Hcs 577 - the Medical Industry

Comparative Summary

Christina Herron

HCS/577

March 27, 2017

Sharon Sanders

Comparative Summary

The medical industry is a fast-growing sector with an integrated system that comprises of various sectors which offer different goods and services that cater to the health and wellness of patients. In health care industry, financial structures vary with the type of organization and the policies that govern these institutions. Financial reporting, in this case, entails much more than just the standard preparation of financial statements and covers a broader aspect that includes the way of communicating the financial information (Gordon, 2011). This article will analyze and compare different types of health care facilities namely, for-profit or private organization, not-for-profit organizations and VA or governments organizations. It will consider their financial structures and analyze the policies that distinct to each of their economic environment. Additionally, the paper will cover the financial management practices that are prevalent in the particular financial environment and lastly, explain the main reasons as to why financial management in the health care industry is more complicated when compared to other sectors.

Financial Structures

The financial structure is defined as the particular combination of equity and long-term debt that an organization utilizes so as to finance its daily operations. These mixtures have a direct impact on the risks and value of the company. In the health care sector, different entities apply different combinations in their financial structures depending on the environment they are operating (Gordon, 2011).

For-Profit Organizations

Private medical organizations are formed with the main aim being on generating profits and specializing in patient care. The primary source of revenue is through the admission and treatment of patients. An example of a private and for-profit medical facility is a medical clinic formed by a group or one physician. In this case, for the clinic to be sustainable, it must generate enough revenue that would be used to finance its daily operations. Some of the daily activities include maintenance and purchase of medical equipment and payment of miscellaneous bills. There are several ways to fund the initial operations of such an organization, and the standard methods include acquiring loans from banks. These facilities pay tax by the federal and state policies (Turner, Broom, Elliott & Lee, 2015).

Non-profit Organizations

In the case of not-for-profit medical facilities, they can gain the status of tax-exempt as long as they meet and adhere to the guidelines set by the federal and state governments. The main aim or objectives of these institutions are to provide medical care at a relatively lower price that would be beneficial to the local community (Turner, Broom, Elliott & Lee, 2015). American Heart Association is an example of a non-profit organization. The Association has both long-term and short-term investments that are as a result of capital appreciation. Additionally, the Association relies on financial assistance from donations and contributions which may be in cash or non-cash form. All the donations are used for the general programs and operations of the Association unless they are explicitly restricted by the donor. These days, instead of not-for-profit organizations offering services for free, they have adapted the method of treating patients' subsidized fees ("AHA Financial Information," 2017).

Government Organizations

Veterans' hospitals or otherwise known as the Department of Veterans Affairs (VA) is a governmental entity whose sole purpose is to serve Veterans and their families medically. They are owned and fully funded by the government through taxes. Veterans' hospitals benefit from income and property tax exemptions due to their charitable nature. The government which is the owner in this case also receives revenues from third party reimbursements and cash payments. However, the primary source of funding that makes up for the financing of the operations of these hospitals comes from government taxes, and this helps to cover the outstanding services (Gordon, 2011).

Policies

Each entity in the health care sector follows a set of established guidelines that are formulated by the Federal government and related commissions. Policies for the private of for-profit organizations differ significantly from those of the not-for-profit and government organizations. In the case of for-profit organizations, they may have their additional billing system with competitive prices. But in the case of non-profit and government organizations, they have to follow predetermined regulations. For-profit and not-for-profit are open to anyone from the public while government such as Veterans' hospitals are only open to a particular group, in this case, veterans (Song & Reiter, 2010).

Financial Management Practices

The use of financial ratios is one of the standards of the common practice in both for-profit and not-for-profit organizations in the health care sector. Financial ratios are important measures that are useful to a firm as it helps to analyze their performance and position in the market about their competitors. Both types of entities make short-term and long-term investments that would assist in the generation of revenue that would assist in financing the daily operations of the organizations. This is because both entities have to cover the costs of their operations mainly through the services offered to their patients. Another common financial practice that is exhibited by both financial and non-financial organizations is advertising. This is a practice that is geared toward promoting the organization so that the revenues generated would increase. The government institutions also have financial practices such as organizing fund-raising schemes to help in the financial of these establishments (Liaropoulos & Goranitis, 2015).