The Effect of Departmental Accounting Practices on Organizational Performance: Empirical Evidence from the Hospital Sector in India

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Print ISSN: 2288-4637 / Online ISSN 2288-4645 doi:10.13106/jafeb.2022.vol9.no4.0273

The Effect of Departmental Accounting Practices on Organizational Performance: Empirical Evidence from the Hospital Sector in India

Nidhish Kumar MISHRA¹, Ijaz ALI², Nabil Ahmed Mareai SENAN³, Moin UDDIN⁴, Asif BAIG⁵, Asma KHATOON⁶, Ashraf IMAM⁷, Imran Ahmad KHAN⁸

Received: December 30, 2021 Revised: March 08, 2022 Accepted: March 17, 2022

Abstract

Using data from a departmental profit and loss management questionnaire survey conducted for a group of hospitals consisting of various establishment entities, this study evaluates the effectiveness of departmental profit and loss management practices, such as break-even analysis, based on objective performance data. The study also examines whether the implementation of departmental profit and loss accounting is still effective in improving profitability in the financial year 2021 and whether the effectiveness of the implementation of departmental profit and loss accounting is robust. This study reconfirmed that the implementation of departmental profit-and-loss accounting has a positive effect on objective financial performance in hospitals and that the effect of improving profitability can be enhanced by implementing it monthly with high frequency and regularity and by using the accounting results more actively. It was also found that the department’s implementation of break-even analysis had a positive impact on financial performance, which was enhanced by more active use of the data. Given the current economic climate, a hospital organization’s active participation in income statement management, not only for the hospital as a whole but also for each department, would be an effective management activity.

Keywords: Break-Even Analysis, Departmental Accounting, Financial Performance, Hospitals, Medical Results JEL Classification Code: G30, M40, M41

rapid progress of medical technology, and it is necessary to accumulate minimum profits for investment. Therefore, it is increasingly necessary to grasp and manage profits and losses not only for the hospital as a whole but also for each

“department” such as departments of internal medicine and surgery, central medical departments such as laboratories and surgery departments, and support management departments such as medical affairs and accounting departments.

1 First Author. Assistant Professor, Department of Basic Sciences, College of Science and Theoretical Studies, Saudi Electronic University, Riyadh, Saudi Arabia. ORCID ID: 0000-0003-4502- 261X. Email: n.kumar@seu.edu.sa

2 Assistant Professor, College of Business and Management, Fahad Bin Sultan University, Tabuk, Saudi Arabia. ORCID ID: 0000-0001- 5436-0624. Email: iali@fbsu.edu.sa

3 Associate Professor, [1] Department of Accounting, College of Business Administration, Prince Sattam bin Abdulaziz University, Al Kharj, Saudi Arabia. ORCID ID: 0000-0002-6848-588X. [2]

Accounting Department, College of Administrative Science, Albaydha University, Yemen. Email: nabil_senan@yahoo.com

4 Assistant Professor, College of Administrative and Financial Sciences, Saudi Electronic University, Jeddah, Saudi Arabia. ORCID ID: 0000-0002- 6330-5165. Email: m.uddin@seu.edu.sa

5 Assistant Professor, Jubail University College, Jubail, Saudi Arabia.

ORCID ID: 0000-0002-5779-6164. Email: baiga@ucj.edu.sa

1. Purpose of the Study

At present, hospitals are forced to operate in a severe financial environment due to the continued suppression of medical fees, and at the same time, they are forced to continuously invest large amounts of money due to the

6 Assistant Professor, College of Business Administration, Imam Abdulrahman Bin Faisal University, Dammam, Saudi Arabia. ORCID ID: 0000-0003-2704-7776. Email: akhusain@iau.edu.sa

7 Assistant Professor, Business Administration, University College of Bahrain, Bahrain. ORCID ID: 0000-0002-9023-0998.

Email: ashraf@ucb.edu.bh

8 Corresponding Author. Researcher and Consultant, Creative Heads Consultants, India. ORCID ID: 0000-0003-2383-0608. [Postal Address: Fort Enclave, Nagla Patwari, Aligarh, 202001, India]

Email: imranalig77@gmail.com

This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (https://creativecommons.org/licenses/by-nc/4.0/) which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Under these circumstances, it is extremely important to verify whether departmental profit and loss accounting and management effectively improve profitability, which is their main purpose. On the other hand, it is also important to examine whether there are any adverse effects (so to speak, side effects) on the results of medical care, which is more important for hospitals as non-profit organizations whose main purpose is not to improve profitability. In addition, it is also interesting to see what kind of effects can be observed in the utilization of wards and the implementation of important medical treatments, which are related to the processes before the results are achieved, in addition to the financial and medical results.

