PREPARING A FIVE-YEAR FINANCIAL PLAN FOR THE 100-BED RESEARCH HOSPITAL OF INSTITUTE OF AYURVEDA AND INTEGRATIVE MEDICINE (IAIM)

TO MAKE IT SELF-RELIANT

By: Aman Jyoti (p29004) Organisational Traineeship Segment PRM 2008-10

Submitted to: FRLHT (Foundation for Revitalisation of Local Health Traditions, Bangalore)

Faculty Guide: Prof. Shiladitya Roy

JULY 2009 INSTITUTE OF RURAL MANAGEMENT ANAND 1

ACKNOWLEDGEMENT The organization traineeship segment was a great learning experience for me and many people have helped make this experience memorable and this report possible. I would like to take this opportunity to thank Mr. Darshan Shankar for putting in perspective the importance of this study with respect to the organizations vision and to Dr. Gangadharan for helping us with all the medical assumptions and giving us his valuable feedback at critical points. The contribution of Dr. Vivek in putting this report together is far greater than what I can ever describe in words. He has contributed in all the major aspects of this report and his passion for the work and absolute meticulousness has rubbed on to me while doing this study. My heartfelt gratitude to all the staff of FRLHT, especially Dr. Joshi, Dr. Rekha and Mrs. Bhagyalakshmi for patiently answering all the questions and helping me in diverse matters. I would also like to thank Mr. Mahesh Amitha, the reporting officer for giving direction to this study and for being there to critically evaluate it at every step and to Dr. Ranjith Menon for giving it the required professional touch. I cannot thank Dr. P.M. Varrier of Arya Vaidya Shala, Kerala, enough for letting us study their prestigious organization and for helping me benchmark the assumptions. My sincerest gratitude to Prof. Shiladitya Roy for teaching me most of what I have applied here. Without his guidance and encouragement, this study would not have been possible. Last but certainly not the least, I thank Prof. Nivedita Kothiyal and other staff of OTS office for giving me the opportunity to conduct this study. Aman Jyoti (p29004)

EXECUTIVE SUMMARY
Title : Preparing a five-year financial plan for the 100 bed Research Hospital of Institute of Ayurveda and Integrative Medicine (IAIM) to make it self-reliant. II Organisation : FRLHT III Reporting Officer : Mr. Mahesh Amitha IV Faculty Guide : Prof. Shiladitya Roy V Students Name : Aman Jyoti Objective: The objective of the study was twofold i.e. to work out a realistic operational financial plan and asses the financial sustainability for the 100-bed research hospital after clearly identifying the various cost centres within and to develop a financial template for future reference after making provisions for future up gradation in lists of costs and revenues Methodology: For formulating the financial plan for the research hospital, three separate cost centres have been identified. These cost centres are the hospital and administration, pharmacy and diagnostics. Since the revenue streams of both pharmacy and diagnostics are very limited in the initial years by virtue of producing only for the resident hospital, the overhead costs are attributed entirely to the hospital. Only the direct capital expenditure and direct operating costs have been shifted to pharmacy and diagnostics. The plan is prepared by analysing capital expenditure, revenues and operating costs of each cost centre. Necessary assumptions have been made by conducting regular interviews with doctors and medical consultants. The findings are then benchmarked with respect to a popular hospital, Arya Vaidya Shala, Kerala. Key findings and recommendations: The capital expenditure is totally incurred in the beginning of the first financial year. The revenues are mainly driven by the occupancy rates and number of outpatients visiting the hospital every day. In-patient revenue (75%) contributes the most. Staff cost (45%) and consumables cost (36%) are the major expense heads. According to the plan, the hospital and administration starts making net surplus from year 3 while the diagnostics continues to run in losses for all five years. The consolidated enterprise makes surplus only in the fourth year. Later, sensitivity analysis of surplus, revenues and expenses is done across three projected scenarios. It is found that for every 1% increase in occupancy rates, surplus increases by Rs 5.5 lakhs. Finally, appropriate recommendations are made with a special focus on diagnostics and pharmacy as they run in major losses. Introduction of medical vouchers for bulk buyers and starting research projects in diagnostics and pharmacy fields are the main recommendations. A phase wise recruitment of staff and deferring of capital expenditure is suggested to reduce the major expenses. 3 I

Table of Contents
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. AN INTRODUCTION TO THE ORGANIZATION ...................................................... 9 THE IDEA OF MEDICAL PLURALISM ..................................................................... 9 THE BUSINESS PLAN............................................................................................... 10 OBJECTIVES OF THE STUDY ................................................................................. 11 METHODOLOGY ...................................................................................................... 12 DATA SOURCES ....................................................................................................... 13 PROJECT COST DETAILS ........................................................................................ 13 THE FINANCIAL PLAN ............................................................................................ 14 PROFITABILTY ......................................................................................................... 32 CASH FLOW ANALYSIS....................................................................................... 33 SENSITIVITY ANALYSIS ..................................................................................... 34 RECOMMENDATIONS.......................................................................................... 37 CONCLUSION ........................................................................................................ 41 REFERENCE........................................................................................................... 43 ANNEXURES............................................. .44

List of Tables
Tables Table 1: Project Cost ........................................................................................................... 14 Table 2: Details of Vehicles ................................................................................................ 18 Table 3: Distribution of rooms for in-patients...................................................................... 20 Table 4: Rates per Bed ........................................................................................................ 21 Table 5: Assumptions In-patient days.................................................................................. 22 Table 6: Occupancy Rates ................................................................................................... 22 Table 7: Assumptions for Revenue Out-patients .................................................................. 23 Table 8: Assumptions In-Patient Diagnostic Revenue ......................................................... 25 Table 9: Out Patient Diagnostics ......................................................................................... 26 Table 10: Department wise break up of patients for Diagnostic tests ................................... 26 Table 11: Department wise rates for diagnostic revenues .................................................... 27 Table 12: Common operational costs and their assumptions ................................................ 28 Table 13: Overheads assigned to hospital ............................................................................ 31 Table 14: Department wise percentage of consumables in diagnostics ................................. 31 Table 15: Occupancy rates for different scenarios ............................................................... 35 Table 16: No. of new out-patients daily ............................................................................... 35

List of Figures
Figure 1: Consolidated net surplus/deficit ........................................................................... 32 Figure 2: Profitability comparison across cost centres ......................................................... 33 Figure 3: Cash flow analysis ............................................................................................... 34 Figure 4: Sensitivity of Surplus/Deficit ............................................................................... 36 Figure 5: Sensitivity of revenues ......................................................................................... 37 Figure 6: Sensitivity of Expenses ........................................................................................ 37

