Encyclopaedia - Finance

Tightening cash flows coupled with the likelihood of increased capital spending are a cause for concern among healthcare system executives. In a recent report by the Healthcare Financial Management Associatio

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

n entitled “Financing the Future”, some startling conclusions were reached regarding current capital spending:

• The deteriorating financial condition of hospitals are making capital access more difficult.

•

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

he gap between “haves” and “have nots” are widening as to capital access, creditworthiness, and the ability to finance the future.

As for the predictions of future capital expenditures, the study compiled some

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

interesting statistics:

• 72% of CFO’s expect capital expenditures to increase in the next five years.

• 85% of hospital CFO’s surveyed said they thought it would be more difficult f or their organizations t

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

fund capital expenditures in the future

• 63% responded that they expected to be more dependent on cash from operations to fund capital needs.

Staying as up to date as possible with new equipment technologie

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

and replacing aging plants are a key priority among health providers. These organizations also must spend money on cleaning up old liabilities and build outpatient facilities in order for their operations to

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

be viable in the future. However, expenditures for updated equipment such as over $1 million for an updated PET scanner aren’t being matched by income. Reduced Medicare reimbursements haven’t covered costs.

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

s a result, healthcare systems have had to make up the difference.

From the patient perspective, they don’t want to visit a facility that merely “keeps up”. Patients are paying more out of pocket expenses tha

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

n ever before. As a result, they expect to be able to benefit from the technological advances they read about in the newspapers.

The gap between what patients need and what cash-starved healthcare providers c

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

n provide is ever widening. This gap is likely to remain in effect if factors such as the Medicare situation, escalating malpractice insurance premiums, and technology that is costly, continue to squeeze cash

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

lows.

What should the provider do?

1. Work with financial service companies that really know healthcare. By that, I mean a company that can truly understand the provider’s goals and strategies as well as the

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

particular needs of the patients. They need to work with companies that put forth financial solutions like equipment leasing that don’t sacri

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

ice or compromise other segments of the business.

2. Shed assets that are a financial drain on the healthcare provider. They need to determine which real estate assets are productive for the future success of

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

the business and which are not. For example, medical office buildings are difficult to maintain and manage. Selling the asset to a third party owner can relieve the provider not only the headaches of propert

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

management, but can free up cash and improve the balance sheet dramatically.

3. Control expenses and improve operational functions. Although many of the expenses of a hospital or practice are fixed in nature

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

there are still strategies that can be employed to improve the bottom line. One method is to periodically perform employee reviews to determine which staff members are productive and which aren’t. An untrain

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

ed or simply incompetent nurse or other staff member can cost the facility a lot of money over time. The analyst should also review the purchasing policy of supplies and surgical instruments. Is the facility

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

taking advantage of quantity discounts? Are competitive quotes received from other medical supply distributors?

4. Collections can likely be improved. When collection staff members follow up on both third pa

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

rty and self pay receivables, rather than just wait until they become considerably past due, days outstanding usually decrease. This can make a tremendous difference in the amount of available cash flow.

It i

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

clear that capital struggles are likely to continue for the foreseeable future and it is critical that healthcare system executives must “think outside the box” to remain competitive and in some cases, survive

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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