The main concern of economic policy makers is to come up with sound monetary policies, which are geared towards maximum employment creation and stable prices in the healthcare services. Therefore, this analysis will begin by addressing monetary policies, focusing on their objectives, especially the economic growth of the healthcare sector, which results from proper financial management.
William Jarvis reported in his article, published in May 2012, “Governance: Still at the Top of the Investment Agenda: Boards and Investment Committees are making Investment Decisions in an Ever More Complex Environment. But are they Devoting the Resources Needed to Perform Effectively?” that “Healthcare organizations with assets over $1 billion used an average of 33.5 managers, while the next-closest size cohort, organizations with assets between $501 million and $1 billion, used an average of 20.7 managers” (Jarvis 1). Indeed, these healthcare organizations’ assets can generate significant financial revenue to the economy, thus facilitating the creation of more employment opportunities.
In fact, the rate of unemployment is relative to the increasing trend due to the recent economic recession, coupled with the Euro-zone debt crisis, which is shown in the following graphical representation. As a result, many fresh graduates find it hard to secure employment opportunities in the health sector. Therefore, the above journal/article ought to have explored the possible ways of finding solutions to the unemployment problem, while making use of the best investment committees and professional staff to management the healthcare assets.
Analysis of the Journals according to the Monetary Policy Objectives
Maximum Employment as a Core Objective of Monetary Policy
Lisa Goldstein, on her journal on “Hospital Revenues in Critical Condition: Not-For-Profit Hospital Revenue Growth has Declined to its Lowest Level in Two Decades”, which was published in September 2011, re-affirmed that:
“Medicare: despite an uptick in payment rates for 2012 (the Medicare program recently announced a 1 percent increase in rates for federal fiscal year [FFY] 2012), funding pressures and rate reductions are inevitable in coming years as Washington seeks to reduce the deficit and rein in Medicare costs” (Goldstein 1).
Precisely, these highlighted quotes from the text relate to the monetary policy on maximum employment creation, which has contributed towards the 1% increase rate that has been achieved in 2012 federal fiscal year.
Moreover, it is evidenced that the Fed policy makers are making some break-through in creating more jobs in the healthcare sector to reduce the rate of unemployment. Focusing on the graph shown below, annual unemployment rate has decreased in the United States by about 1%, that is, from about 9.4% in January 2011 to 8.5% in January 2012. In addition, a further decrease has been realized, as evidenced in the following chart. However, after April 2012, the rate of unemployment has started showing an upward trend. This can be attributed to the recent global financial crisis.
In essence, both Fed and central bank policy makers should realize that the current monetary policies are not working towards creating a stable employment, especially in the healthcare sector. Therefore, other alternative measures, which stimulate the economy, should be implemented. Other alternative monetary strategies, which can be explored, are the bank bailout programs.
Pat Sorrentino and Brian Sanderson reported in their article “Managing the Physician Revenue Cycle: Hospital Leaders Entering the Physician Practice Acquisition Pool Should Take into Account the Inherent Differences between Hospital and Physician Revenue Cycles”, which was published in December 2011:
“Provider compensation modeling: hospitals that acquire physician practices must determine a compensation model for physicians--whether it is a straight salary or another model based on variables such as relative-value units (RVUs), clinical quality indicators, practice-related costs, and cash collections. The variables provide incentives for physicians to maximize their productivity, improve clinical quality, and remain attentive to practice costs and overall profitability” (Sorrentino and Sanderson 1).
In order to achieve the objective of the above statement, the option of bank bailout becomes essential since the best quality and profitability cannot be attained if healthcare providers cannot fully secure and finance their loans.
Bank bailouts is the act of giving a loan or capital to an entity like a company, individual or country that is in danger of bankruptcy, insolvency or total liquidation. It can also mean helping a falling entity to stop spreading its effects to all the sectors of economy since this can have adverse effects. The bank bailout costs can be used to rescue the firm’s assets. Often, it is the government that funds the bank bailouts, through loans advanced to firms, so that companies pay back the earlier debts, which they borrowed from other organizations. Therefore, this paper focuses on whether bank bailouts are good or bad to the economy.
