Essentials of Health Care Finance.

 


You are the Chief Financial Officer (CFO) for Shady Valley Hospital Center. The hospital is a 500-bed comprehensive facility that offers medical and surgical programs such as emergency care, oncology, pediatrics, heart and vascular care, and orthopedics. The hospital system is currently considering merging with a telehealth-virtual care organization. You are tasked with developing and presenting a PowerPoint presentation to the board of trustees regarding financial aspects that should be considered before the merger and acquisition process.

In your presentation,

Describe the types of decisions made in capital investment decision analysis.
Discuss core accounting principles related to analytical methods and tools to value potential acquisitions.
Discuss what an investment banker does and the legal regulatory system governing mergers and acquisitions.
Explain why cash management is crucial in most sectors of the healthcare industry to include alternative healthcare models such as telehealth-virtual care organizations.
Explain what working capital is and its importance in financial planning processes.
Analyze the importance of financial statements in deciphering where cash is generated within an organization and where an organization uses its cash.

 

 

 

 

For this merger, we'll use capital budgeting techniques like Net Present Value (NPV) and Internal Rate of Return (IRR) to assess the project's profitability and financial viability.

 

Slide 3: Accounting Principles for Valuing Acquisitions

 

To properly value the telehealth organization, we must adhere to core accounting principles.

Historical Cost Principle: This principle states that assets should be recorded at their original cost. While useful for historical records, it can be a limitation in M&A because the market value of the telehealth company may be much higher than its historical cost.

Fair Value Principle: This principle dictates that assets should be recorded at the price that would be received if they were sold in a market transaction. We will rely heavily on this principle to determine the true market value of the acquisition target.

Matching Principle: This ensures that expenses are matched with the revenues they helped to generate. This is crucial for accurately assessing the profitability of the telehealth company's business model.

Going Concern Assumption: We assume the telehealth organization will continue to operate as a business for the foreseeable future, which is fundamental to our valuation.

 

Slide 4: The Role of an Investment Banker

 

An investment banker is a financial expert who will advise us on this merger. Their primary functions include:

Valuation: They will help us determine a fair price for the telehealth organization, considering its assets, revenue streams, and growth potential.

Deal Structuring: They will advise on the most beneficial way to structure the deal—whether it should be an asset purchase, a stock purchase, or a merger.

Sample Answer

 

 

 

 

 

 

 

 

 

Slide 1: Title Slide

 

Title: Merging with Telehealth-Virtual Care: Financial Considerations Presented by: [Your Name], Chief Financial Officer Organization: Shady Valley Hospital Center

 

Slide 2: Capital Investment Decision Analysis

 

Capital investment decision analysis is a process used to evaluate long-term projects and major purchases. The types of decisions made in this process include:

Expansion decisions: These involve determining whether to expand services, such as a new orthopedic wing, or to acquire another company, like the telehealth organization.

Replacement decisions: This is the choice to replace existing equipment or technology with newer models.

Renovation decisions: These focus on whether to upgrade or modernize existing facilities.

New program decisions: These are evaluations of whether to introduce entirely new services, like a remote patient monitoring program.

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