Expanding credit lines article 1 For recovering companies, additional financing for working capital increases would be necessary, but increasingly difficult to come by at reasonable interest rates. During the recession, bank loan commitments were reduced, while mounting losses were financed by utilizing availability under the working capital line of credit. As the economy recovered, liquidity was much tighter while availability was lower. Companies did benefit from the fact that the recovery was slow and, therefore, rapid working capital requirements often associated with growth did not materialize. Ultimately, the recovery has led to companies needing expansion capital but finding it hard to come by. Many companies facing this exact situation have turned to MorrisAnderson to discuss ways to improve liquidity and availability for credit. The squeeze on expansion financing was particularly difficult for companies that had recently experienced poor results and earnings, but had turned the corner and were trying to expand. The issue for lenders, of course, is that, in order to accurately approve a company for expansion financing, they needed to gain a holistic look at the company's past performance and projections for future growth to understand both the benefits and risks involved in expanding credit lines. Starting in 2008 or 2009, financial institutions began consolidating and being much more stringent and selective in the expansion financing process - doing so because the demand for capital was plentiful, regulation was heightened, while the credit risk was increased. As a result, many lenders needed to determine - particularly with accuracy -whether a potential borrower was economically stable enough to have its lines of credit increased. Lenders have frequently turned to turnaround restructuring firms to help with distressed clients (from The Secured Lender's October 2009 issue, "Restructuring and workout consul THE SECURED LENDER OCTOBER 2013 29 tants are still finding their hands full as lenders pull them in to help with troubled clients") but also for independent assessments on the ins and outs of a company's expansion plans and provide guidance on financing options. Considerations for Expansion Financing: A Checklist It's essential to regularly assess a company's issues, opportunities and overall viability. When assessing expansion financing and lending options, consider the following checklist: > What are the company's specific expansion plans and projected timeline? I What are the financial projections? > What is the projected cash flow? I What are the capital expenditures and projected timing on return on investment? > When does the company expect to realize profitability? > Does the company have a solid base from which to expand? I Will the company be able to maintain a high level of quality products/services? t What resources are being dedicated to product and process improvement? > Will management be able to maintain control duri.

1. Expanding credit lines article 1
For recovering companies, additional financing for working
capital increases would be necessary, but increasingly difficult
to come by at reasonable interest rates. During the recession,
bank loan commitments were reduced, while mounting losses
were financed by utilizing availability under the working capital
line of credit. As the economy recovered, liquidity was much
tighter while availability was lower. Companies did benefit
from the fact that the recovery was slow and, therefore, rapid
working capital requirements often associated with growth did
not materialize. Ultimately, the recovery has led to companies
needing expansion capital but finding it hard to come by. Many
companies facing this exact situation have turned to
MorrisAnderson to discuss ways to improve liquidity and
availability for credit. The squeeze on expansion financing was
particularly difficult for companies that had recently
experienced poor results and earnings, but had turned the corner
and were trying to expand. The issue for lenders, of course, is
that, in order to accurately approve a company for expansion
financing, they needed to gain a holistic look at the company's
past performance and projections for future growth to
understand both the benefits and risks involved in expanding
credit lines. Starting in 2008 or 2009, financial institutions
began consolidating and being much more stringent and
selective in the expansion financing process - doing so because
the demand for capital was plentiful, regulation was heightened,
while the credit risk was increased. As a result, many lenders
needed to determine - particularly with accuracy -whether a
potential borrower was economically stable enough to have its
lines of credit increased. Lenders have frequently turned to
turnaround restructuring firms to help with distressed clients
(from The Secured Lender's October 2009 issue, "Restructuring
and workout consul
THE SECURED LENDER OCTOBER 2013 29

2. tants are still finding their hands full as lenders pull them in to
help with troubled clients") but also for independent
assessments on the ins and outs of a company's expansion plans
and provide guidance on financing options.
Considerations for Expansion Financing: A Checklist It's
essential to regularly assess a company's issues, opportunities
and overall viability. When assessing expansion financing and
lending options, consider the following checklist: > What are
the company's specific expansion plans and projected timeline?
I What are the financial projections? > What is the projected
cash flow? I What are the capital expenditures and projected
timing on return on investment? > When does the company
expect to realize profitability? > Does the company have a solid
base from which to expand? I Will the company be able to
maintain a high level of quality products/services? t What
resources are being dedicated to product and process
improvement? > Will management be able to maintain control
during the period of growth? > Will management be able to
maintain focus on employees as well as client needs?
Below is a recent case study to illustrate the above checklist in
action.
Case Study: Medical Device Contract Manufacturer The
Challenge The client, a medical device contract manufacturer,
had historic annual revenues of S30 million with a $5 million
EBITDA. In 2011, the company agreed to build a manufacturing
facility in Asia and transfer some IP to its largest customer,
representing 40% of its revenue. The company and its equity
sponsors were comfortable with the negotiated purchase price,
the transfer of production and construction of the new facility
was expected to take 12 months and they planned on replacing
the lost revenue by the time the transfer took place.
Unfortunately, the construction of the new plant in Asia, for
unrelated reasons, took 18 months to complete and new business
took longer than projected, leaving the company with an SG&A
structure they might have, otherwise, reduced sooner.
Additionally, two new customer product launches had start-up

