Economics Final Project Submission: Policy Research and Organizational Analysis Report
In the current healthcare system, hospitals face diverse financial and economic decisions, which impact how they operate. It is crucial for hospital administrators to have sound economic and financial knowledge if they are to make the right decisions that will ensure their institutions continue operating in a sustainable manner. In this context, this paper gives a comprehensive discussion of various economic theories, economic principles, economic legislative issues, and disparities that impact healthcare institutions. The paper then applies these principles to The Johns Hopkins Hospital in Baltimore to provide a practical view of their importance in how hospitals operate. Organizational Analysis Report
Economic Theories and Principles
Economic Disparities
The financial well-being of the industry has a huge bearing on the availability of healthcare. In this context, market and demand theories are instrumental in understanding the industry’s financial well-being. Looking at the example of The Johns Hopkins Hospital in Baltimore, it is clear that the economic principles of demand and market/consumer behavior have a profound impact on the entity’s financial statements. Consequently, there are times when there is a spike in revenue while there are periods when revenues drop. For instance, during holidays and festive periods, revenues spike due to a rise in the number of injuries and accidents associated with travel and other fun-related activities like overindulgence in alcohol. Also, hospital management performance has a huge bearing on an institution’s profitability (Lee & Park, (2015). The Johns Hopkins Hospital has increased its performance over the years. Thus, its patient satisfaction has also risen over the years, which explains why its financial statements continue to improve as time goes by. The aspect of demand also impacts the profitability of the institution. The ever-growing population implies that the institution has more clients to serve and profit from. The hospital has a steady supply of new patients due to the relatively steady mortality and birth rates. Finally, poor consumer lifestyle trends increase hospital visits and the institution’s profitability. Organizational Analysis Report
Economic Theories
There are certain economic theories that are useful when applied to the healthcare industry. First, there is market power, which refers to the ability of a firm to successfully impact how its services or products are priced in the marketplace. In healthcare planning, it is crucial for policymakers to facilitate the creation of an environment where healthcare institutions can freely define the prices for their services. This is crucial in ensuring that there is healthy competition for all healthcare providers (Frech et al., 2015). However, the drawback in such a case is that large institutions may offer lower prices to the extent that small institutions will not have the ability to meet. This can effectively drive such small institutions out of business. Therefore, proper regulations should be done not to allow such a scenario to occur. Organizational Analysis Report
Second, there is market concentration, which refers to the extent to which a market’s sales are dominated by one or more entities. Ideally, no single healthcare institution should dominate a market. There should be several players in the healthcare market. This is vital in ensuring that there is healthy competition. In turn, healthcare institutions will offer better quality services and ideal prices for their services. Without such competition, monopolies may offer low-quality healthcare due to no competition or have very high prices due to high demand.
Finally, there is choice, which refers to the ability of a firm or client to make a decision on the resource, service, or product to provide purchase from a specific range of options. Patients should have a wide range of choices to select the healthcare providers they want. More so, there should be various healthcare insurance plans available for them. This ensures that people can access healthcare effectively regardless of their socioeconomic status. However, the aspect of choice should be limited for the healthcare providers. This ensures that the types of services and products they offer are standardized. In turn, this ensures that healthcare institutions do not have the choice to offer low-quality services or prescribe low-quality medication. Organizational Analysis Report
Use of Economic Principles
Basic economic principles include trade, choice, opportunity costs, scarcity, and the law of demand. Organizations utilize economic principles to guide strategic short-term and long-term decision making because, like any other industry, healthcare institutions are characterized by the provision of healthcare services and products in exchange for money. However, the only difference is that in all cases, human life is at risk. Therefore, the application of economic principles to the healthcare industry is not as straightforward as it is in other industries. On the one hand, there are potential positive impacts of applying economic principles to the healthcare industry. For example, a healthcare institution that applies economic principles will maintain its profitability. Such an institution will be well placed to make sound economic decisions, which will guarantee its sustainability.
On the other hand, there are potential negative impacts of applying economic principles to the healthcare industry. For example, paying too much attention to economic principles may put human lives at risk. When hospitals put too much focus on profitability, healthcare practitioners may fail to protect human life if doing so will not yield profits for their institution. According to Scott, Solomon, and McGowan Jr. (2011), the application of economic thinking to the comprehension of resource utilization in healthcare is challenging considering the complexities that exist in the delivery of care in a healthcare institution. More so, it is vital to note that these economic principles ensure that resources are generally very scarce and cannot meet all the health needs of the general population.
