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Heathcare Capital Budgeting and Patient Consensus

1. Why do health care organizations need to develop capital budgets? How many years need to be included and why?
2. What are the consequences to a health care organization that does not have the financial position to execute any capital spending?
3. If a hospital has an average patient census at approximately 50% of capacity, should they consider taking on an HMO population that will increase their census by about 15%, but will only reimburse an average of 2% above total cost (fixed and variable)? Explain your answer.

Solution Preview

Please see attached response (also presented below). I have also attached a file of the most commonly used ratios in financing and have provided many suggested links to highly relevant material that you may find helpful. I hope this helps and take care.

RESPONSE:

1. "Why do health care organizations need to develop capital budgets? How many years need to be included and why? "

Capital investments have historically been positioned as an expense required for maintaining, upgrading and expanding hospital facilities. A monumental shift in thinking is needed to reposition the allocation of capital funds as a strategic investment in assets that will yield significant returns and benefits. Seen, then, as a viable investment, health care organizations need to develop capital budgets with a projection of three years in the future. Why? Because government and health care organizations need to spend more time deciding where to invest resources and how to structure the system to better meet the needs of future patient care needs. Capital investment is, in fact, an enabler for:

1. Improved patient care outcome
2. Improved management of clinical service activities
3. A ...

Solution Summary

This solution explains why health care organizations need to develop capital budgets and the number of years that should be included and why. It also discusses the the consequences to a health care organization that does not have the financial position to execute any capital spending and a question about patient consensus. Supplemented with extra resources on capital budgeting and financing.

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