LIST OF ANNEXURES
Annexure 1: Master Building plan Annexure 2: Master Computer plan Annexure 3: Equipments for pharmacy Annexure 4: Equipments for diagnostics Annexure 5: Consolidated In-patient revenues Annexure 6: Out-patient revenue Annexure 7: Staffing details of hospital, pharmacy and diagnostics Annexure 8: Income and Expenditure Statement (Consolidated) Annexure 9: Income and Expenditure Statement (Hospital and administration) Annexure 10: Income and Expenditure Statement (Diagnostics) Annexure 11: Consolidated depreciation plan Annexure 12: Cash flow analysis Annexure 13: Income and Expenditure Statement (Best case) Annexure 14: Income and Expenditure Statement (Worst case)

1. AN INTRODUCTION TO THE ORGANIZATION

The Foundation for Revitalization of Local Health & Tradition (FRLHT) was established in 1993, as a non-profit, public trust, by Mr. Sam Pitroda (Chairman Governing Council, FRLHT) and Mr. Darshan Shankar (Executive Director, 1993-April 2008, currently Advisor mentor, FRLHT) During the last 14 years of its existence, FRLHT has made significant contributions in the fields of Medicinal Plants Conservation; Traditional Knowledge Informatics; Pharmacognosy and Product Development; Good Clinical Practice; Community Health and Outreach and Literary Research. It has a team of around 100 professionals including Botanists, Ecologists, Physicians, Foresters, Biochemists, Microbiologists, Sanskrit Scholars, Computer

Professionals, Horticulturists and Community Outreach workers. It has won several National and International awards for its achievements. In 2008 with generous support from the TATA Trusts, FRLHT has initiated its most recent development namely the Indian Institute of Ayurveda and Integrative Medicine (IIAIM). IIAIM will consist of a 100 bed Ayurveda & Yoga Research Hospital. The hospital would also avail the facilities of an in-house pharmacy and a modern diagnostic centre.

2. THE IDEA OF MEDICAL PLURALISM

The healthcare scenario all over the world is undergoing a change. Health seeking behavior all over the world is showing a gradual trend towards indigenous forms of medical practices. The people, while appreciating the many advances western form of medicine has made are also realizing that it is not a complete solution to all medical problems. A significant proportion of urban population is thus seeking help from the traditional systems for common ailments, systemic and chronic diseases. The gradual trend is not of rejecting or accepting one system of medicine in-toto but to take the relevant and beneficial part of every stream and integrate them together. While the citizens have woken up to this new idea, the institutions are yet to catch up majorly. Very few hospitals have tried to integrate the best of the both worlds. However, some of the very recent allopathic hospitals are gradually recognizing this change in health sector. To cite an example, Dr. Naresh Trehan, a very renowned cardiologist is putting a great emphasis on Ayurveda and yoga in his upcoming multi-crores medicity in Gurgaon. Apollo group is also putting a lot of emphasis on Ayurveda in its recent opening in 9

Chennai. The Cradle, a chain of hospitals which specialize in maternity health, have also dedicated a whole department to the traditional forms of medicine. In the world scenario, China has done wonders to promote its traditional forms. Many hospitals, especially in Europe, have already assimilated Chinese systems in their healthcare department. The important point is to note that the introduction is not merely a side department for an offbeat customer. The knowledge of these traditional medicine systems is applied consistently in addition to the western practices. New treatments are developed with these kind of systems which target the diseases more accurately and holistically. Therefore, one can say that the era of medical pluralism as one understands, has truly arrived.

3. THE BUSINESS PLAN

The business plan of FRLHT stems from this growing acceptance of medical pluralism among masses. Since FRLHT has been at the forefront of conserving and promoting local health traditions for more than over a decade, it came naturally to them to be the frontrunner in this race of medical pluralism too. In this they saw a way to popularize this local health traditions in the growing urban population. They believed that if they are able to capture the imagination of the masses by providing them world class healthcare at affordable costs, the people would then themselves conserve this rich heritage by popularizing it. However, the vision for the hospital is to do more than just provide affordable healthcare. It also has a mandate to carry out research with the help of its pharmacy and diagnostics centre in the upcoming area of integrative medicine. With this vision in mind, FRLHT floated Institute of Ayurveda and Integrative Medicine (IAIM), a subsidiary within the umbrella organization of FRLHT. TATA trust generously agreed to support this noble vision with a project grant that would fulfill the needs for initial capital expenditure and would also provide a seed fund for project implementation and working capital requirements. The details of the project fund are attached in the table 1. The funding agency i.e. Tata Trust along with FRLHT has made provisions for the economically deprived section in the hospital. The general ward of the hospital that consists of 25 beds has been kept as free for them. In these 25 beds, they will be charged only for the cost price of the medicine and rest all the facilities would be totally free including the diagnostics. The same facility would also be provided to 25 percent of the out-patient 10

department and they would also be charged only the cost price of medication. This step is a very welcome step to provide and at the same time promote traditional health care treatments among the poor. The surplus generated from the hospital would be pumped back into bettering the facilities, carrying out research and conserving local health traditions by IAIM. There are three main components of this business plan with respect to research hospital. y A research cum teaching hospital with 100-inpatient strength based on Ayurveda & Yoga, equipped with Panchakarma treatment rooms for patients and trainees and yoga classrooms. This hospital will build upon the current 20 IP FRLHT hospital. It will serve as the main training space for the medical professionals and therapists and carry out relevant research as well. y It will also have a modern diagnostic centre which would have all the necessary infrastructure to carry out tests in specialty areas. y A training pharmacy with cottage scale infrastructure for manufacturing all the pharmaceuticals processes of Ayurveda viz., wines, oils, aqueous extracts, Bhashmas(metallic powder), lehyam(paste), churna (powder), lep (paste) etc. The main part of the plan was the 100-bed research hospital. This hospital would engage in research, provide training to a number of doctors and therapists in the field of integrative medicine and Ayurveda and provide good and affordable healthcare to its patients. As mentioned earlier, the hospital plans to play a critical part in popularizing alternative medicine in Bangalore and the areas around. It was envisaged that as a centre which is trying to bridge the gaps between traditional health systems and western medicine, it should try and inculcate the best of both worlds. Therefore, a modern diagnostics department is planned which would provide all popular tests to the patients. At the same time, a pharmacy was also planned which could effectively cater to the needs of hospital. This pharmacy, in the coming future, may also start preparing for the market.

4. OBJECTIVES OF THE STUDY

The objectives of the study were based on the broad business plan developed by the management. The main objectives of the study are:

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y To work out a realistic operational financial plan for the 100-bed research hospital after clearly identifying the various cost centres within. The financial plan should identify the revenues and costs of all kind in each of the cost centre and make relevant assumptions wherever necessary. y To check whether the individual cost centers and the enterprise in whole are financially self-sustainable or not. y To develop a financial template for future reference after making provisions for future up gradation in lists of costs and revenues.

