Happy Hospital Scenario
February 14th, 2011
Happy Hospital Scenario
Happy Hospital is a medium sized community hospital that is going into the New Year in a very strong position. With over $12.5 million in assets they are in a much better position than in years past to make some very important decisions to further improve the hospital (Finkler, 2006). Investing in new technologies and processes to become more efficient and provide better care is a complex goal for the hospital to achieve. There are a lot of decisions that will need to be made and they will require an understanding reporting, ethics, and accounting to be able to make the right decision.
Budgets and Performance Reports
Budget reporting is necessary to making good decisions on any potential upgrades at Happy Hospital. The organization is in a good position with the amount of cash on hand and other assets. However, if management does not set a clear budget for expenditures there could be disastrous consequences. Budgets can make sure the necessary expenditures are accounted for and a set amount to spend on upgrades can be discussed and agreed to. Happy Hospital is looking at converting over to electronic medical records to improve efficiency. Using budget reporting, management will have a limit to the amount that the hospital can spend on this technology. Otherwise its can be easy for management to be impressed by a system that costs way too much and impedes on the hospital??™s ability to provide services to patients.
Performance reporting is also very important for management to use in the decision making process. According to AllBusiness.com, performance reporting displays the actual results of company activity (2011). Using the electronic medical records as an example, the hospital would want to check the performance reporting from the software company showing how the system helped other hospitals improve efficiency and cut costs. Performance reporting can be used on other initiatives that the hospital undertakes and can be compared with the budget reporting to determine how favorable or unfavorable the initiative has been for the organization (allbusiness.com, 2011).
Ethics influences all decision making within an organization including accounting decisions. With the likes of Enron, Bernie Madoff, etc. one could say that ethics is more important than ever in accounting. Individual ethics can play a role in the decision making when a desired result is not being achieved (McDevitt, 2007). If the hospital administrators reported to shareholders that electronic medical records would save the hospital a lot of money and increase efficiency, they may feel some stress if those reports don??™t come to fruition. This type of stress can cause someone to doctor the accounting reports to show the information that they want. Obviously this is a very unethical example and one that Happy Hospital needs to create a culture to prevent.
A culture of the highest ethical standards can help to relieve the stress put on the individual. If management works as a team and working on the budgeting and performance reporting together, the stress on one individual that controls the situation is avoided. This makes the odds of someone fabricating false reports less likely and instead the successes and failures can be shared as a team.
Relevant Accounting Information
As a hospital, there is a lot of accounting information that are unique to the medical industry. Management must be focused on the right kind of information in order to make the right decisions on the direction of the organization. Hospitals focus on the number of patients and the ability of the patients to pay for services. Happy Hospital understands that roughly 3% of patients won??™t be able to pay, which is also called bad debt (Finkler, 2006). The hospital also has to account for inventory levels of medical supplies and equipment. There are also wages, insurance, and taxes that must be accounted for. These are similar to what most businesses account for but the main difference is that hospitals affect peoples??™ lives. If inventory levels of medical supplies are not monitored for example, patients??™ could be harmed.
Accounting information is a large part of the decision making process. Often times, decisions are approved and justified by the use of budget and performance reporting. If these reports do not justify the expenditures of the organization, ethics can play a role in the accuracy of the negative reporting. Happy Hospital needs to have a culture of supporting the highest level of ethics to ensure that their accounting is at its best. Finally, Happy Hospital needs to know the unique types of information that benefits a hospital such as number of patients, ability to pay, inventory levels of medical supplies, etc. If management of Happy Hospital can understand how accounting affects their decision making, they should have an even better this year than last.
Allbusiness.com. (2011). Performance Reports. Retrieved from http://www.allbusiness.com/glossaries/performance-report/4945604-1.html
Finkler, S. A. & Ward, D. M., (2006). Accounting fundamentals for health care management. Sudbury, MA: Jones and Bartlett.
McDevitt, R., Giapponi, C., & Tromley, C. (2007, June). A model of ethical decision making: The integration of process and content. Journal of Business Ethics.