IntroductionIn order to determine if Titus Lake Hospital is a suitable financial partner for the General Practice Affiliates, it is necessary to have a firm understanding of their existing financial metrics, including both their general financial health and their cash flow. Part of the importance in both these figures lies in the need for a hospital to be able to surmount short-term financial threats from things like uninsured patients who receive emergency treatment, which will ensure it can pay General Practice Affiliates, as is key to the provider leasing model. This case study allows a number of crucial assumptions, including that the existing practice’s electronic medical records system is wholly incompatible with that of General Practice Affiliates, this means that a part of merger considerations will be a serious debate over the costs and expenses inherent with upgrading their system to ensure compatibility (Paterson, 2014).
One of the realities that General Practice Affiliates must face is that there is not a significant amount of expendable income that can be applied to updating their medical records system to be in line with Titus Lake Hospital. While Titus Lake Hospital has $76,000 in cash, General Practice Affiliates has only $2,100 (Paterson, 2014). This is a pretty significant disparity and indicates that, should a provider lease model take place, Titus Lake Hospital would have to be financially responsible for updating GPA’s medical records system to be in line with Titus Lake Hospital. This could be a costly venture, but because the hospital is doing $700,000 of business in direct patient services alone and has contracts with local prisons to offer auxiliary medical support where necessary it is best that they offer to help General Practice Affiliates upgrade their system for cohesiveness (Paterson, 2014). The medical update will likely cost tens of thousands of dollars depending on the software necessary but more importantly, will require short-term cash flow to ensure the necessary supporting contractors can be hired and to ensure that staff trained to use the new software (Collen, 2015).
Existing Capital Structure and Medical Records Purchasing
One way that General Practice Affiliates can work to finance this costly endeavour is to discuss the need for an increased investment from existing stockholders. If the company believes that such an investment will help the company increase its return on investment in following quarters, they may be able to offer an additional stock sale to create a sudden influx of capital. Alternative to this approach is to require Titus Lake Hospital to pay for the medical records update on their own but allow the company an incentive for the purchase and effort, perhaps by adjusting the terms of the lease provider agreement to compensate for this initial investment. The underlying metric of importance is that General Practice Affiliates does not attempt to pay for all of the software up front, which would put a tremendous strain on the company’s cash flow.
Attracting Investors and Inherent Risks
Finally, it is necessary for General Practice Affiliates to consider the merits of attracting new investors. The obvious merit is in the increased cash flow that could be accrued, which will lead to a more comfortable purchase of the necessary medical records software. Given the current economic environment, General Practice Affiliates would struggle without additional investments and should therefore seek them out. The increased ROI would be significant, as the company is still small enough to be a growth investment for savvy stock buyers while providing the company with much needed capital to finance this endeavour. However, the provider lease agreement insinuates a great risk to General Practice Affiliates that must also be considered.
The risks are largely because General Practice Affiliates retains ownership and therefore liability and the hospital, while providing key assistance, will not be a defensive measure against catastrophes in the future. One thing General Practice Affiliates can do is work to find more investors to help capitalize the organization so that it can fund future operations. Another it can do is work to renegotiate the contract for a full merger, providing this LLP additional financial security. Finally, the company can consider expanding its services, as its retention of autonomy allows it to work to grow, which will offset fears of financial struggle.
- Paterson, M. A. (2014). Healthcare Finance and Financial Management: Essentials for Advanced Practice Nurses and Interdisciplinary Care Teams. DEStech Publications, Inc.
- Collen, M. F. (2015). A history of medical informatics in the United States. M. J. Ball (Ed.). New York: Springer.