. METHODOLOGY
An exercise of these proportions required a lot of information gathering regarding the various assumptions about rates and occupancy. It also required going through similar documents to have an idea regarding the template used for such exercises. The methodology adopted also targeted these specific areas to fulfill the previously mentioned objectives. The various tools that were part of the methodology are: y Personal Interviews: Personal interviews were a very reliable source for gathering data. Over the course of two months lot of doctors, pharmacists and medical consultants were interviewed to gather data about their field and also to know about the sector in general y Focused Group Discussion: While the personal interviews helped in gathering relevant data, focused group discussions helped a great deal in triangulating that data with the authorities of the area. The discussions also enabled the testing of the progress of the study by presenting the finding to the group. y Visit to Arya Vaidya Shala, Kottakkal (Kerala): The visit to this 300 bed hospital proved to be of immense importance in the study. This hospital has a history of 100 years in providing ayurvedic healthcare and has the biggest pharmacy in south India. There was an opportunity to revise the assumptions with the finance department employees of the hospital. They gladly advised regarding many of the aspects which helped benchmark the study according to one of the most reputed hospitals in the field. Their single biggest contribution was in terms of fine tuning the plan to accommodate 25 free beds in the financial plan. They had a wide experience in the 12

area as they themselves support a 100 bed free hospital. Many of the other assumptions were also aligned with the staff assumptions of the study. y Analysis of the past data of existing 20 bed Amruth hospital, FRLHT: There was an invaluable data set of existing 20 bed hospital for reference. This helped in making the assumptions regarding occupancy figures more realistic. The past data was also consulted to arrive at the percentage and absolute figures for consumables. y Study of the Project Proposal of IAIM: This study was done to get the idea regarding the fund requirement, capital expenditure, special funds created for various purposes such as equipment for diagnostics and pharmacy.

6. DATA SOURCES
The different data sources consulted during the study are: y Primary Source: Primary source for information included the outputs of interviews, Focused group discussion and the data generated on the visit to Arya Vaidya Shala, Kottakkal. y Secondary Source: Secondary source for the data included the various websites visited during project period, project proposal of IAIM and patient data of Amruth hospital, FRLHT.

7. PROJECT COST DETAILS

Before starting with the actual financial plan, it was necessary to know the details of the grant provided by the TATA trust. Since the grant had been already passed by them, it served as an important point to start financial plan. The project grant allotted was on the basis of the calculations made by FRLHT about the probable cost going to be incurred by them. The details of the project cost are illustrated in the following table.

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Table 1: Project Cost

PARTICULARS Fixed Assets Working Capital @ 50% of the Operating Costs Project Management @ 2% of Total Fixed Assets Contingency @ 5% of Total Assets

RUPEES 16,74,03,900 1,11,23,391 33,48,078 83,70,195

Total fund released by TATA trust

19,02,45,564

The project management cost is the cost involved in carrying out the establishment of the hospital. It includes the cost of all the professional staff that would be hired to take the project to its completion.

8. THE FINANCIAL PLAN

Now that the business plan and policies of the management are well elucidated in the previous sections, one can see how one has gone about putting figures for the financial plan. The business plan was designed in such a way that FRLHT will have three different cost centres within one plan. These cost centres were: y Research hospital (100 beds) and Administration y Pharmacy y Diagnostics Center All these cost centres would have their own set of revenues and expenditure and would individually try to achieve financial sustainability. However, during the course of the project the revenue stream of Pharmacy was very difficult to determine. It had many products as an offering and all these products had different costs and different margins according to the market dynamics. In order to calculate a proper revenue stream for the pharmacy, a separate intensive financial investigation is required

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which was beyond the ambit of the study. Therefore, in the calculations for the pharmacy the revenue stream has been left blank. The project also involves many common costs like security, office overheads etc. which needed to be apportioned to all the three cost centres listed above. In general, these costs should be apportioned among all the three cost centres on some appropriate basis. However, the basis of apportioning the costs in many cases would have to be revenues which in turn was not known for the pharmacy. Moreover, the management was still undecided whether it was in their capacity to fully utilise the services of pharmacy and diagnostics centre by marketing it outside. In the present plan, both these centres were highly underutilised when they were catering only to the resident hospital. For example, the cardiology machine is only performing 120 ECG (Electro-Cardiogram) tests in one year while the average number of tests by other diagnostics centres in the market is somewhere around 600 to 900. In this scenario, a total division of all administrative costs would have inflated the profitability of the hospital and at the same time totally deflated the profitability of other cost centres Therefore, it was decided by the management to apportion only the direct costs to all these centres and charge all the common costs to the hospital. It is important to note that the charge of electricity has been treated as a direct cost and therefore has been apportioned among the three centres based on cost of electrical installations. This has been done because the equipments in both pharmacy and diagnostics would use electricity as a consumable. These three cost centers would have their own costs and revenues. The costs and revenues are the main elements of the financial plan. There are three main elements in the financial plan namely:

y Capital Expenditure y Revenues y Operating Expenditure

These three elements needed to be properly grouped in the three cost centres of hospital, pharmacy and diagnostics. In the course of preparing the financial plan, a separate Income and expenditure statement (attached in the annexure 8) was also arrived at in which all the three cost centres are taken as one cost centre of hospital. This consolidated statement gives us an idea about the profitability of the enterprise as a whole. 15

In order to explain the financial plan, each element of capital expenditure, revenue and expenditure are taken up and then explained under the heads of all three cost centres of hospital, pharmacy and diagnostics.

7.1 Capital Expenditure

Capital Expenditures are those expenditures that continue to get consumed over a period of time and give revenues for their whole lifetime. These items depreciate in their value over the years. There are elements of capital expenditure which are common across all the three centres and there are some elements which are exclusive to a few cost centres. To have a proper look at the assumptions and the calculation for capital expenditure let us look at the common elements first. They are: Building Cost This cost is incurred on the construction in building the required area. It also includes the cost incurred in building the systems for provisions of water, sewage, oxidation and waste disposal. The cost is calculated on the basis of square feet of area dedicated to a particular cost centre. The amount of area dedicated to a particular cost centre can be calculated from the master plan for building. The details of master building plan is provided in annexure 1 The main assumptions for this section are: The cost of construction only is Rs 1150 per square feet. The cost of water systems, sewage etc. is Rs 100 per square feet. The depreciation incurred on this segment is 5 percent on written down value. Electrical Installations Cost This cost is incurred on making provisions for electricity in the required area of building. The cost includes both internal and external wiring and all other installation required for electricity. The main assumptions of this segment are: The cost of electrical installations is calculated as 25 percent of the building cost. 16

