Financial Statement Analysis
Health Management Associates (HMA) specializes in offering advisory services to help patients and different organizations select the most appropriate healthcare solutions, and the management aims at minimizing the impact of challenges related to healthcare and medical segments (Health Management Associates, 2017). Nonetheless, the company is vulnerable to economic fluctuations and responsive to industrial trends.
For example, in the recent past, the enterprise forced and pressured doctors “to admit more and more patients”, as this aspect drove an upward shift in their revenues (Kroft, 2012, para. 3). Apart from positive intentions for employing this strategy, it affected profits negatively and questioned the enterprise’s reputation. Consequently, in the context of this paper, it is essential to offer more insights about HMA’s financial health, assess the impact of healthcare trend on its financial performance, and suggest the most appropriate strategy for improvement.
Insights about Financial Health
As it was mentioned earlier, the actions of the company, along with the need to survive in the economic environment, led to a substantial loss of revenues. The accusations of artificial maintenance of admissions at 20% damaged the corporate image and caused a critical drop in the company’s value in the stock market and its growth rate (Kroft, 2012). For instance, its price per stock experienced a rapid escalation from 6.10 USD in 2012 to 16.84 USD in 2013, but, after the acquisition by Community Health Systems Inc. (CHS), the firm’s value continued falling and ended at 13.33 USD in 2014 (Bloomberg Markets, 2017).
Today, earnings per share are negative, with the value of -0.06 USD (Bloomberg Markets, 2017). Similar tendencies could be noticed in profits of the firm since an intense decrease in revenues could be seen in their drop from 13.48% in 2011 to only 1.24% in 2012 (CSI Markets, 2017). Today, the company operates as a part of CHS, and the overall performance of HMA is associated with stability, but the revenues slightly decreased from $19,437 million in 2015 to $18,431 million in 2016 (Community Health Systems, Inc., 2016). In this instance, the enterprise’s performance can be characterized and stable due to the substantial support of the acquirer.
These changes triggered diverse reactions among different stakeholder groups. For example, employees were relieved since they did not have to comply with the constantly rising Key Performance Indicators (KPIs). Thus, the reactions of the management of the company were controversial. On the one hand, this merger was a necessity, as it would help restore the image and fill the financial gap (Gupta, 2012).
However, on the other hand, it was mandatory to comply with entirely new accounting and financial principles that defined revenue and expense recognition. Nonetheless, it could be said that the management viewed it as a way in a positive direction and an approach to surviving intensified rivalry due to significant financial losses and the need for innovation (Gupta, 2012). As for the customers, it could be expected that this alliance assisted the company in establishing a trusting relationship with the clients, but a negative reaction could be caused by substantial changes in perceived expectations concerning prices, quality, and standards. Lastly, the current company’s performance was entirely negative for shareholders since they lost their investment due to continuous drop in earning per share.
Impact of the Industry Trend on the Financial Performance
Apart from the actions of the company, one cannot underestimate the importance of different fluctuations in industry trends. Today, the Affordable Health Care Act (ACA) is one of the definers of the medical segments since it has a vast coverage and encourages the implementation of a universal health care approach (Santilli & Vogenberg, 2015). One of the benefits of this method is the fact that it helps hospitals form extended healthcare systems that assist in sharing risks, responsibilities, and costs related to particular actions and decisions (Santilli & Vogenberg, 2015).
In this case, the ACA helped both CHS and HMA increase their profitability as healthcare providers, as they were able to balance their losses and revenues. Nonetheless, it could be said that a universal healthcare model also puts financial pressure on hospitals, as the costs for equipment, drugs, salaries of medical personnel, and prices for insurance plans are driven by severe competition. This matter causes fewer admissions while being reflected by a downward shift in revenues of CHS and low value of HMA in the stock market in 2016 (Bloomberg Markets, 2017; Community Health Systems, Inc., 2016).
To avoid these difficulties, in the first place, HMA has to prioritize the transparency of its financial actions to avoid major financial losses and issues in the future. Simultaneously, monitoring industry trends and actions of the competitors could be viewed as another way to understand the company’s position in the market and compare its strategy with rival firms. Thus, a merger with CHS could be considered as the first step in the right direction, as it would not only help maximize profits and reduce losses but also overcome the challenges. In this instance, working together as a team with CHS is of paramount importance since it can help regain market shares, comply with the quality standards, share financial risks, and support more horizontal integrations in the recent future (Santilli & Vogenberg, 2015).
Strategy to Improve Financial Performance
It could be said that apart from the fact that the current financial situation in HMA is stabilized, it is essential to enhance the existed strategy due to the continuously intensifying rivalry and rapid development of the medical sphere and associated reforms. As it was mentioned earlier, HMA had to prioritize successful integration and collaboration with CHS to make well-balanced decisions for the subsequent mergers. Using this method is rational, as it will help comply with the industrial trends and minimize the constantly increasing pressure of rising prices (Santilli & Vogenberg, 2015).
In this case, one of the ways to implement this strategy successfully is modifying leadership style. Behavioral patterns and statements of a leader have to reflect the stated strategy, as being a role model can motivate the employees to comply with the changes, new KPIs, standards, and goals (Morgenroth, Ryan, & Peters, 2015).
At the same time, a leader has to set the goals clearly for each department of the acquired firm to ensure integrity and compliance with the mission and values. It could be said that utilizing this approach can underline the importance of financial and organizational change in HMA while creating favorable working conditions for the employees and their professional development (Hao & Yazdanifard, 2015). This method can assist in ensuring successful integration while having a positive impact on the profitability of HMA and paying vehement attention to the commitment of the workforce apart from the recent crisis and the need for acquisition to minimize costs.
References
Bloomberg Markets. (2017). HMA: US. Web.
Community Health Systems, Inc. (2016). 2016 annual report. Web.
CSI Markets. (2017). Health Management Associates (HMA). Web.
Gupta, P. (2012). Mergers and acquisitions (M&A): The strategic concepts for the nuptials of corporate sector. Innovative Journal of Business and Management, 1(1), 60-68.
Hao, M., & Yazdanifard, R. (2015). How effective leadership can facilitate change in organizations through improvement and innovation. Global Journal of Management and Business Research: Administration and Management, 15(9), 1-7.
Health Management Associates. (2017). Some of the brightest minds in publicly funded healthcare. Working for you. Web.
Kroft, S. (2012). Hospitals: The cost of admission. CBS News. Web.
Morgenroth, T., Ryan, M., & Peters, K. (2015). The motivational theory of role modelling: How role models influence role aspirants’ goals. Review of General Psychology, 19(4), 1-19.
Santilli, J., & Vogenberg, F. (2015). Key strategic trends that impact healthcare decision-making and stakeholder roles in the new marketplace. American Health & Drug Benefits, 8(1), 15-20.