Paul Mersiovsky
Northcentral University,
MCA 5012-V2, Assignment 7
Laurie Wellner, Ed.D.
January 26, 2020
Introduction
The best ideas are but ephemeral dreams without a plan. The plans having been made, the demands of primordial acumen satisfied, not a single patient will benefit nor will any paycheck be cashed until the abstract is made a concrete. For healthcare entities, such particulars are made particularly complex with the rigors of regulatory compliance. The restrictions suffered at the whip of the Occupational Safety and Health Administration are expanded geometrically with the added interest of the Centers for Medicare Services, the Joint Commission and the Licensing Bodies of each of the states. The challenges of bringing concrete streams of value in healthcare hardly end there. Like any business, a strict accounting of net worth is a prerequisite for economic presence. Amortization will must be employed to maintain actuarial and fiduciary structure. The practice of medicine and behavioral health drives technological and procedural innovation like none other. The cutting-edge technology of today may very well be obsolete before its related constructs have outlive their cycles of value. Add to this the rigors of supply and demand, the fickle nature of the customer base and ever-changing coefficients of exchange, the nigh insurmountable nature of capitalization in healthcare begins to emerge. A multi-million-dollar magnetic resonance imaging machine may seem like the perfect addition to a rehabilitation hospital until market saturation and pre-leveraged relationships are brought into consideration. A new obstetrics practice brought to fruition in an orchard of retiring occupants of empty nests may be unwise unless the physical characteristics of this new establishment permit for evolution to geriatrics or oncology. One might question the need for colonoscopy equipment in a pediatrician’s office or an otolaryngology operating room near an army base. Even when medical relevance is established, the economic state of a given population might give pause. Will accrual-based accounting allow for slow pays and bad debt when the demands of upkeep and maintenance come due? Successful capitol budgeting in healthcare requires rigorous consideration of return on investment forecasts that will include a study of what a consumer group needs and what they can afford.
Economic Factors
The Great Depression, and calamities like it, have chiseled economic acumen into the collective unconscious. The relationship between the production of all goods and services in an economy and the price for purchasing these goods and services is the fodder of financial decisions both large and small. It a universe with increased demand and decreased supply comes inflation and exorbitant labor costs. The deceased demand and increased supply results in surplus; vast amounts of money frozen on warehouse shelves collecting dust. Basic human wants and needs aside, demand is nothing more than an expression of monetary availability. Governments all over the globe have learned to control their monetary supply through various means. In the United States, this comes largely in form of open market practices that remove money from the system by controlling interest rates. A higher interest rate means a greater tendency towards savings versus capitol purchase. A lower interest rate means the cost of financing is less, and likewise capitol expansion. More capitalization means more jobs and the increase money velocity in the monetary system. A wonderful situation to be in unless the vast majority of the workforce is already gainfully employed. At unemployment rates drifting below the six percent mark, the competition for labor is fierce. Returns on human resource expansion are diminished which results in less increase in production for the same amount of work. More money goes into the system without a commensurate increase in goods and services. The result is inflation and the devaluation of currency. So it is that capitalization in healthcare must be tempered with the state of the economy (Payne, 2015). What people can afford will change based on the relative value of the money they possess and the availability of steady sources of income. Recession in the form of lessoned production and a decrease in jobs means less money going into managed care reservoirs and less opportunity for employer instigated risk transference. The wisdom of building a new plastic surgery wing might be called into question in weakened economy. In a strong economy replete with lower intrest rates, one may also expect greater labor expense. There may be need of outsourcing services to well-established intermediaries that will ultimate cost more than an internal labor force (at least on the front end). So it is that healthcare capitalization decisions must take into account the present and future buying power of the population to which it will offer ongoing services. This is the price paid in terms of due diligence by healthcare entities that enjoy the greatest measure of capitalization success.
