Financial Options for Outsourcing
Information Systems
Some of the key benefits of outsourcing information systems are cost savings, focus on core competencies, and access to the latest technologies. Pay attention to cost savings, which is necessary because an in-house department could be much more costly than an outsourced initiative. Hence, economies of scale can be leveraged to deliver the same services at a lower cost and create an environment where the burden on the hospital’s budget is reduced proactively (Rowshan et al., 2020).
Another topic that has to be covered is the focus on core competencies and how hospitals should excel in providing quality healthcare. On a long-term scale, it could be essential for actors involved to extend their expertise and partner with specialized vendors. The most recent technologies have to be reviewed because outsourcing creates room for reducing upfront investments while implementing cutting-edge innovations (Olofsson et al., 2019).
With this particular approach, the whole health information system remains current. The organization can review several outsourcing options to increase the output and generate additional income. For example, traditional outsourcing might include an external vendor for all internal operations (Rowshan et al., 2020). It is one of the best options because the specialized expertise offered by a third-party organization cannot be replaced.
Consequently, the organization could also implement cloud computing to embrace agile and scalable solutions, contributing to reduced infrastructure costs. The key benefit of cloud services revolves around secure data storage and seamless updates. According to Olofsson et al. (2019), a managed service provider could contribute to the overall performance of the information systems department by enhancing cybersecurity measures and necessary software development efforts.
Medical Billing
Regarding medical billing operations, several strategies cannot be ignored. For example, outsourcing medical billing has to be directly associated with cost reduction because respective savings are leveraged by external expertise and an increased degree of scalability (Burke, 2022). Over time, the organization can eliminate additional staffing needs and focus on training and innovation.
Another crucial value that has to be covered within the framework of the current presentation is the increased efficiency of outsourcing because of the existence of dedicated teams that expedite claims processing and streamline revenue management efforts. Third-party outsourcers of medical billing services also possess extensive knowledge of healthcare regulations and coding requirements. Hence, legal issues can be avoided because outsourcers recognize the importance of legal compliance.
Several important considerations have to be included in the discussion. For example, careful vendor selection has to be carried out to assess the stakeholders’ financial stability and track record (Burke, 2022). The hospital’s mission and values should align with the third party’s data security and communication protocols. From ensuring patient privacy to maintaining effective communication, multiple tasks must be carried out to transfer responsibilities seamlessly and establish a positive workplace environment.
Human Resources
The ultimate area of outsourcing that can be approached within the framework of the current presentation is the human resources department. There can be more than a few advantages related to this phenomenon, as one of the primary effects is the fact that many sources of specialized expertise are not available internally. Partnering with outside human resource outsourcing providers is vital to share existing experience and knowledge (Olofsson et al., 2019). Over time, it may lead to the effective and efficient functioning of the human resources department.
Another crucial topic is the existence of opportunities to cut costs when outsourcing at least some of the human resource operations. This means an in-house human resource management team will become obsolete, and additional cost savings will be achieved. The whole infrastructure would cost less, resulting in an increased quality of patient care on a long-term scale. Another benefit of addressing the outsourcing of human resources is that the organization can adjust to the market’s changing demands by tapping into scalability and operational efficiency. The best practices across the industry have to be implemented to ensure that the organization can keep up with rivals and bring something new to the table, even while outsourcing some of the activities.
One of the challenges that has to be considered when outsourcing human resources is the presence of data security concerns (Olofsson et al., 2019). It is also possible to lose direct control over the department, so it is vital to pick outsourcing partners carefully and develop strong contractual agreements.
Just-in-Time Inventory Management
Central Sterile Supply
Just-in-time (JIT) inventory management represents a significant benefit for any given healthcare organization. Suppose we adopt this approach to the area of central sterile supply. In that case, it will significantly reduce costs because storage and inventory levels will be kept at their lowest feasible points (Ahmadi et al., 2019). In turn, the capital and the budget allocation can be optimized to create cap space for other critical investments.
Accordingly, the risk of stockouts is reduced through the interface of delivering supplies only when necessary. Thus, waste is minimized, and most processes are streamlined efficiently to make the central sterile supply operations significantly smoother. The next important concept to be included in this discussion is quality assurance because JIT removes most delays in patient care (Gurumurthy et al., 2021).
