Working capital management in hospitals

Title: Healthcare Finance

Edition: 6th (2016)

Author: Gapenski

Publisher: Health Administration Press

Book ISBN: 978-1567937411

Working Capital Challenges

Healthcare organizations strive to manage working capital in such a way that they can reliably cover their short-term expenses while also getting the best possible benefits from their capital. In managing working capital, healthcare organizations face some common challenges, as well as other challenges that are particular to the institution.

What challenges would a for-profit facility that has a constant stream of revenue face in managing its capital? How would these challenges differ from a military hospital that is given its funding at the beginning of the year?

In two separate paragraph give your personal opinion to Michele Mcgrory and Crystal Moore

Crystal Moore

Working capital is traditionally known as defining a business's current assets. In today's society it is known in two forms gross working and net working capital. Gross working capital determines current assets while net working capital determines current assets minus current liabilities. (Gapenski, 2016)

Cash, float and revenue cycle management are a few challenges I chose to discuss regarding the challenges of for-profit organizations. For-profit organizations should minimize the amount of cash held due largely in part that cash is a non-earning asset. Float on the other hand refers to a business's bank balance compared to the checkbook balance. It is beneficial that the bank balance is always greater than the amount shown on its checkbook so that it has a positive disbursement float . When it comes to revenue cycle management it is important to monitor payments for services rendered. If these payments are not collected it would be a major financial loss to the business.

When comparing military hospital funding to for-profit organizations, an article I researched proved that between 2011 and 2012 the military spent over half of all federal discretionary spending of which about 9.5% of the base defense budget is spent on military health. It is estimated that $520 billion a year is spent on Medicare, $450 billion a year on Medicaid, and $300 billion a year on the employer health insurance tax deduction. Yet there is $100 billion spent in annual military health spending. (Roy, 2012) For-profit organizations do not have the chance to overuse their spending budget because if they did, the business would collapse. Due to the government providing financial assistance to the military, they are less likely to fail if they overspend on health care. I consider the government funding sort of as a safety net when funds have become exhausted. We need to do better to put spending limits and caps on healthcare spending for one day the funds could very well run dry.

References:

Gapenski, L. C., & Reiter, K. L. (2016). Healthcare finance: an introduction to accounting & financial management. Chicago, IL: Health Administration Press.

Roy, A. (2012, March 15). How Health-Care Spending Strains the U.S. Military. Retrieved November 19, 2019, from https://www.forbes.com/sites/aroy/2012/03/12/how-health-care-spending-strains-the-u-s-military/#27d5c1432c54.

Michele Mcgrory

Working capital is defined as the current assets of a business, minus the current liabilities. A company’s assets are cash, accounts receivable (customers unpaid bills) and inventories of raw materials and finished goods, and its current liabilities are accounts payable (Kenton, 2019). If an organization’s current assets exceed its current liabilities, also known as positive working capital, the organization will grow. Otherwise, the organization will have trouble making payments and could potentially go bankrupt. “Current assets listed on a company's balance sheet include cash, accounts receivable, inventory and other assets that are expected to be liquidated or turned into cash in less than one year. Current liabilities include accounts payable, wages, taxes payable, and the current portion of long-term debt” (Kenton, 2019). The liabilities are due within one year, and the assets are available for one year.

Now that many for-profit hospitals are getting their payments for healthcare services provided through Medicare/Medicaid, HMO, PPO, etc., the hospitals are not getting paid as often as they would be before. This means that the hospitals have less money to invest into current assets, and would have to use the money to pay bills. Military hospitals also have cheaper prices than for-profit hospitals; for-profit hospitals then may have to spend more money on advertising. For-profit hospitals counting on their money coming in throughout the year can lead to problems when unexpected expenses pop up that weren’t budgeted for. Military hospitals are given the funding in the beginning of the year, and therefore able to plan out their costs, including keeping a certain amount for expenses that weren’t counted on. It is also guaranteed assets, whereas a for-profit hospital gains their assets as the year goes on.

References

Kenton, W. (2019, November 18). Working Capital (NWC) Definition. Retrieved

November 22, 2019, from https://www.investopedia.com/terms/w/workingcapital.asp.

Reutter, S. (2016, April 19). Health Care Organization Financial Statements:

Understanding Best Practices. Retrieved November 22, 2019, from http://blog.richterhc.com/health-care-organization-financial-statements-understanding-best-practices.