Introduction
Health care is one of the critical factors affecting the population’s standard of living, happiness, and prosperity. Recently, there has been an increase in the cost of medical services globally. Highly qualified specialists, advanced technology, financial and equipment resources are allocated to various health care institutions. But all these resources are limited, and for this reasons, proper financial management in healthcare is vital.
Major Forces Affecting the Delivery of Healthcare Today and Their Effects
The delivery of healthcare services affects the profitability and performance of a healthcare organization. Therefore, to maintain a competitive advantage, it is important to identify the major forces affecting the delivery of healthcare. They include social environment, political climate, technology development, economic conditions, and physical environment. (Shi & Singh, 2017). Demographically, the United States is getting bigger, older, and more ethnically diverse. Shifts in population demographics, cultural factors, and lifestyle influence not only health care need but also how these needs are met.
Economic growth, income, and employment are the main factors that determine the availability of medical services, their cost, and affordability. The political climate is constantly changing, and new laws are being issued to regulate or stimulate healthcare. Technology development creates new opportunities for medical institutions, simplifies communication, and automates data collection and analysis, not to mention new effective diagnostic and treatment tools. The physical environment, starting with toxic waste and air pollutants and ending with global warming and the covid-19 pandemic, creates an increased burden on healthcare institutions but, at the same time, stimulates the modernization of internal processes, including management.
Challenges and Opportunities for Today’s Healthcare Leaders
One of the many functions of management is to identify threats and turn them into opportunities. Based on the factors listed above, the main challenges and opportunities for today’s healthcare leaders may be identified. The first challenge is connected to the social environment and economic conditions. In a year, the US spent about $3.6 trillion on health care, which averages out to about $11,000 per person. The Centers for Medicare and Medicaid Services project that national healthcare spending will reach $6.2 trillion by 2028. Healthcare leaders should find ways to manage these rising costs to Americans while also managing their hospitals’ own budget challenges.
The second challenge is connected with technology development. The growing demand for “personalized medicine” technologies is increasing the cost and complexity of healthcare. Leaders should separate technologies that are valuable and worthy from insignificant ones and invest only in those that will simplify the work of staff and improve the quality of patient care.
Opportunities for “Quest Diagnostics Laboratory”
Quest Diagnostics Incorporated is a provider of diagnostic information services. The company plays a crucial role in the healthcare ecosystem, empowering people to take action to improve health outcomes. The clinical testing business is highly competitive, and if the company fails to provide an appropriately priced level of service or otherwise fails to compete effectively, it could have a material adverse effect on its revenues and profitability (Quest Diagnostics, 2022).
Thus, the key challenge for Quest Diagnostics Laboratory is to reduce the cost of services. The most common way to reduce the cost is to reduce company expenses. To reduce the company’s costs, it is necessary to understand what they consist of. In 2021, the company generated net revenues of $10.8 billion (Quest Diagnostics, 2022). Total operating costs and expenses, net $ 8,407. Operating income $ 2,381. The main item of expenditure is the cost of services, $ 6,579. Cost of services consists principally of costs for obtaining, transporting, and testing specimens and facility costs used for the delivery of services. The cost of services increased by $775 million for the year 2021 compared to the prior year. The increase was primarily driven by higher variable expenses related to increased testing volumes, higher compensation and benefits costs (primarily related to wage increases), and, to a lesser extent, additional operating costs associated with acquisitions.
For this reason, my proposal for the company would be to consider purchasing equipment to carry out simple tests in local laboratories to eliminate transportation costs. The second proposal concerns supply. Moving away from scheduled consumables purchases to decentralized purchases for laboratories could allow the company to be more flexible in these costs and get the benefit due to market fluctuations.
Financial and Budgetary Considerations
In making the proposal, I will utilize the profit and loss statement (P&L), balance sheet, and cash flow statement. The P&L summarizes how much revenue the company generated, what its total expenses were, and what its resulting profit (or loss) was once those expenses were subtracted from the revenue. I will use it as a tool for comparing performance and assessing growth and understanding whether the company has the possibility of small investments. I will use the balance sheet to understand what the company owns and what it owes at a particular point in time. A cash flow statement will be used for projections – to understand when the company will be able to afford a major investment.
My proposal will most likely help reduce the company’s expenses, which will lead to a profit margin increase in the P&L. The company has many kinds of assets. Some are tangible, such as inventory, cash, or machines. Some are intangible, such as goodwill, brand recognition, or copyright. My proposal will add tangible assets to the balance sheet in a few categories, such as current assets and long-term investments. My proposal will be much more efficient when using flexible budgeting because it is more adjustable to business situations. A fixed budget is easier to maintain, but it doesn’t leave room for fluctuations, let alone benefit from them, which is one of my proposals.
Proposal Justification
The most appropriate ratio to support my proposal is the return on investment (ROI). Since my proposal involves investments, it would be logical to estimate this particular coefficient. ROI is the key measure of the profit derived from any investment. It is a ratio that compares the gain or loss from an investment relative to its cost. It is especially useful to decide whether to undertake a new project. ROI= ($ 0.510/ $ 1,950) X 100% = 26,15%. My proposal will be able to reduce the cost of services by up to $0.510 a year. Equipment for simple tests in some of the busiest labs will cost $1,950. In the long term, such indicators do not look very promising, but given some of the limitations found in the statements, larger investments are not appropriate for the company. In the long term, the implementation of my proposal can bring significant positive results.
Conclusion
My proposal also has added value in considering the trends in healthcare mentioned earlier. Cost reduction can allow a company to remain competitive in such a highly competitive environment. At the same time, this concept of cost reduction allows you to maintain the same quality of patient care and even improve it since the analyzes will be carried out faster. From a financial point of view, such an investment is in the strength and interests of the company. Such a step will not give immediate tangible results on financial performance. However, in the long term, if the company continues to invest in this direction, the effect of reducing the cost of services may become one of the key factors in the successful development of Quest Diagnostics.
References
Quest Diagnostics. (2022). Annual report on form 10-K.
Quest Diagnostics. (2022). Notice of 2022 annual meeting of stockholders and proxy statement.
Shi, D. A., & Singh, A. (2017). Delivering Health Care in America. Jones & Bartlett Learning.