Current Asset Management and Financing - Research Paper Example

1) The revenue and accounts receivable cycle of a small clinic or healthcare provider is highly variable, not unlike a typical small corporation. In the last decades the necessity for infrastructure investments has been paramount for healthcare facilities of all sizes from hospitals to small clinics. In order to maintain competitiveness investments in personnel, new equipment, technology, training, and expansion of healthcare installations have been paramount to the long term viability and success of our healthcare facilities.

Factors such as seasonality and patient load affect their day to day operations of hospitals, but other systemic and structural factors outside their realm of control cause major operational limitations.For hospitals in general, rising operational costs and shrinking profit margins have negatively affected the industry. It is estimated that in the U.S. around a third of all hospitals are operating with negative profit margins (Sussman, Jordahl, 2010). Some of the major macroeconomic factors affecting their financial viability are:Outdated and Inefficient Administrative Processes- The lack of computerized payment process systems, manual procedures, repetitive rework of outstanding claims and redundant data collections have all contributed to the diminishing bottom line of most healthcare hospitals.

It has been estimated that around 30% of all claims filed by physicians have errors with around 15% of claims disappearing or getting lost in the process. For many hospitals around 80% of their claims are for small secondary payments ($100-$200) which often times go unclaimed or result in lengthy reimbursement delays .The overall complexity of the system also contributes to its operational inefficiency.Uninsured patients seeking treatmentRegulatory pressures, new operating regulations and requirementsLimited access to sources of capital (Connextions, 2006).2)The need for extra sources of reliable short term capital sources with reasonable terms, costs and risks will increase in the future.

Most small hospitals even with excellent credit ratings do not have the access to bank credit that top-tier hospitals enjoy. As a general rule taking advantage of alternative sources of short term operating capital is paramount to their long term viability. Even with the improved operating and liquidity positions of most hospitals, internal capital or operating cash flow alone, will not be enough to sustain the level of growth and capital investment necessary to maintain competitiveness. Philanthropic donations will play an increasing role in the funding of hospitals operations.

The investment income can also play a major role in providing operating capital. Maintaining credit strength will be of utmost importance to acquiring external sources of capital and maintaining the lowest possible lending costs. External sources such as offering tax-exempt bonds are available to those with a good enough credit rating as well as credit lines and bank loans, although at higher interest costs. For hospitals that have hit a debt ceiling alternatives such as asset backed working capital financing, leasing and joint venture or equity financing are available at higher costs.

Establishing strategic capital partnerships with other hospitals and companies will become important in securing affordable options for future capital requirements (Hfma, 2012). 3)For a healthcare organization such as a hospital, evaluating financial performance can be done using financial ratios. There are many ratios available that measure profitability, liquidity, asset and debt management, and market value. According to a study by a technical advisory group through the review of the literature and through hospital management surveys concluded that the most used ratios to measure financial performance were (Flexmonitoring, 2005):Operating Margin- a measure of overall profitability.

(Total operating revenue - operating expenses) / Total operating revenue Days cash on hand - a measure of liquidity or how many days of operations can be sustained with the available cash in the coffers. (Cash + marketable securities + unrestricted investments) / [(Total expenses - depreciation) / 365]Long term debt to capitalization-measures the ratio of total debt to total assets. By using these three key financial ratios hospital managers are better able to establish the overall general financial health of their firm and overall operating performance of a hospital.4)Although conducting a ratio analysis provides a good general guideline for assessing a firms financial and operational performance, it has its limitations.1. Financial ratios give you the numbers, but not the underlying reason behind those results.2. Many financial analysts traditionally utilize these ratios to benchmark against industry averages, but investors would be better served if ratios are compared with the industrys top performers.3. Company balance sheets are stated at historical value not current value, unlike income statements.

Therefore certain ratios can be artificially skewed providing an overall view of the company which is not in accordance of current asset valuation.4. Companies use many different accounting practices and financial statement results that can be manipulated to appear to be better performing overall.ReferencesConnextions.com (2006). Healthcare Revenue Cycle Management. Retrieved December 3, 2012 from http://www.connextions.com/files/TripleTreeRevenueCycle.pdf Flexmonitoring.org (2005). Financial Indicators for Critical Access Hospitals.

Retrieved December 3, 2012 from http://www.flexmonitoring.org/documents/BriefingPaper7_FinancialIndicators.pdf Hfma.org (2012). Improving the Business Caring. Retrieved December 3, 2012 from http://www.hfma.org/Templates/HomePage.aspx?ItemID Sussman, J., Jordahl, E. (2010). A Guide to Financing Strategies for Hospitals. Retrieved December 3, 2012 from http://www.hret.org/news/resources/captial_financing_report.PDF