3. issues, resulting in losses (adding to the burden of SG&A from
the Asian contract) and expansion plans in its Caribbean
operation were costly, resulting in 2012 EBITDA being reduced
to Si.2 million. On a positive note, the company was approached
by a multi-billion dollar medical device company to transfer the
production of one of its products that, once implemented, would
result in $20 million of annual revenue at a 22% gross margin.
When the company approached its bank regarding the new
business and the need for additional expansion financing, the
loan was transferred to the bank's restructuring group. The
company was highly leveraged, based on the 2012 EBITDA, and
the loan officer asked the company to hire a turnaround firm to
review the project and recommend a financing solution.
The
Solution
During the one-month assessment period, it was evident that
the company was well positioned for rapid growth. Company
management dedicated significant resources to product
development and product improvement, while still maintaining
high quality. The company's focus on client needs and service,
while maintaining open book accounting, was very attractive to
its existing and potential clients. The company had always
manufactured some products in the Caribbean and had built a
base of employees and management from which to expand.
The favorable labor rates and relative proximity to their
headquarters in the US provided the company with a cost
advantage, while allowing them to monitor and maintain high

4. quality control. The issue, though, is maintaining the high
quality and profitability during these rapid growth periods and
management was concerned if they had the proper controls in
place. The turnaround firm identified the weaknesses in their
corporate structure, management ranks and reporting, and the
company was quick to embrace the recommendations for
improvement. By this time, the reasons for the new product
launch losses had been identified, corrected and eliminated.
More importantly, the new $20 million product was being fast-
tracked and the company needed financing in place for the june
2013 new product launch.
The Result The turnaround firm worked with management to
develop integrated financial projections for 2013 and 2014.
While earnings were improving, real profitability would not be
realized until Q3 2013. The construction of another new
Caribbean facility and the anticipated working capital squeeze
required an additional S6 million. The turnaround firm
identified numerous financing options for the company and the
bank to consider. It quickly became evident that the bank's
restructuring group was not in the position to provide the
additional $4 million of construction financing that was
required plus $2 million for working capital.
The issues were twofold: I The company's weak earnings during
2012 were not enough to cover the term debt outstanding and
the fact that the new facility would be located in the Caribbean

5. made it difficult for the bank to lien the property. > The bank
also expressed interest in providing the additional working
30 THERE IS STILL TIME TO REGISTER FOR CFA'S
ANNUAL CONVENTION, WWW.CFA.COM
capital funding, but would need the results through June 2013
before finalizing a commitment.
In order to finance the construction costs, the company reached
out to its private equity partners for new capital. The equity
partners expressed concern regarding the bank's position, but a
forbearance agreement brokered by the turnaround firm
provided the comfort they needed. The company was also able
to push back some of the timing of its construction payments to
ease the cash burn as sales and profitability improved during Qi
2013. The company was also able to purchase some inventory
with extended payment terms that would also improve liquidity.
Finally, the company began to explore alternative lending
options that would provide it with the working capital necessary
during the start-up phase of its new project. The turnaround
firm projections demonstrated that the working capital squeeze
would reverse by January 2014 but short term liquidity would
be an issue. The financing was viewed as a bridge to January
2014, when new financing would be established, resulting from
the improved operating results. Having the projections in hand,
all parties were able to easily assess the risks and the timing of
completing the turnaround.