The depreciation incurred on this segment is 5 percent on written down value. Furniture and Fixtures Cost This cost includes the cost of all the furniture and other related fixtures required for the area. The cost for patient beds, tables, chairs and other fixtures for mounting equipment for pharmacy and diagnostics are included here. The main assumptions of this segment are: The cost of furniture and fixtures is calculated on the basis of Rs 120 per square feet. The depreciation incurred on this segment is 5 percent on written down value. Computer and other accessories cost This cost includes all the cost for purchasing all the computers and accompanied accessories for a particular cost centre. The amount of computers for each cost centre is calculated on the basis of Master computer plan. The details of master computer plan is provided in annexure 2. The main assumptions for this section are: The cost of a computer is taken as Rs 35,000 per unit. The cost of printer is taken as Rs 15,000 per unit. The cost of server, the software etc. is taken as administrative cost and therefore billed to the cost centre of hospital. The depreciation incurred on this segment is 60 percent on written down value. There is addition of computer equipment at the rate of 30,30,40 percent in the third, fourth and fifth year respectively. This addition is made because of the heavy amount of depreciation in the computer segment. The aforementioned elements are the ones which are common to all those cost centres and the same assumptions govern them in each cost centre. The exclusive capital expenditure to each cost centre are dealt below taking each cost centre at a time. 17

Hospital and Administration Vehicles The vehicles would only be for the hospital and administration uses. The vehicles, their uses and their prices are listed below in the following table.
Table 2: Details of Vehicles

Particulars

Units

Unit Cost

Rupees

Medical Director General Administration Ambulance Total Vehicles Cost

1 1 1

5,00,000 5,00,000 6,00,000 6,00,000 7,00,000 7,00,000 18,00,000

The main assumptions governing this section are: The depreciation incurred on this segment is 25 percent on written down value. Pharmacy The exclusive capital expenditure of this section is the expenditure on the equipment purchased for producing medicines. Equipment for Pharmacy The equipment purchased can be broadly classified into two categories i.e. for traditional dosage form and for modern dosage form. The traditional dosage forms are in the form of powder, oil, paste etc. The modern dosage forms are tablets, capsules and syrups etc. In the annexure 3, there are details of the kind of machines purchased for both the varieties.

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Diagnostics Centre Equipment for Diagnostics These equipments are purchased for doing modern diagnosis of health ailments. The list of these equipments along with their price and use are given in annexure 4. The main assumptions governing this head are: The depreciation incurred on this segment is 20 percent on written down value.

7.2 Revenue
It can be safely said that the effectiveness of financial plan hinges on the veracity of revenue assumptions. This has happened because many of the expenditure assumptions, especially those of the prime cost also depend on the revenue assumptions. In the financial assumptions, a proper costing exercise is not carried out in many departments because of constraint of time and resources at hand and thus the direct expenditure estimates are a calculated on the basis of a percentage of the revenue. Therefore, the revenue assumptions are absolutely critical to the financial plan. The revenue part of the financial plan can be sub-divided into three heads namely, y y y Research hospital (100 beds) and Administration Pharmacy Diagnostics Center

A detailed explanation about the revenues of different cost centres and various assumptions pertaining to them are explained below.

Research Hospital The revenues of research hospital can be sub-divided into In-patient and Out-patient revenues.

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In-patient Revenue In-patient revenue is that revenue which is obtained from the patients who get admitted to the hospital for various ailments. These patients require a comprehensive treatment that involves 24- hour caretaking from the hospital authorities. Financially, this revenue head is the most important one as it utilises the maximum of the facilities that the hospital has to offer and generates the maximum revenue (78% in this case).
Table 3: Distribution of rooms for in-patients

Numbers Patient Fee Structure In-Patient Beds Special Room (Type I) 4 1 4 Special Room (Type II) 4 1 4 100 80 Total

Particulars

General Ward

Double Room

Single Room

Number of Rooms

25

20 2 40

27 1 27

Number of Beds in Each Room 1 Total Number of Beds 25

The major catch during preparing the financials was to duly accommodate the 25 free beds of general ward. Quite a few meetings were arranged with the management about the proper administrative procedure that would accompany these 25 free beds. In the end, it was decided that only economically deprived patients would be admitted to these beds. A Social Welfare Officer along with two field staffs would be recruited for verifying the claims of economic backwardness of the patients. These patients would not be charged any room rent or consultation fees and would only have to pay the cost price of the medicines administered to them. Most importantly, the quality of the treatment provided to the patients would be the same as provided to the chargeable patients. Therefore, this decision brought in the fact that revenues would be primarily earned through the 75 beds while the expenses incurred would be on 100 beds.

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The next major assumption was to detail out the average charges for various activities of the hospital. The detail of that is provided below: Rs. GW DR Room Rent Per Day Doctors Visiting Fees per Patient Average Billing: Therapy Average Billing: Medication NA NA NA 350 500 100 600 500 SR 600 100 700 500 Sp.R (Type I) Sp.R (Type II) 1,200 150 800 500 1,500 150 800 500 2,950

Table 4: Rates per Bed

Total Revenue per day per patient 350

1,700 1,900 2,650

These rates were arrived at by carefully analysing the past data and after the discussion with various in-house doctors and management. It is important to note that the amount written under the head of billing of medication for general ward is just the cost price of the medicine. It would be pointed out later in another assumption about the cost price of medication being 70% of the selling price. Therefore, the cost price of a billing of Rs 500 (which is the same as other types of wards) comes to Rs 350. The other major assumption is that of total number of possible In-patient days to be 336. This figure was arrived at by deducting 2 days per month from the probable 360 days. These number of days were deducted because invariably there would be some loss of time between one patient going out and other coming in. Since, 14 days have been taken as the average stay of one patient so there will be two changes of patient in one bed and therefore two days would go uncharged.

