Financial Environment Essay

Custom Student Mr. Teacher ENG 1001-04 13 June 2016

Financial Environment


With recent big changes in healthcare legislation, health care organizations are moving towards a system that changes reimbursement procedures. Health care organizations will be reimbursed by the government based on the quality of care provided by that organization. The Affordable Care Act (ACA) requires certain steps to make Medicare more resourceful by decreasing the amount of overpaid funds to insurance companies, adjusting reimbursement rates to levels that are more suitable, and altering payment scales and systems to support the delivery of efficient, premium health care (“Centers For Medicare & Medicaid Services”, 2013).

There are several different types of health care organizations that offer medical services to patients. Because of the many different services and organizations in healthcare, the financial aspect of health care is not so cut and dry. Health care organizations can be described as either for-profit, not-for-profit, or part of a government organization. Some examples of these health care organizations are hospitals, nursing homes, health insurance companies, and home health care agencies.

Gapenski (2008) explains that he healthcare field is different from any other field mainly because of two factors. Unlike other types of services, most healthcare providers and organizations are structured as not-for-profit rather than being owned by an investor. Another major factor that contributes to its uniqueness is the fact that payment is made by a third party rather than the individual who receives the services.

For-profit Organizations
The Watermark at Logan Square, Tenet Healthcare, and Hospital Management

Associates (HMA) are just three examples of for-profit health care organizations in today’s market. These are investor owned organizations that must pay taxes and do not receive the same benefits that not-for-profit organizations receive. For-profit healthcare organizations are owned by investors. In terms, this means they have shareholders who benefit directly from any profits that are generated from this organization. Unlike, not-for-profit organizations, these for-profit organizations do not usually have the mission of taking on charity work or cases.

Not-for-profit Organizations

Not-for-profit hospitals are nongovernment entities that are organized with the main goal of providing inpatient healthcare services. Three examples of not-for-profit healthcare organizations include The Hospital of the University of Pennsylvania (HUP), Memorial Sloan-Kettering Cancer Center, and The Cleveland Clinic. Gapenski (2008) explains that not-for-profit organizations must be structured and managed so that they operate exclusively to the interest of the public. Non-profit organizations were formed with the purpose of servicing the needs of the less fortunate.

This later led to non-for-profit hospitals being free from paying taxes because of the fact that they were providing certain social services. Due to the fact that individuals can not benefit from the profits of not-for-profit organizations, dividends from these organizations cannot be paid (Gapenski, 2008). Not-for-profit organizations are also controlled by a board of trustees, which often times makes it hard to make certain changes or decisions without everyone in agreement.

Because of the current economy, Ebrahim (2010) explains that not-for-profit organizations stand out more in the area of public policy and the delivery of public services than they have ever before. Currently, the existing economic crisis has caused cuts in funding at both the state and local level. These financial cuts often times force many not-for-profit organizations to reduce the services offered. Obtaining funding with these setbacks is a major challenge for any nonprofit organization. When these organizations are not getting the funds they were once given, it takes a lot of budget restructure to not be incomplete deficit. It is still important for these organizations to gain some type of profit to be able to purchase more equipment, technology, or even land to help provide quality care.

For-profit vs. Not-for-profit

Both for-profit and not-for-profit hospitals produce revenues through their daily operations and interactions. Unlike not-for-profit hospitals, for-profit hospitals are able to generate funds by issuing stocks. On the other hand, not-for-profit hospitals can accept tax-deductible contributions. The two different types of organizations generally have different ways of handling decisions regarding different financial and capital investments. A not-for-profit organization does not have the same opportunities for the capital structure that a for-profit organization does. In particular, a not-for-profit organization cannot sell new shares or ownership interests.

Governmental Organizations
Government organizations, like not-for-profit organizations, have no stockholders who receive the remaining assets when they are liquefied. Government health care organizations offer care to patients at a certain cost or agreed fee. The patient is responsible for a certain amount and the insurance is responsible for the remainder of the bill (Berger, 2008).


Healthcare finance is not always easy to grasp. It is important that one has a general understanding of how finances are managed in healthcare. It is essential for one to understand the differences in the types of organizations and it may help understand why certain decisions are made. It is also beneficial for one to stay updated on legislation in healthcare because it may directly shape the way that finances are handled.

Berger, S. (2008). Fundamentals of health care financial management. A practical guide to fiscal issues and activities. John Wiley & Sons.
Centers for Medicare & Medicaid services. (2013). Retrieved from Ebrahim, A. (2010).
Nonprofit agency challenges. Journal Of Policy Analysis & Management, 29(3), 628-632. Gapenski, L. C. (2008) Healthcare finance: An introduction to accounting and financial management. (4th ed.). Chicago, IL: Association of University Programs in Health Administration. 0 replies | 0 drafts

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