6. interest rates) to support the growth. The difficulties that most
companies experienced between 2008 and 2011 have made
historical financial performance an albatross around their necks
as they emerge while trying to expand. As a result, companies
are in need of strategic reviews to ensure they will be prepared
for the liquidity required to succeed as they expand. At the
same time, lenders require independent assessments of past
performance and projections for future growth, as well as an in-
depth analysis and understanding of the risk associated with the
expansion of credit lines beyond current levels, TSL
Steve Agran is a managing director at MorrisAnderson. Steve
has spent more than a decade providing turnaround and interim
management services to middlemarket companies. He also has
experience handling liquidation and asset sales, budgeting and
cash flow for distressed and failing companies and
bankruptcies. Steve is an ABI member, a Certified Public
Accountant (CPA) and a Certified Insolvency and Restructuring
Advisor (CIRA). He can be reached at sagran®
morrisanderson.com
Conclusion As was done with our Medical Device Contract
Manufacturing client, the turnaround firm was able to provide
an independent assessment that helped the bank and other
interested parties better understand the company and its
expansion financing requirements, while helping the company
review its processes and better understand its borrowing needs.

7. Without a doubt, the current environment in commercial lending
still makes it difficult for growth companies that are re-
emerging from the recession to obtain increases to their lines of
credit (at reasonable
THE SECURED
New break analysis article 2
IT’S TIME TO EXPAND THE SCOPE AND ASSUMPTIONS
OF THE TRADITIONAL BREAK-EVEN ANALYSIS.
At a Glance Changes in the economic and legislative
environment have complicated the capital acquisition landscape.
Hospitals and health systems should: Question the assumptions
that underlie their break-even analysis Revamp the break-even
calculator Engage in discussions about the clinical aspects of
equipment and technology acquisition decisions
Hospitals and health systems that contemplate an investment in
new equipment or technology typically estimate procedure
volume, payment rates, and the useful life of the equipment to
determine how long it will take to recoup that investment. That
information has allowed these organizations to make reasonably
accurate revenue projections for purposes of conducting a
break-even analysis and making a capital acquisition decision.
But changes in the economic and legislative environment are
complicating the capital acquisition landscape. These
environmental changes are making it imperative for break-even
calculators to evolve based on new assumptions and for

8. providers to start having in-depth discussions about
nonfinancial factors as a routine part of their breakeven
analysis. Assessing the New Backdrop Many trends that are
reshaping the healthcare environment have a direct effect on
equipment and technology decisions. Outcomes-based payment.
As payment is increasingly linked to outcomes, providers are
considering investments in technologies with proven clinical
benefits that can help reduce length of stay, improve patient
safety, and reduce readmissions. Population demographics. As a
prerequisite to determining how to reduce costs of care while
managing population health, providers are seeking to better
understand the demographics, health status, and projected health
utilization of the populations in their service areas. The
changing nature of competition. As hospitals consolidate and
health systems get bigger, these organizations are becoming
sensitive about competing with other providers within their own
networks (geographical competition), especially when it comes
to acquisition of expensive, cutting-edge imaging or surgical
technologies. The pricing package. Realizing that it is difficult
to commit to capital investments during times of change,
vendors have become increasingly sophisticated at shifting
prices and revenue among capital, consumables, and service,
seeking to maintain perceived equipment affordability up-front
while locking in downstream revenues and margins. Therefore,
providers should move beyond capital considerations and

9. include discussion of service contracts and the cost of
consumables over the lifetime of the equipment in their
negotiations with vendors. Against that backdrop, the new
break-even analysis may consider four main factors:
Cost Utilization Payment and margins Clinical considerations
Cost Although capital outlay typically represents a large
percentage of up-front costs associated with a new technology,
other expenditures also should be considered when projecting
true costs or comparing technologies. These include the cost of
capital, labor, consumables, service, and length of stay (LOS).
Capital. With the exception of unique technologies, today’s
healthcare supply-side marketplace is very competitive.
Multiple configurations, installation, and discounting have
resulted in significant variations in pricing, making pricing less
transparent. Health systems have begun to pool their purchasing
power to achieve price concessions from vendors. Even though
capital cost increases have tracked closely with the consumer
price index, expenses are shifting to consumables and service.
Vendors are beginning to make technologies more dependent on
consumables, thereby increasing the overall cost of a
technology. It is therefore important to consider consumables
and service when developing a business plan for a new
technology. Labor. Labor can be one of the most significant
cost factors in a break-even analysis. Labor is a key cost factor
for any clinical technology or IT investment. Overall, labor—

