Philippine Institute for Development StudiesA Study of Philippine HospitalManagement Administrative SystemsFred AvestruzDISCUSSION PAPER SERIES NO. 95-16The PIDS Discussion Paper Seriesconstitutes studies that are preliminary andsubject to further revisions. They are being circulated in a limited number of copies only for purposes of soliciting comments and suggestions for further refinements. The studies under the Series areunedited and unreviewed.The views and opinions expressedare those of the author(s) and do not necessarily reflect those of the Institute.Not for quotation without permissionfrom the author(s) and the Institute.June 1995For comments, suggestions or further inquiries please contact:The Research Information Staff, Philippine Institute for Development Studies3rd Floor, NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, Makati City, PhilippinesTel Nos: 8924059 and 8935705; Fax No: 8939589; E-mail: [email protected] visit our website at

A STUDY OF PHILIPPINE HOSPITAL MANAGEMENTAND ADMINISTRATIVESYSTEMSPIDS Project No. DOH / 91-92 / 05(Final Report)October 30, 1994Fred S. Avestruz, MBA, Ph.D.Asian Institute of Management

TABLE OF CONTENTSChapterPage1INTRODUCTION .11.1 Objectives of the Study .11.2 Conceptual Framework of Hospital Management .21.3 The Hospital in the Philippine Health Care System .31.3.1 The Philippine Health Care System .5' 1.3.2 Role of Hospitals .71.3.3 Hospitals Industry Structure .151.4 Operational Characteristics of Philippine Hospitals .181.5 Hospitals in the Case Studies . 2.232EXTERNAL INFLUENCES ON HOSPITAL MANAGEMENTAND PERFORMANCE .2.1 Market Demand .2.2 Networking and Referral System .2.3 Health Care Financing Programs .2.4 Technology .2.5 Macroeconomic Conditions .2.6 External Organizations .2.7 Government Policies .2.7.1 General Interventions .2.7.2 Local Government Code .2.8 Summary .3MANAGERIAL DECISIONS AND CONTROL SYSTEMS INPHILIPPINE HOSPITALS . :.3.1 Goals .3.2 Decision MAking Processes to Establish a Hospital .3.3 Key Hospital Actors .3.4 Planning Processes .3.5 Interactions Among Key Hospital Actorss and DecisionsMaking Processes in Philippine Hospitals .3.5.1 Capital Expenditure Decision .3.5.2 Budget Decisions .3.5.3 Personnel Decisions .3.5.4 Pricing Decisions .3.6 Control System .3.6.1 Quality Control .3.6.2 Financial Control .11232931323333333637111011151818222346636368

43.7 Summary .71TECHNICAL PERFORMANCE OF PHILIPPINEHOSPITAL .14.1 Conceptual Background of Hospital PerformanceEvaluation .14.2 Occupancy Rates of Philippine Hospital .4.3 Effectiveness of Treatment of Philippine Hospital .4 4 Patient Length of Stay in Philippine Hospitals .4.5 Summary .3121919I56FINANCIAL CHARACTERISTICS AND PERFORMANCEOF PHILIPPINE HOSPITALS .15.1 Financial Characteristics of Philippine Hospitals .5.1.1 Capital Structure .5,1.2 Allocation Of Assets .5.1.3 Pattern of Expenditures .5.1.4 Pattern of Revenues .5.2 Financial Performance .5,2.1 Liquidity Ratios .5.2.2 Efficiency Ratios .5.2.3 Leverage Ratios . .5.2.4 Profitability Ratios .5.3 Summary .112930333340414142CONCLUSIONS AND RECOMMENDATIONS .6.1 Characteristics and Problems of HospitalManagement and Performance .6.1.1 Govemement Hospitals .6.1.2 Private Hospitals .6.2 Recommendations .6.2.1 Private Hospitals .6.2.2 Government Hospitals .BIBLIOGRAPHY .1112333B- 1

