8 pages…..APA Format……In-text citations….will check for plagarism….
Established in 1987, ABC Community Hospital not-for-profit is an acute care hospital located in an east coast Metropolitan area. With a staff of nearly 200 physicians and specialists, 800 employees and 100 volunteers, they offer a full range of healthcare services. They are accredited by the Joint Commission. The hospital has been profitable for the last 5 years with a profit margin of 3-4%.
In March 2012, XYZ Healthcare System, a private, for-profit health care chain, took over management of the 400-bed ABC Community Hospital. In May 2013, officials began to discuss a proposal to build a new wing devoted to a Cancer Center and ancillary services devoted to the treatment of Cancer. The new wing would have 30 acute care beds, four surgical operating rooms, intensive care unit and extensive support services, including physical therapy and Hospice care. All patient rooms would be private. There are no Cancer Centers within a 200 mile radius of the hospital service area.
The Board of directors is concerned with taking on the additional debt of the Cancer Center. They have tasked the CFO with developing a financial plan and strategic plan that will outline the impact of the Cancer Center. They want you to address the following areas:
- What are the key financial policy targets for which the board is responsible for? List and explain each.
- How does the financial planning and strategic planning of the new for-profit status align with the financial and strategic plans of the existing community hospital status?
- Explain how management control is used in conjunction with the financial plan. With the takeover, would the ABC Community Hospital CFO need to consult with XYZ Healthcare System executives for the decision making?
- A financial plan may be thought of as a bridge between two balance sheets. What are the major categories of assumptions that must be specified to project a future balance sheet, given the current balance sheets from the ABC Community Hospital and now XYZ Healthcare System?
- Compare and contrast the kinds of decisions that are made in the Cancer Center capital investment decision analysis for the for-profit and non-profit healthcare facilities using the four stages of capital decision making process.
- What information is needed by the CFO to evaluate the Cancer Center capital investment project?
- Who, internally from the healthcare system and externally, should be involved in the capital investment decision process to determine the feasibility of the Cancer Center?
Expert Solution Preview
Introduction: This paper will discuss the financial and strategic planning involved in building a new cancer center at ABC Community Hospital, which was taken over by XYZ Healthcare System. The hospital’s board of directors wants to understand the key financial policy targets, how the financial and strategic plans of the non-profit hospital align with the new for-profit status, how management control is used in conjunction with the financial plan, the major categories of assumptions needed to project a future balance sheet, and the capital investment decision-making process for both for-profit and non-profit healthcare facilities.
1) What are the key financial policy targets for which the board is responsible? List and explain each.
The board of ABC Community Hospital is responsible for several key financial policy targets. These include:
a) Profitability: Profitability is the ability to generate sufficient revenue to exceed expenses and result in a net income. As a non-profit hospital, ABC Community Hospital aims for a profit margin of 3-4%.
b) Liquidity: Liquidity measures the hospital’s ability to meet its short-term financial obligations. The hospital should maintain adequate cash reserves to cover operating expenses, salaries, and debts.
c) Solvency: Solvency is the hospital’s ability to meet its long-term financial obligations. The hospital should have sufficient assets to cover liabilities.
d) Efficiency: Efficiency of operations is crucial in optimizing resources to provide high-quality patient care. The board should ensure that the hospital operates efficiently by reducing costs and improving productivity.
2) How does the financial planning and strategic planning of the new for-profit status align with the financial and strategic plans of the existing community hospital status?
The financial planning and strategic planning of the new for-profit status need to align with the financial and strategic plans of the existing community hospital status to ensure that the hospital remains profitable and aligns with community needs. Financial planning involves forecasting future financial performance and developing strategies to achieve financial goals. It encompasses several aspects such as capital budgeting, risk management, and funding sources. For-profit hospitals prioritize profit margins, shareholders, and investors.
Strategic planning is the process of defining an organization’s direction and prioritizing its resources to pursue this direction. A strategic plan defines a hospital’s mission, vision, values, and goals. It should align with the hospital’s financial plan to ensure that the hospital can achieve its objectives. While for-profit hospitals may have different priorities, they still need to prioritize patient care, outcomes, and community needs.
3) Explain how management control is used in conjunction with the financial plan. With the takeover, would the ABC Community Hospital CFO need to consult with XYZ Healthcare System executives for decision making?