Precisely, the bank bailouts are adopted as a way to save the economy from collapsing. The government’s involvement in the bank bailout raises some disagreements on the prevailing free market economy systems that currently exist. Other stakeholders in the market raise issues why some sectors of economy are bailed out, while others are not. They see this as unfair practice because when they have financial downtime, they face it alone without any financial assistance from the government. Often they find it hard to compete and survive in such economic system. Like the national reserve, the government created high liquidity with a financial policy plan that encourages people to access mortgages, which they could not initially afford. This is an important financial strategy, which the journal ought to have explored.
James Lee in his journal “Strategies For Healthcare Facilities, Construction, And Real Estate Management:Adventist Healthcare Saved More Than $8 Million through A Comprehensive Approach to Facilities Maintenance, Construction, and Real Estate Management that Could Produce Similar Benefits for Other Organizations”, that was published in May 2012, ascertained that:
“Using this approach, Adventist recently negotiated a new system office lease, resulting in more than $640,000 in annual lease cost reductions and more than $6 million in funding from the landlord to build out the new space. The annual savings related to the new lease do not include additional savings expected from the more efficient design and use of the space, as well as energy cost reductions that allow for more innovative and green energy use” (Lee 1 ).
Indeed, these financial savings would only be possible if bank bailout strategy is implemented during the economic slow down since it impacts negatively on the healthcare sector.
If the bank were to make money from the floated papers on the mortgage security, there would be no need for the government bank bailout; instead, other enterprising institutions could have purchased those papers. But it seems from their projection and analysis that this financial plan was likely to fail.
In a market economy it is a tough competition and some have to win, while other stakeholders lose. If banks which were ineffective, inattentive and negligent in their decision making are rewarded by the government bank bailout program, this sends a wrong signal to other banks, which were prudent in their decision making and had put in place good strategies to enable them to survive in the competitive economy. Arguably, these well run banks ought to be stronger and more profitable than ineffective and poorly managed ones. When banks do not lend their own money, but only advance the depositors’ funds, these institutions may go under. In such a case, the depositors tend to move their funds to some safer financial institutions. For example, when Merrill Lynch was subsumed by Bank of America, there was no big problem since resources were efficiently moved, marketed and tax payers did not have to bear the burden of bank bailout. Similarly, when Mutual Washington had collapsed, they opened the next day as a part of JP Morgan. Not even one depositor lost money, not a customer lost his or her line of card and not a taxpayer’s dollar was required for this financial relocation plan.
Michael Nugent in the journal on “Aligning Managed Care Contracts, Compensation Plans, And Incentive Models: Providers Should Take the Lead to Align their Organization's Internal and External Payment Models with the Basic Tenets of Payment Reform” that was published in November 2011, re-affirmed the following:
“The health systems should ensure that the payment alignment model supports its broader competitive strategy. The best payment models are not the ones with the most sophisticated math formulas. Nor are the best payment models the ones that drive the highest compensation levels to providers. The best payment models align internal incentives with what the market values, and in so doing drive both top-line ana bottom-line improvements, as well as overall population health. Top-line improvements come from several sources, including preferential unit payment increases, shared savings,bonuses,and selective steerage/volume gains, particularly from historically underserved areas” (Nugent 1).
However, these statements on competitive strategies fail to outline the fact that without proper financial management strategies, especially the bank bailouts, it will not be possible to provide healthcare professionals with the best compensation incentives due to insufficient funds, which come as a result of the economic slow down.
Other than being unnecessarily expensive, the bank bailout money were used to keep healthcare providers afloat, but this could have been the prime time to allow the market place to sweep out the poor investment firms and the negligent banking facilities to allow the rest to enjoy the prosperity gained on investing in secure knowledge that the best and brightest banks had adopted in carrying out their financial activity, and this could make them survive the competition.
