March 25, 2015
Large health care organizations, particularly non-for-profit hospitals, come face to face with swelling difficulties handling cash flow every day. These struggles can be due to variations in economic climate and billing. Research tells us that the cash flow, hospitals would normally use for capital expenses, are frequently being used to pay for operating costs (Ziegler, 2008). Functioning as such, causes risky financial circumstances moving foward. With reduced funds accessible for capital expenditures, the need for a health care organization to thrive and keep up with the latest technology can become challenging. After reviewing the simulation for New York’s Elijah Heart Center, it is clear that the center is being faced with financial dilemma’s surrounding capital shortage, equipment acquisition, and capital expansion. Also in the simulation, groupings of financial tactics had to be chosen to help eliminate expenses, and strategize on the center’s need for expansion and acquiring medical equipment. The choices made will be analyzed below.
Phase I: Capital Shortage
Elijah Heart Center’s goal is to increase cash flow for the first year, by saving $900,000.00. The hospital’s finance board can do this by selecting two of five budget cutting decisions, involving staff, patients, and benefits; and by choosing a finance loan. These five choices include: reducing employee benefits, reducing the length-of-stay for patients, downsizing staff, changing the skill mix of employees, and reducing agency staff. Being a member of the finance board, the decisions made were to reduce agency staff and change the skill mix. By reducing agency staff, the center will reduce salaries from contracted employees, who make twice the salary of the regular employed staff. Additionally, as technology advances, removing the highest paying positions will be acceptable for procedures and workflow. In making the decision to eliminate agency staff, it will considerably shrink expenses and not affect patient care. The second option to change the skill mix for unlicensed employees, who assist with patients, will allow them to complete simple tasks while registered or licensed staff concentrate on the duties that affect patients directly. Out of two loan options, loan option number one was chosen to help maintain cash flow for the Heart Center. This option had the highest interest rate, but did not have a repayment time frame, as option two had a six month repayment limit. The outcome of choosing between the combination of loan choices and cost-cutting selections, the impact on patient care was only slightly affected and Heart Center will approximately save $811,249.00 in their first quarter. This will cause them to reach their goal to save $900,000.00 for the year. Phase II: Funding Options for Capital Equipment Acquisition
The facility is in need of new equipment to make sure patients are receiving the proper care and to reduce costs, long term. The facility needs to purchase three machines. The machines needed are: an x-ray machine, high-speed CT scanner, and an ultrasound system. There are a few different options when purchasing medical equipment and in this case they are buying new, refurbished, or obtaining an operation or capital lease. The best strategy for obtaining a high-speed CT scanner would be to purchase a refurbished machine. The useful life of this equipment is 10 years. Although the hospital may need to upgrade the technology for the scanner in five years, buying a refurbished scanner is the best option. The hospital can upgrade the equipment again at a later time extending the useful life of this device. This will be recording as an asset but at a lesser value. The loan is also low at a 9% rate. The best option for obtaining an x-ray machine would be to choose a capital lease. The payment values are a higher percentage than if...
References: Ziegler, A. (2008). Fierce Health Finance. Hospitals using investment cash flow for capital
needs. Retrieved from http://www.fiercehealthfinance.com/story/hospitals-using-
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