Over time, patient safety and satisfaction can be enhanced by maintaining appropriate inventory levels. For the central sterile supply, JIT is crucial because it helps forecast the demand for resources and proactively manages the existing inventory levels. Another important idea is that JIT prevents demand fluctuations and increases the prevalence of interdepartmental collaboration and positive relations with suppliers (Ahmadi et al., 2019). This way, excessive supplies are avoided, and process standardization is achieved to enhance inventory control. The overall accuracy and efficiency of organizational operations can be seen as dependent on JIT in central sterile supply due to continuous monitoring and improvement efforts.
Pharmacy Department
Another area of implementing JIT is the pharmacy department, where exceptional operational efficiency, waste reduction, and improved financial performance could be achieved. The team would have to focus on the demand forecasting capabilities of the initiative to learn more about historical data and patient trends. This way, more accurately estimating organizational and patient needs would reduce excess inventory and stockouts (Gurumurthy et al., 2021).
Another important concept that has to be discussed here is the mutually beneficial relationship between the hospital and reliable suppliers. The pharmacy department could communicate consistently to deliver medication promptly and reduce lead times. A significant advantage for the organization is also the presence of a centralized ordering system that can be utilized to consolidate all purchases across the hospital (Leite et al., 2020).
From a long-term perspective, this is one of the best ways to leverage economies of scale and lower the existing procurement costs. Accordingly, new technologies could be utilized to track inventory and optimize storage space to facilitate JIT restocking. Also, the pharmacy department could address the issue of inventory management by maintaining a limited reserve of critical medications (Gurumurthy et al., 2021). The availability of JIT measures is important because it reduces holding costs for the hospital and enhances the cash flow. With minimized waste and improved patient safety, the organization will be able to maintain a fresh supply of medications while preventing overstocking.
Flexible Budget for Staffing Needs
Advantages
Implementing a flexible budget comes with several advantages that must be reviewed in detail if the team wants to achieve improved financial performance. First, Burke (2022) suggested that a flexible budget can accommodate different patient activity levels and volume regardless of the hospital. The existence of different activities makes the hospital’s infrastructure significantly more adaptable. It helps the administration adjust staffing levels as well. Any given fluctuations in demand or staffing ratios will not affect the hospital.
Another advantage that must be considered when dwelling on staffing needs is cost control (Rowshan et al., 2020). The ability to monitor labor expenditures provides enough room for the administration to set efficiency and productivity standards to help the team reallocate or reduce certain investments if necessary. Hence, financial sustainability can be promoted by achieving higher stability.
The third concept to review is the existence of performance evaluation efforts that require the team to compare budgeted figures to the actual results (Rowshan et al., 2020). Thus, understaffing can be avoided if the team pays attention to resource allocation and the need to make informed decisions. The ultimate advantage of a flexible budget for staffing needs is essential decision-making support that can be helpful when evaluating potential investments or considering probable staffing needs (Burke, 2022). The CFO and the board of directors can use these valuable insights to predict the financial impact of different staffing options and see how the state of affairs could be enhanced.
Disadvantages
Despite the benefits of a flexible budget for staffing needs, several drawbacks have to be considered before making an informed decision regarding how the hospital should move forward. The primary disadvantage that cannot be ignored is the instability and uncertainty of the workforce functioning under a flexible budget (Ahmed & Abbas, 2022). This is because flexible budgets are generally developed for organizations with varying activity levels.
Nevertheless, the inability to predict patient volumes or acuity strains the budget. It intensifies the impact of healthcare demands on budget allocation. Suppose the hospital chooses to rely solely on a flexible budget for staffing. In that case, it will result in excess staffing and inadequate staffing decisions.
The second issue with a flexible budget for staffing needs is the inability to retain employees and maintain high job satisfaction (Burke, 2022). Inadequate staffing can lead to burnout and reduced employee morale. In turn, it can become the main source of financial inefficiencies and improper use of organizational resources. On a long-term scale, poor worker retention and the overall lack of job satisfaction can lead to reduced productivity and turnover.
The ultimate limitation of a flexible budget for staffing is that it does not suit long-term strategic planning. With a focus on immediate cost containment, the team could experience stagnation and poor skill development, hindering the planning process (Ahmed & Abbas, 2022). Combined, these variables will lead to low-quality care provision and the lack of experienced healthcare professionals willing to contribute to the hospital’s long-term goals.
