Question

Write a brief essay that addresses the following questions. List references and cite sources using proper APA style. Include at least one additional source other than the course textbook.

1. Is profit maximization the same thing as shareholder wealth maximization? Why or why not?
2. Describe the primary distinction between prospective payment and retrospective payment.
3. Why is the unreimbursed cost of Medicare most often not included as an element of community benefit?

Answer 1

1 – Wealth Maximization

Wealth Maximization is the ability of the company to increase the value for the stakeholders of the company, mainly through an increase in the market price of the company’s share over some time. The value depends on several tangible and intangible factors like sales, quality of products or services, etc.

It is mainly achieved throughout the long-term as it requires the company to attain a leadership position, which in turn translates to a larger market share and higher share price, ultimately benefiting all the stakeholders of the company.

The unreimbursed cost of Medicare was frequently excluded as a component of community advantage due to the way of co-installment that is deductible with the Medicare affiliation.

Further Explanation:

Unreimbursed cost:  

An unreimbursed cost of doing business is any consumption you make for your activity that is both customary and sensible and not repaid by your boss. The IRS enables you to deduct qualified unreimbursed operational expense that surpass 2 percent of your balanced gross pay.

Community benefit mean:

Network advantage is a type of open trust that outcomes in philanthropic medical clinics getting charge excluded status. Network advantage covers a full scope of administrations and exercises given by charitable medical clinics that address the reason and effect of wellbeing related needs. Improve access to social insurance administrations.

Benefit from a Community benefit Benefits:

Under the "Community benefit " standard, spending that advances network wellbeing, notwithstanding philanthropy care, checks toward gathering the prerequisites for duty exception. The Internal Revenue Service (IRS) permitted medical clinics expansive scope in figuring out what exercises and administrations established network advantage.

To be more specific, the universally accepted goal of a business entity has been to increase the wealth for the shareholders of the company as they are the actual owners of the company who have invested their capital, given the risk inherent in the business of the company with expectations of high returns.

#2 – Profit Maximization

Profit Maximization is the ability of the company to operate efficiently to produce maximum output with limited input or to produce the same output using much lesser input. So, it becomes the most crucial goal of the company to survive and grow in the current cut-throat competitive landscape of the business environment.

Given the nature of this form of financial management, companies mainly have a short-term perspective when it comes to earning profits, and that is very much limited to the current financial year.

If we get into the details, profit is actually what remains out of the total revenue after paying for all the expenses and taxes for the financial year. Now to increase the profit, companies can either try to increase their revenue or try to minimize their cost structure. It may need some analysis of the input-output levels to diagnose the operating efficiency of the company to identify the key improvement areas where processes could be tweaked or changed in their entirety to earn larger profits.

Comparative Table

BasisWealth MaximizationProfit Maximization

Definition It is defined as the management of financial resources aimed at increasing the value of the stakeholders of the company.It is defined as the management of financial resources aimed at increasing the profit of the company.

FocusFocuses on increasing the value of the stakeholders of the company in the long term.Focuses on increasing the profit of the company in the short term.

RiskIt considers the risks and uncertainty inherent in the business model of the company.It does not consider the risks and uncertainty inherent in the business model of the company.

UsageIt helps in achieving a larger value of a company’s worth, which may reflect in the increased market share of the company.

Prospective payment plans
Prospective payment plans work by assigning a fixed payment rate to specific treatments. While these rates might change over time because of factors such as inflation, they are not adjusted to accommodate individual patients. Under a prospective payment plan, a healthcare provider will always receive the same payment for providing the same specific type of treatment.

Prospective payment plans have a number of benefits. Because these plans pay fixed rates, providers and insurers can better manage and estimate costs and payments. Prospective payment plans also have the potential to save insurance companies money, and when that happens, some of those savings may be passed on to patients in the form of lower annual premiums and copayments. Additionally, prospective payment plans tend to motivate providers to deliver the most efficient care possible.

Prospective payment plans also come with drawbacks. Because providers only receive fixed rates, some might seek to employ cost-cutting measures to maximize profits while not necessarily keeping their patients' best interests in mind. Because providers receive the same payment regardless of quality of care, some might be moved to offer less thorough and less personalized service.

Retrospective payment plans
Retrospective payment plans pay healthcare providers based on their actual charges. With a retrospective payment plan, a provider will treat a patient and submit an itemized bill to an insurance company detailing the services rendered. The insurance company, in turn, may approve or deny payment for the treatment or portions thereof, but healthcare providers generally get paid in full for the amounts they bill.