Therefore, this study evaluates the effectiveness of departmental P&L management practices, such as break- even analysis, which have not been verified in previous studies, based on objective performance data by utilizing data from a questionnaire survey on departmental P&L management conducted for a group of hospitals (FY2021) consisting of various establishment entities. The difference in business performance with and without the implementation of departmental profit and loss accounting has already been verified by Sangwan et al. (2017), as will be clarified in the next section, but we will attempt to evaluate its effectiveness again. We will also examine whether the implementation of departmental profit and loss accounting is still effective in improving profitability in FY2021 and whether the effectiveness of the implementation of departmental profit and loss accounting is robust.

The difference in performance between companies with and without the implementation of departmental P&L accounting has already been examined by Sangwan et al.

(2017), as will be clarified in the next section, but we will attempt to evaluate the effectiveness again.

First, previous studies on the effectiveness of departmental profit and loss accounting and management in enhancing profitability are discussed in this paper, and the characteristics of this study are clarified in comparison to the previous studies. The methodology for this investigation is then detailed in-depth, followed by the analysis results.

Then, depending on the analysis results, a discussion is added, and lastly, the study is summarized as a conclusion.

2. Prior Research

In the past, the evaluation of the effectiveness of departmental profit and loss accounting and management in hospitals in improving profitability has not been completely unattempted (Harsvardhan et al., 2014; Ganai et al., 2016;

Sangwan et al., 2017; Endri et al., 2020; Fuadah et al., 2020;

Langroudi et al., 2017). However, Ganai et al. (2016) is a study of medical corporations that manage hospitals, not of hospitals of various establishments, including national, public, and medical corporations, and only evaluates

profitability. Harsvardhan et al. (2014) is a study of a group of hospitals with excellent business management capabilities, and the number of hospitals subject to analysis is extremely small. In addition, due to the limitations of data available at the time, the assessment of the impact on outcomes and process aspects of health care is very limited.

Sangwan et al. (2017), on the other hand, focused on a large number of hospitals (1619), did not target a set of hospitals with exceptional management capabilities, and did not analyze a limited number of hospitals. The impact assessment’s scope ranges from financial and medical outcomes to procedural considerations. However, because the report covers management accounting methods in general, it is limited to evaluating the effects of departmental profit-and- loss accounting management by whether or not departmental profit-and-loss accounting is implemented, and it does not evaluate the effects of differences in profit-and-loss monitoring frequency (monthly or not) or differences in the degree of profit-and-loss accounting use when departmental profit-and-loss accounting is implemented. Furthermore, the usefulness of break-even analysis has yet to be determined, as there has been no assessment of whether or not break-even analysis, a primary tool for controlling profit and loss by department, is used or the extent to which it is used.

However, the relationship between profit and loss accounting and profitability improvement (Chatterjee et al., 2013), in for-profit companies is not necessarily the same as that in hospitals, which are not-for-profit organizations. This is because improving profitability, which is the purpose of profit and loss management, is not the main objective of non- profit organizations, and the consciousness and behavior of the employees working there are often different from those of employees in for-profit companies. Moreover, hospitals do not necessarily have a high sense of belonging to an organization, and they are also characterized as a group of professionals with a high degree of autonomy. Therefore, it is indispensable to conduct this study in hospitals.

3. Research Methodology

This paper evaluates the effectiveness of departmental P&L management by combining the data from the questionnaire survey on departmental P&L management conducted for hospitals in fiscal 2021 and the financial data of the hospitals that responded to the survey, which were obtained separately. Specifically, among the 286 hospitals (response rate: 17.2%) that responded to the survey conducted in 2021 targeting hospitals (1667 hospitals), we will examine differences in profitability and medical outcomes due to differences in various practices related to departmental P&L management, targeting 169 hospitals for which financial data, etc. are available and can be used for analysis. The following is a more specific description of the research methodology.

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3.1. Performance Data Collection Methods

First, for this study, hospitals that responded to the questionnaire survey on departmental P&L management conducted in 2021 were the target hospitals for performance data collection. This is because this study can only be conducted in hospitals where departmental P&L management practices are known.

Next, financial performance data, which is essential for verifying the effectiveness of the departmental profit and loss accounting management, was obtained through additional surveys of financial data at the hospitals that responded to the survey, as well as through the yearbooks of local public corporations and the websites of the National Health Portal and the Ministry of Health & Family Welfare. As a result, we were able to obtain the financial performance data of 177 hospitals. In addition, we tested whether any outliers would have a significant impact on the analysis of the medical profit margin and medical profit per hospital bed (calculated using the total number of hospital beds of each hospital), which were calculated from the medical revenues and medical expenses obtained above. Specifically, we conducted an outlier test (Smirnov- Grubbs test) and identified the data (hospitals) that were determined to be outliers at a significance level of 0.1%. As a result of excluding the outlier hospitals from the analysis, 169 hospitals remained in the analysis.