Decision-Making Factors
Lease Equipment
When there is a discussion on the topic of leasing the required equipment, there are several factors that can affect the outcomes of the decision-making process. First, it is essential to consider the overall cost of the initiative because financial implications can lead to diverse outcomes. Suppose the team chooses to lease the necessary equipment. In that case, regular payments will be required over a fixed period, meaning that there can be a difference between the upfront cost and the fee that has to be paid to maintain the items during the lease period.
At the same time, Sahu et al. (2020) noted that leasing offers a higher level of flexibility because a hospital’s needs may evolve, putting a strain on the budget if all necessary equipment is purchased and not leased. With the essential equipment being leased, the team will have room for easier replacements and upgrades that eradicate the need to capitalize on outdated equipment. This kind of flexibility is vital if the hospital wants to maintain an environment where medical advancements are respected and implemented by the team.
Another essential value that has to be included in the current discussion is that leased equipment can be easily maintained and supported without the need to purchase it (Sahu et al., 2020). The leasing company will take care of necessary repairs and routine maintenance activities, making it easier for the hospital administration to keep track of maintenance needs. In the case where certain equipment is purchased, the whole maintenance infrastructure will have to be built by the hospital. The risk of obsolescence can be mitigated by leasing the required equipment, as it prevents the team from working with outdated equipment. Accordingly, the leasing company can handle the disposal process and protect the hospital from additional costs.
Another vital decision-making factor is that diverse leasing options can improve cash flow and budget management (Bastani et al., 2020). This method is exceptionally effective, especially if the hospital’s funds are limited. Ultimately, equipment lease is a competitive advantage that can be leveraged to stay on the same page with other hospitals in the area (Sahu et al., 2020). It will positively affect diagnostic capabilities and the general quality of patient care.
Equipment Acquisition
One of the reasons why the hospital could consider purchasing the required equipment is the existence of financial implications and their feasibility. When looking at the tools available in the market, the CFO should take the time to assess cash flow projections and potential financing options before making any decisions regarding the available funds and the possible outcomes of the given investment (Bastani et al., 2020). Ongoing maintenance expenses will be calculated in line with the upfront cost and the potential returns on investment associated with the respective equipment. This is important if the volume of patients can be increased, and healthcare outcomes can be enhanced with the necessary equipment. At this point, it is also essential to consider operational requirements because they may help the team connect the hospital’s needs to the specifications of the given tools.
According to Sahu et al. (2020), specific features have to be in place to enhance the healthcare workflow and ensure that the existing infrastructure can be improved. Medical professionals from other departments should be attracted to the discussion to define the expected utilization rate and the potential impact on patient care. The ultimate benefit that has to be associated with buying the equipment is the possibility to remain competitive while owning the equipment and being responsible for customer support and service quality (Bastani et al., 2020). This way, the team will make informed decisions concerning technological advancements and the future of the hospital.
Financing Strategies and the Cost of Capital
The cost of capital is a complex variable that can be defined as the expenses that relate to investments and financial operations. The idea for the hospital is that the majority of costs across the organization’s activities are affected by financing options. For example, the first choice for the hospital would be to pick debt financing over equity financing to influence the overall cost of capital (Gurumurthy et al., 2021).
The team’s primary responsibility will be to assess available loan and bond options to see how interest expenses would be resolved. Respective interest payments have to be evaluated by the team to ensure that the hospital can pay lenders and increase the cost of capital at the same time. In other cases, the team could choose equity financing and focus on issuing stocks because the latter is not associated with interest payments. The problem with equity financing is that it requires dividend payments and dilutes ownership, causing damage to the overall cost of capital.
Another topic of discussion that has to be covered here is the existence of custom terms and conditions about financial arrangements signed by the hospital. According to Ahmed and Abbas (2022), the cost of capital can be directly informed by dividend rates on stocks and interest rates on loans. It happens because creditors and shareholders need their returns.
The ultimate value that can be associated with the cost of capital is the existence of risks inherent in the hospital’s operations. The organization’s financial position predicts the creditworthiness of its initiatives and the possibility of receiving and providing funds (Leite et al., 2020). A higher risk grade can be assigned to hospitals where lenders demand higher interest rates.
