“Representing over 20 percent of the U.S. Gross Domestic Product and accounting for approximately $1.5 trillion in revenue, health care is the single largest industry in the U.S. today.” (University of Phoenix, 2015). However, it is a vulnerable industry. The facility we are looking at is in New York, where the third highest losses in the country occur because of numerous problems dealing with Medicare and Medicaid reimbursements, cuts in funding, and pressures for discounted managed care, amongst others. The facility is called Elijah Heart Center (EHC). First we looked at the capital shortage because in an emergency, the hospital might not have enough cash to sustain itself. The challenge was to decide on the best strategy to solve the …show more content…
The simulator agrees. Once the capital shortage was dealt with and the new equipment was funded, we can now look forward toward capital expansion. The facility is seeing growth in patients and now wants to expand. Deciding on funding sources for expansion is a big decision that carries many risks. The option I chose was the HUD 242 Loan Insurance Program. I chose it because the net present value (NPV) for the project was $221 million when funded this way. This also allows them to have better interest rates because it’s treated as an investment grade loan, versus a risky one. The simulation agreed and further added that “the advantage of these bonds is that they are callable after eight years. If interest rates were to go down, it would be profitable for EHC to buy back the bonds and reissue the debt at a lower cost” and “there are no deadlines for using the funds unlike Tax-Exempt Revenue Bonds and they do not have any foreclosure fees as in private banking funding.” (University of Phoenix, 2015) I enjoyed this simulation because it provides a glimpse into a real life situation that is part of being a facility manager. I learned a great deal from the summaries provided by the simulation at the end of each section. I would have liked to have all the variables laid out before me and I think I would have made better decisions. But, I learned a lot from the information. Some of it was new to me like how the government reimburses less for procedures done on refurbished
Impact to Healthcare organizations - These increases in cost raise questions of health care expenses at the hospital level. As higher profits are sought, the cost will become unstable for all, thus causing many to postpone going to the doctor. However, there are many complicated problems associated with our healthcare system. We will focus on main issues that can correct many related problems within the current structure. More importantly, we need to find ways to ensure all Americans have access to health care; and we need to hone in on how we can get the best value for the $2 trillion dollars we spend annually on healthcare.
The finance department has reported that Elijah Health Center is facing a potential working capital shortfall which means the hospital may not have enough cash to sustain itself. The reasons for this shortfall is due to huge discounts given to managed care companies, higher wages given to contract nurses, low Medicare reimbursement levels, growth in current liabilities, and unused equipment. I will provide the best strategy in order to sustain the cash flow problem that Elijah Heart Center is facing. My strategy will consist of three phases. These phases include: capital shortage, funding options for equipment acquisition and funding options for
The role of finance in Health Care Systems, Inc. as a regional not-for-profit hospital relates to both the accounting and financial management aspects of the business. Facets of both accounting and financial management are intertwined with maximizing productivity by way of managing and analyzing financial operations to ensure resources are being utilized properly (Gapensiki, 2013). The divulgence of financial reports to managers and investors will aid in the development of plans and budgets for future growth, assess acceptable levels of financial risk, manage contracts appropriately and make decisions related to capital investments allowing the organization to expand service offerings thereby demonstrating greater value in the community. Operating as a not-for-profit entity requires that the hospital operate exclusively in the interest of the public for a charitable purpose. Through understanding who the primary third party payers
The Elijah Heart Center (EHC) has started seeing and realizing that the financial burdens that are starting to increase cost of staffing, the decreasing amount of reimbursements, the gathering of loans for expansion, and the costs of continuation of upgrading equipment is starting to seriously show strains and obstacles. From my analyzations EHC has to start projecting developments of series of options to create reductions in costs and to improve a stable amount of income. These decisions can be highly influential and by addressing these problems can secure long term goals and short term goals that can be reached to make EHC a more profitable organization.
This would mean that the hospital could not begin to pay this loan off for six-months adding more interest. By choosing the combination of these costs cutting options and the loan option patient care was minimally affected and the hospital will save a total of $811,249 in the first quarter alone, which will definitely be enough to meet the goal of saving 900,000 in the first year.
