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How do health care organizations fund projects (such as a remodel) or equipment (such...

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cuhuegbu | Valedictorian

Posted October 18, 2013 at 6:20 AM via web

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How do health care organizations fund projects (such as a remodel) or equipment (such as a robotic system) when the fiscal outlook is variable at best? What are some strategies that might be used to obtain the things the organization needs to address the "Strengths, Weaknesses, Opportunities, Threats" model?

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kipling2448 | (Level 1) Educator Emeritus

Posted October 20, 2013 at 1:09 AM (Answer #1)

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Hospitals, for better or worse, are businesses, and they are run like businesses.  Hospital administrators have balance sheets that reflect projected revenues and expenses for each fiscal year and, like any business, they are expected to make the latter conform to the former.  Hospital administrators, however, are in a unique situation:  healing the sick, especially the indigent sick, does not always allow for accurate balance sheets and for unanticipated costs like emergency room surges due to a catastrophic accident or event.  While governments frequently provide financial assistance during or following a crisis involving mass casualties or illnesses, the hospital will still find itself stretched thin.  While hospitals may apply the Strengths, Weaknesses, Opportunities, Threats (SWOT) model in an effort at improving the management of their enterprises, and while the model would help anticipate unexpected developments – i.e., the “Threat” quadrant of the matrix – the costs associated with medical care is sufficiently large as to make budgeting for unforeseen contingencies very difficult. 

Certainly, hospitals with sizable endowments, such as those affiliated with major universities, are better prepared to weather these storms than city hospitals in low-income communities.  An adequate response to the question regarding recapitalization of a medical clinic or hospital during uncertain economic times, however, excludes the endowment option as a viable answer.  How administrators fund expensive new equipment and procedures, then, is a matter of business planning.  And, as the attached essay on “Financial Issues for Managers” indicates, financial planning is a particularly important and complicated component of running a business. 

When contemplating the procurement of new equipment, then, administrators, and governing boards, have to approach decisions as any business would.  Whether the purchase costs would be recouped over a reasonable period of time; whether financing the purchase through loans provided by financial institutions makes economic sense; and whether the purchase is a requirement of remaining relevant in the field of advanced medical care are all questions that have to be considered.  The SWOT matrix could help provide answers to these questions, as they exist to highlight the strengths and weaknesses of the institutions in question and thereby provide means of assessing the economic viability of a major purchase or recapitalization of the facility. 

How the economics of medical care are affected by the Patient Protection and Affordable Care Act of 2010 remain to be seen, and may not be fully evident for several more years.  To the extent that the federal government becomes increasingly involved in the financing of health care, then the economics of health care can change considerably, and a business tool such as the SWOT matrix could become irrelevant. 

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