At present, healthcare organizations are faced with numerous financial challenges that can have negative implications on the organization. Some of the financial risks arise from a decreased number of patients, altered reimbursement models, and increased competition in the healthcare market. As a result, health care organizations need to have in place systems that can enhance their financial status and reduce the risk of sinking into bankruptcy. Bankruptcy to healthcare institutions would negatively impact the people who seek health care services; hence, there is a dire need for this organization to implement the right financial concepts to minimize the financial risks. Financial risk and forecasting are the right financial concepts that healthcare organizations must implement to help avert any form of financial risk to the organization. This essay will summarize an article related to these financial concepts and an explanation of the financial concepts.
Article Summary
Gooch’s article ‘ How Financial Distress Forecasting Can Help Hospitals Avoid Closure ’ indicates how healthcare organizations can implement to overcome financial distresses. It also offers the various approaches that hospitals can use to minimize financial risks, such as implementing the 'Altman Z-score' model. The model is referred to as the Altman Z-score because the model involves profitability, capital structure, liquidity, and financial leverage (Gooch, 2018). Gooch (2018) mentions Plano, a Community Hospital Corporation (CHC) based in Texas, to stress the importance of the financial concept and forecasting as a financial concept. The article notes that forecasting helps an organization evaluate its financial position to establish the financial areas that need to be focused on. It highlights the importance of understanding the probability of a financial risk to the company to develop solutions to enhance the organization's financial position. The author in this article intended to highlight that the cost-cutting measures implemented by some institutions may not produce effective results during financial crises since some situations demand more than cost-cutting approaches.
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Explanation of the Financial Concepts
The finance concepts that Gooch discussed in the article are forecasting and financial risk. These concepts are associated with the financial position and operations of a company. The concept of financial risk relates to the financial risks posed to a healthcare organization that can result in a situation whereby the organization can be forced into closure or bankruptcy (Gooch 2018). It is a specific risk that relates to the wide-ranging risks associated with a company's capital structure. The concept of financial risk helps in ensuring a proper evaluation of a company's financial situation. In addition, an organization's management plays an essential role in averting financial risks as it makes decisions on whether to borrow funds or not. Most of the financial risks posed to healthcare organizations are based on the debt financing of the healthcare institutions.
Forecasting is the other financial concept highlighted in Gooch's article. Forecasting is a financial concept that, if it is well implemented and evaluated, provides insights that can help healthcare organizations to assess and predict their future financial position to implement proper solutions that can enhance their financial conditions. In addition to that, the financial forecasting model implemented by the CHC focuses on the management of expenses and revenues to figure out the areas that require improvement (Gooch, 2018). Forecasting helps organizations strategize on survival plans during a financial crisis. It also helps in achieving clarity to hospital management to identify financial trends.
Implementation of the Financial Concepts on The John Hopkins Hospital
The John Hopkins Hospital is a medical research institute and a teaching health facility of the John Hopkins School of Medicine founded in 1889. The facility focuses on progressing patient care, medical education, and medical research so as to change modern medicine (The John Hopkins Hospital, n. d). The financial concepts, financial risk, and forecasting can be implemented in the hospital to help in bettering the financial situation of the organization. For instance, financial risk assessment can be evaluated by assessing the hospital's credit, capital, revenue structure, and cost structure. The assessment of its credit would provide a viewpoint that if the hospital's ability to access capital is reduced, then the capital offers an outlook on the risks posed by the capital costs. Evaluation of the revenue structure and cost structure would also help determine the costs and expenses of an organization (Krentz & Miller, 2011). In this case, The John Hopkins Hospital can implement this financial concept to project its net income and budget for the future. In addition, forecasting can help the hospital management to predict future financial trends in healthcare and prepare in advance.
In conclusion, the essay has summarized the article, ‘ How Financial Distress Forecasting Can Help Hospitals Avoid Closure ’ by Gooch. It has highlighted the core financial concepts discussed in the article to be the concepts of forecasting and financial risks. The financial risk concept relates to evaluating the financial risks that pose a threat to the financial position of an organization, while the forecasting concept refers to predicting the future financial situation of an organization. The essay has also highlighted that these financial concepts would be beneficial if implemented in a healthcare organization such as The John Hopkins Hospital. The hospital would be able to analyze its financial situation and predict future financial risks, which would enable it to develop and implement the proper solutions to counter the risks.
References
Gooch, K. (2018). How financial distress forecasting can help hospitals avoid closure. Becker's Healthcare . https://www.beckershospitalreview.com/finance/how-financial-distress-forecasting-can-help-hospitals-avoid-closure.html
Krentz, S.E. & Miller, T.R. (2011). How to evaluate financial risks. Health Forum. Trustee Magazine . https://www.trusteemag.com/articles/468-how-to-evaluate-financial-risks
The John Hopkins hospital (n. d). About The John Hopkins hospital. The John Hopkins hospital. https://www.hopkinsmedicine.org/the_johns_hopkins_hospital/about/
