FACTOR THAT MAY FORCE HEALTH ORGANISATIONS TO MERGE (Term Paper Sample)

Topic Student’s name Professor’s name Course title Date With the increasing need for health organizations to demonstrate quality healthcare outcomes, reduce costs and deliver value, health organizations are increasingly entering into acquisition and formation of mergers with a view of gaining market share and driving financial and operational efficiencies. Some of the key drivers that will cause health organizations to merge include: 1) The need to measure and manage health outcomes- Hospitals are seeking for practitioners who can handle the emergence of new delivery and payment models in the healthcare management systems. Hospitals that cannot provide quality health services to patients at controlled cost are finding it easy to merge with others or acquiring physician groups to ensure quality patient care and cost control. They are also acquiring data analysts and technology companies, with a view of improving the quality of information available on how to provide quality healthcare at reasonably low costs. 2) Consumerism- Consumers are increasingly developing the quest to get their value for money services. This has enabled employees to manage their health information better, increasing their desire for quality care and have knowledge on the healthcare options. Health organizations are thus facing the need to understand patients’ behaviors in order to improve on their healthcare provision. Organizations are seeking to enter into partnerships with other organizations with a better understanding of the changing consumer behaviors. 3) Due to ongoing pressure for health organizations to control their service provision costs, they are currently looking for strength in numbers by forming mergers which would easily deal with the value-based payments projected in the future. Some of the health organizations are currently capital-constrained and thus cannot cope with the improving technology needs such as keeping electronic medical records. These organizations are easily forming mergers. Mergers or acquisition by other established organizations helps in improving their market relevancy and overall quality care provision. Most of the hospitals or physicians prone to acquisition or formation of mergers are those facing financial constraints and those unable to make capital investment on infrastructure and technology improvement. 4) Need for expansion- The need by health organizations to expand on scale and scope is contributing to merging of existing small organizations to increase the scale of provision of quality health care. Acquisition and formation of mergers also helps in the provision of pre-admit and post-discharge care services such as rehabilitation services, long-term health care and home-care services which would otherwise be challenging for the individual capital-constrained organizations to provide. (Healthcare mergers, acquisitions, and partnerships: Jarrard,2013). The evaluation criteria that a financial analyst would use to evaluate the financial performance of a post-merger of two health care organizations would be first to obtain the financial statements of the individual organizations entering into the merger. These financial statements are income statement, the balance sheet and the cash flow statement. The income statements illustrate the financial profitability of each of the organization. The income statement of the post-merger organization can be obtained by a simple addition of individual financials of the two organizations. The balance sheets show organizations’ major assets and financial leverages. The post-merger organization’s balance sheet can be obtained by adding the items of the two balance sheets for the two organizations forming the merger. The cash flow statement for the post-merger organization can be obtained by adding the statements of both companies then making adjustments on changes in tax and interest rates caused by this addition. These adjustments are done in order to obtain the post-merger organization rates. Once the financial analyst has the financial statements of the post-merger organization, the first determinant to look at to determine whether or not the merger generated a favorable financial result for the organizations is the combined profitability from the income statement. This gives information on whether the merger is more profitable than the original companies and gives a prediction on whether the merger will improve both organizations’ growth. Another determinant is the post-merger balance which determines whether the post merger organization can improve the utilization of the two organizations’ assets and also shows the amount of debts of the organization. The last determinant is the cash flow statement. It determines whether the organization has more or less cash than the original organizations. It also helps in assessing possibilities of cash flow improvements in the future. (Understanding healthcare financial management; Gapenski & Pink, 2011). Some of the key factors that will drive the financial planning in most organizations in the post –merger phase include: 1) Financial strength of the organization- If the organization is financially stronger compared to the former organization there would be easy financial planning, assuming that the combined financial resources would be adequate for planning. 2) Culture- It is critical after merging two organizations to have a consistent culture in the new organization from corporate to the employees. This will ensure maximum employee satisfaction and this would reduce the overall management cost. 3) Communication- It is important that after the merger all changes within the organization be communicated to all employees in the organization. Any emerging issues and differences need to be addressed immediately and proactively. This is to make sure that the consolidation is acceptable to all employees, hence reducing management cost. 4) Accomplishment of intended purpose- Financial planning should be guided by the purpose of the formation of the merger. In the case of health organization merger, patient care is the priority of the post-merger organization. Financial planning would be directed towards improvement of the quality of care, with physicians able to concentrate majorly on medicine and patient’s quality of life. (The economics of health and health care; Foll...