Management control is the process of monitoring and evaluating the performance of an organization to ensure that goals are achieved. Management control techniques include budgeting, variance analysis, and performance measurement. The financial plan serves as a guide for management control because it outlines goals, operating procedures, and financial objectives.
With the takeover of ABC Community Hospital by XYZ Healthcare System, the CFO would need to consult with XYZ Healthcare System executives for decision making. This is because the for-profit healthcare system dictates the hospital’s priorities, goals, and strategies. While the healthcare system executives may understand the financial and strategic planning aspects of the hospital, the CFO is responsible for executing and monitoring the plans.
4) A financial plan may be thought of as a bridge between two balance sheets. What are the major categories of assumptions that must be specified to project a future balance sheet, given the current balance sheets from the ABC Community Hospital and now XYZ Healthcare System?
The major categories of assumptions that must be specified to project a future balance sheet include:
a) Revenue assumptions: This includes forecasting revenues from patient services, grants, donations, investments, and other sources.
b) Expense assumptions: This includes forecasting expenses related to salaries, supplies, utilities, insurance, and other overhead costs.
c) Capital expenditures: This includes forecasting investments in property, plant, and equipment (PP&E), and any other major capital projects.
d) Financing assumptions: This includes forecasting the hospital’s future borrowing needs, repayment schedules, and interest rates.
5) Compare and contrast the kinds of decisions that are made in the Cancer Center capital investment decision analysis for the for-profit and non-profit healthcare facilities using the four stages of capital decision-making process.
The Cancer Center capital investment decision analysis for for-profit and non-profit healthcare facilities involves four stages of the capital decision-making process. These are:
a) Screening decisions: Screening decisions involve identifying and evaluating potential investment opportunities based on factors such as market demand, funding sources, and size.
For-profit healthcare facilities prioritize investment opportunities based on profitability, return on investment, and shareholder value. Non-profit healthcare facilities prioritize investment opportunities based on community needs, patient outcomes, and quality of care.
b) Preference decisions: Preference decisions involve selecting and prioritizing investment opportunities based on the healthcare facility’s strategic goals.
For-profit healthcare facilities prioritize investment opportunities that align with their strategic goals and maximize profits. Non-profit healthcare facilities prioritize investment opportunities that align with their mission, vision, and values.
c) Implementation decisions: Implementation decisions involve allocating resources and developing a project plan for the selected investment opportunities.
Both for-profit and non-profit healthcare facilities need to allocate resources efficiently and implement projects within the planned budget and timeline.
d) Post-audit decisions: Post-audit decisions involve monitoring and evaluating investment opportunities to measure actual outcomes against planned outcomes.
For-profit healthcare facilities monitor investment opportunities to ensure that they meet profitability targets. Non-profit healthcare facilities monitor investment opportunities to ensure that they align with their mission and vision and provide high-quality patient care.
6) What information is needed by the CFO to evaluate the Cancer Center capital investment project?
The CFO needs several types of information to evaluate the Cancer Center capital investment project. These include:
a) Projected revenue and expenses: The CFO needs to forecast the projected revenue and expenses associated with the Cancer Center project to determine its financial feasibility.
b) Capital budget: The CFO needs to prepare a capital budget that details the required investment in assets, equipment, and building construction associated with the Cancer Center project.
c) Financing options: The CFO needs to evaluate financing options for the Cancer Center project, such as taking out a loan or issuing bonds, and the associated interest rates, repayment schedules, and debt-to-equity ratios.
d) Risk assessment: The CFO needs to evaluate the risks associated with the Cancer Center project, such as market demand, competition, and regulatory compliance.
7) Who, internally from the healthcare system and externally, should be involved in the capital investment decision process to determine the feasibility of the Cancer Center?
Several internal and external stakeholders should be involved in the capital investment decision process to determine the feasibility of the Cancer Center. These include:
a) Hospital executives: Hospital executives, such as the CEO and the CFO, are responsible for developing the financial and strategic plans for the Cancer Center project and managing its execution.
b) Department heads: Department heads, such as the heads of oncology, surgery, and intensive care, are responsible for overseeing the clinical and operational aspects of the Cancer Center project.
c) Physicians and medical staff: Physicians and medical staff are responsible for providing patient care and ensuring that the Cancer Center project meets the highest clinical standards.
d) External advisors: External advisors, such as financial analysts, lawyers, and regulatory experts, can provide expert advice and guidance on the feasibility of the Cancer Center project and help mitigate risks.