Population Factors
One might question the success of beef processing plants intending to service India. Likewise, a pork processing plant might not have great success in Tel Aviv or Jerusalem. On the other hand, a firm that specializes in high school football equipment might find great success in Texas. Such need-based particulars are certainly valid in the delivery of healthcare. Various stages of life, different areas of the country and specific characteristics of a given population must be taken into account when bringing to bear new healthcare related functionality. High African American populations will need Sickle Cell Anemia treatment modalities. Other cultures may have need of more Malaria based or infectious disease treatments. An aging population will need oncology while a younger population needs pediatrics and obstetrics. In terms of capitalization, a decision for a new expensive equipment and the amortization period that follows must be tempered with a forecast of future healthcare needs within a given community. As with all forecasting, there comes questions of science vs experience, fact vs conflicts of interest. There must be a level of confidence in the sensitivity of any forecasting model if one is expecting any level of success in their capitalization efforts.
The Process
So, it all comes down to process. Not a shot in the dark, capitalization is yet another of the many planning steps that go into bringing a healthcare concern to life. Indeed, an ever-expanding system verging into network status will find themselves in great sequala of process in such endeavors. This makes standardization and successful reproduction all the more critical for financial survival and continue growth. Mukherjee et Al, (2016) describes a four-step process that mimics logic with largely universally accepted success. The key theme is bottom-up thinking and medical necessity. The first step is the systematic identification of opportunity. This step is driven by physicians in analysis of population validity. Potential return on investment is constructed through systematic analysis of biologic and technologic properties. The development stage is then implemented for the options with the greatest consensus on success probability. Again, driven from a perfunctory standpoint with monetary boundaries. In the third step, selection of the project with the greatest chance of success occurs. Success is measured in the fourth step through both performance and optimal care outcomes. Before a dollar is spent or a shovel lifted, careful rigor has been applied in the detection, analysis and identification of capitalization ventures with the greatest chance of creating margins throughout the amortization life cycle.
Conclusions
The purchasing power and individual needs of its consumers must be used to produce forecasts to determine the feasibility of capitol investments in the healthcare industry. Bad debt, slow pays and changes in demand will do nothing to insulate the balance sheet from the net loss of value a firm will suffer if forecasted income falls short of the costs of amortized increases in physical capabilities. Focused practice demands particular technology if it is to improve upon general practice. As the physical conditions of populations shift, the optimal treatment courses will demand different foci in relation to changing medical and behavioral health spectra. This means that capitalization may linger after return on investment has vanished from consideration. This axiom of practice only adds to the waves of complexity that exist for the accountants of any healthcare firm. The rigors of regulatory compliance, quality of care and micro scrutinized patient outcomes must be considered in addition to those issues universal amongst businesses in any market. Alas, abstract concepts will neither cure the sick nor pay the rent. Hospitals, clinics, emergency rooms and procedure suites are essential to practice and an expectation of an ever demanding and increasingly vigil public. So it is that dreams of healthcare deliver will manifest in reality with only the greatest of care and keenest of foresight into the future.
References
Mukherjee, T., Al Rahahleh, N., Lane, W., & Dunn, J. (2016). The Capital Budgeting Process of Healthcare Organizations: A Review of Surveys. Journal of Healthcare Management, 61(1), 58–77. https://doi-org.proxy1.ncu.edu/10.1097/00115514-201601000-00011
Payne, C. T. (2015). “Capital ideas” for health care in 2015. Hfm (Healthcare Financial Management), 69(5), 64–71. Retrieved from https://search-ebscohost-com.proxy1.ncu.edu/login.aspx?direct=true&db=bth&AN=102495323&site=eds-live
Finerfrock, B., & Baugh, N. (2016). Site Neutral Payment Gaining Traction on Capitol Hill. Radiology Management, 38(1), 11–12. Retrieved from https://search-ebscohost-com.proxy1.ncu.edu/login.aspx?direct=true&db=ccm&AN=112238921&site=eds-live
Healthcare Finance 