In an exclusive interview with Finance Outlook India, Srinivasa Raghavan, former CFO of Healthcare Global and a Certified Independent Director with nearly 36 years of diverse business experience, discusses the critical role of certified independent directors in healthcare governance. He provides insights into how healthcare organizations can maintain strong financial oversight while navigating complex regulatory frameworks and emerging industry challenges. He discusses how independent directors can effectively oversee compliance, risk management, and strategic decision-making while keeping up with emerging trends such as ESG integration, AI implementation, and changing public health policies that are reshaping healthcare governance standards. 

What are the current financial requirements for healthcare compliance and regulations? 

Healthcare compliance in India centers on two fundamental pillars: patient care and patient safety. Patients care is about treatment protocols, the personnel and equipment to facilitate care, whereas patient safety includes all the infrastructure and system of healthcare distribution. 

There are several regulatory structures that healthcare organizations need to work through to ascertain full compliance. In 2010, an act aimed at addressing the issue of financial transparency in the operation of hospitals was enacted; Clinical Establishments Act 2010 which makes the healthcare services to maintain minimum standards of Facilities & Services. Accounting standards, bookkeeping and comprehensive requirements which include statutory audit requirements, are stipulated in the Companies Act and that are required to be observed by the healthcare businesses. There is also the Income Tax Act that regulates certain tax policies and financial reporting for the healthcare. 

Although core services in healthcare are exempt by GST, the ancillary service is mandated by GST compliance. NABH is a body that accredits most of the hospitals in India with reference to the National Accreditation Board of Hospitals, which allows accredited hospitals to access the schemes of the government and to improve business credibility by the common set of quality standards put across. 

Specific areas of operation need special consideration, i.e., biomedical waste procedures involving rigorous control of the handling requirement and regulatory surveillance, and narcotic drugs regulations that cover storage, consumption, and disposal of the controlled drugs. The transparency of pricing is also a necessity to inform patients about the cost of treatment. 

The compliance to healthcare organizations requires strong systems of internal control and an ongoing audit process. Failure to comply may lead to serious fines and major repute and image loss. The Independent Directors role is significant in the supervision of these needs, in jurisdictions with a high risk where the penalty is more stringent. 

How do you ensure transparency and accountability in the budgeting and financial reporting process? 

The provision of transparency and accountability of budgeting and the financial reporting process demands an appreciation of the idea that a budget is just a side product of the inner business driving forces. Before independent directors can guarantee the appropriate control and responsibility over these budgets, they should first understand what can influence them. 

Because of the minimal time that the independent directors spend in organizations, there is a need to ensure that they gain ample business insights effectively. This should start with a very clear idea into what was gone well with the business so far and what could have been done better and major factors that influenced the performance of the business both positively and otherwise. It is on this basis alone that the directors can analyze budgeting and financial reporting processes. 

Key aspects that facilitate transparency are the ability to identify measures that should be taken to address deficiencies realized in the past year, knowledge of the distribution of responsibilities as well as the assessment of investment in new business activities, projects or innovations. The issue of proper pricing and cost disclosure should be included in every budgeting and reporting to facilitate transparency. 

Audit committee oversight is also essential especially in large and listed companies where the corporate organs are subjected to independent scrutiny of internal controls and financial statements by the Independent Directors. The accountability is enhanced when all the budget components are included in the performance indicators of the senior management, to own at different levels. 

In case of healthcare, specific innovations will not only be measured by the conventional ROI, but also pilot emergent research, evaluate costs and benefit of treatment protocols, and governmental insurance plans such as Ayushman Bharat. The overall practice of this is making sure that the financial practice of a given healthcare organization stays in line with the distinct needs of healthcare as well as having both transparency and accountability spread through the organization. 

How do you assess the financial sustainability of a healthcare organization from a governance perspective? 

The evaluation of financial sustainability should be based on the knowledge of major factors affecting healthcare business success. The independent directors are required to consider some of the key metrics which will reveal the viability and potential of the organization. 

