mins. 60.10
41.8
processing 3
5
 DIRECT OVERHEAD COSTS

— Refers to other relevant costs that cannot be

conveniently traced to the activity (such as
power, water, etc) but has direct impact on the
activity
— Allocate overhead cost using the basis
which appears to drive most of the OH costs
 DIRECT OVERHEAD COSTS

Alternative scheme for allocating overhead

costs and expenses:
◦ Total working manhours of the department
◦ Floor area covered by the department
◦ Volume of output
 BASIC FORMULA

LABOR + MATERIALS +
EQUIPMENT COST +OVERHEAD

= TOTAL COST PER ACTIVITY

 RATE SETTING
— From the costing activity, rates are
calculated to determine the amount which
will be charged to user, consumer, patient.
— Rates include a mark-up or profit margin
to ensure a reasonable return on
investment for owners or to ensure
sustainability and continuity of operations
of the company
COMPUTING FOR THE RATE
Computed Cost .

100% less approved mark-up rate

NOTE: If the approved mark-up is 25%, the

computed cost is equivalent to 75% of the rate.
 Determine fees for service

— Determine if there is demand for the service

— Compare the amount charged by other
hospitals for the same service
— Make sure that the hospital can recover
expected additional cost in the future
— Present the proposed rate to the Sangguniang
Panlalawigan for approval
— Facilitate issuance of the ordinance