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Feb 20, 2024

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Building on the article by Lagasse (2016) on healthcare investment decisions with financing risk, what are the limitations of government funding for healthcare and other financing risks facing the healthcare industry?  Support your analysis of the Lagasse article and the concept of financial risk and required return with a minimum of 1 additional academic source.  In short, Lagasse highlights that most investment decisions are lacking the complete analysis of their capital investments; including a need to determine future population needs(2016). It is important to understand the future needs of a patient population to determine which areas of care to invest improvements towards. The article goes further to note that although government entities typically have higher credit ratings and can borrow at lower interest rates, they also lack accountability due to the volatility of politics (Lagasse, 2016). Politicians may want to aid in providing the financial backing for a healthcare project implementation but their term in office would make accountability futile. Additionally, Lagasse argues that the nature of the private sector encourages faster decision-making and higher accountability (2016). Healthcare risk is siloed into its different departments. For instance, financial risks are evaluated by finance departments completely independent of regulatory risk that is addressed by compliance officers; This makes determining the financial security of a healthcare organization and its risk difficult to manage (Arvin, 2019). Using Enterprise Risk Management(ERM) can be useful in identifying the issues associated with areas of risk a healthcare organization faces. Arvin listed five ERM approaches: Mitigate the risk, Exploit the risk, Transfer the risk, Avoid the risk, and Accept the risk (2019). By using the five ERM methods as a tool for developing strategic approaches to evaluate and address risks within a healthcare organization.
Here is a great image to explain how ERM can be used to evaluate privacy and security risk. References Lagasse, J. (2016). Better tools, the analysis needed to make smart healthcare capital investment decisions, report says. Healthcare Finance.   https://www.healthcarefinancenews.com/news/better-tools-analysis-needed- make-smart-healthcare-capital-investment-decisions-report-says Arvin, Marti. (2019). Mastering Risk: How Healthcare Organizations Can Tap into the Power of Enterprise Risk. Healthcare Finance Management Association. Retrieved from https://www.hfma.org/topics/hfm/2019/april/mastering-risk--how-healthcare- organizations-can-tap-into-the-po.html
Responses: Hi Iyatunde,  Happy we have another course together :)  I agree with the need for investments in technology with the intent of meeting the demand for value-based care. However, it is important when making investments to remember all the factors that may contribute to fluctuations in risk and possible volatility across different markets. Evidence suggests economic policy uncertainty(EPU) has lower levels of long-run volatility in healthcare and higher risk levels in areas like raw materials (Yu et al., 2018). Therefore, regardless of what is happening with legislation and reimbursement models, certain areas of healthcare are driven more by other factors. It may not be as important to worry about policy and focus other areas that may boost productivity or reduce costs. References: Yu, H., Fang, L., Zhang, S., & Du, D. (2018). The role of the political cycle in the relationship between economic policy uncertainty and the long-run volatility of industry-level stock returns in the United States. Applied Economics, 50(26), 2932–2937. DOI:10.1080/00036846.2017.1412079 Additionally, different approaches could be implemented within many areas of healthcare. The Covid-19 pandemic provided many areas that allowed healthcare leaders to apply many models that required a “wait and see” approach to investing. One example is holding and validating COVID-19 related billing while updates in regulatory and payor guidelines were made, a policy which is proven to increased patient satisfaction (Reese, 2020). Attempting to invest in new programs for billing may be premature and would represent an unnecessary cost if it proves to be unnecessary. Reese, E. C. (2020). Healthcare finance leaders share their responses to the COVID-19 crisis. (Cover story). HFM (Healthcare Financial Management), 74(6), 28–30. https://eds-a- ebscohost-com.ezproxy.umgc.edu/eds/pdfviewer/pdfviewer?vid=1&sid=bbf2263b-1036- 4233-a4b1-6e58693b3789%40sessionmgr4008
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