Health Care Management The financial pressure points faced by firms in the health care business can be determined by looking at the flow of funds diagram. In this diagram, the health care organization sits in the middle, and as a result acts almost as a conduit or intermediary between different entities. Funds come into the health care organization from third party payers, and go out to suppliers and employees. There are other pressure points as well, however, wherever intermediaries exist.

One such pressure point is with the third party payers. They take in money from patients and employers, and disperse it to health care organizations and to physicians. They earn their profit on the difference between what they take in and what they pay out. This makes the third party payers a key pressure point, since not only do the people that pay them want to pay less, but the people they are paying want more. So for a health care organization, the desire of the third party payer to reduce payments is a pressure point because the health care organization takes that money and pays owners, employees and suppliers, all of whom want more.

Another key pressure point is with the patients. Most patients have limited means, and as a result of that want to limit how much money they give to health care organizations, physicians and third party payers. All of these entities have to pay their suppliers, employees, etc., so are seeking more money from patients. This results in a pressure point at the patient level.

With the health care organization at the center, suppliers want to receive more funds from the organization, as do employees. Owners would like more as well, usually, especially in for-profit enterprises. Third party payers want to disperse less to health care organizations, as do patients. Lenders are neutral -- they charge the market rate for loans, and therefore may want more or less depending on the prevailing interest rates.

2. Magretta's article highlights the balance that a good manager will have between understanding the numbers and being able to apply them to the real world. Numbers are valuable for a few reasons, the most important of which is that they reveal truths and provide strong supporting evidence. Thus, a manager who relies strictly on intuition may indeed be undertaking erroneous policies because he or she is not using numbers to help provide evidence and support for those policies.

With respect to personal financial goals, numbers are usually the end measurement. Even when the ultimate objective is abstract -- like retiring with a house on the beach and the ability to travel -- there are numbers that are attached to that because those things have specific costs. The numbers, therefore help track one to set specific, rather than abstract goals. Numbers then also can be used to measure one's progress towards those goals.

Further, the strategy that one uses to achieve one's goals often requires some numeric understanding. For example, most of us would say that we would like to make lots of money in our retirement funds, but without undertaking much risk. Such an objective, if one were to crunch the numbers, might be unfeasible. The path by which one can achieve one's financial objectives can be hypothesized and tested with sufficient understanding of the numbers involved in creating a personal financial plan.

3. Board members expect a wide range of financial data to be provided. The most basic data will be in the form of the common financial statements that are prescribed under Generally Accepted Accounting Principles (GAAP). These statements are the income statement, the balance sheet, the statement of cash flows and the statement of changes in owner's equity. The Board will expect those on a quarterly basis. If the company is not a publicly-traded company, it may not have a legal obligation to produce these statements regularly, but often Board members will want them anyway, because these are standard statements that are easy for Board members to understand, and because it is valuable for all revenue per patient, that they can use to track the progress of the company towards its objectives. Board members might also want expense figures, or even more specific sales figures or stats on numbers of different operations performed. Because the Board has the right to ask for just about any figures, management would be advised to compile a lot of figures. This not only helps them explain the business to the Board but to run the company as well.
4. There are a couple of reasons why teaching hospitals would receive additional payments to cover the cost of a medical education. The first is to provide an incentive. Ultimately, teaching students takes time away from the performance of other duties. Thus, medical staff cannot be as efficient if they are teaching, as they would be if they are not teaching. Knowing this, no hospital would want to be a teaching hospital without additional financial incentive. The incentive is intended to offset the costs associated with being a teaching hospital. If it is more profitable for a hospital to be a teaching hospital than to not be teaching hospital, then the hospital will choose to be a teach hospital.

Additionally, the incentive helps to defray other costs. For example, students might not be as good at their duties. This could lead to higher incidences of adverse patient outcomes. This raises the liability of the institution, and again, the incentive is provide to teaching hospitals to help them offset this additional cost that is associated with being a teaching hospital.

The incentive is provided because teaching hospitals are an essential part of the medical system. New doctors need to train on the job, in something resembling an apprenticeship. Because doctors require on-the-job training with real patients, they need facilities that allow them to gain this experience. This is why teaching hospitals exist. For patients, it is important that those hospitals be more than just vocational schools -- they want to go to a real hospital with professional doctors, and this demands a structure that allows real hospitals to serve as teaching hospitals, and the incentive is provided to facilitate that.

5. Yahoo! Finance is a good resource to find out what for-profit health care companies trade on the stock exchange -- these are the ones that will file a 10-K with the SEC. Universal Health Services (UHS) is one such company, trading on the New York Stock Exchange. Its business is described as owning and operating "acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers. It has 25 acute care hospitals and 198 behavioral health centers in 36 states, DC, Puerto Rico and the U.S. Virgin Islands. There are 46,500 full-time employees and the company is based in King of Prussia, PA. Finding this information was fairly straightforward. The good thing about publicly-traded companies is that the information is widely available on a multitude of websites. This is because investors need access to this information quickly and easily, so it is provided by many sites.

With not-for-profit health care organizations, the information is demanded by far fewer people, and is therefore more difficult to find. A Google search was required, and it turned up a website called 990 Finder.com. I had to think of a health care organization that was non-profit and then see if I could search the 990, and came up with Mt. Sinai as a search term. That allowed me to call up the 990 for the Mt. Sinai in…