Make no small plans. Easy-to-track finances of private healthcare services draw attention--and big money--from equity investor firms.
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Asset-based financing is an often overlooked option for financing acquistions. Two criteria for determining its applicability are the viability of the acquired entity and the liquid value of the borrowing base. Asset-based financing requires a lower initial investment than other forms of financing. However, overall costs may be higher than for traditional loans.
Privatization of a public sector general hospital in Adelaide, Australia, five years ago has revealed the strengths of the model and the difficulties of contracting with the private sector. Managers believe the new model has reduced overstaffing and increased local management. There have been continual contracting problems and the hospital has made losses, almost from the start. Private finance initiative contracts may always be difficult to negotiate and sustain.
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Although the extent of medical care in France may be thought adequate, the same does not apply to the social medicine sector. The Assurance-maladie paid 87.7% of hospital health expenditure in 1994, whereas direct funding of home assistance amounted to only 9%. In contrast, a recent Legos study (Bungener M. et al. Le bilan économique et financier du secteur médico social, Université de Paris IX, Legos, Janvier 1994) [1] estimated that home assistance costs represent 41-50% of medical-social expenditure. When people are unable to manage because of the high costs of their invalidity, the social security system comes to their assistance, although only under Draconian conditions involving compulsory "family support commitments" and the state's claim on the inheritance of the beneficiary (total costs for hospital admission and boarding and the dual limits of 1000F liabilities and 250,000F net assets for home assistance). The elderly well appreciate the severity of this problem and are deeply distressed by the thought of dependency. Many, however, live under the illusion that the social security system or, to a lesser extent, the mutual funds will come to their assistance, although the problems involved lie partly outside their remits. We therefore need to design new systems to allow the elderly to finance their costs should they become dependant.
The face of health care is changing daily because of pressures brought about by dissatisfied consumers, physicians, and employers. We believe that physicians need to take back from insurers the administration of the medical profession. Physicians must assume the financial risks necessary to create a medical system that will benefit themselves, their patients, and their patient's employers. This article presents the basic business concepts needed to establish Provider Service Organizations (PSOs) as well as the benefits and pitfalls of the various types of associations into which a PSO can enter. Clearly, the future belongs to those physicians who have the foresight to invest their talents and their finances in the business aspects of managed care.
When strategic planning and financial planning are disconnected processes, healthcare organizations can rarely accomplish the integrated, analysis-based decision making that ensures long-term access to capital. CFOs need to be actively involved in an integrated planning approach to ensure its success.
OBJECTIVE: The authors analyzed the differences in operational and financial performance between 42 matched pairs of for-profit psychiatric hospitals belonging to multifacility organizations and nonprofit psychiatric hospitals for the fiscal years ending in 1986 through 1990. METHOD: The pairs of short-term hospitals were matched according to location, standard metropolitan statistical area, or wage index. Analyses were based on data on these hospitals from the Health Care Financing Administration. The groups of variables studied included the hospitals' operational performance and productivity, profitability and payer mix, revenue and expenses, and capital structure. Differences in the mean values of the variables for the for-profit hospitals and the nonprofit hospitals were analyzed by pairwise t tests. RESULTS: The for-profit organization hospitals had significantly higher net revenue, lower salary expenses, and higher profits than the nonprofit hospitals. Patients in the for-profit hospitals had longer stays, and these hospitals had fewer full-time employees per adjusted inpatient day and per adjusted discharge. CONCLUSIONS: The higher prices and operating margins of the for-profit hospitals belonging to investor-owned systems reflect the profit-maximizing goal of these facilities. The ability of for-profit organization hospitals to achieve economies of scale in expenses, however, was not evident except in the case of salary expenses.
This article has tried to demonstrate that (depending on loan terms and repayment provisions) a lower interest rate may not automatically guarantee a lower financing cost. And the flexibility of loan provisions (and conversely the restrictions placed on hospital management) must be carefully considered to ensure that the hospital can readily adapt to basic changes in the delivery systems and payment mechanisms of health care. This article has used both tax-exempt and taxable financings . Hospitals should undertake a thorough evaluation of all financing aspects and alternatives before commitments are made that may have far-reaching consequences on future hospital operations and hospital viability. There is a place both for tax-exempt and taxable financing--each institution must carefully evaluate which best meets its particular needs.
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Public policy controversies about the cost-containing potential of HMOs and the failures of many plans should not overshadow the fact that HMOs will be forces in the health care sector in the 1980s, largely as the result of increasing private investment. There is a large, stable segment of the prepaid industry that developed as a result of private sector and community concern long before the federal HMO Act of 1973, and it is their initiatives along with increasing investment activity by insurance companies and management companies in particular, that will serve as a base for consolidation and growth of HMO plans. HMOs have not proved to be the miraculous cost-containing mechanism of the future, but their impact will be felt even more for the changes they stimulate in the customary organizational forms, in financing, and in the role of business in health care.
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Cost-containment regulations and possible legislative changes in the tax area are creating new environments for the acquisition of nuclear magnetic resonance (NMR) systems. Shared services, management groups, and free-standing clinics are being established. Creativity in financing will be required to assure the cost-effectiveness of NMR services.
Healthcare organizations issuing tax-exempt bonds to finance the acquisition, construction, or renovation of their facilities often neglect to invest bond proceeds to gain the maximum allowable return. Bond indentures--documents that contain all the terms and provisions of the financing plan--generally spell out a number of options for investing bond proceeds.
Today's healthcare market presents enough challenges to give anyone in healthcare finance insomnia. Some of the new risks facing hospitals are: Increased demands for transparency in pricing and quality. Gainsharing and other joint ventures. Excess capital spending that may leave some providers overleveraged. New workforce challenges.