Debt Financing
Benefits
When reviewing the key benefits of debt financing, the primary advantage that comes to mind is the possibility of investing in new technologies and acquiring the necessary equipment. It is safe to say that loans and bonds represent one of the crucial contributors to hospitals avoiding depleting their cash reserves. The main task of the administration is to make essential purchases and access funds upfront to enhance operational efficiency and focus on patient care.
Another crucial benefit that must be addressed is increased flexibility that can be utilized to negotiate favorable payment terms with suppliers (Sahu et al., 2020). For example, there can be early payment discounts and extended payment periods. Hence, cash flow management could be improved as the team would have more opportunities to time its payments strategically. It is an important benefit because it can optimize the hospital’s funds and liquidity.
With all this information in mind, it can be noted that tax advantages can be unlocked based on debt financing initiatives. The hospital’s tax liability will be reduced with the aid of the interest paid on loans due to the tax-deductible nature of the latter (Leite et al., 2020). This way, additional funds will be allocated to hire additional medical professionals, upgrade the infrastructure, or implement new staff training. Consequently, favorable borrowing terms are going to be achieved, allowing the organization to leverage its assets. This concept also revolves around reliable repayment history and the hospital’s ability to save money in the long run.
Risks
The primary risk that must be addressed when discussing debt financing for the hospital is the increased financial burden amplified by interest payments. When there is debt, it means that the organization’s cash flow—at least a portion of it—should be reallocated to service the debt (Burke, 2022). This can limit other investments and activities depending on the same budget. A vigilant analysis of the given cash flow would be required to ensure that interest expenses are covered without hindering essential daily operations.
Another specific risk that has to be associated with debt financing is the impact of these money-related operations on the hospital’s credit rating. If excessive debt is in place, there will be consistent downgrades in credit ratings (Bastani et al., 2020). Hence, additional challenges will transpire regarding future borrowings and higher interest rates.
The lack of access to common sources will affect the overall financial flexibility, making it impossible to move forward without a comprehensive risk assessment. The final risk that has to be addressed within the framework of the current presentation is that risk mitigation strategies cannot be utilized to eradicate all the hazards concerning debt financing (Leite et al., 2020). In cases where certain risks were ignored, it would lead to strained relationships within the supply chain and contribute to ineffective management and non-transparent communication with suppliers. Therefore, healthy vendor relationships can predict the effectiveness of risk mitigation strategies for debt financing.
References
Ahmed, Z., & Abbas, H. (2022). Shifting boundaries in healthcare supply chains’ HRM: A qualitative perspective. International Journal of Management Practice, 15(5), 586-608. Web.
Bastani, P., Hakimzadeh, S. M., Rezapour, A., Panahi, S., Tahernezhad, A., & Sheikhotayefeh, M. (2020). Strategic purchasing in the market of advanced medical equipment: An applied model for developing countries. Health Policy and Technology, 9(3), 348-355. Web.
Burke, A. (2022). Copy/paste: A reflection on hospital medicine. JAAPA, 35(6), 1-2. Web.
Gurumurthy, A., Nair, V. K., & Vinodh, S. (2021). Application of a hybrid selective inventory control technique in a hospital: a precursor for inventory reduction through lean thinking. The TQM Journal, 33(3), 568-595. Web.
Leite, H., Lindsay, C., & Kumar, M. (2020). COVID-19 outbreak: Implications on healthcare operations. The TQM Journal, 33(1), 247- 256. Web.
Olofsson, P. T., Aspelin, P., Bohlin, J., & Blomqvist, L. (2019). The impact of contracts on outsourcing computed tomography examinations from a Swedish public university hospital to a private radiology unit. Radiography, 25(2), 148-154. Web.
Rowshan, M., Shojaei, P., Askarifar, K., & Rahimi, H. (2020). Identifying and prioritizing effective factors on outsourcing in public hospitals using fuzzy BWM. Hospital Topics, 98(1), 16-25. Web.
Sahu, A., Vikas, H., & Sharma, N. (2020). Life cycle costing of MRI machine at a tertiary care teaching hospital. Indian Journal of Radiology and Imaging, 30(02), 190-194. Web.