|HSA525_10_2_4_ProfQuan-1: Lease versus purchase decisions are made after the decision to acquire the equipment; therefore, the lease versus purchase decision is in fact a financing decision. The decision to purchase has some advantages, which include adding assets to the business, tax depreciation benefits, and the outright ownership of the asset.|
HSA525_10_2_4_ProfQuan-2: Leasing also has its advantages. Leasing can provide the organization with more flexibility and financial protection from risks associated with changes in technology. In addition, leasing allows the organization to maintain its cash since very little, if any, upfront cash is required. Moreover, the lease contract contains fewer covenants or restrictions than a lender’s contract if the organization decides to borrow funds to purchase assets.
HSA525_10_2_4_ProfQuan-3: Acquiring assets for the healthcare organization involves a decision making process that must take into account the factors that support the organization’s short and long term goals. The financial manager should carefully weigh the advantages and disadvantages of the option to purchase as well as the option to lease assets.
HSA525_10_2_4_ProfQuan-4: Looks like we are just about out of time. Let’s go over what we covered. Today’s lecture focused on the various aspects of leasing, including the tax advantages and the financial reporting of acquired assets. We learned that choosing between owning and leasing equipment is a very important and challenging decision that a manager must make.
Are there any questions?
HSA525_10_2_4_Lauren-1: What is a typical analysis that a financial manager may use to make such a determination…whether to purchase or lease an asset?
HSA525_10_2_4_ProfQuan-5: Net advantage to leasing or NAL is a standard financial analysis used to determine if it is financially better to lease something rather than borrowing money to purchase the asset. The result of the financial analysis is the amount of money an organization will save or lose if the organization leases as opposed to purchasing an asset. In general, organizations will choose to lease rather than purchase if the net advantage to leasing is positive.
The formula used is NAL equals Present Value of Purchasing minus Present Value of Leasing.
HSA525_10_2_4_ProfQuan-6: As you see, the healthcare financial manager must make important financial decisions that have significant implications for the healthcare organizations. Historically, the purpose of finance has been to borrow and invest the funds needed to enable the organization to meet its goals. Today, the purpose has expanded and now includes the need for the healthcare financial manager to analyze the data provided by managerial accounting to evaluate past decisions in order to make sound decisions regarding future needs of the organization. The financial data gathered by the healthcare financial manager is used to facilitate the process of generating income, responding to regulatory pressures, balance and maintain relationships with third party payers and meet the challenges of the external environment in which the healthcare organization operates.
HSA525_10_2_4_ProfQuan-7: Another very important aspect of healthcare finance is to evaluate the sources of healthcare revenue. Primarily, healthcare organizations are paid by governmental Medicare and Medicaid programs, commercial insurance, including managed care organizations, and directly by the patient.
HSA525_10_2_4_ProfQuan-8: Revenues from governmental payers, such as Medicare and Medicaid, are controlled by complex rules and regulations that control reimbursement rates. Compliance with these rules and regulations is essential for the organization’s ability to maintain this important source of revenue. In addition, these rules and regulations are subject to frequent changes as a result of legislative and administrative action on both the federal and the state levels. For these reasons, revenues from governmental programs change frequently and require regular monitoring by the healthcare organization.
HSA525_10_2_4_ProfQuan-9: Revenues from managed care organizations and other private insurers are subject to contracts and various arrangements that often require discounting customary charge for healthcare services. These discounted arrangements can limit the organization’s ability to increase charges in response to increasing costs. Therefore, active negotiations with these payers are necessary to maintain or increase the pricing of healthcare services relative to costs.
HSA525_10_2_4_ProfQuan-10: An additional source of revenue is the self-pay patient. This source is particularly challenging as self-pay patients often include those that are either uninsured or underinsured.
Healthcare finance will continue to evolve as organizations seek to improve its revenue cycle management process. As the healthcare environment changes, healthcare managers must be competent and capable of creating policies that can be adjusted and are adaptive to such changes. The revenue management process is, and will likely forever be the lifeblood of the healthcare organization.
This concludes our lecture….