Sharp Healthcare
Sharp Healthcare in San Diego has not afforded the opportunity to acquire financial capital through equity markets since it is not a profit making hospital. As a result of this it enjoys the advantage of accessing tax-exempt debt markets. Section 501(c) (3) of the Internal Revenue Code permits all not-for-profit hospitals to take advantage of the tax-exemption (New Jersey Commission on Rationalizing Health Care Resources, 2010). In addition, it benefits from lower interest rates and therefore has the capacity to acquire more debt in its capital structure. Sharp HealthCare funds the expansion of its programs and facilities through its internally generated profits, capital borrowings, bond offerings as well as donations from well wishers. The hospital employs external financial auditors to audit its expenses, report revenues, fund balances, functional expense allocations, and changes in its net assets as well as its balance sheet items. As a result, the financial statements presented to the public ought to mirror the audit reports of the external financial auditors. Just like other not-for-profit hospitals, Sharp Healthcare has remained financially stable over the past years. For example, Sharp HealthCare’s net revenue for 2008 was about $1.9 billion and about $2.1 billion for 2009 which are below the standard revenue collection of for-profit hospitals of its caliber (Sharp HealthCare, 2010).
Unique Financial Policies
For the Sharp HealthCare, it uses financial statements to show the level of charity care that it offers to the community in. This is usually done in notes and is done to ensure that the hospital remains pertinent to the donors as well as the oversight agencies and that it maintains its tax-exempt status. The hospital makes sure that its program service costs equates to its entity exempt purposes.
Evendale Medical Center
Evendale Medical Center’s financial structures are designed to achieve operating efficiency as well as profitability unlike in Sharp HealthCare where the financial structure is designed to maintain entity tax-exempt status. It has adopted prospective payment system to achieve cost containment in its financial operations particularly in its capital expenditures. The hospital does not receive any funding from the government and therefore has to depend on its revenues to carry out its capital expenditures (Evendale Medical Center, 2010). At Evendale Medical Center, the hospital billings are set to be higher than the expenses to achieve profits. The hospital relies on its financial leverage to expand its return on assets. Thus, generally the hospital takes a business perspective in its financial decision makings.
Unique Financial Policies
The manager has to control the hospital’s expenses, the patient revenues, operating revenues as well as financial and medical adjustments that have to be made in the hospital to ensure the hospital achieves efficiency and maximum profitability (Evendale Medical Center, 2010).
Lincoln Medical Center
Lincoln Medical Center receives direct funding from the federal as well as the state governments and therefore its financial structure is not profitability oriented but efficiency oriented. Most of its revenues come from the large number of publicly insured patients. Since the hospital does not focus on profitability it uses its positive total margins to subsidize its operating losses whenever it fails to generate enough total margins that can meet its financial obligations. Apart from the government’s direct financial support, Lincoln also relies on its Days Cash-on-hand from its patient revenues to carry out its daily financial operations. Days Cash-on-hand in this case refers to the hospitals available float cash as well as its highly liquid assets (New Jersey Commission on Rationalizing Health Care Resources, 2010). It also depends on the Auxiliary to finance its operations and projects. The Auxiliary acquires funds from donations, contracts with concessions, membership dues and also earns interests from its auxiliary accounts.
Lincoln Medical Center acquires long-term debts and its equity funds to finance expansion of its facilities and programs. The hospital borrows capital from bond proceeds, commercial banks as well as capital leases from equipment manufacturing companies. Financial auditing of the hospital is done by both the government auditors as well as other independent external auditors to evaluate the capitalization ratio of the hospital’s finances as well as the usage of the patients’ revenue and its overall net revenues. Its financial statements are audited before they are presented to the public (The New York City Comptroller’s Office, 2002).
Unique Financial Policies
Lincoln Medical Center’s financial policies are designed to be in line with the operating procedures, rules as well as regulations that were established by New York City Health and Hospital Corporation so as to meet the qualifications for accessing the auxiliary funds. Auditing is done to determine whether the hospital’s internal financial infrastructure is in line with the Auxiliary bylaws (The New York City Comptroller’s Office, 2002).
Common Financial Management Practices
The financial environments of these three hospitals exhibit significant difference especially in their financial structures and financial policies. However, they share particular financial management features particularly in terms of borrowing and their management focus towards achieving efficiency in their operations. All of them borrow financial capital from the commercial institutions to meet their financial obligations. They also strive to achieve efficiency in their financial operations and as such, they involve both the internal and external audits to evaluate their financial performance. They use their financial as well as accounting information to review their financial practices and hospital operations to ensure that they focus towards achieving efficiency. They also analyze the inpatient as well as outpatient services using their internal financial environment to determine their performance.
Problems Specific to the Healthcare Industry
Factors that affect financial performance of these hospitals include the indigent care load, case mix, payer mix which also includes different levels of self-pay and medical aid, staffing ratios as well as their high costs of operations which lead to financial distress (New Jersey Commission on Rationalizing Health Care Resources, 2010). Hospitals are sometimes forced to offer uninsured treatments as well as uninsured discharges to patients. Unlike other sectors of the economy, the healthcare industry requires expertise performance, thus the cost of maintaining medical experts in hospitals is very high as compared to most industries. This contributes to the financial distress experienced by the hospital. They therefore may not be able to employ enough staff to meet the demands of the patients thus lowering their revenue collection. Besides, most hospitals’ capital structures are highly leveraged with long-term debts as they attempt to meet the increasing demands for medical care. Hospitals also suffer from the lower revenues they collect from the publicly insured patients. Unlike other industries, the healthcare industry attracts very few investors who are willing to hold shares in the hospitals. Most investors rarely take any interest in exploring the already existing healthcare centers while few opt to establish their own healthcare centers. This leads to the limited cash reserves in the healthcare sector. Thus the healthcare centers are not able to achieve efficiency and effectiveness in their operations.
Reference List
Evendale Medical Center. (2010). Revenue cycle manager. Web.
New Jersey Commission on Rationalizing Health Care Resources. (2010). Assessing the financial and operational condition of New Jersey hospitals. Web.
Sharp HealthCare. (2010). Sharp HealthCare fact sheet. Web.
The New York City Comptroller’s Office. (2002). Audit report on the Lincoln Medical and Mental Health Auxiliary, Inc., of the New York City Health and Hospitals Corporation. Web.