There is no reasonable cause for the hospital to invest in the renovation bond. My suggestion is to postpone this action until the organization is curbs the existing capital expenditures. For now, investments are too expensive for the hospital since it has already invested heavily in facilities in the past. I suggest reconsidering the ways the institution uses the facilities instead of completely renovating them.
Since the Primary Financial Objective (PFO) for the hospital system is sustainable growth, it is crucial to determine whether the institution has achieved it before getting into more debt. The related PFO is equity growth, which is necessary to achieve the long-term financial goal (Nowicki, 2015). Sometimes growth and keeping market share involve new investments. For example, when relying on slow growth-based assets like accounts receivable and not investing in the latest equipment, some hospitals lose their competitiveness and, subsequently, regress.
To achieve sustainable growth, the hospital needs to meet or exceed asset growth, which cannot be defined simply by counting what the institution takes in for its services. Here, Return on Equity is used, which is the primary financial criterion for financial performance evaluation and targeting (Nowicki, 2015). It links primary determinants of value: profit, investment, and cost of capital with a set of macro drivers, and micro drivers that are to be measured. Macro-drivers include revenues, margin, working capital, capital expenditure, and financing mix.
Finally, these evaluations are included in the dashboard report. This report can be used to define what is essential for the hospital’s success and what the critical performance drivers are. The reports provide information only on the key attributes affecting performance to see whether it meets expectations. The critical information to decision-making is deduced from the balanced scorecard.
The main criterion that impedes me from advising in favor of the renovation bond at this time is the asset investment, which is one of the main determinants of value. Investment value is derived from working capital and capital expenditure, and there is an excess investment in fixed assets (Nowicki, 2015). In fact, it is 213 million dollars above the typical U.S. average. This could cost the system between 13 and 21 million dollars annually. What the hospital needs the most right now is to put new capital expenditure reviews in place to prevent the situation from getting worse.
Labor is a huge cost factor and will be the hospital’s biggest expense. Almost 50% of the system’s cost is due to staffing. I suggest using the Hospital Cost Index since the institution’s ratios are up. Most of those patients are Medicare-funded, and it is reasonable to use the Medicare Cost Report, which is the same source as our comparative data for drivers. This way, those numbers will remain consistent throughout the reports. The hospital’s salary costs are high compared to the national average and its leading competitor. However, a focus on productivity is also beneficial since the organization will generate more revenue dollars with fewer full-time employees. Thus, while labor remains a significant consideration, the hospital is managing well in this area. If needed, the hospital can set slightly lower hiring salaries.
To generate additional revenue, the hospital could negotiate better contracts with the major payers based on the fact that it has lower inpatient and outpatient charges. Moreover, the organization can use the Hospital Cost Index instead of Adjusted Discharge Measures of Cost. It is a more specific way to better measure facility-wide costliness for the reason that it views Medicare costs in a couple of different ways and divides the results by the national median, adjusted for area wages (Nowicki, 2015). It is more specific than the adjusted-discharge measures that the hospital uses now, as the case-mix index has been decreasing. In addition, costs are higher in inpatient ancillary services, and, to be more precise, they are exceptionally high. The problem seems to be in pharmaceuticals specifically. Here, we use the Revenue cycle management (RCM), which is critical to healthcare facilities’ financial performance.
Reference
Nowicki, M. (2015). Introduction to the financial management of healthcare organizations (6ᵗʰed.). Health Administration Press.