On the other hand, for these 169 hospitals, we obtained performance data on discharge outcomes, readmissions, ward utilization, and implementation of key therapeutic activities.

As a result, 19 national hospitals, 98 public hospitals, 19 Indian Red Cross Society, 24 medical corporations, and 9 other corporations were included in the analysis. In this study, we will analyze all of these hospitals. However, for the analysis of the impact of the implementation of departmental profit and loss accounting on financial and non-financial performance, we will limit the analysis to the group of public hospitals in a broad sense (national, etc., public, etc., and the Indian Red Cross), excluding private hospitals in a broader sense (medical corporations and other corporations), because a certain number of samples are available.

3.2. Selection of Performance Indicators for Analysis and Basic Statistics

In this study, to evaluate the effectiveness of departmental P&L management, we first analyzed the performance related to profitability, which is the main objective of this management. As aspects of performance other than profitability, we analyzed performance related to the results of medical care, such as discharge outcomes and readmissions, and performance related to the efficiency and productivity of inpatient operations, such as ward utilization

and implementation of important therapeutic activities. The following indices were selected as specific indicators to measure each performance aspect.

First, the medical profit margin and medical profit per bed were selected as indicators of profitability.

Next, as indicators of the results of medical care, the improvement rate of the outcome at discharge and the worsening rate of the outcome at discharge were included in the analysis as indicators related to the outcome at discharge. The study classifies each patient as having one of the following discharge outcomes: “cured or mildly recovered,” “remission,” “unchanged,” “exacerbation,”

“death from the injury or disease for which the most medical resources were invested,” “death from the injury or disease for which the least medical resources were invested,” and “other.” The improvement rate at discharge is the percentage of patients whose outcome at discharge was either “cure” or “remission.” The opposite is the worsening rate, which is the percentage of patients whose outcome at discharge was either “exacerbation,”

“death due to the injury or disease for which the most medical resources were invested,” or “death due to an injury or disease other than the one for which the most medical resources were invested.” As an indicator related to readmission status, the rate of unplanned readmissions within 4 weeks under the same name as the previous hospitalization (hereafter, unplanned readmission rate) was included in the analysis. Although these indicators of medical outcomes do not cover all aspects of medical outcomes, they are the only indicators of medical outcomes that are available as commonly defined indicators across a wide range of hospitals today.

In addition, as indicators of ward utilization, we used the bed utilization rate and the average length of stay as the objects of analysis. Bed utilization is a performance indicator that indicates high or low occupancy of wards, and the average length of stay is a performance indicator that indicates efficient use of hospital beds (efficiency of the healthcare delivery process). The hospital bed utilization rate was calculated based on the total number of inpatients, the average length of stay, and the number of beds and patients in each hospital (total number of inpatients × average length of stay ÷ number of beds

× 365). On the other hand, the average length of stay without correction, which is based on the actual disease composition of the hospital and the actual length of stay for each disease, is first used as a reference index for analysis. The average length of stay after correction for disease composition, which is calculated by changing the actual disease composition of each hospital to the national average disease composition and applying the actual length of stay for each disease to each hospital, will be used as the main indicator for analyzing the performance of efficient use of hospital beds.

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In addition, the number of patients with surgery per hospital bed per year and the number of patients with surgery/chemotherapy/radiation therapy per hospital bed per year (number of patients with critical care) were analyzed as indicators of the implementation of critical care activities. The basic statistics of each performance indicator are described below (Table 1).

3.3. Content Analysis

In this study, first of all, in the questionnaire, “The accounting and management of profit and loss by

‘department’ refers to the accounting and management of profit and loss by each of the four medical departments such as internal medicine and surgery, four departments in the central medical care system such as laboratory, pharmacy, surgery, and rehabilitation departments, and four departments in the support management system such as the medical affairs department, accounting department, and information system department. In this study, we will first evaluate the effectiveness of departmental profit and loss accounting by examining the differences in financial and medical outcomes, as well as the differences in the utilization of wards and the implementation of important medical treatments, which are related to the processes leading to the outcomes, depending

on whether or not departmental profit and loss accounting based on this definition is implemented.

