Abstract Chapter 17

Chapter 17 maps out the hospitals to be subjected to the recent central-government initiative (DM 21/06/2016), which introduces mandatory turnaround plans for Public Independent Hospitals and contains at least three major innovations. First, it focuses on the performance of individual hospitals, after years of near-exclusive attention to the system-wide performance of Regional Health Services. Second, it develops an algorithm to “normalize” hospital revenues so that they better reflect the quantity and mix of services provided. Third, it includes a set of thresholds in terms of volumes, quality and outcomes of care, thus operationalizing the principle whereby the need for a turnaround plan cannot be assessed solely on the basis of financial performance. The chapter presents a financial statement analysis of all 95 Public Independent Hospitals over the period 2012-15, using the Decree’s normalization technique to determine their revenues. To start with, the analysis reveals a large and unexpected variability in net income. In their published financial statements, most hospitals report net incomes of zero or near zero. However, this is largely due to the allocation of regional financial support. After normalizing the revenues, out of the 95 Public Independent Hospitals: 44 revealed a net income of or above zero; 32 a deficit within 20% of revenues; 19 a deficit exceeding 20% of revenues. Interestingly, most hospitals in this last group are located in those very regions that have been (or were at some stage) subjected to regional turnaround plans, which raises some doubts on the latter’s effectiveness. This variability in financial performance is largely due to staff costs, whose incidence on revenues varies significantly across hospitals. General service expenses (e.g. utilities, housekeeping, laundry) also show some variability. Supplies expenses, on the contrary, are relatively constant across hospitals. As for the balance sheet, the debt ratio has been constantly improving over time due to the combined effects of gradually smaller deficits and extensive national / regional covering of older retained losses. The relative age of fixed assets, on the contrary, has been constantly deteriorating.