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Discuss the primary differences between not-for-profit, public, and for-profit health care organizations

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The structure of healthcare organizations takes three main forms depending on the purpose. These are non-profit, for-profit, and public organization, which differs in taxation issues, funding, and business model. First, for-profit organizations and private healthcare institutions whose main aim is to make profits, and thus, operates a profit-driven culture (Herring et al., 2018). On the other hand, non-profit healthcare organizations do not make profits, and thus, are more focused on models that enhance access to care services by the community rather than business-oriented. Equally, public health care organizations are government-owned and operated whose major purpose is not on business, but to provide health services to the public. The second difference among the three entities is funding. For-profit organizations invest heavily in activities that give revenue, funded by investors, and charge high premiums to make profits (Herring et al., 2018). Non-profit organizations rely on donor funds, community and well-wishers, and minor investments. Finally, public health entities are majorly funded by the government. The tax structures of the three entities are also different where not-for-profit organizations are exempted from paying income and property tax (Herring et al., 2018). For-profit health care organizations, on the other hand, pay heavy taxes.

Discuss the differences in the four key reports in financial reporting and how they are used differently in healthcare organizations.

The first key financial reporting is the income statement. The statement looks at two factors, which are revenue and expenses over a particular period, for example, yearly or quarterly. The income statement balances the revenue with the expenses to determine whether a health care organization is making a profit or not (Donai, 2014). The income statement is used in health care to make strategic decisions such as increasing revenue or eliminating unnecessary costs to reduce expenses. Furthermore, for-profit health organizations are funded by investors, the income statement also includes earnings per share; the amount the shareholders would receive suppose the organization distributes the net earnings.

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The second financial reporting tool is the statement of cash flow, which indicates how cash flows in and out of the organization. The difference of cash flow with the income statement is that it does not indicate whether a company has made profits, but whether it generated cash (Donai, 2014). The components of cash flow are operating activities, financing activities, and investing activities. The use of cash flow in health care organizations is to show whether the organization has cash for its operations. It also reveals a decrease or increase in cash flow. The balance sheet is the second financial indicator used in health care organizations. The balance sheet displays liabilities, shareholder’s equity, and assets (Skonieczny, 2012). Unlike the income statement and the cash flow, the balance sheet does not give the in and outflow, but simply lists the components. The assets need to balance with liabilities and shareholder’s equity hence the name. Companies use the balance sheet to know the position of their assets with reference to the liabilities.

The last element of the financial statement is the statement of changes in equity. The statement shows how the owner’s equity has moved over a period. The changes between different accounting periods are noted. The components of this element are the beginning equity balance, additions and subtractions, and the ending balance (Skonieczny, 2012). The importance of this tool is to show changes in retained earnings between two different balance sheets. It is important to healthcare organizations to show the effect of financial performance on interest.

Discuss who uses these financial statements, how they are different based on their structure, and their importance.

The financial parameters are used by various stakeholders including investors to determine the viability of an organization, as well as the communities. The structures of the four different elements of the financial statement, as noted differ from one to another, and thus, each uses different data to explain a different story.                                                                                                                                                                                                                                                              Healthcare organizations use different financial statement parameters to understand the position of the entity in terms of the ability to sustain its operations. Every healthcare organization whether profit-making or not need to have the adequate cash flow to finance its operations (Skonieczny, 2012). The organizations use the financial statements to evaluate the stability of the company and prospects for future sustainability. Additionally, profit-making healthcare organizations must evaluate whether they are making profits on the investments to meet investor demands (Donai, 2014). Since for-profit organizations are funded by investors, they are constantly under pressure to prove that the financial performance is commendable.

 

References

Donai, J. (2014). Practice Management. The Hearing Journal, 67(2), 26-28 doi: 10.1097/01.HJ.0000444139.39633.db.

Herring, B., Gaskin, D., Zare, H., & Anderson, G. (2018). Comparing the Value of Nonprofit Hospitals’ Tax Exemption to Their Community Benefits. Journal of Healthcare Organization Provision and Financing, 28. https://doi.org/10.1177/0046958017751970.

Skonieczny, M. (2012). The Basics of Understanding Financial Statements: Learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement. Investment Publishing.

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