Assignment 1: External EnvironmentsAccountable health care leaders must respond to external factors in a way that is advantageous for the organization and the community. While health care organizations must strive to improve their financial positions, it should never be at the expense of the populations they are serving. For this Assignment, examine the following scenario and consider strategies to limit the negative impact of external factors and improve organizational success.Scenario: A small independent hospital in rural Georgia is seeking to attain Magnet Status. This designation demonstrates to stakeholders that the organization is committed to delivering high-quality patient care. With this designation, the organization can easily attract and retain a highly-engaged clinical staff. Moreover, it provides the organization an opportunity to market itself to potential patients as the place to receive top-quality care. This means that the organization could realize a greater market share of insured and private pay patients traveling as far as 100 miles just to receive the quality services. It also positions the organization to enter into joint ventures with physician groups eager to provide new services, which would lead to increased revenue streams.Although the designation sounds like a great opportunity for the organization, the board of directors is split on their support of this designation. The board members in support of the designation understand the great value that this program will bring to the facility; however, those in opposition learned from a research study that non-magnet hospitals had better infection control and less post-operative sepsis. They also learned from another study that working conditions in a magnet facility are not better than those in non-magnet facilities. Therefore, the dissenting directors have concluded that the organization should not invest its time and resources to seek this credential. The CEO must get support from an overwhelming majority of the board to move forward with pursuing this designation.To prepare:Review the provided scenario and consider external environmental factors that may impact the organization’s strategic planning (e.g., policy and economics, laws and ethics, health care quality, and population health).Note: Your Assignment should show effective application of triangulation of content and resources in your conclusion and recommendations.The AssignmentIn a 2-page executive summary, do the following:Identify and evaluate the impact of external environmental factors on the strategic planning of the organization in the scenario.Recommend strategies to address these external factors and limit their influence on organizational operations.Assignment 1: Financial AnalysisTo make informed decisions and achieve strategic goals, health care leaders must carefully analyze an organization’s financial position. A ratio analysis, for example, may impact decisions for strategic initiatives such as expansions, consolidations, mergers, and acquisitions. For this Assignment, you calculate financial ratios and consider their implications for organizations.To prepare:Review the Week 7 Assignment document in this week’s Learning Resources. Examine the financial data for the health care organizations in each scenario.Note: Your Assignment should show effective application of triangulation of content and resources in your conclusion and recommendations.The AssignmentUsing the scenarios and financial data provided in the Week 7 Assignment document, calculate financial ratios and evaluate their implications on organizational decision making.
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Week 7 Assignment: Financial Analysis
To make informed decisions and achieve strategic goals, health care leaders must
carefully analyze an organization’s financial position. A ratio analysis, for example, may
impact decisions for strategic initiatives such as expansions, consolidations, mergers, or
acquisitions. For this Assignment, you calculate ratios and consider their implications for
Scenario 1: ABC Hospital
ABC Hospital is a rural facility in Medford, Oregon that competes with two other
hospitals in delivering quality patient care in the Rogue Valley. One of the competing
hospitals provides cancer treatment services similar to ABC Hospital and has been
gaining a larger market share in the last 12 months because of its television and
Recently, the local news station covered a story about a report published by an
independent research company stating that in the last five years, the Rogue Valley has
experienced a steady increase of residents with pancreatic and testicular cancer. In
response to this report and because of the shrinking market share, the chief executive
officer (CEO) of the hospital has tasked the chief strategy officer (CSO) and the chief
financial officer (CFO) with exploring whether it should make additional investments in
cancer treatment services that will allow the organization to increase its capacity to
serve more patients and gain a larger sector of the market.
Based on their analysis, the CSO and CFO have presented you with the following two
options to review prior to the meeting with the CEO:
Option 1: ABC Hospital invests $11,995,000 in the development of a new stateof-the-art cancer treatment center. Based on their estimates, the first year cash
flow will be $2,000,000, the second year cash flow will be $4,000,000, the third
year cash flow will be $5,000,000, and the fourth year cash flow will be
$8,000,000. The expected return of 8.9% is used as the discount rate.