10. including benefit costs—makes up approximately 50 percent of
a hospital’s expenses. This portion includes overhead labor,
such as administrative and medical records staff, which can add
10 to 20 percent to the cost of a test or procedure, as well as
clinical labor. Although vendors are developing less labor-
intensive technologies designed to promote efficiency, these
technologies do not always translate to reduced labor costs.
Consumables. Consumables represent the next largest line item
for hospitals. Sixty percent of a hospital’s consumables fall into
the areas of cardiology, pharmacy, and surgery, which thus have
a large impact on cost per patient or procedure. Along with
physician preference items and supplies, many consumables that
are dedicated to a capital purchase should be taken into
consideration. For example, imaging dyes can range from $40 to
$80 per patient, which translates to a cost of $100,000 to
$200,000 per year for a hospital that does, on average, 2,500
imaging studies per year. Some consumables have a low unit
cost, but their high volume results in significant expenditures.
For example, infusion pump tubing may cost only $8 per
patient, but a facility with 100 pumps would spend more than
$160,000 per year on tubing alone, assuming an average of 200
patients using each pump annually. Consumable costs can vary
dramatically between vendors and technologies. Many vendors
tie their capital technologies to specific consumable revenue
streams. Be aware that some vendors use the “razor/razorblade”

11. model, in which the capital outlay for a piece of equipment is
relatively low, but the buyer is then locked into buying a steady
stream of disposables from that vendor. The consumable costs
of basic standard-of-care technologies, such as IV therapy and
pulse oximetry, are far higher over their lifetime than the
original capital outlay. In the clinical laboratory arena,
consumables represent a $7.8 billion market per year, dwarfing
the capital side. Advanced systems, such as robotics or lasers,
add a premium to their consumables in the form of a per-patient
royalty. These costs should be determined up front. Service.
Service can have a significant impact on overall equipment and
technology costs over the equipment’s life cycle. Each year, the
healthcare industry spends more than $14 billion providing
service on medical technology, accounting for 3 to 7 percent of
original technology costs per year. For low-utilization
technologies, that can determine whether a break-even point is
reached over the lifetime of a purchase.
To put this in perspective, the service cost for a $200,000
ultrasound machine is more than $10,000 per year. Based on a
five-year life, this amounts to a $40,000 line item or 20 percent
of the equipment costs. For other systems such as a CT scanner,
MRI scanner, or instrument washer, service can account for 40
percent of total cost. Given the high-tech, software-driven
nature of current medical technology, service costs have been
increasing. Multiple service options are available; the key for

12. the hospital is to balance the dual objectives of reducing costs
and safeguarding outcomes. The manufacturer’s full-service
contract represents the high end of service costs. It is generally
best to figure half or two-thirds of the manufacturer’s service
contract cost when creating a budget. In lieu of service
contracts, hospitals may use their in-house clinical engineering
staff to service equipment or may elect to pay for service on a
time-and-materials basis. LOS. Technology developers are
concentrating on less invasive technology that has the potential
to reduce operating room (OR) time, recovery time, and LOS.
The challenge is determining the extent to which a new
technology actually does reduce LOS and OR time. Peer-
reviewed journals are an excellent resource for determining how
a technology can affect LOS and OR time. Factoring in LOS or
OR times can be tricky as pricing standards in the industry can
vary. In general, for inpatient procedures, the patient’s
projected LOS should be based on the geometric LOS for each
DRG provided by the Centers for Medicare & Medicaid Services
(CMS). A good guide for internal cost is $500 per day for
nursing units and $1,200 to $3,000 for critical care, with the
high end of the critical care range representing patients
receiving ventilator support. For outpatient procedures, $600
represents a good high mark for a 23-hour stay, and for less
than 23 hours, fractions of that amount can be used. The
standard value for the cost of OR time is approximately $30 to

13. $50 per minute, taking into account the cost of room, light,
tables, and support services, although for cardiovascular
procedures, per-minute cost can be $60 or more. For outpatient
centers, it is usually slightly lower. Utilization Utilization has a
direct effect on break-even points and profit margins.
Traditionally, utilization projections have come from physician
input and historical data, but projecting a break-even point
offers a more effective way to determine utilization. It reverse-
engineers utilization by taking cost and revenue numbers and
calculating how many procedures must be performed for a new
technology to yield a profit. This can help a provider determine
the financial viability of a particular technology based on its
own numbers. It should not, however, be used to set a target
volume the hospital needs to meet in order to make a technology
affordable. Under the Taxpayer Relief Act of 1997, CMS has
tied payment rates for high-end imaging (e.g., CT, MRI,
positron emission tomography) to utilization. In 2010, the
utilization rate requirement was increased from 50 percent to 60
percent. To receive full payment in 2013, hospitals will have to
use their systems 90 percent of the time. To put this into
perspective, a facility that would have needed 4,000 patients per
year under the 50 percent rate to achieve break-even status
would need 7,000 patients per year under the 90 percent rule.
Technology life expectancy. Equipment lifespan is an important
data point for determining the viability of a technology. Most

