Essay Sample on Access to Capital by Healthcare Providers

2021-06-10 17:29:46
4 pages
983 words
University/College: 
University of California, Santa Barbara
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Article review
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Gordon, D. C. (2010). Squeezing the funding you need from today's capital sources: healthcare providers facing difficulty in accessing capital in today's economic environment still have many options before them, and possibly brighter prospects in the future. Healthcare Financial Management, 64(4), 46-56.

In her article, "Squeezing the Funding you need from Today's Capital Sources," Deborah C. Gordon addresses the challenges that healthcare providers face in the quest to access funds for their facilities for them to be able to run efficiently. The changing terms by lenders and other capital providers have dealt a blow to almost every institution in need of financial aid and capital financing in the recent past leaving such institutions with no option but to seek alternative sources of financing their operations.

Healthcare providers have not been left behind either with their ever increasing need for financing. The raising of capital has particularly become a nightmare for heath facilities and physicians likewise because of the increasing debt levels and a decline in payments by patients. Consequently, Gordon set out to establish some options that health providers can consider in raising capital to meet their demands. Her suggestions of this extensive subject included the idea that alternative sources of funding such as joint ventures, the sale of assets, capital leases, public grants, and grants from foundations can be applied effectively in instances where the traditional sources of funding are unavailable.

Gordon points out some of the challenges that health providers face such as the need to improve healthcare technology and the requirements for improved quality standards as the primary reasons that push them to seek for financing. She highlights the methods that were traditionally used to access financing such as bonds and commercial lending and why traditional lenders are reluctant to extend their services to the health sector.

The healthcare industry is, however, expected to become more enticing to lenders due to the positive growth patterns that it has experienced over time (Gordon, 2010). Being a pertinent sector of a nation's economy, Gordon's useful insights into how the financial challenges facing the health sector can be solved will certainly go a very long way in reviving the sector which acts as the pillar of a nation.

Effects of True Interest Costs (TIC) on the Costs of Hospital Debt Financing

Carpenter, C. E., & Bernet, P. M. (2013). How the choice of issuing authority affects hospital debt financing costs. Healthcare Financial Management, 67(5), 80-85.

Caryl E. Carpenter and Patrick M. Barnett outline the role played by True Interest Costs on the costs that hospitals incur in their uptake of debt-financing. Quite a number of not-for-profit hospitals have been traditionally using tax-exempt bonds as their primary means of raising capital without the knowledge of the effect that the issuing authorities and the competition among them played in as far as the cost of the debt was involved.

Carpenter and Barnett, through their research into debt financing and its associated costs, were able to establish how to effectively minimize costs by simply controlling the True Interest Costs (TIC). They determined the various factors that influence the amounts of interest paid on the tax-exempt bonds issued by hospitals which range from the characteristics of the bond issued to the characteristics of the underwriter for the bond. The authors outline the effects that bonds issued by statewide authorities and those issued by the local authorities have on the rate of interest attracted by the debt that these hospitals use as a financing tool.

According to Carpenter and Barnett, higher True Interest Costs that debt-financing draws in markets that have a significant number of issuing authorities emanates from increased costs associated with the issuance of the bonds as opposed to high yields (Carpenter & Barnett, 2010). Such information has enabled hospitals and other health institutions make decisions on the best way forward when it comes to financing their operations through debt and how to ensure TICs on the bonds remain at a minimum level.

Capital Structure

Stretcher, R., & Johnson, S. (2011). Capital structure: professional management guidance. Managerial finance, 37(8), 788-804.

Robert Stretcher and Steve Johnson in their article, "Capital guidance: professional management guidance," dissect the various decision options faced by the administration professionals in the establishment of capital structures in organizations.

While making decisions on capital structures to be assumed by an organization, the approach employed should be a practical one as opposed to an approach based on theoretical grounds. Stretcher and Johnson argue that though making theoretical decisions is much more common, such decisions based on perceptions usually face myriad challenges when applied practically in enforcing practical structures. They address the importance of a practicing manager being aware of the role that capital structure plays in their respective institutions. Under a practical approach to the capital structure policy, managers should be aware of the impact that positive debt has over negative debt.

The authors also address the effectiveness of making use of the degree of leverage and debt servicing multiples while making practical decisions as well as appreciating the importance that theory and generalization play in coming up with practical approaches to capital structures (Stretcher & Johnson, 2011).

Consequently, this exposition by Stretcher and Johnson thus serves as a paramount information source for students majoring in finance and managerial studies equipping them with the necessary theoretical and practical skills beneficial to the professional managerial capital structure approach. Their well thought out research and the insights provided therein will, therefore, act as a foundation for more research on the professional capital structure.

References

Carpenter, C. E., & Bernet, P. M. (2013). How the choice of issuing authority affects hospital debt financing costs. Healthcare Financial Management, 67(5), 80-85.

Gordon, D. C. (2010). Squeezing the funding you need from today's capital sources: healthcare providers facing difficulty in accessing capital in today's economic environment still have many options before them, and possibly brighter prospects in the future. Healthcare Financial Management, 64(4), 46-56.

Stretcher, R., & Johnson, S. (2011). Capital structure: professional management guidance. Managerial finance, 37(8), 788-804.

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