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Table 5: Assumptions In-patient days

Particulars

General Ward

Double Room

Single Room

Special Room (Type I)

Special Room (Type II)

Patient Days Total Number of Beds (Numbers) Number of Days in a year 25 336 40 336 13,440 27 336 9,072 4 336 1,344 4 336 1,344

Total Number of Patient Days in a Year 8,400

(Number of beds X Number of days in a year)

After getting the number of patient days, the total revenue was calculated after assuming year on year increase in occupancy and rates.
Table 6: Occupancy Rates

Year 1 Occupancy (in %) Rate increase (in %) 60%

Year 2 70% 5%

Year 3 80% 5%

Year 4 80% 5%

Year 5 80% 5%

After multiplying the various factors we can get the consolidated in-patient revenues (annexure 5). The total in-patient revenues have also been divided into revenues earned from medication and revenues earned excluding medication for calculating the consumables of each of these heads. This is done because the cost of consumables would be different in case of revenues earned from wards and revenues earned from medication. This point will be amply demonstrated when detailing the procedure for calculating expenditure later in the report. Out-patient Revenues Out-patient revenues are those revenues which are earned from the patients who just visit the hospital for treatment but do not get admitted. However, these patients may visit the hospital many times for a treatment to take place. In all the calculations involved in the out-patient 22

revenues, a footfall is taken as a new footfall and the number does not take into account the repeat patients that are coming to undergo the treatment prescribed to them. In general in Ayurveda treatments, the patients have to undergo a therapy over many days which is the main reason they make repeat visits to the hospital. In all these repeat visits they are not billed with the registration and consultancy charges but are billed with the charges for prescribed therapy. Therefore, in the calculations Rs 2000 is taken as an average charge per patient for therapy as on an average a treatment requires a patient to visit at least 5 times for therapy and one visit costs them around Rs 400. The other major assumption is that some of the poor patients in the out-patient category would also be treated for free. The treatment of these patients would be almost the same as in in-patient department i.e. they would not be charged for registration, consultation and therapy but would be charged the cost price of the medicine. The percentage of these subsidized patients would vary around 20 to 25 % over the years.
Table 7: Assumptions for Revenue Out-patients

Number of Days in a Year when patients visit Hospital Number of Patients assumed to visit the hospital for treatment Number of Patients who will be charged Number of patients who will be subsidised for medication Registration Charges at the time of admission in Rupees Average Consultation Fee per patient in Rupees Out-patient visits that would result in therapies Rate Increase Average Billing of Medication in rupees Average Billing of Medication in rupees (Subsidised patients) Average billing per therapy in Rupees

Year Year Year Year Year 1 2 3 4 5 365 365 365 365 365 25 20 5 50 100 30% 500 30 25 5 50 150 30% 5% 525 40 30 10 50 150 30% 5% 551 50 40 10 50 150 30% 5% 579 50 40 10 50 150 30% 5% 608

350 368 386 405 425 2000 2100 2205 2315 2431

Based on these assumption per patient per day rates are calculated and then multiplied by total number of days when out-patient department is functional to get revenues from out patients. More details are provided in annexure 6. Pharmacy In the present scenario, pharmacy is visualised to produce only for the resident hospital. However, the capacity of the pharmacy is much more than that and given the right kind of 23

marketing push it can easily manufacture for the market. But, till date that plan remains in the offing. The hospital, which would act as the dispensing unit of pharmacy would earn an average margin of 30 percent on all the medicines. However, the pharmacy cannot afford to operate on fixed margins. On the visits to various pharmacies like the Arya Vaidya Shala in Kottakkal, Kerala, it was learnt that a pharmacy operates on varied margins on different products. Some of its products like the oils for therapies are higher margin products but some Bhashmas (medicated metallic powder) are sometimes even loss making. To know that exact revenue stream of the pharmacy, one must know the costing of its different kind of products and then add a relative margin based on market dynamics. This exercise was both resource and time intensive and required a whole other emphasis which was not possible in the present study. Therefore, the revenue stream has been left out of the pharmacy in the financial plan. Diagnostic Services Diagnostic services revenues are those revenues that would be earned from the patients using the services of the various diagnostic machines in the hospital. In the present scheme of things, the diagnostic machines are to be used only by the patients of the hospital. However, there are plans of outsourcing it to other hospitals in the vicinity. But, these plans do not figure into the financial plan. The patients in the in-patient as well as out-patient avail the facilities of diagnostics. This revenue head can be further divided into: y In-patient diagnostic services revenue

Some of the major assumptions that guide the calculation under this head are:

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Table 8: Assumptions In-Patient Diagnostic Revenue

Particulars Total Number of In-patient days in a year (IP days) Total Number of Beds (Chargeable) Bed Occupancy (%) Total Number of In-patient bed days in a year (IP days X total beds X Occupancy) Average Stay of an in-patient in the hospital in days (ALOS) Total number of in-patients in a year ( In-patient beds / ALOS) % of In-patients who would get any one diagnostic test done In-patients who would get any one diagnostic tests done in numbers

Year 1

Year 2

Year 3

Year 4 Year 5

360 75 60%

360 75 70%

360 75 80%

360 75 80%

360 75 80%

16,200

18,900

21,600

21,600

21,600

14

14

14

14

14

1,157

1,350

1,543

1,543

1,543

100

100

100

100

100

1,157

1,350

1,543

1,543

1,543

Out-patient diagnostic services revenue

The major assumption in terms of out-patient diagnostics revenue is that only 20 percent of all chargeable out-patients would undergo any one of the diagnostic tests done. The summary of the assumptions can be seen in the table below:

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Table 9: Out Patient Diagnostics

Year Particulars Out-patients per day ( Chargeable) Out-patient days in a year 1 20 312

Year 2 25 312

Year 3 30 312

Year 4 40 312 1248

Year 5 40 312

Total Number of Out-patients in a year ( Chargeable) % of Out-patients who would get any one diagnostic tests done No of Out-patients who would get any one diagnostic test done

6240

7800

9360

12480

20

20

20

20

20

1248

1560

1872

2496

2496

The next important step is to divide all the people who would be getting the tests done into the various kinds of tests performed in the hospital. For this, the experience of the doctors and their assumptions were taken as the benchmark.
Table 10: Department wise break up of patients for Diagnostic tests

Departments Cardiology - ECG Gastroenterology - Endoscopies Laboratory Services Neurology - EEG Obstetrics & Gynaecology PFT Lab - PFT Radiology - X Ray

Department wise break up (%) 5 5 55 5 5 5 20

Total

100

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The total patients in both in-patient and out-patient department are divided among the various departments in the aforementioned ratio. The rates for each of these rates were also finalized. The rates are summarized in the following table:
Table 11: Department wise rates for diagnostic revenues

Departments Cardiology - ECG Gastroenterology Endoscopies Laboratory Services Neurology - EEG Obstetrics & Gynaecology PFT Lab - PFT Radiology - X Ray -

Average Revenue per test in Rupees 150

750 150 800 200 250 150

These rates multiplied with the number of tests gave me the revenue from the diagnostic services department.

7.3 OPERATING EXPENDITURE

The ability to estimate expenditure correctly is one of the most challenging and also the most important part of any financial plan. This gives the management a correct idea about the profitability of the enterprise and thus helps them to plan financially. It also helps in benchmarking the performance vis-a-vis other established players in the industry. In this financial plan, an attempt has been made to capture not only the obvious costs but also the ones which are generally missed. An attempt has been made to be realistic in terms of assessing the costs in order to project the true profitability. The expenditure would also be different for different cost centres of hospital and administration, pharmacy and diagnostics. Some of the costs would be common to all these three heads and some would be exclusive to some heads. The common costs would be different in figures but would be governed by the same assumptions. Hence, it will be better 27

if they would be listed out with their assumptions and then described with their assumptions of the exclusive costs.

