Currently, financial challenges have been ranked among the topmost issues confronting healthcare organizations (Berger, 2008). Bad debts, Medicaid and Medicare reimbursements are the possible causes for the financial crises in medical institutions, particularly in the United States of America. Financial challenges have really triggered the closure of many healthcare organizations because the healthcare services depend on large sums of money in a daily basis. Therefore, shortage of funds which is usually caused due to bad debts and delayed Medicaid and Medicare reimbursements, can lead to permanent closure of hospitals (Berger, 2008). According to Berger (2008), the healthcare financial challenges grow as the consumer demand for healthcare services rises. It is evident from the American Hospital Association that about 60 percent of healthcare institutions, especially hospitals in the United States experience financial losses in the provision of patient care. In the United States, a number of hospitals have been closed following the financial losses encountered. Shands Healthcare organization, which will be considered in this discussion, is among such hospitals.
Bad debts in healthcare organizations
According to Berger a bad debt is the amount of money that a healthcare organization writes off as a loss. Bad debts are classified as expenses because it becomes impossible to collect the money from debtors. This situation can exist when the patient has become bankrupt or when the cost for an attempt to collect the debt is more than the debt itself (Berger, 2008). Bad debts are likely to occur when a healthcare organization experiences a rise in the underinsured and the uninsured patient population. Shands Healthcare organization is classified among those hospitals in the United States that have been squeezed by higher borrowing costs, tight credit, jump in patients, and investment losses. Most of the patients, who have been admitted in Shands Healthcare organization, are unable to pay their bills either because they are underinsured or they recently lost their jobs. This hospital has 220 beds for patients. Most endangered healthcare institutions are the rural hospitals as well as the urban hospitals in areas with numerous hospital beds and a large number of poor, underinsured and uninsured patients. Shands Healthcare system has been the second largest charity care provider in Florida.
Medicare and Medicaid Reimbursements
Medicare reimbursement is defined as the payments that are given to hospitals and doctors as a result of the healthcare services provided to clients who are taken care of by Medicare. It is the choice of doctors to accept the reimbursement rate set by the Medicare for the services provided. Doctors are paid 80 percent of the costs which they don’t find profitable. Patients are required to pay the remaining amount to fully settle the medical cost. Medicaid reimbursements are just like the Medicare reimbursements but they differ in the fact that, the patients whose treatment costs are covered under the Medicaid do not pay the remaining cost.
Shands Healthcare institution has experienced meager reimbursements from health insurers, extremely lower payments that do not cover highe costs for Medicaid and Medicare patients, and higher technology and labor costs. It has been anticipated that about 65 million dollars will be saved over a period of three years if the hospital is shut and the patients and staff shifted to other hospitals.
Healthcare organizations are undergoing financial losses in the process of providing patient care services. It has been found that bad debts, Medicaid and Medicare meager reimbursements are the major causes of financial crises in many healthcare organizations. In some cases, financial crises lead to permanent closure of healthcare organizations because the higher costs for treatment services cannot be fully settled.