Operating Budget Over the Last Several Years,

Operating Budget

Over the last several years, the issue of rising health care costs has been having a dramatic impact on a variety of facilities. Evidence of this can be seen with a study that was conducted by the Kaiser Foundation, where they found that prices have risen by 47% since 2005. (Ableson, 2010) This is important, because it showing the budgetary challenges that many hospitals are facing. In the case of Patton Fuller Community Hospital, they are dealing similar kinds of problems. To fully understand how administrators can adapt to them requires examining effective financial management practices that can be utilized and ineffective policies. Once this takes place, it will provide specific insights as to what challenges are facing the facility.

Effective Financial Management Practices of Patton Fuller Community Hospital

In general, the financial management strategy that has been utilized (over the last year) is working. Evidence of this can be seen with the fact that the hospital had a reduction in the total operating loss by 66%. This is a sign that management has engaged in a strategy of: maintaining tight financial controls, they have strategically made investments in select areas and they are taking advantage of the deflationary environment. These different elements are important, because they are highlighting how the strategy is addressing the problems facing Patton Fuller.

Ineffective Financial Management Practices at Patton Fuller Community Hospital

Despite the tremendous amounts of progress that have taken place at the facility, there a number of issues that could have a dramatic impact on its economic viability. A few of the most notable include: rising costs, declining customer demand and poor collection methods. These factors are significant, because if left unaddressed they could lead to major problems for the hospital in the future.

The way rising costs could have an impact on health care environment is by, negating any kind of improvements that were made over the last year. The operating budget of the hospital is indicating that the biggest advantages that they have are the 3% deflation rate (thanks to the weak economy). This is problematic, because once the economy begins to improve is when inflationary pressures will begin to have an impact on the cost structure. As, this will affect everything ranging from: the fees that are charged for services to the underlying costs for supplies. The negotiated long-term contracts could hurt the ability of the company to adjust to these changes, as they have little room for upward price increases. This is significant, because it showing how the facility is facing major challenges from: their poor cost structure that is in place. To prevent this from spiraling out of control in the future requires that the hospital use an approach that will give them greater flexibility for making adjustments.

Declining consumer demand is a sign that the underlying quality of care is decreasing. This is troubling, because demand for these services has been continuing to increase due to large segments of the population becoming older. Evidence of this can be seen by looking at the total number of Baby Boomers (78 million). As, this segment of the population ages, they will continue to place increasing demands on the health care system. This has caused demand for these services to increase and it is projected to continue at the current pace over the next several decades. (Gignante, 2010)

In the case of Patton Fuller Community Hospital this is troubling. The reason why, is because demand should be steadily increasing, given the demographics of the population shifts. However, since demand has been declining, this is a sign that there could be problems with the quality of care that is being provided. This means that some kind of change must take place in operating environment of the facility. As, there could be a number of different factors inside the hospital that is contributing to the problems including: labor shortages, a sense of complacency among the staff, high turnover ratios, poor management and inflexibility. These different factors can create a situation where patients are no longer willing to use the facility. This is because they feel that they could receive better services at another location, which leads to a decline in admissions. Over the course of time, this could have a major impact on the hospital. As it will have an effect on: the profit margins and cost structure. This is when any kind of improvements made over the last year could easily be mitigated.

The poor collection methods are problematic, because they mean that the hospital could be taking a loss for services that were provided. This goes directly against the strategy that was implemented over the last year and it has the ability to affect the long-term viability of the hospital. As a result, some kind of drastic action must be taken to address these challenges. Otherwise, there is the realistic probability that the facility could begin to face a number of financial challenges in the future. This is significant, because it highlighting how the current approach is failing to address a variety of problems at their source.