Evaluating financial statements and using financial analysis methods is a critical part of the decision to make capital investments. The goal of capital management is to acquire and maintain sufficien
Capital Management
Lorie Lor
Financial Management of Health Care Organizations
April 25, 2019
Capital Management
Article review #1
Discuss why is it more difficult for healthcare companies to get expansion financing in the current economic situation?
It was much harder for some healthcare companies to get expansion financing because financial lenders became stricter and carefully looked at who they lent money to after an economic recession occurred. The recession was one of the main factors that many healthcare organizations were in financial trouble. Starting after 2009, financial lenders started to really investigate into the history of their potential clients. They would look at an organization’s previous performance ratings and if the given the loan, if positive prospected growth would occur. One reason why an organization could have a harder time getting a loan for expansion could be due to their poor operations previously or because they yielded earnings that were not satisfactory. Lenders are less at risk to borrow money to an organization who has had better operating performance because it would yield better earnings; thus they know that the organization would be in a better position to pay back their financial obligations.
Explain the 2 major issues with the Caribbean expansion the turnaround company found and why do you think they were brought up?
The two major issues with the Caribbean expansion was the company’s earnings in the year 2012. The earnings they made in 2012 was not enough to pay their current remaining debt. The bank wanted results for earnings through mid 2013 before committing to fund the expansion. Also, since the new expansion would be located far away, the bank was concerned about being able to put a hold on the new property. I think the reason these two issues were brought up is because if the medical device company is not in the position to pay back their outstanding obligations, the lender would be at risk of losing money and that it would not be favorable. Also, as the expansion of a new building is being built in the Caribbean, it is not exactly in the United States. Depending on what territory the building is being built on, there could be different regulations that could hinder a smooth transaction should any problem arise in the future. I believe that hiring a team to focus on problems with this transaction would be costly and time consuming.
Describe why healthcare companies need to look beyond their banks to secure financing?
Healthcare companies need to look beyond their banks to secure financing because banks can only lend up to a certain amount. Once the given amount has been exhausted, they cannot take out more loans and it would be extremely difficult to convince them otherwise. By having other financing secured such as private investors, they can secure additional funding for other expenses such as machinery or supplies. Without these other sources, healthcare companies cannot go on because machinery or supplies are the main sources that generates income and not the building itself.
Article review #2
Do you think the authors make a good case for expanding healthcare providers' methods of calculating break-even analysis? Why or Why Not?
I think that the author brings in a good case for expanding healthcare provider’s methods of calculating break-even analysis. The author talks about four elements that can be used to figure out when and how an organization can calculate or see when they are in the “middle” and the starting point where they will start potentially seeing profits. These four elements are cost, utilization, payment and margins, and clinical considerations. It is important to consider cost because this is the first information an organization would need to know in order to figure out when they can break-even and their Internal Rate of Return. Sub-categories of cost include consumables and service, with consumable materials needed to run a new technologies and service needed to keep the technology up and running. The element of utilization is needed be taken into account also. Utilization plays a big part of bringing in the income. The more a technology or machine is used, the more income it can bring in for a company though the depreciation also has to be considered also. Payments and clinical considerations also influence income such as the cost they can receive for a procedure and the training of staffs. These four elements are essential to accurately determine a break-even because one thing alone cannot accurately determine a point of profitability and it can only be assumed if these 4 elements are not taken into consideration.
Discuss non-financial factors do the authors believe need to be included in break-even analysis?
Some of the non-financial factors that the author believes that need to be included in a break-even analysis are demographics, health status, populations, and patient satisfaction. I think that the author is right because if a company cannot determine what kind of population they are serving, then they cannot align their services or won’t know what machines they need to invest in to adequately provide healthcare to their patients. One example could be that because certain race, gender, or age can have more of a common illness than another. By determining if their population is more concentrated with one or another, they can better equip their company with the right tools such as training or machinery. A great example would be if the population they are serving has a greater concentration of female over the age of 40, they can determine that investing in a mammogram machine would be a beneficial investment and that break-even would not be an issue in the future.
Explain how the Affordable Care Act affect break-even analysis?