In the previous studies, when examining the difference in profitability depending on whether or not departmental P&L is implemented, a comparative analysis was conducted not only by simply comparing whether or not departmental P&L is implemented but also by considering the year in which departmental P&L was introduced (started). It is known that many hospitals decide to introduce departmental profit and loss accounting because they are in the red and unprofitable, and therefore hospitals immediately after the start of departmental profit and loss accounting are often in the red. The reason is that it is not necessarily appropriate from the perspective of evaluating the effect of departmental profit and loss accounting to compare the profitability of hospitals with and without the implementation of departmental profit and loss accounting, including hospitals immediately after the start of implementation. Even if departmental profit and loss accounting affects improving profitability, it is not considered that it will improve as soon as it starts. In many cases, business managers first grasp the situation of profit and loss, think about countermeasures based on the information, ask for action change at the site, and after a short time after the actual action change is convinced by the field medical staff, it leads to improvement of profitability. Therefore, even if it is effective, Table 1: Basic Statistics of Performance Indicators

Performance Indicators Basic Statistics

Financial (Accounting) Results Medical Outcomes

Medical Profit Margin

Medical Profit per Bed (Thousand

Rupees)

Rate of Improvement in Outcomes when Discharged from

Hospital

Deterioration Rate of the

Outcome at Hospital

Discharge

Unplanned Readmission

Rate

n 169 169 169 169 169

Average −7.8% −1,709 81.8% 3.4% 2.5%

Standard deviation 10.5% 2,354 9.2% 1.7% 0.7%

Median −5.7% −1,296 83.4% 3.3% 2.4%

Basic Statistics of Performance Indicators

Use of Wards Implementation Status of Key

Therapeutic Activities

Bed Utilization Rate

The Average Number of Days

in Hospital (Reference)

The Average Number of Days

in Hospital After Disease

Composition Correction

Number of Patients with Surgery per Bed

per Year

Number of Surgeries/

Chemo/Radiation Therapy per Bed

per Year

n 169 169 169 169 169

Average 65.2% 12.3 11.9 8.6 10.4

Standard deviation 13.1% 2.2 1.6 2.9 3.6

Median 67.5% 12.3 11.9 8.8 10.3

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there is a certain time lag from the start to the manifestation of the financial results (Harsvardhan et al., 2014). Therefore, in this study, as in the previous studies, we also conducted an analysis in which the hospitals whose departmental profit and loss accounting started in 2021, the year of this questionnaire survey, and in 2020, the year before that, were excluded from the analysis for reference. In other words, we also attempted to examine the difference in financial performance in 2021 between the two groups of hospitals: those that started departmental P&L accounting by 2019 and those that did not start departmental P&L accounting.

Next, we will examine whether the effects and impacts of departmental profit and loss accounting differ depending on whether the frequency (interval) of the implementation of departmental profit and loss accounting is monthly (quarterly, half-yearly, yearly, or irregularly (as needed)), that is, whether profit and loss are grasped and managed on a high frequency and regular basis or not. We will also examine whether differences in the degree of use of departmental profit and loss accounting make a difference in the effects and impacts when departmental profit and loss accounting is implemented. In the questionnaire survey on which this study relies, the degree of use of P&L by department is divided into two categories:

(1) use by management for business analysis (business diagnosis, policy formulation, and decision making), and (2) use by front-line managers and staff (to raise awareness of business management and promote autonomy). We asked the respondents to rate the degree of use on a 7-point scale: not used at all (1), not used much (2), used a little (3), used (4), used a lot (5), used fairly often (6), and used very often (7). In this study, considering the sample size of each usage category to be compared, we will examine the differences in the effects and impacts of the different usage levels by comparing the hospitals with usage levels of 3 (little usage) or higher for both analytical usage and approach usage (23 samples) with the other hospitals (29 samples). The following is a summary of the results.

Finally, we will examine the differences in financial and medical outcomes due to whether or not departmental breakeven analysis is implemented, as well as the differences in ward utilization and the implementation of key therapeutic actions related to the processes leading to the outcomes. We will also examine whether differences in the degree of use of break-even analysis by the department, if implemented, make a difference in financial and other results. In the questionnaire survey on which this study relies, respondents were asked to rate the degree of use of break-even analysis on the same seven-point scale as above, according to whether it is used (1) for analysis by management, (2) for encouraging front-line workers, (3) for unit price improvement, or (4) for cost structure improvement. Therefore, in this study, taking into account the sample size of each utilization category to be compared, we will examine the difference in the effect and impact of different levels of utilization by comparing

the hospital group (sample size: 19), which has a utilization level of 2 or higher in any of the four utilization methods (i.e., no utilization at all (1) in any utilization method), with the other hospital group (sample size: 17).

The t-test (Welch’s test) was used to verify the difference between the means of each category.

