Fin_Hc_571

Alternate Working Capital Policy FIN/HC 571 9/26/2011 Abstract Elijah Heart Center (EHC) is reorganizing its working capital policy in order to reduce future issues that may arise. (EHC) has current financial problems that stem from a rise in patient care and other issues. Financing, accounts receivable, risks, and working capital management must be under control for (EHC) to have a promising future. There will be recommendations in this paper that discuss working capital shortage, funding options for new medical equipment, and working capital for future expansion. Alternate Working Capital Policy Elijah Heart Center (EHC) is based out of New York and is a 140-bed cardiac hospital that provides a full spectrum of cardiac options from laboratories, surgery, cardiac testing, and many other options for cardiovascular patients. Capital management is imperative because of the rise in patient care, which has resulted in an increase of revenues but a decrease in profitability. As a financial manager, I will determine how to keep the volumes up and increasing the profitability in the future. My recommendations will include short term and long term adjustments to help (EHC) increase cash flows within the company. Elijah Heart Center (EHC) has a range of options for short-term financing available that need exploration. There are two alternate short – term financing options that will help immediately, which are reducing agency staff and reducing benefits. Agency staff income is usually double of other hospital staff. These agency staff individuals can be replaced if needed with other employees that can be paid far less. This will help cut costs for (EHC) so it can focus on other avenues to increase profitability. Reducing employee benefits will also save (EHC) a good amount of money in the short and long term. Reduction in health insurance, retirement, increase salary benefits, and bonuses will help save money. With these two strategies implemented (EHC) will make positive changes in short-term financing and will ensure excellent patient care. Reducing agency staff and reducing benefits will slightly affect patient care, which is great in long-term planning for Elijah Heart Center. It is imperative that with the changes that are made, (EHC) will not dip into the revenues to cause negative consequences in the future. Reducing agency staff and reducing benefits will slightly affect (EHC) in the short-term but will be extremely positive in the long-term. (EHC) accounts receivable and inventory have been slightly affected. With an increase in patients, (EHC) has noticed higher defaults with the accounts receivable sector. Most hospitals have been vulnerable in the accounts receivable sector because of funding cost, reduction in Medicaid Reimbursements, cuts in Medicare Payments, and the discounting pressures of management care. These issues have hampered (EHC) accounts receivable sector. Inventory has also slowly becoming out dated due to the advances in medical equipment. (EHC) will stock up on new equipment to enhance testing procedures and to make patient care more efficient. Speeding up the patient interaction will allow (EHC) to take in new patients without the stress of dealing with past patients. The best strategy for new equipment will be for (EHC) get a scanner that is refurbished, to purchase X-Ray machine on a capital lease, and to get ultrasound machine on operating lease. These three financial strategies are the most efficient for (EHC) to make sense of its financial position. (CCC) Cash Conversion Cycle for (EHC) will be an adjustment period to evaluate the changes enforced. The (CCC) is vital to working capital management because it will give (EHC) an accurate picture of current and future trends. (EHC) will now effectively be able to know what to expect as far as inventory, accounts receivable, and the amount saved with the new changes that are implemented. Reducing agency staff, reducing benefits, and implementing new equipment will have huge monetary advantages pertaining to the (CCC). With the changes that will be in effect, the staff and management must work together as one unit to get the best possible results. However, there are risks associated with these changes that should be noticed. First, there must be a better level patient service due to the reduction in agency staff and reduction of benefits. This can hurt patient care because employee’s morale will go down and their passion might be elsewhere. (EHC) will provide long-term options that can provide compensation when the company plans to expand. Stripping employees of benefits can hurt (EHC) in the short-term unless it can provide a hopeful future for these employees. This can higher morale and excite these employees to work at their highest levels knowing this is a short-term sacrifice. With patient care being excellent, (EHC) will be able to expand and offer employees higher benefits in the future. This will increase the profit margin and the (CCC) will compliment the working capital management positively. By offering employees more in the long-term, (EHC) can meet the short-term requirements to increase profitability. Management will assess current employees and their performance to determine future options that can reward employees for their current sacrifice. Taking benefits away can be detrimental unless there is future compensation. Management assessments will help (EHC) determine the positive differences in patient care. Monthly management and team meetings will address what employees want and expect in the future for their present sacrifices. There will be opinion forms for employees to make requests for the short and long term. When (EHC) expands, these employees will be first option to have their requests granted. It is imperative that (EHC) ensures a better future for their employees who sacrificed to make the company better presently. My recommendation is to decrease agency staff and to decrease benefits in the short-term to provide more for these employees in the future. For example, when (EHC) expands it can offer full benefits to the employees that performed at their highest levels. Assessments will determine who will be compensated in the future by management. It is imperative that (EHC) upholds an excellent reputation for their patient care, which will help the company expand in the future. As a financial manager, there were short-term changes at (EHC) to increase patient care and future profits. New equipment will increase the speed of patient care. Decreasing agency staff and decreasing employee benefits will help generate cash flow for the company. With increased patient volume and revenue, it is imperative (EHC) enforces new methods that will increase profitability. These two changes will increase profitability. (EHC) will re-compensate employees who performed great during this transition period. Future compensation will be offered to these employees when (EHC) expands. (EHC) is in the right direction and will be ready for future expansion. REFERENCES: SIMULATIONS: Healthcare Financial Accounting Simulation