Beginner’s Guide to Financial Statements

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QUESTION 1

RESPOND TO THE DISCUSSION

You are working to develop a business plan for a new business. You are trying to determine the best organizational structure to use. Of course, the legal structure you pick will depend on the nature of your new company (e.g. who owns it, the number of owners, liability, etc). Pick one of the legal organizational structures discussed in this week’s reading and state ONE advantage and ONE disadvantage of the structure for your new firm. Be sure to identify the characteristics of your new firm (e.g hospital, physician practice, outpatient center, etc.).
I have been researching to begin developing a business plan for a new physician’s office. This would be a private practice consisting of two physicians who are general family practitioners working in an outpatient setting. There are many organizational structures to choose from when thinking about building the plan. The type of organizational structure that I have chosen for this practice is an LLP or Limited Liability Partnership. An LLP is “essentially a general partnership with the addition of limited liability of one or more of the partners” (Mathias, 2022). The specific details vary based on the state that you are practicing medicine in.
An advantage of using this type of structure is that owners are not personally liable for the malpractice of others. A disadvantage of this structure is that the partners remain personally liable to business creditors, lenders and landlords.
Reference:
Christine Mathias (2022). LLC vs LLP: What is the difference? NOLO https://www.nolo.com/legal-encyclopedia/llc-vs-llp-what-is-the-difference.html
The pros and cons of corporations, LLCs, partnerships, sole proprietorships. https://southcenters.osu.edu/sites/southc/files/site-library/site-documents/OCDC-formation/DBusinessStructures%2520the%2520Pros%2520and%2520Cons%2520Chart.pdf
RESPOND TO THE DISCUSSION

. You just started your new job as a Health Services Manager at a local hospital. The CEO wants your opinion on the advantages and disadvantages of various third-party reimbursement arrangements with respect to revenues and provider incentives. Pick one of the reimbursement arrangements discussed in this week’s reading, explain how it works, and discuss ONE advantage and ONE disadvantage.
Pay for Performance (P4P) is a third-party reimbursement healthcare payment model that financially rewards provides or managed care organizations based on achieving or exceeding quality care benchmarks or other pre-established goals (Medicaid Delivery System and Payment Reform: A Guide to Key Terms and Concepts, 2015). Providers and/or organizations are evaluated against benchmarks or other providers. In this payment model, clear financial incentives are provided to physicians based on scores from predefined performance measures (Medicaid Delivery System and Payment Reform: A Guide to Key Terms and Concepts, 2015). Essentially, the providers are paid for how well they practice care or medicine since the assumption with this arrangement is that providers’ behaviors are influenced based on how they are paid. Typically, this payment model using the fee-for-service system as well, but it essentially ties reimbursement to metric driven outcomes and patient satisfaction (Piper, 2016).
An advantage of the Pay for Performance payment model is that it not only aligns payment with value and quality of care delivered, but it also eliminates the emphasis on the volume of services provided (Piper, 2016). This way patients are not paying for tests and/or procedures that are not medically necessary and providers are not being paid to offer as many services as possible unnecessarily.
A disadvantage to this payment model is that it completely relies on the data reported on performance, which can be subjective and falsified to receive payouts. This payment model is incentivized based on achieving performance measures, which can mean compensation can be made based on an unreliable consensus on what “better outcomes” are (Wilson, 2019). In this case, rewards have the possibility of being dispersed over measures doctors and hospitals have no control of or measures that are falsely reported to the reimbursement agency.
References
Medicaid Delivery System and Payment Reform: A Guide to Key Terms and Concepts. (2015, June 22). Retrieved from KFF: https://www.kff.org/medicaid/fact-sheet/medicaid-delivery-system-and-payment-reform-a-guide-to-key-terms-and-concepts/#footnote-155272-16
Piper, K. (2016, September 10). Health Care Payment Reform: Strengths and Weaknesses of 9 Methods for Provider Reimbursement. Retrieved from Piper Report: https://piperreport.com/blog/2016/09/10/health-care-payment-reform-strengths-and-weaknesses-of-9-methods-for-provider-reimbursement/
Wilson, J. (2019, May 15). Pros And Cons Of “Pay for Performance” Policies and Performance Based Compensations. Retrieved from Sybrid MD: https://sybridmd.com/blogs/general/pros-and-cons-of-pay-for-performance-healthcare-model/

RESPOND TO THE DISCUSSION

I chose your discussion post to respond to because I was interested to know what you found out about fee for service payment method. I had an interesting experience with universal healthcare while living overseas. Basically if the government doesn’t deem the test necessary and or you have already had the test that year you will pay out of pocket for fee for service. My question to you is that typically fee for service is the patient paying out of pocket and then submitting for reimbursement to a third party company in hopes of getting paid back. In your research did you find that third party pays the provider directly when fee for service is used?
-Stephanie Patani
References:
“Fee for Service – Healthcare.gov Glossary.” HealthCare.gov,

Sample Solution

e allows one to calculate how long it would take for a project to recapture the cost of the initial investment (Noreen, Brewer, & Garrison, 2014, p. 327).  The calculation is simple as it is the total cost of the project divided by the estimated cash inflows expected each year.  The end result is the number of years to recover the initial cost, or the payback period. As an example, my employer used this method as a guideline when deciding which research projects should/should not be undertaken.  Although the assumption is that most research projects will generate revenue for the organization, it isn’t known how long it will take before the healthcare organization recoups the investment they initially put into the project to get it off the ground. Based on the results of the payback method, leadership will decide whether or not to accept or reject the project if the payback period is too far out of their comfort zone.

There was a case recently in which one of our research sites proposed a new project that would study a new therapeutic drug used to potentially treat individuals affected by Parkinson’s disease.  The example is just an approximation of costs as I do not know the exact dollar amounts proposed for the project. The proposal stated that the yearly revenues generated from this new research study would be approximately $100,000 and the initial investment required would be $1 million dollars.  Therefore, the payback period would be 10 years: 1,000.000 (initial investment) / 100,000 (yearly inflows) = 10 years.  This project was hotly debated because some members of upper leadership wanted the payback period to be no longer than 7 years.  However, other leaders felt that although it would take slightly longer to recoup the investment, the project was actually going to last for 20 years instead of 10 years.  After 10 years, the organization has recovered their initial cost and the remaining 10 years would be revenue of approximately $1 million.  This doesn’t include the potential revenue if the new drug becomes FDA approved and can be used on a much larger population of patients within the entire healthcare industry.  Even though the payback method has flaws because it does not take into account the time value of money, leadership did decide to accept this particular project simply based on the potential revenue growth and healthcare benefit this could provide if the new treatment improved the overall health of those patients affected by the disease.

Another useful tool when evaluating capital investments is the internal rate of return (IRR), which does consider time value of money.  In terms of the project discussed above, the internal rate of re

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