For-Profit and Nonprofit
Financial Differentiation
On the one hand, a nonprofit organization is defined as an entity, which qualifies for tax-exemption by the Internal Revenue Service (IRS). The requirement is that such an organization should have a purpose and mission aimed at offering a public benefit and promoting a social cause. Examples of such organizations include national charities, universities, and hospitals (Laurett & Ferreira, 2018). The financial and economic policies of these organizations are structured in a way that allows these entities to make a profit. However, all the profits made are not meant to meet the needs of a specific individual but rather to facilitate the advancement of the organization. Hence, all operational and financial information must be made public to ensure everyone knows where all received funds are going. During any fundraising process, no taxes are levied on either the donor or the organization receiving the funds.
On the other hand, a for-profit organization is created with the major objective of making as much money as possible. Often, such entities either sell services or products to their clients. The owner of the organization earns an active income with investors and shareholders benefiting as well from the profits made by the organization. Examples of such organizations include partnerships, sole proprietorships, LLCs, and corporations (Heaslip, 2020). Unlike the nonprofit entities, for profit organizations do not have to attain a social good and can be structured to meet the individual goals of the owner. Organizational Analysis Report
Economic Differentiation
When it comes to taxation, most for-profit organizations are subjected to the corporate income tax. The federal government imposes a tax at a rate of 21 percent (Tax Policy Center, 2020). These organizations can also be subjected to another form of taxation at the individual shareholder level with regards to the capital gains and dividend made from the sale of shares. However, many for-profit organizations in the US are defined as ‘pass-through entities,’ which implies they are not subjected to entry-level taxation. Instead, the profits made by the owners are the ones that are taxed based on the rules guiding the collection of the individual income tax. In contrast, nonprofit organizations do not pay tax. This is based on the IRS tax code subsection 501(c) (Leonard, 2019). Consequently, these organizations are not subjected to things like property tax, sales tax, or any other form of taxation. Overall, I believe that this tax distinction is fair. Since nonprofit organizations strive to achieve social and public good, not taxing them enhances their chances of success since they have extra funds to pump into their mission and vision. Organizational Analysis Report
Policy, Changes, and Disparities
Economic Policy and Disparities in Care
There are various disparities in care, which many people in the country experience. Two major ones are race and socioeconomic status. In the context of race, Ferdinand et al. (2017) asserts that there is a huge disparity in healthcare outcomes between whites and other minority groups such as blacks. For instance, blacks have a higher likelihood of developing heart diseases, hypertension, and diabetes (Ferdinand et al., 2017). When it comes to service delivery, whites report better satisfaction compared to minority groups (Mays et al., 2017). This can be attributed to issues like language barriers and bias due to stereotypes, among other reasons. In the context of socioeconomic status, Kennedy, Wood, and Frieden (2017) note that health insurance coverage among Americans is irregular. Consequently, people with higher incomes are in a better position to afford quality healthcare compared to those in the low socioeconomic bracket. There is a distinct relationship between economic policies and disparities in care. For example, there is the use of insurance programs to facilitate healthcare services to citizens rather than offer universal healthcare for all. The use of insurance programs ensures that the richer a person is, the better the insurance package he/she can afford. This leads to the healthcare disparities described above.
Policy Changes
A recent legislative change that has a huge impact on healthcare economic policy in general is the Coronavirus Aid, Relief, and Economic Security (CARES) Act is the focus economic policy of this paper. According to Bell (2020), the economic policy attempts to minimize the economic downturn that the Covid-19 pandemic has facilitated. The budget that supports the implementation of this policy is over $2 trillion making this rescue package to be the largest in US history (Canady, 2020). $100 billion has been set aside to fund healthcare organizations as they try to cover the costs of dealing with Covid-19 cases, in addition to aiding healthcare entities, which have lost a huge chunk of their revenue due to the pandemic. The policy also has a program that ensures healthcare service providers can receive advanced or accelerated Medicare payments. These providers can ask for six months’ worth of payments and are given a one-year grace period to repay the loan. Additionally, the policy allocates $80 million to the FDA to aid with vaccine development and medical products manufacturing. Organizational Analysis Report
Disparities Planning
Disparities of care are factored into healthcare strategic planning because they ensure that policymakers create interventions, which suit the needs of patients from diverse demographics. Consequently, organizations can handle issues that may arise when making economic evaluations for their strategic plans. Effectively handling these issues will ensure there is the promotion of ideal healthcare outcomes for clients in a cost-effective manner. The relevant strategic planning can take three techniques into consideration. First, there is cost-minimization analysis. This is where the organization will assess several interventions, which have the same outcome to determine the one that facilitates the cheapest way of delivering the outcome (WHO, 2010). For example, if two vaccines for polio have the same effectiveness level, this analysis technique will reveal the cheaper one among the two. Second, there is cost-effectiveness analysis. This technique evaluates the outcome of an approach based on ‘natural units.’ Therefore, if the objective is to lower pneumonia in children, this technique may compare several vaccines to check the one that averts pneumonia cases more cheaply. Finally, there is cost-utility analysis. This technique evaluates the utility measures, which depict people’s preferences (WHO, 2010). Organizational Analysis Report
Organizational Impact and Recommendations
Organization Introduction
The organization that is the focus of my report is ‘The Johns Hopkins Hospital Baltimore, MD 21211-2226.’ The sub-industry, which this organization belongs to is ‘Hospital.’ The institution doubles up as a biomedical research facility and teaching hospital. It focuses on both general and rehabilitative health (ProPublica, 2021). The financial background of the organization appears to be relatively strong. The revenue of the institution has been steadily growing over the years. For instance, in 2011, the institution had a total revenue of $1,826,726,232. By 2017, this figure had grown to $2,371,701,539 (ProPublica, 2021). The selected organization is a nonprofit. The tax code designation given to the institution by the IRS is 501(c)(3). This is because this institution has several purposes including educational, scientific, and public safety (ProPublica, 2021).
