Question

Please answer the followings Questions in 550-words count in your own words. Please provide a spreadsheet with calculation and loss estimates and capital. The board of directors of your for-profit hospital has been approached by a nonprofit hospital to consider a joint venture to take over their business resulting in a larger for-profit medical center status. You have been asked to construct a financial risk analysis for this conversion. Using course materials, including your text and the Internet, and principles of financial risk analysis, evaluate the considerations that a nonprofit hospital has in considering the conversion to a for-profit hospital.

Consider the following topics in your discussion:

• Key characteristics of nonprofit hospitals that differ from for-profit hospitals o Include the characteristics required to maintain a nonprofit status.

• The need for shifts in corporate structure required for survival in this environment, including safety net requirements and responsibilities

• Potential reasons driving both organizations and considerations between an outright merger verses a corporate alliance or joint venture. • Assessment of the payer mix, financial benchmarks of nonprofit and for-profit hospitals

o Consider uncompensated care burdens within the for-profit model

• Proffer a decision based on your analysis of whether the organization should convert, create a joint venture, or decline the offer with rationale and justification. Your paper must include your financial information derived in your risk analysis as an appendix included after the Reference page

Answer 1

For-profit hospitals pay property and income taxes while nonprofit hospitals don’t. For-profit hospitals — including labor unions, consumer groups, and some legislators say there are other differences, too. They note that unlike nonprofit hospitals, for-profit hospitals have to answer to shareholders, who may not have the same interests as the local communities. One of the facts is that for-profits respond more quickly to changes in financial incentives. When home health care became profitable, the likelihood of for-profit hospitals offering the services more than tripled, but when a law changed to make the services less profitable, the probability of for-profit hospitals offering them dropped quickly. Nonprofits went through a similar change, but it wasn’t as fast or dramatic.

“For-profit hospitals are considerably more responsive to financial incentives than nonprofits, not just with respect to their decisions to offer services but also in their willingness to operate at all. For-profit organizations that provide health services as a business. With their rapid growth and diversification, they have become increasingly visible and influential. In many ways, they represent a challenge to established interests, practices, values, and ideals. Nowadays, most of the companies are turning towards the strategic alliance, with the aim of coping with uncertainty and risk, as well as to approach a gamut of competencies, market, and technology. On the other hand, joint ventures can access the knowledge, assets, and funds from all the firms to venture, so it is a blend of best features of those entities, without altering the parent enterprise.

Approximately 86 percent of U.S. community hospitals are nonprofit, and 14 percent are for-profit. Although the central purpose of both is to provide hospital services to their communities, for-profit hospitals are also supposed to provide financial returns to their owners and financial support to the community through the taxes they pay. Since nonprofit hospitals do not need to generate a profit to satisfy shareholders, they should be expected to provide community benefits that are equal to the sum of those provided by for-profit hospitals and the profit these hospitals earned. This benchmark is likely to be higher than the conventional standard: that a nonprofit hospital should provide community benefits that are at least as large as the taxes it would pay if it were for profit. Uncompensated indigent care is perhaps the clearest example of a public good provided by hospitals. Hospitals that treat poor persons provide a direct benefit to the patient and an indirect benefit to altruistic members of the community and charity care probably reduces government spending on medical care and therefore reduces taxes. Uncompensated care accounts for situations in which services are provided, a bill is generated, but at most only a fraction of the bill is actually collected. The joint venture arrangement provides details on the creation of a partnership of limited liability company (LLC) that is owned by a non-profit organization and a for-profit entity. The revenue earned by the non-profit organization from the joint venture would be tax exempt if the joint venture arrangement follows the guidelines set in Revenue Ruling 98-15.