4. Results

First, we examined the relationship between departmental P&L implementation and financial outcomes improvement, which is the fundamental goal of this strategy. Although the link was proportional to the deficit area, we discovered that hospitals that implemented P&L were much better in both medical profit margin and medical profit per bed (Table 2). For comparison, after accounting for the start year of departmental profit and loss accounting, we found that hospitals that implemented the system performed much better in both profitability measures. The profitability index of the group of adopting hospitals was better in the case of the analysis considering the start year than in the case of the analysis not considering the start year, as in the previous study (Sangwan et al., 2017).

Significant differences were observed in the previous study only when hospitals that had just started departmental profit and loss accounting were excluded. In contrast, significant disparities were identified in this study regardless of the year of introduction, depending on whether or not it was applied. Because the analysis will be limited to the group of implementing hospitals as indicated later in this study, the following analysis does not take into consideration the start year of the departmental profit and loss accounting to avoid reducing the sample size.

We also conducted an analysis limited to public hospitals and public hospital groups in a broad sense for reference and found no difference in the effect of implementing departmental profit and loss accounting on improving profitability compared to the case of all hospital groups (Table 3).

Then we examined the relationship between departmental P&L implementation and the outcomes of medical care, which is the primary goal of hospitals, and discovered that the group of hospitals that implemented departmental P&L had no worse results in any of the medical care outcome indicators (Table 4). In the implementation hospital group, however, the results of poor discharge outcomes and unplanned readmission rates were much better. At least in terms of these three health care outcome measures, the introduction of departmental P&L does not appear to have a negative influence on health care results. In addition, for reference, a study confined to public hospitals and public hospital groups, in general, was conducted. However, there was no difference from the case of all hospital groups.

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Table 3: Implementation and Financial Results of Departmental Profit and Loss Accounting (Public and Public Hospital Groups in the Broad Sense)

Departmental Profit and Loss Statement

Financial (Accounting) Results Departmental Profit and Loss Statement

Financial (Accounting) Results Medical Profit Margin

Medical Profit per Hospital Bed Thousands of Rupees)

Medical Profit per Hospital Bed Thousands of Rupees) Broad public hospital groupnAverageS.D.AverageS.D.Broad public hospital groupnAverageS.D.AverageS.D. ReferenceImplementation38−6.4%6.9%−1,4841,561ReferenceImplementation20−7.8%7.1%−1.7101.426

Non- implementation

98−11.0%11.1%−2,4002,443

Non- implementation

78−13.3%11.1%−2.8882.430 Welch Testt valueP valuet valueP valueWelch Testt valueP valuet valueP value 2.850.0052.590.0112.730.0092.800.007

Table 2: Implementation of Departmental Profit and Loss Accounting and Financial Results (All Hospital Groups)

Financial (Accounting) Results Calculation of Segment Profit or Loss After Annual Adjustment

Financial (Accounting) Results Medical Profit Margin

Medical Profit per Hospital Bed Thousands of Rupees)

Medical Profit per Hospital Bed Thousands of Rupees) All hospitalsnAverageS.D.AverageS.D.All hospitals nAverageS.D.AverageS.D. ReferenceImplementation54−5.0%6.8%−1,1151,660ReferenceImplementation45−4.1%6.3%−9041.563

Non- implementation

115−9.1%11.6%−1,9872,577

Non- implementation

115−9.1%11.6%−1.9872.577 Welch Testt-valueP-valuet-valueP-valueWelch Testt-valueP-valuet-valueP-value 2.900.0042.640.0093.490.0013.240.002

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Table 4: Departmental P&L Implementation and Medical Outcomes

Medical Outcomes Rate of Improvement

in Outcomes when Discharged from

Hospital

Rate of Deterioration of Outcomes Upon

Discharge from Hospital

Unplanned Readmission Rate

All hospitals n Average S.D. Average S.D. Average S.D.

Implementation 54 83.0% 6.4% 2.7% 1.4% 2.2% 0.7%

Non-implementation 115 81.3% 10.3% 3.8% 1.8% 2.6% 0.7%

Welch Test t-value P-value t-value P-value t-value P-value

1.31 0.193 4.10 0.000 2.74 0.007

The broad public hospital group n Average S.D. Average S.D. Average S.D.

Reference Implementation 38 82.4% 4.9% 2.8% 1.3% 2.3% 0.7%

1.24 0.218 3.52 0.001 1.88 0.064

Public hospitals n Average S.D. Average S.D. Average S.D.

