Happy Hospital provides a high quality of care, meets the needs of the community, and serves all people with dignity and respect regardless of their ability to pay (Finkler & Ward, 2006, p. 163). In 2008 Happy Hospital currently has 115 beds and a large amount of current assets however; the hospital is making poor fiscal decisions. In this paper I will discuss how could Happy Hospital use budgets and performance reports in their decision-making process. I will also discuss how must ethics influence their accounting decisions. To improve financial decisions, I will discuss what accounting information is most relevant for Happy Hospital to consider when making decisions.
According to Cleverley & Cameron (2007), to create incentive programs for employed doctors, many nonprofit health care firms have created taxable subsidiaries, such as OMMI, which permit them more latitude in structuring compensation programs that are not subject to the same issues of inurefment examined by the Internal Revenue Service in nonprofit firms (p. 164). In order to improve their poor fiscal decisions, they will need to review their current spending habits. Happy Hospital is recognized by the IRS as a 501(c) 3 Corporation and is therefore exempt from paying income taxes (Finkler & Ward, 2006, p. 163).
The hospital has $12.5 million in accounts receivable and have just over $800,000 in cash (Finkler & Ward, 2006, p. 163). The CEO of Happy Hospital, Mr. Harm O. Knee, for a while now has been talking about the need to automate some of the medical records and move toward an electronic medical record (Finkler & Ward, 2006, p. 163). Mr. Harm wants to invest in new technologies that can improve efficiency and help reduce medical errors (Finkler & Ward, 2006, p. 163). The hospital desperately needs advice on making the right financial decision.
Budgets and Performance Reports
Happy Hospital can use budgets and performance reports in their decision making process that will actually overall improve the decision making. After reviewing the actual and projected figures in the financial statements, Happy Hospital must compare their revenues and expenses while analyzing their revenues and expenses. The revenue seems to be lower than their expenses. Happy Hospital needs to prepare another budget using year 2008 budget and the actual figures. According to Baker (2006) there are four recognized elements of financial management: (1) planning, (2) controlling, (3) organizing and directing, and (4) decision making. Applying these elements will help Happy Hospital with their accounts, budgets, and the financial reports. Ethical Accounting Decisions
According to Finkler & Ward (2006) it is necessary to bear in mind that rules and accounting systems can??™t make up for a lack of ethical behavior on the part of the management or its outside auditor. Ethics is very important in the financial world. Qualities matter foremost in Accounting using ethics such as honesty, competent, and reliability. Happy Hospital should always build around a society of ethics especially when people rely on their services. Good reputations always result in a better outcome of services.
Accounting Information Most Relevant
Happy Hospital results showed in 2006 and 2007 it had two very difficult years. In 2008 they did not have any debt that year however they did take on some long-term debt that year because the hospital lost money (Finkler & Ward, 2006, p. 177). Happy Hospital had a negative interest and debt service coverage ratios, negative profitability ratios, operating losses for the year and total losses for the year (Finkler & Ward, 2006, p. 177). ???Clearly there are serious signs of financial stress, and we have our work cut out for us to turn around the 2 years of operating losses??? (Finkler & Ward, 2006, p. 177).
After reviewing Happy Hospital current spending habits this helped improve their decision making process using budgets and performance reports. They begin to engage in more ethical operational practices which will benefit the future success for the company. By hiring a financial manager this will help assist them with future budgets and financial reports.
Baker J., Baker R., (2006). Health care finance: basic tools for nonfinancial managers. 2nd ed.
University of Phoenix.
Cleverley W., Cameron A. (2007). Essentials of health care finance. 6th ed. University
Finkler, S. A. & Ward, D. M., (2006). Accounting fundamentals for health care management.
Sudbury, MA: Jones and Bartlett.