Common Costs
The common costs would be the ones which will be directly associated with the upkeep of assets like the maintenance costs, insurance charges etc. This will happen because all the overheads would be attributed to the cost centre of hospital and thus would not appear under this list. However, the cost of electricity is taken as an exception because it has been apportioned to each cost centre. Electricity would be a major consumable for the equipments of both pharmacy and diagnostics and therefore apportioning it entirely to hospital would have artificially inflated its costs. The following table lists out all the common costs and their assumptions.
Table 12: Common operational costs and their assumptions

COST ELEMENT
Staff Cost Electricity

ASSUMPTIONS
As per the Staffing pattern details Rs. 12,00,000 annually, apportioned on the basis of electrical installations

Repair and Maintenance- Buildings Repair & Maintenance- Equipments of Diagnostics and Pharmacy

1% of asset value, 5% increase year on year First two years- No charges under guarantee given by the company, Later 15 % of Asset value

Insurance

0.5 % of asset value for the year

After detailing out the common costs, let us look at the each cost centre individually to examine the exclusive costs of that cost centre. The staff details of each of the cost centre is given in annexure 7. Hospital and Administration The costs exclusive to hospital can be characterised into two kinds of costs. These are y y Cost of Consumables Overhead Costs 28

The Consumables The consumables as cost element are exactly what the name suggests i.e. they are consumed during the process. They can be called as prime costs minus the direct labor involved. The labor of any kind is grouped under the staff cost in this plan. In the context of hospital, there were two kinds of consumables i.e.

y Ward Consumables y Medication Consumables

Ward Consumables Ward Consumables consist of every item that would be consumed by the patient while he is administered treatment in the ward. These would include items like the laundry that the patient would use, the charges for sanitation of his room, the items (like milk, ayurvedic herbs and massage oils) which would be spent on conducting his therapies. Therefore, the revenue heads that would pay for the ward consumables would include all in-patient income excluding the medication and therapy charges from the outpatients. From the analysis of the past data of the 20-bed hospital that is running at present, it would be appropriate to assume that 18 percent of the revenue earned from the aforementioned heads would go as the cost for ward consumables. However, even after applying this method there remained a certain gap. Since 25 beds were administered as free, no revenues were coming from them. Nevertheless, costs on them were getting incurred which were not getting accounted for in the percentage of revenue model. For overcoming this problem, costing method approach was adopted and the past data of costs were referred to arrive at on one patient-day by the hospital. The cost came to about Rs 245 per patient per day. This rate was taken and then multiplied with occupancy figures to get the cost incurred by the hospital in subsidizing in-patients. There was one another group of customers who were being subsidized in ward-consumables. This group was the subsidized out-patients who were going for therapies. Although, there are a number of therapies prescribed to the patients, but for sake of simplicity an average figure of Rs 350 is taken as the average cost incurred by the hospital on raw materials only in one session of therapy. Since only one out of three patients would be prescribed therapies, the

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total amount of persons subsidized annually was taken and then the required figure was arrived at. Medication Consumables Medication consumables would be the raw materials used in making the various medicines. These would constitute of the raw drugs, herbs, spices and other necessary materials required for the preparation. It is important to note that although the organization plans to establish an in house pharmacy with all the necessary equipments for manufacturing many of the medicines. However, the market of ayurvedic medicines is such that the organization might not find it profitable to produce all the medicines and remain better off buying them from the market. For this the organization intends to do a separate make-or-buy analysis for the pharmacy. In this financial plan, pharmacy is taken as a separate entity altogether. Their costs (like staff, equipment etc.) are not included and the medicines are treated as being purchased from an outside supplier. From the ongoing pharmacy, which procures the majority of the medicines from the market, it is learnt that there is a comfortable 30 percent margin on all Ayurveda medicines if purchased in bulk. Hence, the medication consumables cost is taken to be 70 percent of all the revenue earned on medicines. It is important to note that the revenue earned from the subsidized patients both from inpatients and out-patients was already at cost price. In the expenditure head, I have added the same amount. This brings us to scenario of no profit- no loss for the hospital in case of medicines for the subsidized patients. Overheads The cost centre of hospital is also absorbing all the overheads because the cost centres of pharmacy and diagnostics are very limited in their revenues. The list of the overheads, along with their major assumptions is given below in the table.

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Table 13: Overheads assigned to hospital

Security Travel & Fuel Research and Development Advertisement Contingency Fund Communication Costs (Telephone & Internet) Office Expenses (Stationary, Bank Charges etc.)

Rs. 50,000 per month Rs. 15,000 per month 5% of total revenues 3% of total revenue 3% of Total expenses Rs. 25,000 per month Rs. 30,000 per month

Diagnostics Diagnostics department will have a cost of consumable for all the different tests performed in the department. The consumables would include the cost of films for X-ray, different creams for other tests, paper for ECG test etc. In, other words they would include everything that would act as a raw material during the test. However, this would exclude the cost of staff and electricity etc. The percentage of revenue that would be spent as consumable would be different for different tests. The table below gives the list of various tests and their percentages of consumables.
Table 14: Department wise percentage of consumables in diagnostics

Departments Cardiology - ECG Gastroenterology - Endoscopies Laboratory Services Neurology - EEG (Electroencephalogram) Obstetrics & Gynaecology PFT Lab - PFT (Pulmonary Function Test) Radiology - X Ray

% of Revenue as Consumables 5 5 30 5 5 2 15

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9. PROFITABILTY
The most obvious thing after defining all the revenues and costs is to check for the profitability of the project. To do so, one must consider both the combined profitability of the project and individual profitability of the different cost centers. The details of income statement of consolidated enterprise , hospital and administration and diagnostics are given in annexure 8,9 and 10 respectively. The details of consolidated depreciation plan for all kind of expenditure is detailed in annexure 11.
Figure 1: Consolidated net surplus/deficit

Consolidated net surplus/deficit

10,000,000 5,000,000 Axis Title (5,000,000) (10,000,000) (15,000,000) (20,000,000)

Year 1

Year 2

Year 3 -650,467

Year 4 4,019,659

Year 5 4,754,616

Consolidated surplus/deficit (17,487,387) -7,055,340

One can clearly see that with the consolidated approach, the enterprise makes profits as late as in fourth year. This is partly due to high depreciation on the equipment in pharmacy and diagnostics and partly due to very little contribution from them in terms of revenues. Now let us make a comparison of the cost centres individually.

