HCS 405: Simulation Review
Simulation Review
De’Anna Andrew
HCS/405
March 25, 2015
James Taylor
Simulation Review
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 …show more content…
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 the facility were to choose an operating lease or purchase a refurbished machine. This x-ray machine is expected a useful life of 15 years. Even though the present value is lower, the facility will receive more use out of this equipment. The best option for obtaining an ultrasound machine would be an operating lease. This technology is expensive and will only have a useful life for about five years. The upgrade payment is lower as well as the monthly installment rate. Once the machine is obsolete, the hospital can upgrade the device with this plan. The facility will be paying more but in the grand scheme it will be cheaper with the upgrading options. When choosing the best options for purchasing equipment, it results in lower costs and more profits when thinking future tense. This is true even if the costs were higher at this time. Having the latest technology brings in more profit, saves money in the long run, and provides the best care to
patients.
Phase III: Funding Options for Capital Expansion The third phase of the Elijah Heart Center (EHC) simulation was to secure a program choice for capital expansion. The hospital’s intent is to expand and upgrade the facilities at EHC to generate higher net revenues. The hospital’s expansion will lead to increase in revenues and is expected to break even with the capital expansion in approximately seven years, according to the earnings projections related to this plan. The expansion projection also shows the spending for the expansion is planned over a four-year period. The three choices were a Tax Exempt Revenue Bond, a HUD 242 Loan Insurance Program, and a Private Bank Funding. The Tax Exempt Revenue Bonds have a usable time frame of only three years. With this time frame in mind the Tax Exempt Revenue Bonds are not a best choice, it also has a ten-year early payment penalty as well as an escrow against gross revenue. Both the HUD and the private bank are first mortgages; neither have an escrow account on the income of the hospital. The private bank loan has a 2% early payoff penalty for any time prior to the 15-year life of the loan. The HUD 242 loan makes the best sense with the eight-year early payoff penalty fitting nicely with the projected income from the expansion. With the Chief Executive Officer, Gilbert Sanchez, giving his opinion to avoid costs in the long run this selection will be ranged with keeping the organizations goals and vision’s moving forward.
Summary
This particular simulation provides students a chance to think critically and participate in making decisions for real-life experiences within a health care facility, associated to finance. It was also informative in the beginning of the simulation, because there was a brief summary of the history of accounting. Furthermore, the simulation proceeded to give basic information and background on the impact of finance in the health care industry. Topics discussed in this simulation included: capital shortage, evaluating funding options for new or used medical equipment, and reviewing options for capital expansion. Participating in the section of capital shortage in the stimulation helped teach why it is important to evaluate different options available and how to make a decision that will best benefit the facility. During this section two cost-cutting measures; reducing agency staff and changing the skill mi, on top of a loan option were the best options available. Moreover, during the section of evaluating options for updating or buying medical equipment the options chosen were the best choices for the facility. It is vital that the organization reviews the pros and cons for buying and leasing equipment. This simulation provided examples of why in some cases it is better to lease instead of buying equipment. Finally, during the section of evaluating funding options for capital expansion the HUD 242 Loan Insurance Program was the primary choice for the organization. Taking the helpful information from the Analyzing Financial Indicators for Decision Making simulation and applying it to a current or future health care management position will prove beneficial. Knowledge gained from this exercise is a priceless tool in creating or improving a valuable health care employee.
References
Ziegler, A. (2008). Fierce Health Finance. Hospitals using investment cash flow for capital needs. Retrieved from http://www.fiercehealthfinance.com/story/hospitals-using- investment-cash-flow-capital- needs/2008-10-29
De’Anna Andrew
HCS/405
March 25, 2015
James Taylor
Simulation Review
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 …show more content…
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 the facility were to choose an operating lease or purchase a refurbished machine. This x-ray machine is expected a useful life of 15 years. Even though the present value is lower, the facility will receive more use out of this equipment. The best option for obtaining an ultrasound machine would be an operating lease. This technology is expensive and will only have a useful life for about five years. The upgrade payment is lower as well as the monthly installment rate. Once the machine is obsolete, the hospital can upgrade the device with this plan. The facility will be paying more but in the grand scheme it will be cheaper with the upgrading options. When choosing the best options for purchasing equipment, it results in lower costs and more profits when thinking future tense. This is true even if the costs were higher at this time. Having the latest technology brings in more profit, saves money in the long run, and provides the best care to
patients.
Phase III: Funding Options for Capital Expansion The third phase of the Elijah Heart Center (EHC) simulation was to secure a program choice for capital expansion. The hospital’s intent is to expand and upgrade the facilities at EHC to generate higher net revenues. The hospital’s expansion will lead to increase in revenues and is expected to break even with the capital expansion in approximately seven years, according to the earnings projections related to this plan. The expansion projection also shows the spending for the expansion is planned over a four-year period. The three choices were a Tax Exempt Revenue Bond, a HUD 242 Loan Insurance Program, and a Private Bank Funding. The Tax Exempt Revenue Bonds have a usable time frame of only three years. With this time frame in mind the Tax Exempt Revenue Bonds are not a best choice, it also has a ten-year early payment penalty as well as an escrow against gross revenue. Both the HUD and the private bank are first mortgages; neither have an escrow account on the income of the hospital. The private bank loan has a 2% early payoff penalty for any time prior to the 15-year life of the loan. The HUD 242 loan makes the best sense with the eight-year early payoff penalty fitting nicely with the projected income from the expansion. With the Chief Executive Officer, Gilbert Sanchez, giving his opinion to avoid costs in the long run this selection will be ranged with keeping the organizations goals and vision’s moving forward.
Summary
This particular simulation provides students a chance to think critically and participate in making decisions for real-life experiences within a health care facility, associated to finance. It was also informative in the beginning of the simulation, because there was a brief summary of the history of accounting. Furthermore, the simulation proceeded to give basic information and background on the impact of finance in the health care industry. Topics discussed in this simulation included: capital shortage, evaluating funding options for new or used medical equipment, and reviewing options for capital expansion. Participating in the section of capital shortage in the stimulation helped teach why it is important to evaluate different options available and how to make a decision that will best benefit the facility. During this section two cost-cutting measures; reducing agency staff and changing the skill mi, on top of a loan option were the best options available. Moreover, during the section of evaluating options for updating or buying medical equipment the options chosen were the best choices for the facility. It is vital that the organization reviews the pros and cons for buying and leasing equipment. This simulation provided examples of why in some cases it is better to lease instead of buying equipment. Finally, during the section of evaluating funding options for capital expansion the HUD 242 Loan Insurance Program was the primary choice for the organization. Taking the helpful information from the Analyzing Financial Indicators for Decision Making simulation and applying it to a current or future health care management position will prove beneficial. Knowledge gained from this exercise is a priceless tool in creating or improving a valuable health care employee.
References
Ziegler, A. (2008). Fierce Health Finance. Hospitals using investment cash flow for capital needs. Retrieved from http://www.fiercehealthfinance.com/story/hospitals-using- investment-cash-flow-capital- needs/2008-10-29