Impacts of financial determinants on health organizations
The payment mechanism represents one of the main building blocks of a good health system. The payment strategy is well exhibited by the financial performance in every hospital. It is mainly measured through the net revenue incurred and the operating financial margin. The financial margins are represented through financial account statement analysis that occurs in different periods of the year. According to Zainon S. et al (2014), financial margins are represented in form of a balance sheet, cash flow, and income statements. The financial statements are of great essence in that; they are used by the internal and the external stakeholders to estimate the business performance and value of every health organization.
For-profits, and health organizations the financial data or reports are given to the shareholders and investors whereas non-profit health organizations’ financial reports are given to the Board of Directors or other governing authorities. These reports are important in that they help the investors to evaluate and take sustainable economic decisions by comparing the past and present performance of the health organization
Blackstone hospital is a profit-making organization. There is a difference in ownership of the profit and non-profit hospitals; that is, the non-profit hospitals belong to either the state or the government while the profit health organizations belong to either the investors or the shareholders of a publicly-traded company. Thus, the government-owned hospitals are managed by a country’s Ministry of Health, while the non-profit hospitals are managed by an appointed or employed management team. However, there are some non-profit hospitals owned by a charitable organizations, especially in a locality of the underserved population in a community.
Additionally, there are differences between profit and non-profit health organizations regarding ownership and taxation. Simnett (2017, p 61) insinuates that non-profit hospitals, it is well-known that they act as charitable organizations which provide benefits to the community. Unlike, profit hospitals that only provide services to specific individuals. These private individuals may include the private equity firms registered with the hospital or partners related to the profit hospital. In addition, non-profit hospitals do not pay income or taxes to the state, unlike the profit health organizations that are expected to pay a particular amount of fee to the government to continue with their operations.
Nevertheless, the population served by the non-profit health organizations usually receives more uncompensated care than those served in profit hospitals. Profit hospitals tend to be located in communities of high incomes earners and with fewer uninsured patients. Non-profit hospitals tend to serve the lower-income populations with the majority of the patients being uninsured. In addition, the profit health organizations allocate most of their funds to marketing and advertising their services. Unlike non-profit organizations, they do not have a target on the minimum number of patients they need to serve to avoid making losses.
Despite the laid out differences, both non-profit and profit health organization sectors have similarities. The primary similarity is that their core value is to provide better health care to their population. Their population act as the determinant of their progress. Non-profit health, organizations create free seminars for disease awareness and offer free medical screening. On the other hand, profit health organizations market their services by offering certain discounts on their medical services. They advertise and publish the offered services for easier reach by their population.
Nevertheless, there are differences that exist between the two health organizations. For instance, Simnett (2017, p 60) notes that non-profit organization sources their revenues from charitable organizations, donations, and grants from states or governments while profit organizations get their resources from their shareholders. Secondly, the main expense difference between the profit and non-profit organizations is that the profit organizations keep a balance sheet that reflects what the organization owns. For non-profit organizations, a financial statement is kept to reflect the asset on hand that can be used by the organization to further its goals and mission.
Managers in the non-profit health organizations get an easy time while implementing strategies for their source of revenue is not sided; yet, they fully get the support from the government unlike their counterparts in that, the decision made relies on certain individuals.
Furthermore, financial performance is assessed by the use of three main ratios. They include profitability, leverage, and liquidity ratios (Chang et al., 2014, p 21). Profitability refers to financial metrics that are used to assess an organization’s ability to generate earnings relative to its revenues and operational costs. The leverage ratio is used to measure health organization operating expenses to come up with ideas of how changes in output can affect the operating income while the liquidity ratio measures an organization’s ability to pay debt and measure an organization’s safety financial margin. The above ratios help the health managers to make informed decisions.
Roles of financial reporting in organizations
Financial reports help non-profit and profit health organizations to reduce errors in their operations, improve the acquisition of vital patient data and help reduce unnecessary expenditure. Also, the information gathered from financial reports is used by managers in decision-making. They should be formal and prepared in each accounting period. However, they should reflect certain basic features and have a fair representation of the ongoing concerns in the profit and non-profit health organizations.
Moreover, health care managers in both profit and non-profit organizations, apply the GAAPS (Generally Accepted Accounting Principles) to record and report financial information in a uniform manner (Chang et al., 2014, p 23). Chang et al. (2014, p 23) also note that it helps health managers ease the burden of comparing a health organization’s financial statements. In addition, GAAPS enables them to establish the creditworthiness of the health organization to earn financial strength.
Both non-profit and profit health organizations need to meet guidelines and comply with the accounting regulations. This helps to ensure the responsibility of keeping track of the actual services being provided and makes sure that no patient is charged incorrectly. It also provides a good framework for decision-making to profit and non-profit health organizations. Therefore, both categories of health organizations should comply with this cut-out guideline.
In conclusion, non-profit and profit health organizations serve the same purpose in society regardless of people’s social status. The two healthcare organizations aim at providing quality health care services in different social and economic status communities. Hence, it is upon diverse individuals to choose the best service being offered according to their backgrounds or social status.
Chang, H., Ittner, C.D. and Paz, M.T., 2014. The multiple roles of the finance organization: Determinants, effectiveness, and the moderating influence of information system integration. Journal of Management Accounting Research, 26(2), pp.1-32.
Simnett, R., 2017. Determinants of Financial Information Published by Private Not‐For‐Profit Organisations. Accounting & Finance, 27(2), pp.53-71
Zainon, S., Atan, R. and Wah, Y.B., 2014. An empirical study on the determinants of information disclosure of Malaysian non-profit organizations. Asian Review of Accounting