Nonprofit or For-Profit
The Johns Hopkins Hospital is a nonprofit organization. A nonprofit organization is defined as an entity, which qualifies for tax-exemption by the Internal Revenue Service (IRS). The requirement is that such an organization should have a purpose and mission aimed at offering a public benefit and promoting a social cause. Examples of such organizations include national charities, universities, and hospitals (Laurett & Ferreira, 2018). Since the Johns Hopkins Hospital falls under the ‘hospital’ category, it qualifies to be a nonprofit entity. The financial and economic policies of this organization is structured in a way that allows it to make a profit. However, all the profits made are not meant to meet the needs of a specific individual but rather to facilitate the advancement of the organization. Hence, all operational and financial information must be made public to ensure everyone knows where all received funds are going. During any fundraising process, no taxes are levied on either the donor or the organization receiving the funds.
Being a nonprofit organization has a profound economic policy impact on the Johns Hopkins Hospital. Since the Johns Hopkins Hospital is a nonprofit organization, it does not pay tax. This is based on the IRS tax code subsection 501(c) (Leonard, 2019). Consequently, this organization is not subjected to things like property tax, sales tax, or any other form of taxation. This tax distinction is fair. Since the nonprofit entity strive to achieve social and public good, not taxing it enhances its chances of success since it has extra funds to pump into its mission and vision. Organizational Analysis Report
Financials, Market, and Demand
Demand Theory
The aspect of demand impacts the profitability of the institution. The ever-growing population implies that the institution has more clients to serve and profit from. The hospital has a steady supply of new patients due to the relatively steady mortality and birth rates. The demand theory applies to the relationship between each stakeholder and the insurance industry. Currently, there is a high demand for healthcare insurance since people have diverse healthcare needs. As a result, insurance companies try to meet this demand using various insurance plans. This in turn creates a relatively profitable business for the companies who work with providers to meet the needs of patients. Overall, insurance impacts the quality of care provided by physicians. Since there are various insurance plans, physicians will only offer care based on the elements that are covered by individual plans. This implies that people with better insurance covers will receive a higher quality of care. Organizational Analysis Report
Market Behavior Impact
There are times when there is a spike in revenue while there are periods when revenues drop. For instance, during holidays and festive periods, revenues spike due to a rise in the number of injuries and accidents associated with travel and other fun-related activities like overindulgence in alcohol. Also, hospital management performance has a huge bearing on an institution’s profitability (Lee & Park, (2015). The Johns Hopkins Hospital has increased its performance over the years. Thus, its patient satisfaction has also risen over the years, which explains why its financial statements continue to improve as time goes by. Finally, poor consumer lifestyle trends increase hospital visits and the institution’s profitability. Organizational Analysis Report
Economic Legislative Changes
Legislative Changes
A recent legislative change that is likely to impact the Johns Hopkins Hospital is the Coronavirus Aid, Relief, and Economic Security (CARES) Act. According to Bell (2020), the economic policy attempts to minimize the economic downturn that the Covid-19 pandemic has facilitated. The budget that supports the implementation of this policy is over $2 trillion making this rescue package to be the largest in US history (Canady, 2020). $100 billion has been set aside to fund healthcare organizations as they try to cover the costs of dealing with Covid-19 cases, in addition to aiding healthcare entities, which have lost a huge chunk of their revenue due to the pandemic. The policy also has a program that ensures healthcare service providers can receive advanced or accelerated Medicare payments. These providers can ask for six months’ worth of payments and are given a one-year grace period to repay the loan. Additionally, the policy allocates $80 million to the FDA to aid with vaccine development and medical products manufacturing.