I have been brought in as a financial advisor to assist Mr. Gilbert Sanchez, CEO at Elijah Heart Hospital (EHC) to find some cost efficient ways to continue to provide quality care but at the same time reduce costs for the organization. EHC is a hospital that specializes in Cardiac surgeries and procedures. They would like to expand and have a promising growth in patients as well as revenue, but with the decrease in reimbursements from their primary sources of revenue, new strategies to save money are a much needed organization-wide goal.
Medical reform has been a long standing goal of the more liberal elements of our society. Their vision of universal health care took a step forward with the implementation of Affordable Care Act. Health care facilities, and specifically emergency rooms, already operate under the most stringent guidelines. The new regulatory and financial demands placed upon these facilities created by the Affordable Care Act looks to cause a crisis in medical facility management. Facility administrators are now faced with the challenges of significantly larger patient volumes, smaller staff sizes, rationing directives, and insurance regulatory complexity. The increased number of patients now covered by the Affordable Care Act will have a detrimental effect on hospital emergency rooms and services, creating a significantly larger burden on Health Care Administrators.
The cost of health care in the United States remains an important concern for American consumers. The challenges for controlling costs and providing a better health care system are various and complex. These challenges, in many cases, are in the realm of the Department of Health and Human Services (HHS) or other federal or state agencies (Department of Justice, 2012). Hospitals continue to team up with other facilities, insurers and for-profit companies, although the cause of the bump in M&A activity varies. While some hospitals cite financial problems, others join forces because of collaboration mandated under the
An increasing issue within the health care field is the inability to collect debt from the growing population of uninsured or underinsured patients. Healthcare organizations may be struggling to meet operational margins because the industry has never treated its customers like other retail-oriented sectors of the economy. A McKinsy and Company report states that hospitals incur sixty billion dollars in bad debt annually because they typically collect only ten to twenty percent of a total uninsured patient balance after service. (MacKenzie, 2009) This is due to a number of reasons, including poor accounting practices or a lack of patient information. This paper will discuss how one hospital, California’s Sutter Health, has taken steps to
Both of these hospitals had community leaders who cared about their future and were willing to invest community resources for a transformational change. During Valade’s tenure as Chairman of the Board at Henry Ford Health Systems, the Board of Directors invested over $1 billion dollars in new innovated projects and expansions of their hospitals. “Despite the poor economy, it maintained its Standard and Poor’s A rating and Moody’s A1 rating, increased its market share by 37 percent since 2005” (Welch, 2009). Dan Smith, a community leader, was the director of strategic planning in the community of Sebastopol, California. He noted that the hospital was on the brink of total collapse being unable to pay its bills. His bank stepped in and guaranteed a loan of $600,000 to the hospital (Hixon, 2008).
There is no surprise; health care organizations are currently pursuing additional debt to fund for its assets. It appears, through debt, an organization is able to financially leverage its current assets. “Almost all organizations fund a portion of their assets through debt. This approach to funding, referred to as financial leverage, makes sense if an organization can borrow money at a rate that is significantly lower than rate of return on assets purchased through debt ” (Walston, 2014, p.211). If health care facilities are lacking positive cash flow, there rate of return must exceed its current debt! Organizational leaders, who fail to sustain positive cash flow, they must increase the value of its current assets. Also, the organizations liabilities must be paid off utilizing its secured monies. Generally, a facilities financial leverage may well determine its further opportunity for long-term debt. However, there are management leaders who lack financial understanding on to how to financially leverage its company’s assets, which can lead to an organizations immediate downfall.
to convince him to invest the same amount in convertible debt or preferred stock where he can choose to
The healthcare facility industry includes hospitals, ambulatory surgery centers, long-term care and other facilities such as psychiatric centers. Many of the performance drivers are the same for the group as a whole, although hospitals face some unique challenges – they operate in a high fixed-cost environment with profit-loss centers such as emergency rooms that cannot turn away patients and thus rack up bad debt expenses. Surgery centers and long-term care have for-profit business models that have lower fixed costs and negligible bad
Like it or not, with the current state of the economy, as well as, enforced implications of the Affordable Care Act, a large number of hospitals and healthcare agencies will close their doors for good this year. Perhaps the most common cause of these closures will be the result of inadequate financial performance. Like any business entity, it is the lack of proper financing that ultimately kills any healthcare organization. There is a basic
The results using the Monte Carlo Simulation to model the portfolio were poor. The author shows that although there is reduced risk compared to an all stock portfolio the rewards (returns) are lower. This means a fund manager may move to all stock portfolios.