The Affordable Care Act affects the break-even analysis because they have strict guidelines that a healthcare organization would have to adhere to if they do not want to be penalized. The ACA will reduce payments for patients who are readmitted for the same illness, thus the healthcare organization would still have to treat the patient fully but will not receive money at the full amount as the first admission treatment. When money is not reimbursed or only reimbursed at less than the full amount, this slows down the income that the organization could have received. Services that were rendered but not reimbursed would be considered written off services and this makes it more difficult to reach the break-even point. This forces the company to make sure they treat the patient correctly the first time around. Also, the ACA’s “never event” rolled out which made medical mistake non-reimbursable because those events or procedure should have “never” occurred such as wrong blood type transfusion or surgery in the wrong area of the body (Torrey, 2018).
Ethical Scandal
How does professionalism and ethics influence decision-making?
Ethics influence decision making every day in healthcare and other daily living situations. Sometime ethics is not really noticeable to a person when they are in the moment behaving ethically or unethically unless they think of it afterwards. I believe greed can definitely make a person or company unprofessional and therefore their integrity to being ethical is compromised. I believe that to behave ethically is to do the right things for the right reasons. An example of a company behaving unethically was when generic intravenous medications became scarce due to no profits, pharmaceutical companies did not want to produce these as there were no real incentives for them (Larson, 2013). I think that the pharmaceutical company was acting in its own interest and not the interest of the general population.
How do unethical standards impact an organization's performance and capital investments? Reference the concepts of embezzlement and losses.
Unethical standards can impact an organizations performance and capital investments negatively. Things that could be impacted would be losing good employees and patients, receiving lawsuits, loss of revenue, and ultimately being shut down if unethical behavior is bad enough. Some example could be a financial officer spending an organization’s money for personal use, not spending money on its intended purpose as agreed, embezzling money out of the company but reporting high profits or making risky deals to cover up the unethical behavior such as the executives in the Enron Scandal (Thomas, 2002). These two situations could lead to loss of financing or investor funds which can lead to a shutdown of a company which was the case for Enron.
Explain how you maintain ethical standards in relation to Code of Ethics.
I maintain ethical standards by doing what is right for the right reasons and not base on my personal interest or gain. I maintain professional ethics by respecting the differences among the different company standards and goals and co-worker’s religion I’ve worked with before. I do not disclose private and personal information for personal gain. Another great example is that I do not fraud my company of working hours for income gain as acting ethically will gain the trust of my company more than anything. I believe behaving ethically gives me a sense of pride of who I am and what I represent as a person of this community.
References
ACHE. (2015, November). Creating an Ethical Culture Within the Healthcare
Organization. Retrieved April 25, 2019, from American College of Healthcare
Executives website: https://www.ache.org/about-ache/our-story/
our-commitments/ethics/ache-code-of-ethics/
creating-an-ethical-culture-within-the-healthcare-organization
ACHE. (2016, November). Ethical Decision Making for Healthcare Executives.
Retrieved April 25, 2019, from American College of Healthcare Executives
website: https://www.ache.org/about-ache/our-story/our-commitments/ethics/
ache-code-of-ethics/ethical-decision-making-for-healthcare-executives
ACHE. (2019). ACHE Code of Ethics. Retrieved April 25, 2019, from American
College of Healthcare Executives website: https://www.ache.org/about-ache/
our-story/our-commitments/ethics/ache-code-of-ethics
Agran, S. (2013, October). Expanding Credit Lines in Order to Expand: Assessing
a Company's Viability for Expansion Financing. Retrieved from EBSCO
MegaFILE database. (Accession No. 91512447)
Larson, J. (2013, March 6). Five Top Ethical Issues in Healthcare. Retrieved
April 25, 2019, from AMN Healthcare website: https://www.amnhealthcare.com/
latest-healthcare-news/five-top-ethical-issues-healthcare/
Laskaris, J., & Regan, K. (2013, December). The new break-even analysis.
Retrieved from MEDLINE with Full Text database. (Accession No. 24380255)
Thomas, W. (2002, March 31). The Rise and Fall of Enron. Retrieved April 25,
2019, from Journal of Accountancy website:
https://www.journalofaccountancy.com/issues/2002/apr/theriseandfallofenron.html
Torrey, T. (2018, October 2). Medicare's Never Events Policy There's More to It
Than Just Patient Safety. Retrieved April 25, 2019, from Very well health
website: https://www.verywellhealth.com/
what-is-medicares-never-events-policy-2615384
