Reference no: EM133357443

Assignment:

Number 1: The Hospital Financial Dilemma Case

You are a recently hired MBA at a large inner-city hospital in a large city. When you got the job six months ago, you felt you were doing good for the community and for poor people who need medical services. During your time at the hospital, you have begun to realize how challenging it is to even keep such a facility open. Expenses are high; many patients have no medical insurance; nurses can make more money at other hospitals; medical equipment is very expensive; top-notch doctors are very expensive; operating rooms must be constantly upgraded; cleanliness is very important and expensive. The hospital has tried many efforts to pare back costs, some of which you and others who work in the hospital's financial department think are ridiculous, but senior officials say that have no choice. For example, 

• Turning off lights at night
• Having security double as emergency responders
• Cutting the staff that responds to bell calls made by patients already in hospital beds
• Cutting the night staff in the emergency room
• Assigning emergency room patients to a room, as a means of billing their insurance for the use of a room
• Eliminating employee bonuses, raises and holiday parties
• Informing local doctors that the facility is not equipped to handle certain types of "expensive" illnesses
• Contracting with less expensive sharps removal services, waste hauling and external cleaning services
• Running ad's for nurses in countries where very few people speak English

Your boss, the VP of finance at the hospital who has worked there for over twenty years, asked you to attend the most recent board meeting. The Board members are generally well-to-do, prominent people who feel they are helping the community. One is a clergyman, another is a university professor. At the meeting, your boss gave a presentation about the need for new equipment at the hospital. He laid out a plan that would cost $12,000,000 and would include such items as, 

• A refurbished operating room
• Three new MRI machines
• Six new X-ray machine
• New beds for the fourth floor, about twenty-five total
• A new camera, security and internal call system
• One new hospital ambulance

He said the expenses could be paid for by using cash funds held by the hospital. The total cash on the balance sheet is approximately $65,000,000. The hospital lost $6,000,000 last year. In the general discussion among the Board members, here are some of the ideas that were discussed, in some cases discussed quite vigorously,

• There is no such thing as "free" medical care
• "Cash is King" - Never use cash unless it is a true emergency
• Not-for-profits need profit
• The government is no help. They do not care if we succeed or fail. 
• How come other hospitals don't have the financial problems we have?
• We're becoming a nation of haves and have nots.
• Moody's would love us to dump unprofitable services
• We should make people pay for services.
• Maybe we should merge with another hospital.
• Lxxxx Hospital was acquired by NY Presbyterian. Now, they are in great shape.
• We can't merge with anyone. We operate in a low-income neighborhood.

After the meeting, your boss was very upset. No decision was reached about the expenses noted above. He was asked to explore all "viable alternatives." So, he is asking for your FINANCIAL help. Here is what your boss wants you to look into:

1. What kinds and what percentage of private, not-for-profit hospital budgets are covered by tax breaks.

2. How much of the costs - get a percentage -- of a hospital are covered by Medicaid.

3. What happens to hospitals when they merge with or are acquired by other, larger medical firms?

• Does the financial situation really improve?

4. Are there any medical services that could really be dumped?

5. Find out what other hospitals in trouble are doing

6. Could we possibly offer more outpatient services?

7. Could we make more money from pharmaceutical sales?

Your boss stressed that he wants the "Big financial picture from you." He wants to know what seems to be working for other hospitals in difficulty. His plan is to be able to respond to the "very general" ideas offered by the Board members. For example, he said he was well aware of Lxxxx Hospital. It used to known as a place for rich, old people to die. It is located in a wealthy neighborhood and does not have any of the financial problems of our hospital. He also said that when a hospital is acquired, services and quality decline. But, he stressed that he needs "facts, evidence" to contend with the Board members.

• A Few Pointers for Good Students:
• Look for the facts and evidence the boss wants
• Do not fill your paper with definitions.
• Give current information
• Look for success stories. Medical facilities that improved their financial standing.