Stable Prices as a Core Objective of Monetary Policy
Fred Campobasso and Joe Kucharz reported the following in their journal on “Developing Healthcare Facilities for a Changing Environment: Healthcare Organizations Should Consider Financial Goals before Deciding on Real Estate Strategies”, which was published in May 2012.
“By making the business case for a project, organizations can show the facility will be sustainable from a business perspective, realize the expected ROI, and achieve its short-, medium- and long-term goals. In turn, that can help the organization attract the right kind of financing” (Campobasso and Kucharz 3).
The above quoted statement relates to the monetary policy of price stabilization, because higher Returns on Investment (ROI) in the healthcare services can only be achieved when there are stable prices in the economy. Price instability causes inflation in a country, thus impacting negatively on its Gross Domestic Prices (GDP). For example, the United States’ inflation rate was at its peak during the months of July 2011 and January 2012. This was as a result of the increasingly high prices of energy, that is, oil and gas. Consequently, the high prices of energy products pushed the costs of other consumables, thus leading to the high rates of inflation and unstable prices and lower returns on investments in healthcare are realized in such situations.
Monetary policy on interest alone, would not spur any significant growth in the economy since increasingly high inflation rate does not lead to a proportionate reduction in the rate of unemployment. This is so because the inflation rate increases at a faster rate than the reduction in the rate of unemployment. Therefore, it is important to combine several monetary policies so as to achieve its objective of price stability in the healthcare services. This will also demand strategic focus to be provided on certain key areas of the healthcare.
Eric Jordahl emphasized in this article “ Risks and Rewards of Variable-Rate Debt: Hospital And Health System Finance Leaders Can Lower Debt-Financing Costs through Intelligent Use of Variable-Rate Products Appropriate to the Organization's Credit And Risk Profile” that:
“The risk-reward relationships vary significantly between fixed-rate and variable-rate debt and between different types of variable-rate obligations. When a hospital or health system issues a fixed-rate bond, it effectively transfers all of the main debt-related risks to the investor. In contrast, issuing variable-rate debt means the hospital is willing to retain certain risks, which singly or in combination may be significant over time or at specific points in time” (Jordahl 1 ).
Indeed, the above statement is directly linked to the concept of quantitative easing. This is a policy which is often opted for by the central bank when there is no significant decrease in the federal funds’ rate. Quantitative easing (QE) is a monetary policy, which is employed to increase money supply. When it is implemented, the prices of financial assets, which the central bank buys, are increased, and this action consequently reduces their rates of yield in the long term. In this regard the central bank can purchase the fixed-rate bonds issued by the hospital/health system.
This is an important monetary policy because it enables business to secure monetary credit facilities so as to expand their enterprises at lower rates of interests. As a result, this action is expected to stimulate the economy. Moreover, this monetary policy tool should be used sparingly since it can make the economic condition worse.
Sanjaya Kumar stated in the journal, “What Finance Needs to Know about Using Technology to Improve Value: Healthcare Senior Finance Leaders Need to Spearhead a Systems Approach for Improving the Care Environment and Financial Performance”, published in January 2011, that:
“As the effect of quality improvement projects on cost and revenue becomes easier to quantify, examples are becoming more common. A 2004 study of a 400-bed community hospital illustrates how by decreasing adverse events hospitals can achieve substantial cost savings. The hospitals in the study used a no longer-available commercial software application for event reporting and a commercially available cost accounting system” (Kumar 2).
However, this statement from the article does not adequate address the quantitative easing as a monetary tool. It would also be important to incorporate some of the Fed’s proposed policies on improving financial health of the healthcare sector.
Furthermore, quantitative easing can lead to excess bank reserves, thus causing more money supply, circulating in the economy. This results into currency devaluation which is a major cause of inflation that impacts negatively a country’s international-credit rating as well as its rate of foreign exchange.
Summing up, though the federal government is encouraging the use of quantitative easing as a tool for monetary policy to be employed in managing the current healthcare economic situation, it is not all effective and should be exercised by the central bank with a lot of caution. For example, Fed’s anticipated policy on purchasing a lot of bonds is likely to be resisted by central bank since such actions may lead to inflation, thus a further economic slow down.