LIST OF TABLESTable'02.1121i22:132:14! , . -., ,, '-' :,!,':1 1 %':"-. .TitleHealth Facilities to Population Ratio .Number of Health Facilities by Region .Ratio of DOH Facilities to Population .Number of Hospital Beds and Hospital Bedto Population Ratio by Region . 'Bed to Population Ratio and Health Center toPopulation Ratio by Region .Accessibillity of DOH Hospitals .Number and Percentage of Patients in GovernmentHospitals by Region .Classifictions of Hospitals .Actual Bed Capacity of DOH Hospital, byCategory and by Region .Regional Distribution of Member Hospitals byCategory .Distribution of Licensed Hospitals by Level .Ten Leading Causes of Hospitalization .Number of Cases per Classification .Nature of Leading Causes of Hospitalization .Average Patient Days of DOH Hospitals byType of Service and by Type of Hospitals .Number of Patients of DOH Hospital by Type ofService and Type of Hospital .Ten leading Causes of Morbidity, G2 HospitalCatchment Area .Ten Leading Causes of Mortality, G2 HospitalCatchment Area .Ten leading Causes of Discharges, G2 Hospital .Ten Leading Causes of Discharges, P3 Hospital .Ten Leading Causes of Morbidity, Bohol Province .Ten Leading Causes of Mortality, Bohol Province .Ten Leading Causes of Discharges, P2 Hospital .:.Ten Leading Causes of Discharges, G3 Hospital .Volume and Direction of Inpatient Referrals .Reasons for Referring to other Hospitals .HospitalsReasons for Choice of 222424

' of In and Out Patient Referrals .Basic Difference: Insurance vs. HMO .Objectives of G2 Hospital .3.2"3.3Internal Critical Success Factors of the OperationalGoals of G2 Hospitals .External Critical Success Factors of the Operational Goalsof G2 Hospitals . . .Attributes, Responsibilities, Power and Other Characteristicsof Key Positions in Selected Private General Hospitals in GreaterManila Area . Complement of G3 Hospital .Personnel Complement of P3 Hospital .Personnel Complement of G2 Hospital . . .Personnel Complement of P2 Hospital .Average Rate of A Day's Stay in a Private Hospital Room .Estimated Room Rates of Hospital by Type & Category perRoom Accomodation .32404245473. Rates, G3 Hospitals .Drugs/Medicine Prices, G3 Hospitals .Room and Board Rates, P3 Hospital .Laboratory Fee Rates, P3 Hospital .Rates for facilities, G2 Hospital .Drugs / Medicine Prices, G2 Hospital . ,.Fee Rates, P2 Hospital .515254575859624. Occupancy Rate of DOH Hospitals, by Category4and by Region .Frequency Distribution of Occupancy Rates of DOH hospitals . 6Effectiveness of Treatment, DOH Hospitals .15Ratio of Medical Staff to Non-Medical Staff of DOH4.54.6'5 i4.7: .:4.84,92.l 0.!3,-i114:124 134.14k4.d51611Hospitals by Region and by Type of Hospitals .Manpower to Bed Ratios, DOH Hospitals .Ratio of Physician to Medical Staff in DOH Hospital by Regionand by Type of Hospital .Ratio of Physician to Non-Medical staff in DOH Hospitalsby Region and by Type of Hospital .Patients Recovered, G3 Hospitals .Patients Died, G3 Hospital . i.Patients Recovered, P3 Hospitals .Patients Died, P3 Hospitals .Patients Recovered, G2 Hospitals .Patients Died, G2 Hospital .Patients Recovered, P2 Hospital .Patients Died, P2 Hospital .Average Patient Length of Stay, G3 Hospital ., .,.48131414151718202122232425 patient Length of Stay, P3 Hospital .Average Patient Length of Stay, G2 Hospital .Average Patient Length of Stay, P2 Hospital .2627285.15.25.3Consolidated Balance Sheet .Financial Ratios .Balance sheet Accounts as Percentage of Total AssetsP2 Hospital .Balance Sheet Accounts as Percentage of Total AssetsP2 hospitals .Index / Trend Analysis of Balance Sheet Accounts ofP3 Hospitals . .Index/trend Analysis of Blance Sheet Accounts ofP2 Hospitals .Hospital Labor Cost per Day .Average Percentage of LAbor Cost to HospitalOperating Expenses .Total Expenditures for Personnel Services DOHHospitals .Share of Personnel Expenditures to Total Expendituresin DOH Hospitals by Region and by Type .Expense Accounts as Percentage of total, G3 Hospital .Expense Accounts as Percentage of Total, G2 Hospital .Revenue and Expenditures Accounts as Percentageof Net Revenue, P2 hospitals .Drugs and Medicinal Expenditures of DOH Hospitals .Revenue and Expenditures Accounts as Percentage ofNet Revenues, P3 Hospital .Actual Hospitalization Cost per Type of Hospital per Itemof Hospitalization .Cost per Patients per Day .Hospital Bed maintenance Cost per Day .Sources of Income, G3 Hospital .Index / trend Analysis of Revenue and ExpendituresAccounts, P3 Hospital .Index/trend Analysis of Revenue and Expenditures Accounts,P2 Hospitals .Financial RAtios, P3 Hospital .Financial Ratios, P2 Hospitals .Statement of Changes in Financial Position, P3 Hospital . 5.23 5.24681012161718192021222324262829343537385943