Reference Implementation 20 83.4% 4.3% 3.1% 1.2% 2.4% 0.5%

1.57 0.121 2.44 0.019 1.72 0.093

In addition, we examined whether there were differences in the utilization of wards and the implementation of important medical treatments, which are related to the processes leading to financial and medical results, depending on whether or not departmental profit and loss accounting was implemented. Although there was no significant difference in the utilization rate of hospital wards, which indicates the efficient utilization of hospital wards, there was a significant difference in the adjusted average length of stay, which indicates the efficient utilization of hospital wards, at the 10% level (there was a significant difference in the normal average length of stay at the 5% level). Table 5.

On the other hand, there was a significant difference in both indices for the implementation of critical care, and it was found that the number of patients who underwent critical care such as surgery per hospital bed per year was higher in the group of hospitals that implemented departmental profit and loss accounting. In addition, we also conducted an analysis limited to public hospitals and public hospital groups in a broad sense, but the results were the same for all hospital groups. In other words, the group of hospitals that implemented departmental profit-and-loss accounting had a significantly higher number of patients who underwent important treatment procedures in both indicators, and the group of hospitals that implemented profit-and-loss

accounting was more efficient in all indicators in the respondent hospitals, although the utilization of wards was not significant due to the reduced sample size.

Then we examined whether there was a difference in the financial results of hospitals that used departmental profit and loss accounting, whether it was done monthly or on a more frequent basis and whether there was a difference in the performance of hospitals that didn’t. In terms of financial results, it was discovered that hospitals that adopted the monthly programs were much more profitable than hospitals that did not, although the difference was only 10%. (Table 6).

In terms of medical care outcomes, there was no significant difference in any of the variables depending on whether it was completed monthly or not. Furthermore, the hospitals that implemented monthly care had a much higher bed utilization rate and a more significant number of patients with surgery per bed per year, both are tied to the process before the results are accomplished. There was no significant change in the average length of stay before and after disease composition correction, nor in the annual number of patients treated with surgery, chemotherapy, or radiotherapy per hospital bed.

We also examined whether disparities in the extent to which departmental profit and loss accounting was used resulted in variances in hospital performance, such as

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Table 5: Calculation of Profit and Loss by Department, Use of Ward, and Implementation of Important Treatment Actions Departmental Profit and Loss Statement

Use of WardsImplementation Status of Key Therapeutic Activities Bed Utilization Rate

The Average Number of Days in Hospital (Reference)

Average Number of Days in Hospital After Correction of Disease Composition

Number of Patients with Surgery per Bed per Year

Number of

Surgeries/Chemo/ Radiation Therapy per Bed per

Year All hospitalsnAverageS.D.AverageS.D.AverageS.D.AverageS.D.AverageS.D. Implementation5466.9%13.3%11.81.811.61.69.93.211.83.8 Non-implementation11564.4%12.9%12.62.312.11.68.02.59.73.3 Welch Testt-valueP-valuet-valueP-valuet-valueP-valuet-valueP-valuet-valueP-value 1.150.2522.340.0211.790.0773.800.0003.590.001 Broad public hospital groupnAverageS.D.AverageS.D.AverageS.D.AverageS.D.AverageS.D. ReferenceImplementation3866.5%13.1%12.01.211.61.29.62.711.63.3 Non-implementation9864.5%13.1%12.42.012.01.48.12.49.93.2 Welch Testt-valueP-valuet-valueP-valuet-valueP-valuet-valueP-valuet-valueP-value 0.800.4291.510.1351.620.1082.860.0062.690.009 Public hospitalsnAverageS.D.AverageS.D.AverageS.D.AverageS.D.AverageS.D. ReferenceImplementation2066.9%9.6%12.01.011.60.89.42.411.33.0 Non-implementation7863.3%13.6%12.22.011.91.57.92.49.73.3 Welch Testt-valueP-valuet-valueP-valuet-valueP-valuet-valueP-valuet-valueP-value 1.370.1780.580.5650.990.3272.460.0202.160.039

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Table 6: Relationship between the Frequency of Performing Departmental Profit and Loss Accounting and Hospital Performance

Profit and Loss Calculation

Frequency of Implementation

Financial (Accounting) ResultsMedical Outcomes Medical Profit MarginMedical Profit per Bed (Thousand Rupees)

Rate of Improvement in Outcomes when Discharged from Hospital

Deterioration Rate of the Outcome at Hospital Discharge

Unplanned Readmission Rate nAverageS.D.AverageS.D.AverageS.D.AverageS.D.AverageS.D. Monthly28−3.5%6.2%−7921.77782.5%5.7%2.7%1.3%2.3%0.7 % Non-monthly24−7.1%7.1%−1.5931.46683.3%7.3%2.9%1.4%2.2%0.6 % Welch Testt-valueP-valuet-valueP-valuet-valueP-valuet-valueP-valuet-valueP-value 1.950.0581.780.0810.470.6440.300.7670.970.337