Policy Changes and Impact
The CARES Act may impact the organizational policies of the Johns Hopkins Hospital. For starters, legislative change is expanding the use of tele-health services in the country. The Johns Hopkins Hospital can alter its policies to ensure that such technology can be adopted for use long after the pandemic is gone to reduce pertinent healthcare-related costs. Second, the Johns Hopkins Hospital can use the legislation to restructure its policies so that the organization sets aside funds and guidelines on how to deal with future crises. This will ensure the healthcare institution is not caught off-guard in case of another pandemic.
Statement Impact
There are several ways that the financial statements of the organization could be impacted because of the legislative changes in the CARES Act. First, the Act is sufficiently funded to effectively meet the needs of the healthcare needs during the pandemic. Providers have access to a $100 billion kitty to cover their expenses (Coie, 2021). The Johns Hopkins Hospital can tap into this kitty to cater to its expenses and improve its financial statements. Second, the policy ensures providers have access to accelerated Medicare payments. This is vital in ensuring critical care institutions operate effectively without money issues. This can also improve the Johns Hopkins Hospital’s financial statements since Medicare payments will be covered in time without delays. Third, the policy mitigates shortages in drugs. Therefore, the FDA is compelled to expedite drug reviews to protect the public from waiting too long for new medication or vaccines. The Johns Hopkins Hospital will adequately meet the needs of its clients leading to a high level of patient satisfaction. This is vital for its financial statements because satisfied patients will either come back to the institution in future or refer other to the hospital.
Potential Disparities
The legislative changes in the CARES Act have the ability to cause disparities in care that could further impact the Johns Hopkins Hospital. For starters, this is a time-based policy. Therefore, it only serves the short-term needs while ignoring the long-term effects caused by the pandemic (Bivens & Shierholz, 2020). The recommendation in this case is for the hospital to take an active advocacy role in pushing policymakers to come up with further legislative changes that will cater for the long-term effects caused by the pandemic. Second, there are no guardrails that make sure the funds are directed toward saving the jobs of standard workers in the healthcare industries (Bivens & Shierholz, 2020). Therefore, the policy may fail to address shortage of healthcare workers in the foreseeable future. The recommendation in this case is for the hospital to take an active advocacy role in pushing policymakers to come up with further legislative changes to curb the shortage of healthcare workers. Finally, poor accountability measures implies that the funds set aside to implement the policy may be misappropriated. The recommendation in this case is for the hospital to have an audit team that effectively accounts for all the funds utilized under the program.
The institution should also consider effectively handling these issues in a cost-effective manner. The relevant strategic planning can take three techniques into consideration. First, there is cost-minimization analysis. This is where the organization will assess several interventions, which have the same outcome to determine the one that facilitates the cheapest way of delivering the outcome (WHO, 2010). Second, there is cost-effectiveness analysis. This technique evaluates the outcome of an approach based on ‘natural units.’ Finally, there is cost-utility analysis. This technique evaluates the utility measures, which depict people’s preferences (WHO, 2010).
References
Bell, C. (2020, April). 11 Ways the CARES Act impacts health care organizations. Mossadams. https://www.mossadams.com/articles/2020/04/cares-act-impacts-health-care
Bivens, J. & Shierholz, H. (2020, March). Despite some good provisions, the CARES Act has glaring flaws and falls short of fully protecting workers during the coronavirus crisis. Economic Policy Institute. https://www.epi.org/blog/despite-some-good-provisions-the-cares-act-has-glaring-flaws-and-falls-short-of-fully-protecting-workers-during-the-coronavirus-crisis/
Canady, V. A. (2020). CARES Act to help providers bolster care; supports communities, businesses. Mental Health Weekly, 30(14), 1-3.
Coie, P. (2021). Healthcare industry implications of the CARES Act. JD Supra. https://www.jdsupra.com/legalnews/healthcare-industry-implications-of-the-55556/
Ferdinand, K. C., Yadav, K., Nasser, S. A., Clayton‐Jeter, H. D., Lewin, J., Cryer, D. R., & Senatore, F. F. (2017). Disparities in hypertension and cardiovascular disease in blacks: The critical role of medication adherence. The Journal of Clinical Hypertension, 19(10), 1015-1024.
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