LIST OF FIGURESTITLE1.1Framework of the Environment ofHospital Management .43.1Organization Charts of G3 Hospithl .263.2Organization Charts pfP3 Hospital .273.3Organization Charts of G2 Hospitals .414.1Bed Occupancy Rates .75.1Distribution of Patients by Sourceof Payment .3]

CHAPTER 1INTRODUCTIONHospitals are very important institutions for the economic and social well-being ofsociety. Their curative and rehabilitative functions enable them to restore individuals to beingproductive members of society and for those individuals to enjoy the benefits that can be derivedfrom it. The success of hospitals in their mission is therefore important. This success is highlydependent on the hospitals' managerial capability. An understanding of how hospitals aremanaged will contribute immensely to future successes in hospital management and towards theenhancement of their roles in society.tThis chapter provides information on the background, purpose, and expected output ofthe study. It also lays the framework of the relationships among the variables that are consideredin the study.The first section spells out the objectives and the expected output of the study. Thesecond section discusses the framework of hospital management, while the third section runsthrough the role of hospitals in the Philippine health care system. Section four discusses thecharacteristics of the operations of Philippine hospitals. Some background information of fourhospitals chosen for case studies are provided in the final section.1.1Objectives of the StudyThe purpose of this study is to understknd better the nature of management of Philippinehospitals under different ownership (government/private), economic environment (rural/urban),size and capability (tertiary/secondary) and the role of management in the success or failure ofhospitals in providing services of acceptable standard of quality to meet health needs undercost-effective conditions. The study also looks into how managerial processes are affected by theexternal environment, resources, and relevant :government policies and how policies may bereformed to provide an environment more conducive to the improvement of the performance ofboth government and private hospitals.This study complements the other studies in the Baseline Studies on the Philippine HealthCare Financing System in providing baseline information on the profile and behavior of health care facilities.The following are the specified outputs of this study.a.A study of the current organizational structures and management practices ofhospitals by level of care, by ownership and incentive structures.I-1

b.c.d.e.f.g.1.2An identification of the key actors in the hospital scene; a description of theirrespective roles in the decision-making processes regarding capital expenditures,budgets, personnel and fees; a description of their interactions among each other;and a description of their effects on the performance of the hospital.A survey and assessment of the cost and quality control systems, including, forexample, the medical audit, tissue committee, utilization review, medical records,therapeutic and other medical committees, and non-medical staff development.A survey and assessment of specific hospital systems such as out-patientdepartment, emergency department, operating theaters, radiology, pathology,engineering, catering, housekeeping, laundry and linen, purchasing, and otherancillary services.A review of the current hospital networking syste/n (i.e., resource sharing).An assessment of the potential impact of the implementation of the localgovernment code on the operation and management systems of hospitals,especially government hospitals.Case studies of four (4) hospitals operating as public secondary and tertiary, andprivate secondary and tertiary providers.ConceptualFrameworkof Hospital ManagementLike other enterprises, for-profit or not-for-profit, hospitals in the Philippines areessentially engaged in the conversion of resources into desired outputs in the process ofproduction. As in other production processes resources can be combined and utilized in variousalternative ways to produce the same set of outputs. The decisions involved in the conversion ofresources into outputs are called managerial decisions. Taken broadly, this includes the activitiesof planning, organizing, implementing, and controlling the conversion process. In economics,managerial decisions can be evaluated in terms of the efficiency by which resources are utilizedto attain the goals of the organization.A hospital's performance is difficult to measure because of the high degree ofsubjectivity. In general, it may be said that the objective of a hospital is to provide quality patientcare while maintaining the financial viability of the organization. There are, of course, otherobjectives related to other activities of specific hospitals such as research and training. In thisstudy, the focus will be on the more general objectives. Hospital performance will be measuredthrough indicators such as death rates and patient satisfaction for quality, and liquidity andprofitability for its financial viability.::Hospitals, like most other organizations, do not operate in isolation. Various factorssurrounding the hospital and even within the hospital affect its degree of success or failure inattaining its objectives. These factors include the nature of its resources (capital, human,{echnology, etc.), competition, markets (consumers), and government regulations and incentives.,, .Figure 1.1 illustrates the interrelationships and interdependencies of the various:components that determine the degree of success or failure of hospitals in providing the kind ofhealth care they envision themselves to provide. It may be noted that government policies andI-2

