Introduction
Healthcare services usually transform during the period of major scientific breakthroughs or global crises. However, the current COVID-19 pandemic challenged health delivery services worldwide. Indeed, many hospitals reported a 70% reduction in the use of primary healthcare services at the beginning of the lockdown (Cutler, 2020). Moreover, environmental pollution and climate change damage human health, reshaping healthcare (Salas & Jha, 2019). However, three other forces affect the delivery of health positively or negatively today. Firstly, innovations in diagnostics and therapeutics allowed hospitals to offer patients a broader service for various diseases and incentivized them to participate in research (Farah, 2021). In fact, medical research received substantial investments due to this force. Secondly, the modern healthcare system is now client-oriented, giving more power to patients (Farah, 2021). Thirdly, new regulations about medical care appear every year; thus, they will continue to drive changes in healthcare institutions (Farah, 2021). The purpose of this project is to discuss opportunities for service expansion for Oak Street Health (OSH), the organization that provides services to Medicare patients. Specifically, the proposed improvement for OSH is to strengthen preventive care to improve outcomes and increase cost savings.
Financial and Budgetary Considerations
Financial Statements
OSH’s primary mission was to address high healthcare costs and poor outcomes while increasing the organization’s profit. Hence, they implemented a multi-payer model from the beginning that allowed this organization to attain an increase in total revenue over the five years since its opening (United States Securities and Exchange Commission [USSEC], 2021). OSH investments in primary care significantly reduced acute events and complications of chronic illnesses in about 97,000 patients (USSEC, 2021). Still, the company needs to continue improving preventive care among the at-risk population, but the financial statements need to be analyzed before monetary rearrangements are made. The financial information that will be reviewed is balance sheets and statements of shareholders’ equity. The former displays the firm’s debts and capital, while the latter represents stakeholders’ shift of interests. According to the recent report, OSH’s long-term financial obligations are equal to $332,000, the company owns more than $780,000, and its shareholders’ equity is equal to $423,000 (USSEC, 2021). In this case, these two statements are needed to determine the amount of money that can be allocated to this project and what interests the investors have now.
Proposal Impact
The proposed change may substantially improve patient outcomes and recruit more clients, changing the company’s financial statements. The supposed rise in the total asset is twice as high as before implementing this project. However, the company may need to get a loan to start the new program; therefore, the net debt may grow. Moreover, placing more attention on preventive care can increase OSH’s popularity on the stock market, increasing shareholders’ equity.
Flexed vs. Fixed
The proposed project’s outcomes will vary with a fixed and flexed budget. A fixed budget means that income and expenditure in an organization are fixed, while a flexible budget, as the name implies, allows adjusting spending if necessary (Brouwer et al., 2019). If this project is introduced using fixed accounts, it will not have a broad capacity due to limited resources. Conversely, a flexible budget will give more freedom to the implementation of the new preventive care program.
Proposal Justification
Ratio Selection and Results
To demonstrate the financial effectiveness of the proposed project, several ratios should be defined and calculated. Specifically, liquidity and profitability ratios are selected to show the program’s advantage over the OSH. The liquidity ratio can be defined as a company’s ability to pay its short-term and long-term debts (Zorn et al., 2018). For example, OSH’s current short-term ratio is equal to the proportion of total assets, $780,978, to liabilities, $332,060, which is approximately 2 to 1 (USSEC, 2021; Zorn et al., 2018). It indicates the fact that the firm has an excellent ability to pay its obligations. The profitability ratio is the income generated relative to the input, and a higher number points to a more significant profit (Zorn et al., 2018). The profitability ratio in OSH was equal to 74% in 2020 and 76% in 2019, based on the knowledge of the organization’s total revenue and cost of care. Although there was a two percent drop during the pandemic, the project can be considered viable because the stabilization of the economy is expected once herd immunity is achieved through vaccination.
Short- and Long-Term Impact
The financial statement analysis and ratios calculations showed that OSH has a remarkable capacity to pay debts and maintain high income. OSH attained economic sustainability during five years of existence in the market of healthcare providers. Nevertheless, a 2% drop in profitability should be closely monitored because even slight changes can be harmful to the company in the future. Still, the short-term impact of this project is a slight decline in the company’s profit in the first year of its implication. However, the long-term effect of the prevention program is increased patient outcomes, reduced admissions, an increased number of new customers, and a rise in income.
Since the short-term impact of the project on the company’s financials, the recruitment of investments from private organizations and governmental agencies can mitigate this effect. Furthermore, organizing social events such as charity marathons to receive donations may help reduce the adverse consequences of relocating resources to the new program. Moreover, OSH will have to continue controlling healthcare costs within the organization because the main reason why patients choose this institution is lower prices. Lastly, introducing preventive care for at-risk people or patients with chronic diseases in OSH may improve health outcomes and shift the healthcare perspective in the United States.
Conclusion
To conclude, the proposed project can be valuable for Oak Street Health in its attempt to reduce healthcare costs and improve patient outcomes because it allows for strengthening preventive care. It should minimize various complications among patients with chronic illnesses and stop the disease progression in the population at risk. Moreover, OSH will be able to gain the trust of current customers and recruit more clients, which, in the long term, should increase the company’s net income. The analysis of recent financial statements and ratios calculation showed that OSH’s current state is relatively stable because it continues to make a profit and regularly pays its obligations. However, a 2% drop in the profitability ratio was determined during the previous year of strict lockdown measures; hence, the project may have a short-term adverse impact on the company’s financials. Still, although the preventive care program will need additional funding, the project is plausible from a longer perspective because better health is a delayed benefit that will have a higher return on investment.
Reference
Brouwer, W., van Baal, P., van Exel, J., & Versteegh, M. (2019). When is it too expensive? Cost-effectiveness thresholds and health care decision-making. The European Journal of Health Economics, 20, 175-180.
Cutler, D. (2020). How will COVID-19 affect the health care economy? JAMA, 323(22), 2237-2238.
Farah, L. (2021). The six major forces driving healthcare business and IT strategies. Extreme.
Salas, R. N., & Jha, A. K. (2019). Climate change threatens the achievement of effective universal healthcare. BMJ, 366, 1-7.
United States Securities and Exchange Commission. (2021). Oak Street Health, Inc.
Zorn, A., Esteves, M., Baur, I., & Lips, M. (2018). Financial ratios as indicators of economic sustainability: A quantitative analysis for Swiss dairy farms. Sustainability, 10(8), 1-20.