Healthcare Financing Essay

It is essential that nurses understand the issues related to healthcare financing, including local, state, and national healthcare policies and initiatives that affect healthcare delivery. As a patient advocate, the professional nurse is in a position to work with patients and families to access available resources to meet their healthcare needs.Healthcare Financing Essay

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REQUIREMENTS

Your submission must be your original work. No more than a combined total of 30% of the submission and no more than a 10% match to any one individual source can be directly quoted or closely paraphrased from sources, even if cited correctly.

A. Compare the U.S. healthcare system with the healthcare system of Great Britain, Japan, Germany, or Switzerland, by doing the following:

1. Identify one country from the following list whose healthcare system you will compare to the U.S. healthcare system: Great Britain, Japan, Germany, or Switzerland.

2. Compare access between the two healthcare systems for children, people who are unemployed, and people who are retired.

a. Discuss coverage for medications in the two healthcare systems.

b. Determine the requirements to get a referral to see a specialist in the two healthcare systems.

c. Discuss coverage for preexisting conditions in the two healthcare systems.Healthcare Financing Essay

3. Explain two financial implications for patients with regard to the healthcare delivery differences between the two countries (i.e.; how are the patients financially impacted).

B. Acknowledge sources, using in-text citations and references, for content that is quoted, paraphrased, or summarized.

C. Demonstrate professional communication in the content and presentation of your submission.

Chapter 1- Question and Answers

1.1
a. What are some of the industries in the healthcare sector?

Some of the industries in the healthcare sector are health insurance, pharmaceuticals and biotechnology, medical equipment and supplies and health services. Others include education institutions, government and private research agencies.

b. What is meant by the term healthcare finance as used in this book?

Healthcare finance is a term used in this book to describe accounting and financial management principles and practices used to ensure the financial well-being of health care organizations.

c. What are the two broad areas of healthcare finance?

The two broad areas of healthcare finance are accounting and financial…show more content…
The role of finance is to make health service organizations maximize their resources to increase their efficiency and their value.

b. Has this role increased or decreased in importance in recent years?Healthcare Financing Essay

This role has increased in importance over the recent years, because of health care reform changes and economic crises.

1.4.
a. Briefly describe the following health services settings:

* Hospitals- provides general, acute care, diagnostics, surgery, usually for patients who need several hours of care. Recent operations allow shorter lengths of stay, which results in excess capacity. Hospitals can vary in size from 25 beds to 1000’s of beds. The constant nursing to patients make them labor intensive. * Ambulatory care-outpatient service, not requiring overnight stay; walk-in clinics, surgery clinics, provide services at lower costs than hospitals such as medical practices or emergency care. * Home health care- brings many of the same services provided in ambulatory care settings into the patients’ homes. This can help with day-to-day activities. * Long-term care- this is provided for individuals who are unable to perform day-to-day activities (i.e bathing, walking, eating) due to the lack of functional ability. * Integrated delivery systems- has all the health settings mentioned above under one entity.Healthcare Financing Essay

This dissertation includes three essays that examine the interactions between
financial arrangements and product market outcomes in the health care industry theoretically and empirically. Integrating finance and health economic theories, particularly the coexistence of mixed ownerships and the private provision of public goods,
my dissertation presents unique opportunities to explore the interaction of the fields
of health care finance and industrial organization.
Chapter 2 includes an evaluation of nursing home quality, which provides
a valuable opportunity to clarify the cyclical fluctuation of quality and the role of
financial constraints in explaining such fluctuation. As such, I use local unemployment
rates to provide exogenous cost shocks. During recessions, lower labor costs ease
financial constraints and thus lead to higher nurse staffing, lower employee turnover,
and better quality. Such counter-cyclical quality fluctuation is most profound among
financially constrained facilities that tend to be more leveraged. This counter-cyclical
quality is also more pronounced among nursing homes that are for-profit, belong to
multi-facility chains, and focus largely on Medicaid residents. Overall, I find that
financial constraints hinder quality, nursing home quality is counter-cyclical, and
financial constraints slightly amplify counter-cyclical quality fluctuations.
Chapter 3 examines the impacts of financial leverage on hospitals technology Healthcare Financing Essay
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adoptions. To account for the potential endogeneity between financing and producing
decisions, the California Seismic Retrofit Mandate is used as an exogenous financial
shock that crowds out hospitals financial resources. Surprisingly, I did not find significant results to identify the association between financial leverage and technology
adoption.
Using a unique 8-year nursing home CEOs compensation dataset, I make
inferences of the objective functions of for-profit and not-for-profit organizations,
particularly the differential weights of financial and altruistic (quality) performance.
Surprisingly, I find that compensation is not tied to performance. Rather, managers
are compensated for more concrete measures including the size of the nursing home,
payer-mix, and manager experience. I further separate managers into three groups
(not-for-profit managers, for-profit and owner-managers, and for-profit and non-owner
managers). Among these three types of managers, I find consistently significant
evidence that owner-managers earn significantly higher compensation than do the
other two types of managers.
The center theme of this volume is to address the public good perspective
of corporate finance decisions (e.g. capital structure and corporate governance). In
health care industries, these finance issues can have strong influences on public welfare, in quality of care and services provisions. On the other hand, the mix of ownership types and the incomplete quality information provide health care markets as
unique opportunities to examine financial principles in a different setting.Healthcare Financing Essay
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CHAPTER II
Financial Constraints and Counter-Cyclical
Nursing Home Quality
Financial constraints occur when a firm faces limited access to external financing resources because of either high cost of capital (price rationing) or shortage of
credit supply (quantity rationing). When a firm is financially constrained, it becomes
more dependent on internal cash flows. This dependency may affect its investment
and production decisions. A recent study by Campello and colleagues (2010) shows
that financially constrained firms are more likely to cut capital and marketing expenditures, technology investment, and number of employees. Perhaps due to the
difficulty of measuring and quantifying quality differences, the impacts of financial
constraints on product and service quality are dimensions that are less frequently
discussed in the literature. Financial constraints are also viewed as an important
accelerator that amplifies cyclical economic fluctuations. Bernanke and colleagues
(1996) theorize that financial constraints amplify modest monetary shocks to large
pro-cyclical fluctuations of investments and outputs. Chevalier and Scharfstein (1996)
and Khanna and Tice (2004) provide both theoretical and empirical evidence that
financial constraints explain and exacerbate counter-cyclical markups in the supermarket industry. This paper extends the literature to investigate the importance of
financial constraints by identifying their impact on the counter-cyclical behaviors of
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nursing home quality, a context in which the consumers can not perfectly observe