actions tend to affect, directly or indirectly, almost all the components or determinants of hospitalperformance. For example, government budgetary allocation for health care would affect thenature of diseases that hospitals will treat and therefore the kind of facilities they will need.Competition may be affected by the government's policies on hospital licensing. Credit policies,import liberalization policies, and interest rates may affect the viability of certain hospitaltechnology acquisition alternatives.External factors, other than government, also affect the performance of hospitals. Theseinclude, their cooperation and competition among each other, technological development,socio-cultural factors, hospital networking, and health care financing.Internally, hospital performance is directly affected by the background of its decisionmakers, its planning processes, its organizational structure, its implementation and controlsystems, and the quality and quantity of its resources, among others.Government policies and other external environmental factors are dealt with in the nextchapter, chapter 2, while resources and the managerial decision processes are discussed inchapter 3. Chapter 4 looks into the technical performance of Philippine hospitals, while financialcharacteristics and performance are covered in chapter 5. The last chapter integrates the results ofthe analysis of the earlier chapters into some policy recommendations.In an attempt to capture the nature of the above variables in Philippine hospitals, thisstudy was conducted in essentially two parts. The first part involved a thorough review of theliterature and the analysis of secondary data on Philippine hospital management. The purpose ofthis was to identify and characterize the critical variables that affect hospital management andperformance in the Philippines. Much of the information on Philippine hospital management iscontained in various masters theses at the Asian Institute of Management (AIM), University ofthe Philippines College of Public Health (UP-CPH), and Ateneo de Manila University, as well asvarious articles in the Philippine Hospital Journal and other publications and pronouncements.The second part of this study consisted of conducting case studies of four hospitals. Thesecase studies are intended to confirm the findings and conclusions of the studies reviewed madtofill gaps on knowledge about Philippine hospital management to the extent possible. Since thecase studies cover only four hospitals, representing the government and private sectors in bothrural and urban settings and providing secondary and tertiary levels of care, the conclusions thatare derived from this study are limited in their degree of generality. Statements in the concludingsections and chapter should therefore not be construed as being generally true for allgovernment or private hospitals in the Philippines.1.3The Hospital in the Philippine Health Care SystemThis section sets the macro picture of Philippine hospitals. First, an overview of the!Philippine health care system is provided, followed by a discussion of the role of PhilippineI-3


hospitals in this system. This is followed by a description of the Philippine hospital industrystructure.1.3.1The Philippine Health Care SystemThe Philippine health care system consists of government and private health, diagnostic,and treatment facilities spread unevenly across the archipelago. Government health facilities tendto focus on providing preventive, curative and rehabilitative services while private facilitiesprovide direct personal care that is curative and rehabilitative in nature.The government health care system, which is mostly lirected towards the low-incomegroups, consists of barangay health stations (BHS), with a midwife, and rural health units (RHU),which are supposed to be staffed by a team consisting of a physician, a nurse, and a midwife.Table 1.1 shows the ratio of health care facilities to population in the Philippines in 1982, 1984,and 1989. This table shows the general decline in the number of facilities in the period 1984 to1989, from 1,839 hospitals in 1984 to 1,696 hospitals in 1989. The number of both governmentand private hospitals declined during this period. The ratio of health facilities to populationcontinued to decline from 1982 to 1989 for all types of facilities.The number of Department of Health (DOH) facilities by region from 1986 to 1989increased for all categories as shown in Table 1.2. Due to the rapid increase in population theratio of population to DOH health facilities declined as shown in Table 1.3.For hospital beds to population we see in Table 1.4 a general decline in all regions in thecountry. From this and the following table (Table 1.5) we also see the disparity of populationserved per hospital bed among the different regions in the country. NCR appears to have the mosthospital beds per unit of population while Eastern Visayas has the lowest.Table 1.6 shows that almost 14 percent of the country's population and more than 20percent of the municipalities are still more than 17.5 km. away from the nearest DOH hospital.Table 1.7 indicates that the highest percentage of population served by governmenthospitals in 1989 was in the CAR with 36.7 percent served while the lowest was in Region XIwith 6.84 percent. NCR had 21.64 percent served. Among the factors which may explain this}Fri:it,disparity, especially in view of the disparity of hospital to population ratios, are the health statusof the population and the availability of private hospitals.Complicated cases are usually referred by BHSs and RHUs to the district hospitals (25-50:beds), or to the provincial hospital (100-150 beds), or the regional hospital (200-250 beds). Casesi requiring specialized care are referred to Medical Centers (250 beds or more), mostly located iniilMetroManila.i-5