Profit and Loss Calculation

Frequency of Implementation

Use of WardsImplementation Status of Key Therapeutic Activities Bed Utilization Rate

Average Number of Days in Hospital (Reference)

Average Number of Days in Hospital After Disease Composition Correction

Number of Patients with Surgery per Bed

per Year

Number of

Surgeries/Chemo/ Radiation Therapy per Bed per

Year nAverageS.D.AverageS.D.AverageS.D.AverageS.D.AverageS.D. Monthly2870.1%11.0%11.41.611.31.110.73.512.73.9 Non-monthly2463.6%15.0%11.91.211.51.29.12.711.03.4 Welch Testt-valueP-valuet-valueP-valuet-valueP-valuet-valueP-valuet-valueP-value 1.770.0841.230.2230.590.5561.920.0611.650.105

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financial results. First and foremost, in terms of financial results, the group of hospitals with high utilization was shown to be significantly more profitable than the group of hospitals with low utilization in terms of both profitability metrics (Table 7). In terms of medical care outcomes, there was no significant difference in any of the variables between hospitals with high and low usage levels. Furthermore, while there was no significant difference in ward utilization for any of the indices, the number of critical therapeutic practices was significantly higher in the group of institutions with high utilization for both indices.

Then we examined whether financial results and other hospital performance differed depending on whether the department completed a break-even analysis or not. In terms of the relationship between break-even analysis by the department and improved profitability, it was confirmed that hospitals that implemented break-even analysis by the department were significantly better in terms of medical profit margin and medical profit per hospital bed. However,

the relationship was relative to the deficit area (Table 8).

In terms of the relationship with the outcomes of medical care, which is the primary goal of a hospital, there was no significant difference in any of the indicators depending on whether the department used break-even analysis or not.

Furthermore, whether or not the department’s break-even analysis was applied, there was no substantial difference in the usage of wards and the execution of critical medical treatments, which are related to the procedures before the financial and medical outcomes.

Finally, we examined whether differences in the degree to which departments applied the break-even analysis resulted in disparities in hospital performance, such as financial results when it was implemented. First and foremost, in terms of financial results, hospitals with a high usage rate were found to be significantly more profitable in terms of both profitability indices (Table 9). In terms of medical treatment outcomes, only the rate of improvement in outcome at discharge was considerably lower in the group of institutions Table 7: Relationship between the Degree of Use of Departmental Profit and Loss Accounting and Hospital Performance

Profit and Loss Calculation

Medical Profit per (Thousand Bed

Rupees)

Hospital

Discharge

Rate n Average S.D. Average S.D. Average S.D. Average S.D. Average S.D.

Both methods

3 or more 23 −2.4% 6.1% −666 2,020 81.5% 6.9% 2.6% 1.4% 2.3% 0.6 %

Other 29 −7.1% 6.9% −1,492 1,291 84.2% 6.0% 2.8% 1.5% 2.2% 0.7 %

Welch Test t-value P-value t-value P-value t-value P-value t-value P-value t-value P-value

2.61 0.012 1.71 0.097 1.49 0.143 0.56 0.579 0.75 0.456

Profit and Loss Calculation

Average Number of Days

per Year

per Year n Average S.D. Average S.D. Average S.D. Average S.D. Average S.D.

Both methods

3 or more 23 69.0% 12.5% 11.4 2.4 11.5 2.2 10.9 3.3 12.8 3.7

Other 29 64.7% 14.1% 12.1 1.1 11.7 1.1 9.0 2.9 10.9 3.7

Welch Test t-value P-value t-value P-value t-value P-value t-value P-value t-value P-value

1.15 0.257 1.31 0.200 0.48 0.633 2.14 0.038 1.83 0.074

(11)

with high use, though it remained around 10%. Furthermore, there were no significant differences in any of the indices for hospital ward utilization or the implementation of critical treatment activities.

5. Discussion and Recommendations

The fact that departmental profit and loss accounting is effective in boosting profitability was reconfirmed, and the certainty of the effectiveness of departmental profit and loss accounting was increased, as in the previous study (Sangwan et al., 2017). We also examined the impact of departmental P&L on financial results, both with and without considering the initial year of implementation.

We found that P&L increased profitability in both circumstances, but when the first year of implementation was evaluated, the profitability index of the group of hospitals that implemented P&L was higher. When the year of implementation was taken into account, however,

the profitability index of the implemented hospital group was higher. This indicates that many hospitals began implementing departmental profit and loss accounting at a time when their profitability was declining. Furthermore, even if limited to public hospitals and public hospital groups in a broad sense, the effect of implementing departmental profit and loss accounting on improving profitability was confirmed, and it became clear that even public hospital groups with a low implementation rate of this method had the same financial effect as other established hospital groups when this method was implemented.

