Introduction
The Elijah Heart Center is facing the significant financial shortage common for specialized health care organizations. The shortage depends on the combination of the need for improved technology, the reduced income, and the demand for expansion. That is why, it is possible to state that there are few chances for the hospital to increase the income without acquiring the needed technology and realizing the planned expansion. The main tasks of a financial consultant working to help the Elijah Heart Center cope with the financial problems are to overcome the capital shortage while proposing the effective strategies, to propose the cost-effective strategies to purchase the required equipment, and to select the effective source of funding to complete the necessary expansion.
Capital Shortage
The complicated financial situation at the Elijah Heart Center requires a combination of many strategies necessary to reduce costs and to make the wisest choices regarding acquiring the needed technologies and realizing the planned expansion. One of the main goals in this situation is to save $900,000 for the first year and to help improve the cash flow problem the Elijah Health Center is experiencing. As a result, while focusing on different cost-cutting strategies, it is reasonable to select the reduction of the agency staff and the changes in the skill mix. The first cost-cutting approach is effective because reducing the proportion of the agency contracted staff, the hospital can reduce costs without any significant dip in the revenue. The other added suggestion is the changes in the skill mix associated with hiring the unlicensed personal because the hospital can save money while receiving the long-term benefits. In order to contribute to the progress of the Elijah Health Center, it is relevant to recommend Loan Option 1 because it can help solve the cash flow problem during three months with the increased interest rates, but without the prepayment limitation.
While discussing the outcomes of the decision, it is important to state that the reduction of the number of contract nurses and other personnel contributes to huge cost savings observed in the Elijah Heart Center. Furthermore, the associated premiums and management fees can also be decreased. Referring to the second cost-cutting strategy, it is necessary to note that when a business hires many employees through an agency, there are many added expenses that have to be paid (Yoshida & Kawahara, 2014, p. 48). The Elijah Heart Center can see the considerable increase in revenues in spite of the possible increases in costs observed during the first few months. The Elijah Heart Center can also use the loan in order to improve the current working capital situation. In this case, the positive results of referring to Loan Option 1 can be noticeable during the first three months instead of expected six months.
Funding Options for Equipment Acquisition
The Elijah Heart Center had to change the current equipment inventory, and cost-effective equipment selections were expected. The effects of buying the new or refurbished equipment are different in relation to different health care organizations (Yesalis, Politzer, & Holt, 2012, p. 112). While focusing on the specialization of the Elijah Heart Center, it is possible to recommend buying the High-Speed CT Scanner with the help of the refurbished equipment loan because the High-Speed CT Scanner is a medium technology, and it can be used during ten years. It is also possible to recommend using the capital lease for the X- Ray Machine because it can be used during 15 years, while contributing to the quality of the provided care. The Ultrasound System can be purchased with the help of the operating lease option because of the low payments.
The expected outcomes of the decision are the possibility to improve the equipment without affecting the capital balance significantly. In order to buy the High-Speed CT Scanner as the refurbished equipment means the opportunity to use it effectively during five years, and then upgrade the technology according to the latest requirements. The focus on the capital lease for the X- Ray Machine means the opportunity to avoid the further significant investment into upgrading the technology. While referring to the use of the operating lease option for the Ultrasound System, it is important to state that the Elijah Heart Center receives the opportunity to pay the lowest percent and continue to use the latest technology.
Funding Options for Capital Expansion
The assistance in managing the increased patient inflow was necessary for the Elijah Heart Center because the center had announced the plans associated with the center’s expansion and improvement. In order to address the expansion requirements, it is necessary to select the appropriate source of funding. In this case, the best funding option can be the HUD 242 Loan Insurance Program. The HUD 242 Loan Insurance Program should be selected among the other options because it allows the Elijah Heart Center to focus on having their debt financed. The followed principle is the investment grade associated with the high Net Present Value. The expected Net Present Value is of $221 million. Furthermore, the organization receives the opportunity to rely on the lowest borrowing rates.
The program can guarantee that the finances are secured, and that there are no deadlines for working with the proposed finances. The other proposed options can be discussed as ineffective for improving the situation in relation to the Elijah Heart Center because the other proposed programs are focused on requiring the money to be spent within three years (Yesalis et al., 2012, p. 112). This requirement cannot be addressed by the Elijah Heart Center because of the size of the company’s expansion. The directors of the Elijah Heart Center are focused on the four-year plan when some expansions can be realized during the longer phases.
Summary and Conclusions
The financial simulation can provide with the opportunity to look at the true financial situation that organizations can face daily and discuss all the details of the problem while completing the important decision-making process. Researching the specific options to cut costs, to acquire loans, and to look at the capital expenditures for fiscal gains, it is possible to learn the significant terminology as well as learn how to analyze and use different options which are available to various organizations. The proposed simulation required to focus on selecting the combination of strategies which could be effective to reduce costs while contributing to the organization’s progress. Furthermore, it was necessary to make the wisest choices regarding acquiring the needed technologies and completing the expansion. While performing the simulation again, it is possible to pay more attention to calculations in order to make reasonable conclusions and choices. However, the discussed choices can be effective enough to help the Elijah Heart Center cope with the financial crisis.
The completed simulation is also effective because the learnt information can be easily applied to the job environments in the situations when the advantages of the financial decisions should be calculated and compared in order to choose the most beneficial strategy to follow. The purpose of this simulation is to explore the ways to bridge a working capital shortage, to evaluate funding options for acquiring medical equipment, and to evaluate funding options for capital expansion. Thus, these activities can be discussed as characteristic for the health care organizations, and the discussed problems are common issues that all businesses face at one time or another. That is why, while focusing on making the correct decisions, it is possible to develop the ability to adapt to the situation and to solve the problem effectively while choosing the direction to follow.
References
Yesalis, C., Politzer, R., & Holt, H. (2012). Fundamentals of US health care: Principles and perspectives. New York, NY: Cengage Learning.
Yoshida, K., & Kawahara, K. (2014). Impact of a fixed price system on the supply of institutional long-term care: a comparative study of Japanese and German metropolitan areas. BMC, 1(14), 48-54.