August 22, 2013
Simulation Review Health care organizations, predominantly hospitals are facing issues managing cash flows because of changes in billing procedures and the economic climate. Research quotes in Fierce Health Care Finance shows that hospitals are using investment cash flow, normally put in reserve for capital expenses, which pay for the operating expenses. In a study, which quotes the Fierce Health Care Finance (Ziegler, 2008) the depth of the problems become apparent “Between 2004 and 2007, the 170 hospitals study by best allocate a steadily growing portion of the assets to cash and short-term investments, climbing from 27% in 2005 to 31.1% in 2007. Reducing funds available for capital expenses becomes difficult for hospitals to keep up with technology and continue to thrive. Elijah Heart Center is facing the financial dilemma common in the specialized health care organizations, the combination of the need for improvement of technology, the reduction of income, and the demand for expansion. When there is not a need for technology and expansion, there is little that the hospital can do for improvement. The financial situation requires a combination of strategies to reduce cost and make the smartest choices regarding acquiring the need of technologies and expansion.
Phase I: Capital Shortage The goal is to save $900,000 for the first year and to help improve the cash flow problem that Elijah Heart Center is experiencing. The hospital can select two cost cutting options in effort to obtain a goal. The five cost cutting options to choose from are downsizing staff, reducing benefits, reducing agency staff, reducing length-of-stay, and changing the skill mix. The two options that can best suit that above goal are reducing staff and changing the skill mix. By reducing agency staff, this can eliminate staff salaries that are in contract, which are two times more than the salaries of other hospital staff. In addition to eliminating the most costly positions, some of these positions will not be useful as technology improves the workflow for the hospital. Eliminating contract positions is an approach that can significantly reduce expenses without affecting patient care or reducing revenue. Also by changing the skill mix, the active personnel without license can do basic tasks and staff with license can focus on the tasks that directly affect patient care. In addition to selecting cost-cutting options, a loan option needs to be put in place that is suitable for maintaining a high-quality cash flow. The hospital is expectant to select option one because even thought the interest rate was slightly higher than option two, there was no prepayment limitation for this loan, whereas loan option two has a six-month prepayment limitation meaning that this loan cannot be paid before six months. By choosing the combination of these cost-cutting options and loan option, patient care was minimally affected, and the hospital will save a total of $811,249 in the first quarter alone which will be enough to meet the goal of saving $900,000 for the first year.
Phase II: Funding Options for Equipment Acquisition The facility is in need of new equipment to make sure patients are receiving the proper care and to reduce costs in the long term. The facility needs to purchase three machines. The machines needed are high-speed CT scanner, an X-Ray machine, and a Ultrasound System. There are few different options when purchasing medical equipment and in this case they are buying new, re-done, or obtaining an operation or capital lease. The best strategy for obtaining a high-speed CT scanner will be to purchase a re-done machine. The useful life of this equipment is 10 years. Although the hospital may need to upgrade the technology for the scanner in five years, buying a re-done machine is the best option.…