Question

How does Risk and Inflation effect capital decisions in a healthcare organization?

Answer 1

Access to financial capital is essential to any health care organization that would respond to change in its community, acquire new technologies and replace old equipment, renovate or replace deteriorated facilities, offer new programs or new services or make changes to improve productivity or enhance quality. Much attention has been given to the aggregate future needs for financial capital among hospitals. Estimate of such needs in the 1980s vary widely, depending on assumptions, from$100 billion to nearly $260 billion. Assessments of the ability of the health care organizations to raise needed capital vary is well.

There are many areas of the country in which the supply of hospital beds is excessive. However, even if a significant number of hospitals should close, there are many purposes for which other health care institutions will have substantial needs for capital funds in the future. Debt must be retired facilities and equipment must be kept current and in good repair. Some hospitals will need to be reconfigured alternative sites will have to be developed for long term care and ambulatory care and other steps will be necessary if hospitals are to become more comprehensive health care organization. Also, certain areas of the country have rapid population growth and new facilities or expansions of existing hospital may be needed.

Thus, health care institutions have and will continue to have substantial capital needs and access to capital translates directly into institutional ability to grow and even to survive. Differences among heath care sectors in their access to capital will shape the future makeup of the health care system.

Thus whether an institution has access to financial capital depends on at least one of three things whether it can attract philanthropy whether it can obtain governmental grants or appropriations which were a major source of capital for not for profit hospitals during the Hill burton era from the late 1940s until the 1970s but are available now only to government owned hospitals or whether it gas earnings .Earnings are not only an important source of capital they are also crucial to an organizations ability to secure funds through borrowing or through selling shares.

Funds accumulated from business operations are in principle a source of financial capital that is available to any ongoing organization, regardless of ownership type. Such funds are created when an organization’s annual cash revenues exceed its corresponding annual cash expenses

The much-understood topic of capital is key to the future for profit/ not for profit composition of heath care. Although a level playing field is itself not an important goal for health policy eliminating not for profit access to tax exempt funding could have a devastating effect on that particular sector, Changes are needed in Medicare policies for paying for expenses, including the past practice of paying for profit institutions a separate return on equity payment. Because of foreseeable changes in different sector’s access to capital, significant changes in the overall composition of health cate could result inadvertently from federal policies, a factor that should be included with other capital related policy questions to be considered.