Hsa 505 Assignment 2

Describe the external and internal factors that influence the executive team’s decision making and specify which might be most instrumental in making the decision to become a for-profit entity. Why do you think so?

To date there has been no empirical examination regarding why hospitals increasingly prefer the for-profit over the not-for-profit corporate form. One explanation for conversions is generic: Recent years have seen many more hospital mergers in general, and thus we would expect more conversions of hospitals from not-for-profit to for-profit status. Of course, this raises the question why there have been so many hospital mergers. There have been many factors that may prompt not-for-profit hospitals converting to for-profit hospitals such as; financial instability, access to capital, profits, debt service, increased efficiency, self-interest, defensive strategies, culture, among many others. The most commonly mentioned factor in hospital conversion is the financial status of the converting hospitals. There are several related financial reasons that motivate not-for-profit hospital to sell to or partner with for-profit institutions. These include access to capital, current or expected profit reductions, and relief from debt burden.
External Factors
Growth of managed care: The growth of managed care has reduced hospitals' revenues in several ways. First, hospitals typically must have a contract with a managed care company to be included in a provider network. Physicians are generally prohibited from admitting patients to hospitals without contracts, except on an emergency basis. The threat of this lost volume creates pressure for hospitals to sign contracts at less than optimum rates (Collins et al, 2001).
Federal balanced Budget Act 1997: The BBA affects Medicare reimbursement in several ways, including limiting increases in Medicare reimbursement rates to less than the measured level of inflation; reducing capital reimbursement by 17.8% from current...