Palomar Health has been operational for years now. Initially, the hospital was known as Palomar Pomerado Health until the board of management in 2012. Between 2011 and 2013, the hospital had been moving through a transition period, during which its profitability fluctuated significantly. According to the financial reports for the hospital, there had not been significant and consistent profitability, hence the need for approaches towards improving income. The paper below examines the financial records of the company, with the aim of making recommendations as to what approaches would be effective towards reducing expenses and subsequently improving the profit margins of the company. Financial success is only achievable through implementation of practices that will foster effective expenditure management.
Summary of Financial Reports
Between 2013 and 2015, the performance of the hospital declined even further as evidenced by the cash flow and the profit and loss statements from those In the years between 2011 and 2013, the total liabilities increased by approximately $18,000. The assets declined from $ 1,669,444 to $ 1,654,684 (Deloitte & Touche LLP, 2013). Various factors could have contributed to this increase in liability and decrease in assets. For instance, the asset value declined due to the increase in the number of assets with low cost usage and the increase in purchases for utilization in building projects. The increase in liabilities was attributed to increase in the value of accounts payable as a result of increased debts and third-party settlement. The implication of an increased liability and decreased asset value is a decline in the asset to liability ration, which is an indication of reduced profitability. Similarly, the operating expenses and revenues increased from 2011 to 2013, albeit by different ratios. In 2013, the total net operating income reduced significantly, giving a lower ratio of income to expenditures. This is also an indication of poor financial performance by the organization.
From 2013 to 2015, the changes in various aspects of the company finances pointed towards a further decline in profitability. The total liabilities for instance, increased from 2013 to 2015, indicating a potential decrease in the assets to liabilities ratio. The total assets from 2013 to 2015 are in a consistent trend of decline, necessitating the need for better performance systems. Through the last three years, the operating income also reduced as a result of increasing expenses in different operational areas. Because of this increase in expenditures, the net income also decreased slightly from 2013 to 2015 (Deloitte & Touche LLP, 2015). This implies that the company has to engage in certain urgent courses of actions to ensure that the downward trend in profitability is reversed. For this to happen, various recommendations have been made.
Recommendations for the Board
For PH to reverse its downward trends in income to expenditure ratio, the board should foster the implementation of the value based care delivery models. According to Mack (2016), the increased cost of healthcare delivery is attributed to various factors including increased costs of prescription drugs and wasteful spending among others. This implies that for the facility to reduce its overall expenditure, it will be essential to first reduce the expenditures on prescription drugs by improving the healthcare service delivery efficiency. This would be followed by a reduction in hospital wastes. Wasteful spending includes the expenses that go to unnecessary tests, recommended procedures, as well as redundant tests that are requested by the physicians. By focusing on reducing the expenses on wasteful procedures, PH can reduce the total expenses at the hospital and subsequently increase the profit margins. Value based care delivery model enables this to be accomplished by reducing the frequency of expensive preventive procedures, reducing the frequency of requesting for unnecessary tests and eliminating testing redundancies.
Another recommendation is that the hospital should focus on programs that will help to change the purchasing behaviors of patients. Mack (2016) reported that the increasing cost of prescription drugs is attributed to the patient purchasing habits and to the drug types. Healthcare facilities such as PH are advised to eliminate some of the prescription drug costs as they are tantamount to waste. This is particularly for drugs that have almost no significant monetary and utilitarian value differences between the generic and the original versions of the drugs (Detsky, 2012). Programs that promote patient behavior change can help the healthcare facility to reduce its overall expenses through an intensive patient education plan that informs the patients that they do not necessarily gain extra benefits by purchasing original drugs at all times. Through the implementation of these two strategies, PH is bound to benefit through greater profitability.
Palomar health has been performing relatively poorly over the past few years. While the hospital has not made any losses yet, the net income has been declining through the years as a result of increasing liabilities, reducing income levels and increasing expenses. The hospital currently needs strategies through which the profitability of the healthcare facility can be improved. Through past literatures, it has been established that most healthcare facilities experience increase in operational costs as a result of wasteful spending as well as increasing costs of prescription drugs. Consequently, the board of the hospital has been advised to put in place measures that will curb wasteful spending, which include adoption of the value based care delivery model, which eliminates the potential for wasteful spending on unnecessary medical procedures and laboratory tests. The board should also focus on a customer centric training that will enable the patients to avoid wasteful spending on prescription drugs that have no significant differences in value between the generic and the original drug versions.
Deloitte & Touche LLP (2015). Palomar Health: Financial statements as of and for the periods ended June 30, 2015 and 2014 and independent auditors’ report. Palomar Health.
Deloitte & Touche LLP (2013). Palomar Health: Financial statements as of and for the periods ended June 30, 2013 and 2012, supplemental schedules as of and for the period ended June 30, 2013 and 2012, and independent auditors’ report. Palomar Health.
Detsky, A.S. (2012). How to control healthcare costs. Journal of General Internal Medicine, 27(9), 1095- 1096. Retrieved from www.ncbi.nlm.nih.gov/pmc/articles/PMC3514980/
Mack, M. (2016). What drives rising health care costs? Government Finance Review, 27- 32. Retrieved from www.gfoa.org/sites/default/files/GFR081626.pdf