Mechanisms of Capital Financing & Organizational Responsibility Centers

Mechanisms of Capital Financing & Organizational Responsibility Centers

Subject: Business    / Finance
Question
· Application 1: Mechanisms of Capital Financing

In order for a health care organization to be able to invest in information technology, that organization must have capital available for the expenditure. Sometimes, the organization will already have the necessary cash on hand to financially support the project outright; however, given the “big ticket” nature of many information technology expenditures, the organization will generally need to pursue a means of financing the capital needed for the investment. As such, it is important to recognize the various ways in which an organization can potentially raise this capital, as well as the inherent benefits and drawbacks of each type of capital financing.

To prepare for this Application Assignment, review the information on capital planning and financing in health care organizations presented in this week’s Learning Resource readings and discussed by the presenters in this week’s Course Media. Then, reflect on the perspectives provided by the Course Media presenters on the ways in which health care organizations raise capital for their information technology solutions.
To complete this Application Assignment, write a 2 to 3-page paper in which you:

· Describe and differentiate how equity, debt/bond, and lease financing may be utilized to fund investments in health information technology, including an explanation of the benefit(s) and drawback(s) associated with each approach.

· What factors should guide healthcare executives in selecting among these methods?

Your written assignments must follow APA guidelines. Be sure to support your work with specific citations from this week’s Learning Resources and additional scholarly sources as appropriate.
Refer to the Pocket Guide to APA Style to ensure your in-text citations and reference list are correct.
· Application 2: Organizational Responsibility Centers

As the business and practice of health care has grown more complex, health care organizations are increasingly turning to structural decentralization (i.e., a dispersion of responsibility within the organization) as a means of adapting to the ever-increasing complexity of the field. Although the degree of decentralization can vary from organization to organization, a common aspect of the decentralized organizational structure is the formal dispersion of specific responsibilities to task- or outcome-driven units known as responsibility centers, each of which is held accountable within the organization for its own performance.

To prepare for this Application Assignment, review the information on decentralization, responsibility centers, and organizational unit performance measurement in health care organizations presented in this week’s Learning Resource readings and discussed by the presenters in this week’s Course Media.
To complete this Application Assignment, write a 2- to 3-page paper in which you address the following:

· Do you believe that health information technology should be managed as a service, cost, profit, or investment center? Support your opinion with at least two resources from outside the required readings.

· As part of your response, describe the implications of managing health information technology as an expense to be controlled vs. a mechanism for revenue growth.

Your written assignments must follow APA guidelines. Be sure to support your work with specific citations from this week’s Learning Resources and additional scholarly sources as appropriate.
Refer to the Pocket Guide to APA Style to ensure your in-text citations and reference list are correct.

· Readings for applications 1 & 2

· Course Text: Zelman, W. N., McCue, M. J., & Glick, N. D., Thomas, M. S. (2014). Financial management of health care organizations: An introduction to fundamental tools, concepts, and applications (4th ed.). San Francisco, CA: Jossey-Bass.

·

o Chapter 8, “Capital Financing for Health Care Providers”
This chapter details the types of equity and debt financing. Here, the authors also compare tax exempt and taxable financing, and they explain lease financing.

o Chapter 10, “Budgeting”
In this chapter, the authors explain that an organization’s budget is a planning document that identifies resource needs, as well as a control document that allows the organization to monitor the use of resources.

o Chapter 11, “Responsibility Accounting”
This chapter describes the types of organizational units within a health care organization and explains how their financial performance can be measured. The authors also explore the concepts of responsibility, authority, and accountability.

· Course Text: Arlotto, P. W., Birch, P. C., Crockett, M. H., & Irby, S. P. (2007). Beyond return on investment: Expanding the value of healthcare information technology. Chicago, IL: Healthcare Information and Management Systems Society.

·

o Chapter 8, “From Expense Center to Value Center: Improving IT’s Contribution”
This chapter suggests that information technology departments within health care organizations should transform their role as an “expense center” to that of a “value center.”

· Article: Finkler, S. (1991). Performance budgeting. Nursing Economic$, 9(6), 401-408. Retrieved from the Walden Library databases.
This article provides an extensive overview of performance budgeting, describing why IT is important and how it is implemented. An example of a performance budget is also presented.

· Article: Parente, S. T., & Van Horn, R. L. (2006). Valuing hospital investment in information technology: Does governance make a difference? Health Care Financing Review, 28(2), 31-43. Retrieved from the Walden Library databases.

· Article: Scott, M., & Stephen, R. (2010). Effective cost modeling for service line planning. Healthcare Financial Management: Journal of the Healthcare Financial Management Association, 64(5), 64-70, 72. Retrieved from the Walden Library databases.
This article presents process-based cost modeling, a relatively new concept in health care that provides accurate and timely information about cost and resources.

Optional Resources
Readings

· Course Text: Financial Management of Health Care Organizations: An Introduction to Fundamental Tools, Concepts, and Applications (3rd ed.)

·

o Appendix G, “Bond Valuation, Loan Amortization, and Debt Borrowing Capacity”

Websites

· Healthcare Financial Pulse: Improving Performance, Leading Change
http://www.hfma.org/pulse

· Application 3: Calculations: Monetary Value Calculations

When planning for a capital expenditure or considering a long-term investment, there are a number of methods by which a health care organization can predictively calculate the value of money as part of the financial decision-making process.

To prepare for the Calculations, review the sections of Chapter 6 (“The Time Value of Money”) from your Financial Management of Health Care Organizations: An Introduction to Fundamental Tools, Concepts, and Applications textbook that explain how to use an Excel spreadsheet to calculate monetary values. (The pertinent section of Chapter 6 to review for each type of Calculation is identified in the below list of Calculations, under the respective listing for that particular Calculation.) Then, read through the financial scenarios provided below, which contain the information that you will use to populate and perform the Calculations.

To complete the Calculations, use the Financial Formula functions in Microsoft Excel to perform five monetary value Calculations, which you will complete using information from the provided financial scenarios. Submit your completed Calculations in an Excel spreadsheet with five tabs—one tab for each of the following monetary value Calculations and with that particular tab reflecting only the result of that particular Calculation:

· Calculation 1—The future value of a single monetary amount invested today (i.e., what a lump-sum amount invested today will be worth at a given time in the future using the compound interest method)