Option 2: ABC Hospital invests $5,095,000 in a joint venture with a reputable
oncology group and the hospital agrees to a 55% interest in the joint venture.
Based on the estimates, the first year cash flow will be $1,500,000, the second
year cash flow will be $3,000,000, the third year cash flow will be $4,500,000,
and the fourth year cash flow will be $6,500,000. The expected return of 8.9% is
used as the discount rate.
Explain which of the two options you would recommend to the CEO. You may only
select one option. Support your position and show your calculations. It is essential that
you use at least two different financial ratio calculations.
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Scenario 2: Serenity Health Care
Serenity Health Care is a large integrated health care system located in the Midwest. It
has a 100-year tradition of providing quality patient care to its customers regardless of
their ability to pay for services. Recently, the chair of the board of directors and the chief
executive officer (CEO) of Hall Healthcare System, a competitive organization,
approached Serenity’s CEO about a partnership because of its inability to continue to
compete with Serenity and its declining financial performance.
Because Serenity is three times larger than Hall, the CEO would like to present to his
board of directors a proposal in which Serenity acquires Hall Healthcare System. Here
is the information that he plans to present to the board:
Cash and cash equivalents
Receivables, less doubtful
Other current assets (inventory)
Total current assets
Property and equipment
Other long-term assets
Liabilities and net assets
Current portion of long-term debt
Estimated third-party settlements
Accrued salaries, wages, and
Other accrued liabilities
Total current liabilities
Long-term debt, net
Other noncurrent liabilities
Total net assets
Total liabilities and net assets
© 2016 Laureate Education, Inc.
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As a board member, calculate Hall Healthcare System’s current ratio and acid ratio to
determine whether you support your CEO’s decision to acquire Hall. Support your
position and show your calculations.
Current ratio = Current assets / Current liabilities
Acid ratio = Total current assets less inventory / Total current liabilities
Scenario 3: Montgomery Home and Community-Based Services
Montgomery Home and Community-Based Services is considering a major expansion
that will enable it to attract a different clientele to its organization. Currently, they serve
only 34% of the frail elderly seniors and persons with disabilities in a three county area,
with the majority of the residents working for the federal and state government.
Montgomery relies 100% on local government funding to provide in home support and
homemaker service to their clients. Their new chief executive officer (CEO) would like
the organization to expand its revenue stream by investing in a senior multipurpose
center serving healthy seniors by offering them arts and crafts and health and wellness
programs. The center will also contain an Internet café offering nutritious breakfast and
The CEO has commissioned a needs assessment, and the study’s results reveal that
there are only 15 retired seniors who would be willing to pay the monthly fees to access
the center. Further results reveal that there are approximately 120 seniors who will be
retiring from the government in three years who would be willing to become members at
The proposed costs to operate this new facility are as follows:
Monthly Fixed Costs
• Utilities: $590
• Health/Wellness Staff: $2,500
• Arts/Crafts Staff: $2,000
• Supplies: $800
• Fitness Equipment Maintenance Contract: $200
• Monthly Membership Fee: $105
• Monthly Lunch Cost: $25
• Monthly Breakfast Cost: $15
Based on the information above, the initial investment to establish the center is
$317,880. The organization anticipates that it will generate $25,700 of revenues in the
first year, $40,000 in the second year, $78,000 in the third year, $225,000 in the fourth
year, and $310,000 in the fifth year.
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The CEO has presented her proposal and financial information to the board of directors,
and they have advised her that they are in full support of her strategy if the program is a
benefit to the community and if the organization can recoup its investment in three
years. Based on the information presented in the scenario, calculate the two analyses
below and explain their implications.
1. Perform the break-even analysis to determine how many seniors would need to
have full monthly membership and pay for breakfast and lunch for Montgomery
Home and Community-Based Services to cover its monthly expenses.
Break-even volume = Total fixed costs / (Average charge per client – Average
variable cost per client)
2. Calculate the payback period to determine how long it will take for the
organization to recover its initial investment of establishing the senior
Payback period = A + (B/C)
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