Health Economy and Finance Metropolitan Community

Question: Discuss about the Health Economy and Finance for Metropolitan Community. Answer: Financial Analysis The current scenario Current Situation Number of Cases 500 Total Direct Cost 3500000 Total Marginal Cost 2250000 Total Cost 5750000 Average Direct Costs 7000 Marginal Cost per Case 4500 Average Reimbursement per Case 10000 Average Profit/ Loss -1500 Total Profit/ Loss -750,000 New Scenario Average Logic Marginal Logic Hip replacement 50 50 Reimbursement price per Hip replacement $10,000 $10,000 Marginal reimbursement price per Hip replacement $500,000 $500,000 Cost per Hip replacement $11,500 $4,500 Direct Cost for a Hip replacement $575,000 $225,000 Profit/ Loss for additional 50 hips $(75,000) $275,000 Illustration for the Financial Analysis From the financial analysis, Metropolitan Community Hospital has been making losses from its Hip replacement operations. This can be observed by comparing both the average total costs per hip case and the average reimbursement price per case. The average cost per case is $ 11,500 while the average reimbursement price per case is $ 10,000. The Hospital incurs $ 1,500 more to conduct a single hip replacement as compared to the price earned from the reimbursement. Currently, the hospital incurs a total cost of $ 5,750,000 to conduct 500 hip replacements while the total reimbursement cost for the 500 cases is $ 5,000,000 (William Ward, 2015). The Company incurs a loss of $ 750,000 per annum after performing the 500 hip replacements. According to financial experts, an organization should engage in an investment that is likely to improve its financial positions. Which is not the case under the current scenario facing the Metropolitan Community Hospital (Baker, 2013). Although we have devoted ourselves to provide quality services to the community, the current situation is not favouring our operations (Cleverley Cameron, 2006). There is a need for focusing on either cost reduction strategy or seek an increased reimbursement price from, medical stakeholder. Therefore, the proposed should only be accepted if it is likely to improve the financial position of the hospital (Ward, 2015). Analysis of the new scenario An analysis of the new scenario has revealed the following; If the proposed scenario is accepted, the hospital will incur an additional cost amounting to $ 225,000 while the reimbursement prices to be received would by $500, 000. Metropolitan Community Hospital would make a profit from its new Hip replacement operations. This can be observed by comparing both the average total costs per hip case and the average reimbursement price per case (Gapenski, 2011). The marginal cost per case is $ 4,500 while the average reimbursement price per case is $ 10,000. The new deal was proposed from an improvement process that has been identified to reduce the length of stay. The Metropolitan would perform an additional 50 hip replacements per annum if the deal is accepted (Gapenski, 2006). However, it should be noted that the deal does not propose any financial benefits the hospital would gain apart from the reduced cost (Baker, 2013). The deal does not indicate any form of discount that the hospital would obtain by performing additional 50 hip replacements. Based on the information provided, the new deal has an improved benefits that the hospital is likely to enjoy. By accepting the proposed deal, the Metropolitan Community Organization would gain a profit of $ 5,500 per case of hip replacement which translates into a total profit of $275,000 per annum. Even though the hospital have been incurring losses for conducting 500 hip replacements per annum, the year deal would come with a profit (Cleverley Cameron, 2006). Conversely, the hospital would fulfil its core objective of improving the lives of the Metropolitan residents by performing additional 50 cases of hip replacements. The decision on whether to accept or reject the proposed deal would be based on the goal of the facility (William Ward, 2015), (Ward, 2015). The new proposal should be accepted because the hospital focuses on performing as many hip replacements as possible per year to improve the lives of its patients. Likewise, if the hospital is a profit making organization focussed on making additional money from its operations, the proposed deal should be accepted because it would lead to a profit for the organization (Baker, 2013). Even Non-Profit making organization focuses on controlling or keeping their cost of operation as low as possible, the proposed deal would lead to reduced expenditure and therefore should be accepted (Nowicki, 2011). Conclusion I urge the management of the Metropolitan Community Hospital to accept the proposed deal based on the facts presented in the presentation. References William, J., Ward, J. (2015). Health care Budgeting and Finance Management. New York: Praeger. Baker, J. J. (2013). Health Care Finance. Chicago: Jones Bartlett Publishers. Cleverley, W. O., Cameron, A. E. (2006). Essentials of Health Care Finance. Chicago: Jones Bartlett Learning. Gapenski, L. C. (2006). Understanding Healthcare Financial Management. London,UK: Health Administration Press. Gapenski, L. C. (2011). Healthcare Finance: An Introduction to Accounting and Financial Management. London, UK: Health Administration Press. Nowicki, M. (2011). Introduction to the Financial Management of Healthcare Organizations. London, UK: Health Administration Press. Ward, W. J. (2015). Health Care Budgeting and Financial Management for Non-Financial Managers. New York: Praeger .