Question

Given the current environment, if you were in charge of a hospital, what type of things would you do to maintain your cash flow, and your cash reserves?

Answer 1

Cash Flow Statement in a Healthcare Organization

The cash flow statement helps you monitor the cash collections and expenses generated from your healthcare operations. Cash inflows from operations are revenue you generate directly from your patients and from insurance reimbursements. Cash outflows arise from your payments for wages, taxes, rent and utilities. Purchases of items such as medicines, gloves, detergents, disinfectants also generate cash outflows from operations.

The cash flow statement summarizes the income and expenses you generate from investments and capital assets. Your healthcare organization may acquire long-term assets such as land and buildings, ambulances, or technology such as x-ray equipment. This helps you determine whether or not the long-term investments of your healthcare organization are generating sufficient income compared to your capital inputs.

Financing concerns the changes that occur in the capital structure of your healthcare organization. Such changes arise when you borrow money, issue shares or buy back shares from investors. They may also result from the repayment of your debts, distribution of dividends and reinvestment of portions of your profits. The cash flow statement enables you to update these changes at the end of the accounting period.

Providing the right cash flow solution to a hospital is a complex task. Hospitals have specific cash flow needs that are different from the needs of other types of medical facilities. If you decide to use financing, work with a company that is both experienced and comfortable in the hospital industry. You can use the cash flow statement to forecast the ability of your healthcare organization to generate sufficient cash flows from future activities. For example, when making decisions to acquire a capital asset, you will have to examine whether the asset will generate sufficient cash flows or benefits during its useful life. This facilitates your long-term planning in addition to rationalizing your scope of future investments and financing needs.

Maintaining cash reserves by hospitals

Cash management is necessary service mismatches between the timing of payments and the availability of cash may interfere with operations of a firm. Studies have noted that many hospitals have maintained large cash reserves and liquidity positions within their investment portfolios in an effort to partially accommodate unforeseen expenditure. However, inadequate cash management practices among the hospitals has led to slow rate of service delivery, accompanied with regular strikes of employees, insufficient medicines and other basic equipment for use in hospitals and employee strikes which are all linked to management of funds. The objectives of the study were to identify the effects of preparing cash budgets as cash management practice on operational performance of public hospitals, to determine the effects of operating bank accounts as cash management practice on operational performance of public hospitals and to establish the effects of Book Keeping as cash management practice on operational performance of public hospitals. The descriptive survey research design was adopted in the study. Descriptive statistics involved the use of weighted averages and percentages while inferential statistics involved the use of ANOVA and regression analysis. The findings revealed that cash budgets assist in making cash flow projections and ensures budgetary control and controls a hospital’s spending habits although and that it does not create competition of resources and politics; operating bank accounts ensured security of hospital funds besides helping keep track of hospital transactions; the hospitals keep records of all cash payment and receipts on daily basis, facilitating accountability that improves operational performance of public funds. The ANOVA results revealed that, at 5% level of significance, cash budget, operating bank account(s) and book keeping all have a significant influence in determining the operational performance of public hospitals. The findings from regression analysis realized that that cash budgeting account for 38.9% effect size in influencing operational performance, operating bank accounts account for 14.1% effect size in influencing operational performance while book keeping account for 49.3% effect size in influencing operational performance in public hospitals. The study findings are helpful to the County governments in understanding the importance of preparing cash budgets, operating bank accounts and Book Keeping to improve operational performance of public hospitals. The study will also be helpful to relevant stakeholders in the health sector and the management of these hospitals on having proper management practices in their institutions