In addition, the implementation of the departmental profit and loss accounting confirmed that the indicators analyzed in this study did not have any negative impact on the results of medical care, which is the purpose of the hospital.

In addition, it became clear that the departmental profit and loss accounting is expected to improve the utilization of wards, focusing on the efficient use of hospital beds. It can Table 8: Relationship between Implementation of Break-Even Analysis by Department and Hospital Performance

Break-Even Analysis by Department

Rupees)

Hospital

Discharge

Rate All hospitals n Average S.D. Average S.D. Average S.D. Average S.D. Average S.D.

Implementation 36 −4.1% 8.7% −728 2,138 83.6% 6.6% 2.9% 1.5% 2.3% 0.8 %

Non-implementation 68 −8.0% 9.9% −1,845 2,063 82.8% 6.7% 3.2% 1.7% 2.5% 0.7 %

Welch Test t-value P-value t-value P-value t-value P-value t-value P-value t-value P-value

2.07 0.042 2.56 0.012 0.61 0.544 1.07 0.286 1.40 0.165

Break-Even Analysis by Department

per Year

Chemo/

Radiation Therapy per Bed

per Year All hospitals n Average S.D. Average S.D. Average S.D. Average S.D. Average S.D.

Implementation 36 66.1% 14.5% 11.8 2.1 11.6 2.0 9.6 3.6 11.5 4.2

Non-implementation 68 65.2% 11.8% 12.0 1.8 11.7 1.2 8.9 2.5 10.4 3.0

Welch Test t-value P-value t-value P-value t-value P-value t-value P-value t-value P-value

0.35 0.727 0.51 0.609 0.44 0.664 1.11 0.271 1.35 0.181

(12)

be inferred that the implementing hospital group is trying to improve profitability by increasing the total revenue by increasing the number of patients while shortening the average length of stay and improving the unit cost of treatment. Furthermore, while the corrected average length of stay (and the normal average length of stay), which represents the efficient use of hospital beds, is significantly shorter, the utilization rate of hospital beds, which represents the utilization status of hospital wards, shows no significant difference (the utilization rate of hospital beds is higher in the implementation hospital group than in the response hospital group). In addition to reducing the length of stay, the number of patients increased to the point that the bed utilization rate was maintained. From the perspective of the major purpose of departmental profit and loss accounting, which is to increase profitability, it can be said that departmental profit and loss accounting has had a positive effect on the process of ward utilization.

In contrast to the previous study (Sangwan et al., 2017), which found no significant difference in the effect of departmental profit and loss accounting on the implementation of important therapeutic activities, it became clear that departmental profit and loss accounting was considered to significantly promote the implementation of important therapeutic activities such as surgery. Important therapeutic activities such as surgery are generally well reimbursed, which leads to an increase in the unit cost of medical treatment and an increase in the hospital’s overall revenue. As a result, given the cost structure of hospitals, which has a high fixed cost ratio, encouraging the implementation of vital medical treatments will result in increased profitability. As a result, departmental profit-and-loss accounting has a positive effect on the process of conducting significant treatment operations from the standpoint of increasing profitability.

Then, even when departmental profit and loss accounting was established, the effect of profit and loss Table 9: Relationship between the Degree of Use of Break-Even Analysis by Department and Hospital Performance

Breakeven Analysis Utilization

Rupees)

Hospital

Discharge

Rate n Average S.D. Average S.D. Average S.D. Average S.D. Average S.D.

All methods 2

or more 19 −1.3% 8.7% −59 2,505 81.8% 6.8% 3.0% 1.5% 2.4% 0.6 %

Other 17 −7.3% 7.8% −1,475 1,346 85.6% 5.8% 2.7% 1.7% 2.1% 0.9 %

Welch Test t-value P-value t-value P-value t-value P-value t-value P-value t-value P-value

2.16 0.038 2.14 0.041 1.78 0.085 0.55 0.586 1.24 0.225

Breakeven Analysis Utilization

per Year

per Year n Average S.D. Average S.D. Average S.D. Average S.D. Average S.D.

All methods 2

or more 19 68.1% 13.1% 11.8 2.6 11.7 2.4 9.5 3.1 11.2 3.6

Other 17 64.0% 16.0% 11.7 1.4 11.4 1.5 9.8 4.2 11.8 5.0

Welch Test t-value P-value t-value P-value t-value P-value t-value P-value t-value P-value

0.83 0.413 0.14 0.892 0.31 0.756 0.27 0.786 0.39 0.702