What Would Be a Better Strategy for National University Hospital Management?

Abstract

National university hospitals are not different from private hospitals as the public role played by the former is not clearly defined in Korea. They have to compete with other general hospitals in the same region [1]. The introduction of the nationwide Korea Express Train has increased accessibility to medical institutions in the metropolitan area since 2003. This has resulted in an increased number of patients in big hospitals in Seoul from other regions. As national university hospitals in these regions strive to prevent the loss of local patients, the competition among regions to secure patients is becoming more intense [1]. Hospital profitability refers to successful business performance achieved by treating patients as well as carrying out other business activities during a fiscal year. Hospitals are different from general companies in that their unique characteristic of treating patients emphasizes their public social responsibility as much as their financial output. Thus, they must measure their business performance based not only on financials but also on qualitative features of services such as social benefits 2, 3, 4. However, as it is difficult to define or measure the output of medical services, a profitability index is most commonly used as the tool to measure a hospital’s business performance [5]. Hospital revenues are achieved through capital and finance management and are largely measured by the relationship between invested capital and profits or medical revenues and profits [3]. Many studies have analyzed the profitability of hospitals. A study by Whitcomb and Cleverly [4] used return on assets as the hospital profitability index, while Becker and Choi [5] used net income to stockholder equity, net profit to total assets, and operating margin. A study by Coyne [6] used net profit to total assets, normal profit to total assets, and operating margin as the index, whereas Hibbard et al [7] used operating margin and net profit to gross revenues. Griffith et al [8] argued that operating margin and net profit to gross revenues are appropriate as profitability indices for Korean hospitals since such measurements compare medical revenues and expenses related to genuine medical practice and are most similar to the concept of hospital cost, take surplus and deficit into account by reflecting final business performance of a hospital, and include all details of the hospital. It is not easy to establish a theory that can deductively explain what factors influence hospital profitability. Therefore, inductive analysis is considered the best method to depict the determinants of profitability [2]. Overseas studies that demonstrated the determinants of profitability using these hospitals features were conducted by Cleverley [9], Trinh and O’Connor [10], Bolon [11], and Younis et al [12]. Since the 1990s, relevant studies in Korea have been actively conducted as the competition in the health care market has intensified. These studies analyzed financial data from specific years for these hospitals and thus did not accurately present a time-series management state. There is also almost no research that analyzed the finances of national university hospitals. Based on an awareness of this, this study aims to reflect the reality of the medical community and find strategic alternatives by analyzing the business performance of national university hospitals using data from four years from 2009 to 2012. In the current issue of Osong Public Health and Research Perspectives, a study aimed to provide information for decision making of managers and staff of national university hospitals through the analysis of financial statements. The author analyzed the finances of national university hospitals using the report of final accounts announced by each hospital from 2009 to 2012 as baseline data. The research subjects were 10 national university hospitals [13]. The author showed that most hospitals (except for a few) had medical expenses exceeding their medical revenues, resulting in a net deficit; however, there were significant differences amongst the hospitals. The result of adjustments based on a standard size of 100 beds showed that most hospitals had medical revenue deficits, and there were significant differences between hospitals in terms of medical revenues and medical costs. The author concluded that an expansion of national university hospitals is not always beneficial for increasing net revenues, and suggested to establish a differentiation strategy to increase profitability by securing financial soundness. The author presents an important perspective in managing national university hospitals in Korea. We expect a further study applied to other public hospitals.