TABLEHEALTHFACILITIESPHILIPPINES,1.1TO POPULATIONRATIO1982, 1984, AND 198919821984No. of-"FacilitiesRatioNo. RatioP.30, 1376121,227- 88,250'-i:575GovernmentPrivate90,008.No. ofFacilities1,696.Ratio1:35,434564I, 1321:60747,86142,41884,9851:70746,63938,346Rural .olth Units1,9911:23,3061,9911:27, 4582072/11:28, 323/1Barangay Health StationHS)7,9911:6, 3557,9911:6, 8419184/11:16,390/11/as of 1988Sources." DOH, Bureau of Medical ServicesDOll, Annual Report, 1988Bureau of Licensing and Regulations, DOHFrbm: Solon (1991), Health Sector Financing in the Philipines. Vol. 11, RT1/ UPSE.

The loosely linked network of privately operated medical facilities and practitionersconsists of pharmacists, physicians in solo or group practice, small hospitals and maternitycenters, diagnosticcenters, employer-basedoutpatient facilities, health maintenanceorganizations (HMOs), secondary and tertiary care institutions, traditional birth attendants andindigenous healers. Generally they concentrate on providing curative and rehabilitative care tothe upper and middle-income households.1.3.2Role of HospitalsAs in other dynamic societies, the role of hospitals has constantly evolved and expandedto meet the growing needs of the population as well as to harness the hospital's potentials givenits unique position as an institution in society. Some views, 6pinions and observations on therole of Philippine hospitals are presented below.Stressing the interrelationship between the hospital and other health and non-healthservices, Solon et al. (1991, Vol. 1, p. 39), point out that hospitals have the primary role ofproviding "services for people who become ill from diseases that are not readily preventable bynon-health sector activities (e.g., use safe water sources, proper imtrition)." Thus, expendituresfor preventive health servicesshould comprise a large component of the total health expenditure.Health status may be significantly raised if all preventive measures are exhausted so that therelatively high cost curative measures, those that hospitals are meant to provide, can beminimized. It is therefore necessary to assess the improvement in health status brought about byhospital services vis-a-vis field services.Expounding along the same idea, Dr. Thelma Navarette-Clemente (1992), President ofthe Philippine Hospital Association (PHA), in a newspaper article, writes that the walls ofhospitals have disappeared by extending not only curative but also preventive (e.g.,immunization, health education) and rehabilitative services to the communities.Another role of Philippine hospitals is expressed by Dr. Jaime Z. GalvezTan, currentlythe Undersecretary of Health, speaking at the 1991 Philippine Hospital Association Convention.He said that because of the phenomenon of rapid urbanization and the high concentration ofhospitals in the urban areas, hospitals are positioned to assume "a role that goes beyond curativeand rehabilitative care" - the practice of primary health care which to him is "health in the handsof the people."The core of primary health care is community participation. Tan speaks of the communityof patients (e.g., organizations of patients for coping with their illnesses, and bulk buying ofmedications); the community of hospital personnel and workers (e.g., formation of cooperatives,dialogues and consultations between management and labor); and the community within the[catchment area of the ho

Philippine Institute for Development Studies The PIDS Discussion Paper Series constitutes studies that are preliminary and subject to further revisions. They are be-ing circulated in a limited number of cop-ies only for purposes of soliciting com-ments and suggestions for further refin