Key Financial Drivers That May Cause Health Care Organizations to Merge

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Mergers among financial institutions have been on the rise in the recent past. There are some key drivers that make it necessary for health care organizations to consider merger as a strategy that can promote efficiency in operations. The need to enjoy economies of scale is one of the key financial drivers that necessitate mergers in the health sectors. Managing a small population of patients can be very costly.

Mergers offer a firm an opportunity to increase the population by pooling together clients of two or more health organizations. Another financial driver is the desire to achieve cost efficiency in the management of such institutions. When all the administrative duties are put in a central system, the cost associated with the administration will be reduced. According to Brady and Moeller (2013), mergers also help in reducing the cost of research.

Instead of the research being done by the individual firms, it will always be done from a central point, reducing the cost associated with this process. Finally, some organizations consider this alternative when they are in pursuit of infrastructural development. Improving the infrastructure of a large healthcare institution is less costly compared to the case when different firms have to do this on an individual basis.

Evaluation of Organization’s Financial Performance after Merger

After the merger, it is always necessary to evaluate the financial performance of the organization in order to determine if it is on the right track towards achieving the intended success (Brady & Moeller, 2013). It is important for the financial analyst to choose an appropriate criterion that will give an accurate performance of the organization. The best criteria to use would be to analyze the financial performance of the individual firms before the merger, and the new firm after the merger. As McLean (2010) says, “It is necessary to utilize both the historical and forward-looking financials to see a picture of how the company has performed in the past and how they are expected to perform in the future” (p. 90).

This historic perspective will make it easy to determine the possible future performance of the organizations if the firms had not entered into a merger. With this information, the analyst would need to investigate the current performance of the organization after the merger. The two performances will then be compared. The performance of the new organization should be more impressive than the proposed combined performance of the individual firms if they were to operate independently.

Analyzing the Organization’s Financial Results after the Merger

In order to conduct the evaluation discussed above, it is important to understand some of the determinants that analysts would use to decide whether or not the merger generated financial results for the organization (McLean 2010, p. 56). According to Brady and Moeller (2013), the determinants that would be needed by a financial analyst at this stage are the financial statements that would specifically determine the growth that the organization has experienced after the merger.

The cash flow statement, income statement, and the balance sheet are the key financial statements that will be needed at this stage. When using the income statement, the analyst will be able to determine the profitability of the new company. According to McLean (2010, p. 78), “The revenue line of the income statement illustrates the company’s top-line momentum while the expenses show whether or not the company is using its resources wisely.”

This document will help the analyst to determine the revenue stream and the expenses following the merger and to establish if there are benefits achieved in this process. The cash flow statement will help in determining the liquidity of the organization. One of the main reasons why mergers are considered necessary is to increase the liquidity of the firm. This will ensure that the firm has the capacity to meet its short term obligations. The balance sheet will help in determining the rate at which the debts and assets of the organization has grown following the merger.

Key Factors That Will Drive Financial Planning Process for Most Organizations in the Post-Merger Phase

It is important to understand some of the key factors that may drive the financial planning process in an organization that has just undergone through a merger. One of the main factors that will drive the financial planning is the need to remain accountable to the shareholders of the firm. After mergers, stakeholders are always sensitive of the value of their investment. They need a constant assurance that their investment is not under any threat.

Financial planning does not only ensure that their investment is put into effective use, but it also makes it possible to keep them informed of how the firm is performing. Another factor is the need to integrate various departments that were previously operating independently into one entity. The finance, marketing, customer-care, and other heath units that were previously operated independently will now be managed from a central point. This means that it will be necessary to conduct the financial planning in order to determine how these functions will be integrated in the new organization. The focus will be to undertake these functions using as minimal amount of money as possible.

This planning process will have a positive impact on the organization if it is conducted properly. The new management team will bring together their expert knowledge in order to find the best way of achieving the intended goal using the minimal amount of money possible. As Kaplan (2009) observes, such planning processes always emphasize on how the cost of production can be lowered at each of the operational stage by maximizing on the economies of scale, and eliminating repetitive expenditures.

Argument That Financial Planning Process is of High Value to a Health Care Organization

The healthcare sector has undergone a massive transformation over the years because of the pressure on the sector to deliver high quality products. With the emergence of some complex diseases such as Cancer, H.I.V, Ebola, and Diabetes, this sector has come under intense pressure to improve the quality of their service delivery, and to maintain research in order to be in a position to meet the expectations of the clients. All these activities require proper financing in order to achieve success. In most of the cases, health institutions find themselves financially strained as they struggle to meet their needs using strained financial resources.

It is therefore imperative, that financial planning is considered whenever there are plans to address specific issues within the organization. Financial planning will enable the management understand areas that are in dire need of finances, and areas that can be addressed in future without affecting the quality of operations. This planning process will make it possible to identify the allocation of funds within the firm.

According to Kaplan (2009), financial planning process helps health care organizations to understand the financial allocation as per the requirements of the firm. It is always considered that research is one of the most important investments in the health sector. The infrastructure is also very important in enhancing the quality of service delivery. When planning for the finances of the organization, it will be possible to balance between some of these important requirements in order to avoid cases where one is overemphasized at the expense of others.

Prediction of the Financial Stability of the Health Care Industry over the Next Five Years

According to McLean (2010), the financial sector has experienced growth over the past years, especially due to the emergence of a larger middle class in this region. The population is always willing to pay more in order to ensure that it remains healthy. This means that the market for the health institutions is also rising. The increase in mergers at most of these firms is also a clear sign that they are interested in improving the quality of their service delivery. For this reason, the financial stability of the health care industry is bound to improve over the next five years. This stability will be supported by a large customer base that is always willing to pay more for higher value. The strength gained from the mergers by the health care organizations will also play a role in improving this stability.

References

Brady, C., & Moeller, S. (2013). Intelligent m & a: Navigating the mergers and acquisitions minefield. Hoboken, N.J: Wiley.

Kaplan, S. N. (2009). Mergers and productivity. Chicago: University of Chicago Press.

McLean, R. A. (2010). Financial management in health care organizations. Clifton Park, NY: Delmar Learning.

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