Some of the key measures are ARPOB (Average Revenue Per Occupied Bed) which quantifies the operational and price effectiveness. ALOS (Average Length of Stay) is also equally important since shortened stay allows more frequent bed turned over and higher occupancy rates. 

Revenue mix analysis provides crucial insights into business composition. In multi-specialty hospitals, this includes examining the proportion of cardiology, orthopedics,  and other service lines. Cancer hospitals focus on radiation, clinical, and surgical service distributions. Understanding this mix helps identify growth areas and dependency risks. 

The composition of revenue sources significantly impacts cash flow stability. Cash and insurance payments provide faster collections, while government schemes involve longer payment cycles. Balancing this mix ensures sustainable cash flow management. 

Asset utilization, particularly expensive revenue-generating equipment, directly affects financial performance. Higher utilization rates maximize return on significant capital investments. Doctor Productivity ratios help assess human resource efficiency. 

Investment monitoring in new projects, whether greenfield developments or asset acquisitions, requires careful tracking to ensure effective deployment and timely revenue realization, maintaining overall financial sustainability. 

What are the measures taken for financial implications of strategic partnerships or mergers and acquisitions in healthcare? 

Healthcare partnerships and M&As usually occur under three major forces, namely expansion of the geographic market or new markets, increasing capacity to boost revenue generation, or acquiring new treatment lines that are not covered by the existing portfolio. Knowledge of these motivations will assist directors to assess the alignment of strategies and the possible value creation. 

The main evaluation measures are thorough regulatory evaluation to get to recognize more requirements of compliance after the transaction. Using strategic fit analysis, one is sure that the partnership takes into consideration core competencies and pursuing business focus areas. Valuation assessment provides the right amount of investments and the stretching capacity, whereas ROI projections give the desired returns and its determining factors. 

It is also important to plan on exit strategy since there are clear routes that can be taken to reduce losses in case partnering does not reflect as planned. This involves grasping the legalities as well as divorce practices. 

The age of cultural and ethical fit measurement is especially significant in healthcare, and specifically when it comes to public-private alliances and partnerships as the government agencies want to consult the services of the privately owned companies. The operations of these collaborations undertake close reflections of the working ideologies, level of patient care as well as ethical conducts to be able to establish a long-lasting relationship. 

When these measures are collectively subjected to due diligence, it would mean that informed decisions are made at the same time that the interests of the organization are safeguarded, and strategic benefits of healthcare partnerships and acquisitions are maximized. 

How do you see the role of certified independent directors evolving over the next decade with respect to financial operations? 

The role of independent directors in healthcare financial operations is expanding significantly beyond traditional oversight functions. ESG (Environmental, Social, and Governance) considerations are becoming paramount, with healthcare companies at varying maturity levels requiring directors to understand sustainability reporting and impact measurement across financial statements. 

Artificial intelligence integration represents another critical evolution area. Directors must comprehend AI's influence on clinical protocols, operational efficiency, and financial reporting accuracy. This technological advancement demands directors with specialized healthcare knowledge to effectively evaluate AI-driven financial implications and strategic investments. 

Increasing complexity from ESG requirements and AI implementation suggests organizations will prefer directors with healthcare industry experience. These specialists can better navigate sector-specific challenges while accelerating strategic initiatives that prepare organizations for future regulatory and market demands. 

Incremental spending of the public health achieved by CSR actions and the partnership between the government and the corporations is making the governance narrow. Government plans such as Ayushman Bharat liberalise access to healthcare, necessitating directors to comprehend improved frameworks of compliances and evaluating reputational risks. 

International benchmarking is important as India becomes a destination of medical tourism. Directors are required to review global best practices, so that organizations provide quality care at competitive prices, and do not sacrifice global standards. This involves advanced financial evaluations against international competitors on the efficiency of their operations, results of their treatment, and costs in order to sustain competitive positions. 

About the Author