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Figure 2: Profitability comparison across cost centres

Net Surplus/Deficit Comparison (after dep.) 10,000,000 5,000,000 (5,000,000) (10,000,000) Year 1 Hospital (7,721,475 Year 2 (2,013,115 Year 3 2,757,610 Year 4 6,001,621 -5078664.7 Year 5 6,172,342 -5089534.4

Diagnostics -3047792.8 -2606612.32 -5245824.55

With the help of this figure, one can clearly see that the hospital starts making profits in the third year itself, when it is freed of the burden of huge depreciation of equipments of pharmacy and diagnostics. Diagnostics, on the other hand makes huge losses. The losses increase as in the third year onward maintenance cost of the equipment rises. The fact the revenue generation from diagnostics is really low becomes apparent when we see that it does not even meet the staff costs of its employees. There is no scope for comparing the profitability of pharmacy with respect to others, as there is no estimate of revenues in that area.

10. CASH FLOW ANALYSIS

A cash flow statement is a very crucial part of any financial plan. It calculates the cash inflows and outflows and tries to predict for any cash shortages if they arise in future. In this plan, there is a separate head of working capital which is calculated on the basis of 6 months of operating costs which is included in the project grant. These grant provides a much needed cushion in terms of cash requirements for the project. The grant takes into account the fact that the venture might take some time to become financially sustainable and hence has provided this working capital as a seed fund for the project. The following figure shows how due to this cushion the enterprise has avoided being in cash deficit although it runs in overall losses for three years.

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Figure 3: Cash flow analysis

Closing Cash Balance

60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0 Year 0 Year 1 19,063,101 Year 2 22,749,761 Year 3 30,256,393 Year 4 41,980,493 Year 5 53,517,185

Closing Balance 23,308,488

All through the years the enterprise operates with a cash surplus making it self-reliant in terms of cash. The details of cash flow analysis is given in annexure 12.

11. SENSITIVITY ANALYSIS

This analysis is done to show how sensitive the assumptions of revenue, expenditure etc. are to different scenarios. These scenarios are different from the basic assumptions which I have taken while calculating the plan, but they are probable nevertheless. The basic driver of profitability is the clientele the hospital would receive. An increased customer base would shoot up the occupancy rates and would thus increase the profitability. A significant reduction in the occupancy rate, would result in a big drop in revenues while not pushing the costs in the same direction significantly. The figures of surplus and expenditure taken for this analysis do not include depreciation. This is done in order to check the effect of scenarios on the cash profit and isolate the effect of depreciation on them. For this analysis three scenarios have been taken. One is a slightly better scenario (Best-case scenario), where the clientele increases and the other when it goes down significantly (Worstcase scenario). The third scenario is the normal case scenario where the assumptions are the same as the financial plan. The occupancy rates and other assumptions of the scenarios are explained in the tables below.

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Table 15: Occupancy rates for different scenarios

OCCUPANCY RATES (IN %)

YR 1

YR 2

YR 3

YR 4

YR 5

Worst Case Normal Case Best Case

50 60

60

60

70 80

70 80

70 75

80

65

85

90

90

Table 16: No. of new out-patients daily

NO. OF OUT-PATIENTS CHARGEABLE PER DAY

Worst Case Normal Case Best Case

YR 1

YR 2

YR 3

YR 4

YR 5

15 20 25

25 25 30

25 30 30

30 40 45

30 40 45

The choice of the above two variables i.e. the occupancy rates of in-patients and no. of outpatients chargeable is very critical to the sensitivity analysis. These two variables represent the two main drivers of revenue as they indicate the total clientele that the hospital receives at any time. Since the hospital is the main client for the diagnostics and pharmacy presently, they are also the main drivers for the revenue coming from there. The other driver for the revenues could have been the rates but they have not been chosen in the sensitivity analysis. The reason for doing so is twofold. Firstly, rates would be decided by the management and therefore are under control while the occupancy figures would be based on the popularity that the hospital would be able to generate. Secondly, the rates fixed by us are already at quite competitive levels in comparison to the market. It will not be possible to hike them without affecting the clientele considering the competition around. Therefore, by varying the occupancy rates and no. of out-patients per day we can effectively check the sensitivity of both revenues and expenses. 35

The figure below shows the effect of different scenarios on cash surplus/deficit.
Figure 4: Sensitivity of Surplus/Deficit

Senstivity of Surplus/Deficit
20,000,000 15,000,000 10,000,000 5,000,000 0 -5,000,000 -10,000,000 -15,000,000 Yr 1 Worst Case Normal Case Best Case -9,410,382 -4,228,237 -1,849,459 Yr 2 -1,836,321 3,708,657 6,454,061 Yr 3 -3,118,074 8,573,884 9,301,116 Yr 4 2,247,738 12,792,588 17,126,831 Yr 5 1,959,992 12,953,980 17,461,034 Cash Surplus/Deficit

The figure clearly shows that in the worst case scenario, the consolidated enterprise would run in cash losses for the first three years. Although, in the rest of the two cases the enterprise starts making cash profits. If we see the case in year 2 between the worst-case scenario and normal case scenario, the difference is only of 10% in occupancy rates as the number of outpatients are the same in both cases. This 10% difference is responsible for over 55 lakhs of cash profit, which roughly amounts to every percent increase in occupancy would result in an increase of 5.5 lakhs of cash surplus. This finding shows the extent of sensitivity of the surplus to occupancy percentages. However, the important question remains that which part of the plan i.e. expense or revenue is more sensitive and therefore remains to be closely monitored. The following figures show the individual figures of both revenues and expenses in different scenarios.

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Figure 5: Sensitivity of revenues

Sensitivity of Revenues
100,000,000 80,000,000 Axis Title 60,000,000 40,000,000 20,000,000 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Worst Case Normal Case Best Case

Figure 6: Sensitivity of Expenses

Sensitivity of Expenses
70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0 Yr 1 Yr 2 Worst Case Yr 3 Normal Case Yr 4 Best Case Yr 5

After examining both the graphs we can see that the graphs of revenue figures are steeper while expenses are comparatively flatter. This goes on to show that revenues are more sensitive. It is indeed so because many of the expenses figures like the staff cost etc. are fixed and do not change with respect to occupancy figures. The details of income and expenditure statement for best case and worst case scenarios are given in annexure 13 and 14 respectively.

12. RECOMMENDATIONS
During the course of preparing the financial plan, a cross-section of people gave their views about the general feasibility of hospital. They shared their assumptions, their suggestions and their views about what should be the key areas of focus for running an enterprise of this scale

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and nature. This not only helped in understanding the business better but also equipped us with some suggestions. The recommendations written below, just echo those thoughts. There are only two ways of bettering the profitability figures i.e. either increase the revenue or decrease the expenses. Therefore, the recommendations are also divided into these two areas.