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service quality but do bear significant switching costs. The result also provides an
alternative explanation for counter-cyclical health outcomes that were observed by
Ruhm (2000) and Stevens et al.(2011).
Nursing homes play important roles in providing necessary care to institutionalized elderly and adults with impaired functionality. However, such important roles Healthcare Financing Essay
can be compromised if the homes are financially constrained. Nursing facilities have
several characteristics that mark them as likely to be financially constrained. Whited
and Wu(2006) conclude that the firms that are smaller, have low or no research coverage by equity analysts, and do not have corporate bond ratings are more likely to be
financially constrained. Most nursing homes satisfy these criteria. In addition, Jaffee
and Russell (1976), Keeton(1979), Stiglitz and Weiss (1987), and Whited (1992) view
information asymmetry between the lenders and the borrowers as a primary cause of
financial constraints and credit rationing. Asymmetric quality information between
nursing facilities and creditors can hinder the creditors’ willingness to provide inexpensive and long-term capital to the nursing facilities. Asymmetric information reinforces the effects of unfavorable firm characteristics and subsequently causes nursing
homes to face stricter limitations to external capital. Asymmetric quality information
has another impact on the product market. As noted by Arrow (1963), information
asymmetry is the prominent characteristic of the medical care market and often leads
to loss of consumer welfare. Information asymmetry can distort the incentives of
financially constrained nursing homes to provide socially optimal quality. The effects of asymmetric information on both credit and product markets make nursing
homes more vulnerable to financial constraints, but the negative consequences and
welfare losses as a result of financial constraints may be even more serious than those
encountered in other industries.
To motivate the empirical analysis, I construct a theoretical model to formalize Healthcare Financing Essay
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the complex relationships among financial constraints, asymmetric information, and
nursing home quality. Based on the work by Klemperer (1995) and Chevalier and
Scharfstein (1996), the model has the flexibility to explain counter-cyclical quality
fluctuations. This model is also the first to provide a theoretical foundation for research of financial conditions and quality of care. To empirically test the theoretical
predictions, I follow the approach used by Campello (2003), Khanna and Tice (2004),
and Zhu (2011). Regional and local business cycles are used to create the exogenous
cost shocks which nursing home managers do not fully expect when they make exante financial arrangements. Local business cycles are exogenous from the existing
financial leverage because it is impossible to perfectly forecast economic fluctuations.
Even if the managers can foretell the recessions and booms, the adjustments of capital structure are both expensive and time consuming; a significant adjustment of
capital structure often involves the redirection or restructuring of corporate strategies. Local business cycles also directly affect internal cash flows through impacts on
labor markets. The majority of the nursing home workforce is comprised of nurse
aides (about 65% of the nurse hours1
). They earn low hourly wages ($7.5; Yamada,Healthcare Financing Essay
2002) and have a lower skill set compared to other types of nurses. When the economy is booming and unemployment rates are low, outside employment options for
the nurse aides become more attractive. While nursing home wages might be more
rigid because of fixed public reimbursement rates, during economic booms nurse aides
can earn significantly higher wages at alternative work sites, such as restaurants and
department stores (Cawley et al., 2006). In addition, with their salaries, educational
attainments, and demographics (Yamada, 2002), nurse aides are more likely to be the
secondary source of their household incomes. Therefore, they may withdraw from the
nursing homes workforce during economic booms when their spouses or other family
members have stable jobs and earn promising incomes. Of course, such labor mar1My calculation based on nursing homes in the sample
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ket impacts are not equal across all nursing homes. Financially constrained nursing
homes may have particular difficulty keeping up with wages and retaining their nurse
aides. Ex-ante financial leverage serves as the primary proxy for financial constraints.
With different levels of financial leverage, the differential responses to exogenous cost
shocks are interpreted as causal impacts of financial constraints on quality.
To assess nursing home financial constraints at the facility level, I collect audited nursing home financial statements from several state health planning agencies.2
These audited financial statements provide detailed information on balance sheets,
cash flow, and employee turnover, which are essential to this study but not available from Medicare Cost Report and Online Survey, Certification and Reporting
(OSCAR) data. Using this large and unique dataset (comprising more than 3,500
nursing homes in six states from year 2000 to 2011), I investigate the causal relationship between financial constraints and nursing home quality. I also provide evidence
about the dynamics between financial constraints and counter-cyclical quality. Quality measures include deficiencies, bed sores, physical restraint, nurse staffing, and
nurse turnover. County-level unemployment rates are the proxies to measure both
the cross-sectional and time-series variations of business cycles. 3 Results show that
financial constraints impair nursing home quality and that nursing home quality is
obviously counter-cyclical. Financial constraints also act as the accelerators that amplify the counter-cyclical quality. The estimated interaction term between ex-ante
financial leverage and business cycles measures suggest that compared to the quality
of less constrained nursing homes, the quality of more financially constrained nursing
homes decreases slightly further during economic booms and also improves slightly
more during recessions. Healthcare Financing Essay