Financial Impacts and Constraints Paper

634 WordsJan 29, 20113 Pages
Financial Impacts and Constraints Paper The Effect of Pharmacy on Operation Management A health care facility needs to monitor the processes and operations of its pharmacy, since it is the major profit producer. The pharmacy is required to maintain minimal errors, excellent customer service, and high efficiency, while returning significant profits. Pharmacies are considering a profit center for the hospital and have a direct effect on the hospitals bottom line. Since pharmacies are a major income provider for health care facilities that run at low profit levels, pharmacies need to be monitored to ensure that they are running efficiently and striving to increase profits continually. Financial Factors Determining…show more content…
The profitability is determined by tracking revenues, expenses, and margins. A hospital’s revenues come from the total billings to all government and private insurance companies for services rendered to a patient. Revenues are typically divided into categories on the income statement outpatient and inpatient services allowing the operations manager to compare the most profitable type of patient for their facility. The income statement also shows deductions and exclusions or the amount of bad debt caused by non-payments, contracted price adjustments, and discounts. On the average a health care facility can expect about 20-60% of income to be affected by deductions. The difference between revenue and operating expenses shows the true operating income of the facility or the profits in the course of normal business. This is a picture of the hospital’s financial health, which should be at least 1-3% of revenues. Ratios that come from the income statement are important as well. Ratios are used to determine profit margins, return on capital, labor productivity, and supply expenses, which are all major elements of the financial stability and efficiency of the health care facility. The statement of cash flows tracks all the incoming cash flows from the business and investment activity of the health care facility. Cash outflows are also tracked for expenditures, labor and the other activities of
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