Introduction
A Multihospital system (MHS) can be defined as an affiliation of two or more hospitals, subordinate to a central organization. The steady growth of multihospital arrangements can recently be seen in the healthcare industry. This tendency demonstrates that MHS might solve the pressing problem of increasing costs of in-hospital care. Scenario analysis can be an efficient method of estimating future expenses and assessing potential risks in capital budgeting for MHS.
Main body
Multihospital systems can be investor-owned and not-for-profit, although in either case, scenario analysis has its advantages and disadvantages that need to be taken into account. Benefits for multihospital systems include preparing for the future, avoiding the risk of poor investment, and projecting a return on investment. As practice shows, in comparison to an autonomous hospital, MHS confronts fewer restraints for development. However, incorrect calculations and assumptions can be harmful to capital budgeting decisions. All things considered, advantages are greater under the stipulation that a professional financial analyst is involved.
Another question is if financial analysis should be the primary tool in capital budgeting decisions. Mukherjee (2015) addressed the issue of the capital budgeting process of healthcare institutions, in particular, multihospital systems, and determined several pro arguments that support the usage of discounted cash flow calculations. According to Mukherjee (2015), this valuation method for hospitals resulted in an abrupt “increase in the level of sophistication in capital budgeting practices” (Pertinent Questions About the Capital Budgeting Process section, 2015, para. 5). Financial analysis helps financial managers to develop a procedure for assessing investment outcomes and decreasing the cost pressure. Therefore, financial analysis should play a dominant role in capital budgeting decisions for MHS.
Conclusion
To summarize, capital budgeting practices of healthcare institutions may differ, but scenario analysis proves to be an efficient way to estimate the value of an investment. The research of specialists in this field shows the positive outcome of a skillful approach for the overall growth of multihospital systems. A sophisticated approach to financial analysis can contribute to the long-term development of a high-functioning multihospital system.
Reference
Mukherjee, T. K. (2015). Capital budgeting process of healthcare firms: a survey of surveys. Journal of Healthcare Management. Web.