Capital Budgeting in the Healthcare Industry

Over the past few months, the proposed healthcare reform has been the subject of much discussion and the healthcare industry has come under intense scrutiny as a result of the administration's efforts to curtail the increasing cost of healthcare. As an offshoot of the increasing cost of healthcare now more than ever hospitals have been placed in a situation whereby capital budgeting has become a necessary tool; Not only for sustenance but mostly for survival. Absence of a sound capital budgeting policy might potentially spell disaster for hospitals because an increase in cost accompanied by a decrease in revenue negatively impacts the bottom line and when funds are limited, it is essential to have a game plan of how the funds are to be used otherwise the hospital might find itselfin a precarious situation.

Capital budgeting refers to the analysis of investMent alternatives involving cash flows received or paid over a certain period of time. More often than not, the best alternative is usually the one that yields the greatest cash flow over time. This point can be disputed because other hospitals might place much emphasis on non-monetary results. In such cases, the best alternative is usually the one that comes as close as possible to yielding results that catapults the hospital closer to its objectives. Capital budgeting is a complicated process in the sense that great care has to be taken in the selection process and competing forces makes it the more challenging. Where there is competition, the possibility of politics being a factor is heightened andpolitics often times has its drawbacks especially when the voice of the minority is drowned out by the majority or the louder voice.

Capital Budgeting in the Healthcare Industry

Capital Budgeting in the Healthcare Industry

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Capital Budgeting in the Healthcare Industry

Capital Budgeting in the Healthcare Industry

In order to better understand how capital budgeting works in the healthcare industry, we'll explore three different scenarios that do play out every once in a while in most hospitals throughout the country. For instance, Human Resources propose a day care facility for employees with children. Justification being: turnover rate of employees will be minimized and more nurses will potentially be attracted to the hospital because of the day care services offered. Turnover is costly to the hospital. Therefore, even though the project does not increase revenue, the project will get to benefit the hospital through reduced costs.

Capital Budgeting in the Healthcare Industry