Healthcare Financing: Equipment Replace Proposal

Introduction

The largest hospital in a provincial municipality requires a new CT scanner since the old one is outdated and continues to experience technical malfunctions. A competent proposal to the executive board for the new equipment has to take a multi-step approach of presenting benefits from the perspective of finances, human resources, and strategic management. Strategies may include familiarizing with the required technology and its cost and then analyze budget variances in the attempt to justify the hospital’s ability to afford the equipment. Furthermore, it can be beneficial to monitor the use of the CT scanner by employees. It can be helpful to conduct surveys on the consistency and patterns of use of the equipment by physicians. Finally, creating a fully developed business plan that will present a SWOT analysis to justify making the purchase. The plan should consider regulatory and organizational strategies that will impact strategic planning for the hospital (Danna, 2014).

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Main body

The traditional healthcare business model of independent physicians utilizing hospital resources is unsustainable. An integrated model that has been successfully implemented in many locations around the US employs all or most of the physicians within its “affinity group.” This system allows for integrated governance and leads to capital efficiency by meeting clinical, strategic, and financial targets (Zismer, Sterms, & Claus, 2011). A new CT scanner that is critical for medical diagnosing in a variety of specializations will provide the hospital with a strategic advantage of negotiating with independent physicians to form an integrated health system; thus, benefiting the hospital financially.

A purchase of a CT machine is a capital expenditure due to its high price and cost of maintenance over a prolonged period. Financial data is critical in the evaluation of major capital expenditure purchases and requires forming a budget proposal. It has to consider existing assets that still require maintenance expenses and new capital assets. During the process of constructing a budget, it is critical to determine the cumulative net cash flow which would help to determine the capital expenditure plan in consideration of the organization’s budget and revenue (Baker, Baker, & Dworkin, 2018). The hospital will most likely rely on debt financing to acquire capital for the purchase since it is tax-exempt. A long-term loan paid off within a decade would be an appropriate type of extended debt financing for equipment purchase. Tax-exempt debt may be refinanced as part of the process to fund new capital purchases (Zelman, McCue, & Glick, 2009).

Conclusion

In a funding proposal to replace equipment, a compelling argument should be presented. This may include outlining the technological capacities of new equipment, comparing costs of purchase in comparison to repair costs for the old device, and arguing for improved health outcomes for patients (Baker et al., 2018). An emotional appeal for the critical need of the equipment to serve the healthcare needs of the region’s population should be based on strategic reasoning and financial competence. Strategies such as creating an integrated health system should be developed that will help to justify purchasing from a perspective of fiscal sustainability. Understanding capital budgeting provides a nurse manager with the skills to present a strategically competent proposal. Analyzing financial data and operational capabilities are necessary to detail the benefits and risks which the organization would face making the purchase.

References

Baker, J. J., Baker, R. W., & Dworkin, N. R. (2018). Health care finance: Basic tools for nonfinancial managers (5th ed.). Burlington, MA: Jones and Bartlett Learning.

Danna, D. (2014). Essential business skills for nurse managers. Health Leaders Media. Web.

Zelman, W., McCue, M., & Glick, N. (2009). Financial management of health care organizations: An introduction to fundamental tools, concepts, and applications (3rd ed.). Hoboken, NJ: Jossey-Bass.

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Zismer, D., Sterms, J., & Claus, B. (2011). Capital efficiency and integrated health system designs. Healthcare Financial Management, 65(7), 88–90, 92, 94.

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