12.1 For increasing the revenues

y A voucher plan designed for the employees of other organizations or other bulk customers. One can see clearly from the sensitivity analysis, that occupancy figures drive the revenues mainly. Another area that needs attention is the low usage of the diagnostics facilities. A voucher plan for the bulk customers would target both these areas systematically and would thus improve the profitability of the enterprise. The modus operandi of the voucher system would be as follows. IIAIM can have tie-ups with various organizations who would purchase Ayurveda vouchers for treatment. The value of these vouchers could be anywhere between Rs 1500-3000. However, since the organization would be purchasing it in bulk, they would pay lower actual rates to the hospital. The organization would in turn distribute these vouchers among its employees and would thus take care of the health benefits it is entitled to provide. The employees would then redeem these vouchers in different treatments or for general well-being checkups from the diagnostic centre. This would be a win-win situation for everybody i.e. the hospital, organization and employees. This would certainly shoot up the revenues if backed with a proper marketing technique.

y Starting a wellness program designed around detox package for lifestyle related
harmful habits. This is a general trend among all the major hospitals for having a large clientele. An Ayurveda hospital is more suited than an allopathic hospital for correcting the lifestyle related diseases and the patients too are more enthusiastic about it in this area.

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A wellness programme designed on the lines of detox package would involve staying in the hospital for a longer duration and would thus shoot up the revenues for both therapies and medication. This would also enable the hospital to popularise its programs by doing the most effective treatments.

y Holding medical camps in major residential areas and other venues

Medical camps would be the perfect blend of both promotion and better utilisation of the resources. A camp in a populated area would attract more number of out-patients and also serve to the hospital to better utilise its existing staff. It could also serve as tool in fulfilling the social obligations of the hospital if the camps are held in poor areas with limited costs to the patients.

y Forging partnerships with other doctors and hospitals around the area for better
utilization of diagnostic equipments As we have seen in the financial plan, the diagnostic equipments are woefully underutilised. The only way to better utilise them is by making them available to other hospitals and doctors who do not have these equipments but want their services. However, in the healthcare sector these kinds of partnerships require an arrangement of commissions for the referring hospitals and doctors. The organization would have to look into these aspects before going for such an arrangement.

y Forging partnerships with other pharmacies

It is very critical for the pharmacy to match its equipment with the kind of products it intends to produce. In the interactions with other pharmacies, it came to light that while some products are very profitable some remain unprofitable totally. However, these products need to be produced for completing the total profile of the products. The pharmacy should not aim to produce all its requirements because that will not be a profitable scenario. It should do a proper make or buy analysis to figure out the best range of products suitable for production. They should also look for producing for other pharmacies that may not have the necessary expertise in terms of equipments for producing everything. In turn, it should source some of their products which may not have the required scale for profitable production in the resident pharmacy.

y Putting the hospital prominently in the medical tourism map

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According to the CII sponsored Mc-Kinsey report over 1,50,000 medical tourists travelled to India in 2002 bringing in earnings of $ 300 million. A large part of this tourism is directed towards Bangalore. Many centers like Ayurveda Gram Heritage Wellness Centre in Bangalore have been able to cash in on this tourism. If the hospital is able to put itself up prominently in that sector it would surely attract huge revenues. y Taking up research projects in fields related to diagnostics and pharmacy

Both the diagnostics and pharmacy are going in for huge losses because of their limited revenue earning capabilities. There is an urgent need for finding some other source of income. This alternate source of income could be the various research projects which the organization could take up. These projects could be in the area of clinical research involving equipments and other resources of diagnostics and pharmacy. This step would also be in line of the broad vision of FRLHT to be a pioneer in research fields too.

y Investment in transportation facilities

The hospital is located in the outskirts of Bangalore with a limited accessibility options in terms of public transport. This could hinder the patient flow dramatically of all the patients who dont own a private vehicle. The hospital should also think about providing facilities for transportation for the patients from specific areas at specific time intervals to overcome the problem.

12.2 For decreasing expenses

In terms of decreasing the expenses there are very limited options available. There should be an overall effort on reducing the expenses at the time of actual functioning of the hospital. Apart from that some specific areas which need a special look from the management are :

y A phased out recruitment of staff and a relook at the total staff necessary
The staff costs have consistently featured as the highest percentage item in the expenses category. In some cases like diagnostics the staff costs are even higher than the total revenues in the first year. This poses a big problem and clearly indicates a need for a more careful planning in terms of staff recruitment. y Deferring some of the capital expenditure especially in case of pharmacy and diagnostics 40

The pharmacy and diagnostics have a capital expenditure of 5 million and 20 million respectively. Although, it is a grant but we are not able to utilise these equipments totally in the first few years. The management may look into these matters and postpone the buying of some of these equipments until sometime in future when the hospital attains a sufficient client base. If the donors do not stop the release of funds in the first year then the hospital could even earn interest on these funds by deferring the buying of these equipments.

12.3 Some other action plans y The management should aim at forming a separate fund for subsidizing the free
patients. This fund would be a corpus kind of fund. The corpus could be refilled by directing the surplus of the hospital to this fund. This fund could even attract donations from generous parties.

y In consultation, with the management, I have also made a list of all the major
assumptions in a sheet that will act as a dashboard for the person in-charge. With the help of this dashboard, he can actually monitor the progress of his work and compare it with the benchmarks in the plan. This will help him in seeing where he is heading in terms of following the plan.

y Diagnostics and pharmacy both require a special attention for the enterprise to be
profitable as a whole. Since both of them require other sources of revenues apart from the in-house hospital, they require competent and fairly independent management to pursue these objectives.

13. CONCLUSION
In many ways the research hospital under Institute of Ayurveda and Integrative Medicine (IAIM) is a pioneering effort. It aims to bridge the gaps between western medicine and the numerous local health traditions of India. It looks to provide the best of both worlds to patients and at the same time act as research centre for the new discipline of integrative medicine. Nothing like this has been attempted before on such a grand scale. Therefore, like all pioneering efforts it has some of the financial glitches. For example, financially a full-fledged diagnostic centre and pharmacy is not making sense. However, these two centres are very integral in making the hospital a true centre of integrative medicine. They will act as torchbearers of research in this area. Therefore, their financial viability has to be seen in this larger context of long term benefits. 41

At last, one would like to say that if the research hospital receives the kind of patronage it is expected to receive given the changing health scenario, the enterprise would not only become profitable but also serve a great cause in popularizing the traditional systems of medicines. It will then truly serve the mission of FRLHT and IAIM.

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14. REFERENCE

FRLHT/ IAIM (2006) Project Proposal: An Advanced Training Centre for Good Clinical Practice in Ayurveda and Yoga, Bangalore: FRLHT/ IAIM.
http://www.indianmedicine.nic.in

http://www.aryavaidyasala.com

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