The Economic Downturn and Its Impact on Hospitals (Term Paper Sample)

The Economic Downturn and Its Impact on Hospitals
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Question 1
As evidenced from the article, it is clear that the effects of the economic crisis on the medical sector, particularly on hospitals, are considerable. Based on the article by the American Hospital Association published in January 2009, it is generally argued that economic downtown often squeeze the sources of funds for hospitals. The analysis can be analyzed from two perspectives: credit crisis and health insurance coverage and financing. Economic downtown is said to stress hospitals’ borrowing through spurring credit crunch. Heine (2009) defines credit crunch as a temporary mismatch of credit supply and demand.
Just like any other ordinary businesses, hospitals equally need to borrow in order to finance their day-to-day operations, undertake technology purchases, and improve their long-term facilities. However, with borrowing becoming costly, debt financing has been difficult for many hospitals. In summary, the credit crunch (crisis) affects hospitals in seven key ways: (1) inability to issue bonds, (2) increased collateral requirements, (3) acceleration of debt, (4) increased interest expenses, (5) inability to withdraw funds from finance institutions (illiquidity), (6) inability to renew credit, and (7) difficulty in refinancing auction rate debt (American Hospital Association, 2009). The credit crisis has driven the profits of hospitals from positive to negative.
According to the American Hospital Association (2009), the crisis also affects hospitals through the erosion of health insurance coverage and financing. Here, economic downtown initially triggers unemployment, which eventually results to deterioration of employer-sponsored health insurance in an economy making people to heavily rely upon safety-net programs. Economic analysts, further, confirm that safety-net programs and providers are frequently squeezed during the economic crisis. Since most of these programs-such as Medicaid-are funded by states, during the crisis, their budget allocation tends to be vulnerable to cuts, as states tend to curtail their budget deficits.
Question 2
Owing to the severity of the current economic situation, hospitals need to make appropriate adjustments to their strategies and goals in order to thrive. First, it is rational for hospitals to adequately dissect services and programs, and reassess the benefits and costs attributable to the new economic environment. For instance, cost or expenditure minimization ought to be part of their strategic goal. Cost minimization can be achieved through a number of strategies such as staff reduction, reduction of health care services, entering into joint ventures, and restraining administrative expenses (American Hospital Association, 2009).
Equally, there is need for hospitals to carefully review their cash and debt management strategies. This is crucial since it limits them from entering into a financial situation, which may endanger their capacity to satisfy current and future health care needs of the community. In this context, effective liquidity management is crucial. For instance, the management of working capital of hospitals. Moreover, hospitals need not to enter into too risk debt arrangement, which may compromise their liquidity position. American Hospital Association (2009) asserts that borrowing for hospitals may continue to be difficult and expensive even if credit markets regain their footing. This implies that hospitals will have to diversify their sources of funding. For instance, they need to postpone making capital improvements in order to have adequate liquidity.
Question 3
The American Hospital Association (2009) reveals significant similarities and differences between hospitals and health care, and other industries regarding the effects of economic down. In order to effectively capture these similarities and differences, it will be imperative to analyze the effects from two key perspectives: credit crisis and unemployment. Research postulates that both hospitals and health sector, and other industries have been negatively affected by the credit crisis attributable to economic downtown.
With the collapse of the capital market, due to economic downtown, borrowing has become difficult and costly for all industries, including the health sector. Moreover, similar to firms in other industries, effect of the credit crunch has weakened the capacity of hospitals to secure funds necessary (through borrowing) to meet their day-to-day financial obligations. The rationale for hospital borrowing can be based on the argument that, historically, payment to hospitals lag behind health care service delivery and thus, hospitals must borrow to meet their operating expenses.
Although economic downtown is said to have increased in employment other industries, the cas...