14. facilities use the American Hospital Association’s Guide to the
Estimated Useful Lives of Depreciable Hospital Assets as a
benchmark. This guide, which was published in 2008, projects
the life of an asset until a major upgrade is required. However,
there are discrepancies between the published numbers and real-
world experience. For example, the guide rates the life
expectancy of robotic equipment at seven years, but we have yet
to see a system in place more than five years without a major
upgrade. In our survey research, most CFOs target a payback
period of one to two years, well below the projected life of the
equipment.
Payment and Profit Margins The Affordable Care Act includes
two key provisions—“never events” and payment reductions for
readmissions —that now tie payment to outcomes and allow
CMS to impose steep financial penalties on providers. Such
outcome-based payments can make projecting revenue from a
technology more complicated as they are really cost-avoidance
considerations and not as straightforward as other components
in the break-even calculator. Average CMS payment provides a
good guide when determining the effect of payment on a
purchasing decision. Although Medicare payment historically
reflected a worst-case scenario, private payers no longer
reimburse at significantly higher levels than Medicare; in some
geographic locations, private payer reimbursement may even be
lower than Medicare rates. Clinical Considerations As CMS

15. transitions from volume-based to outcomes-based payment,
hospitals are seeking ways to deliver better care while holding
the line on costs. Value analysis teams working across
department lines now consider the impact of any new
technology decision on LOS, infection control, and hospital
readmissions. In addition, providers should address population
and geographical concerns, which dictate payment and volumes
for specific procedures. Competition is an important factor; not
every urban center can support multiple specialized physician
practices or specialized technology such as robotic surgery
systems, proton beam therapy, and hybrid ORs. Population
demographics. Although population demographics often are left
out of discussions about new technology acquisitions,
demographics are highly relevant to technology decisions. In
areas that serve a large percentage of non-Medicare patients,
labor and delivery is likely to account for the top six of the 10
most common DRGs. In comparison, providers that serve a high
percentage of Medicare patients find that pneumonia, chronic
obstructive pulmonary disease, heart failure, and joint
replacement are among the most common DRGs. Geographic
competition. In addition to competing with other providers for
patients and for physician services, hospitals and health systems
need also be sensitive about competing within their own
networks. Major capital purchases at the corporate level that
impact an entire service line should now take into consideration

16. not only a hospital’s traditional geographic service area but also
how the purchase will affect the network or hospital system. A
break-even calculator that takes into account financial and
clinical considerations is a valuable tool that can allow a
hospital to strategically invest in technology that can combine
improved outcomes, efficiency, and margins in a way that is
right for a particular hospital or health system, as the examples
in the following sections show. The Example of Robotics
According to a robotic surgery equipment manufacturing report,
industry revenue derived from robotic treatments is projected to
increase at an average annual rate of 14.9 percent to $4.2 billion
from 2011 to 2016 (IBISWorld, Robotic Surgery Equipment
Manufacturing in the U.S.: Market Research Report, October
2011). Both soft tissue and orthopedic robotic treatments
therefore should be key areas of interest for hospital
administrators. Utilization of robotic surgery for knee and hip
replacements is of particular relevance, given that 719,000 total
knee replacements and 332,000 total hip replacements were
performed in the United States in 2010, according to the Centers
for Disease Control and Prevention/National Center for Health
Statistics 2010 National Hospital Discharge Survey.
Treatment options, including robotic surgery, image-guided
surgery (IGS), and manual techniques, vary in terms of
durability. Studies have found that alignment errors greater than
3 percent in artificial knee procedures are associated with

17. implant failures. Conventional manual techniques had a nearly
32 percent chance of a greaterthan- 3 percent misalignment,
while this number decreased to 9 percent in cases when an IGS
was used. In contrast, surgical orthopedic robots were able to
achieve consistent alignment. This translates into a more
durable procedure. As a guide, using IGS technology and
standard implant pricing, a hospital that performs 240
procedures per year over a five-year period could net more than
$2 million in profits, as shown in the exhibit on page 92. In
contrast, a provider with the same procedure volume using
robotic technology would lose $285,000 over that period. To
break even using robotics, a hospital would have to perform 300
procedures per year. At first glance, it would appear that
orthopedic robotic technology is not the best approach, from a
financial standpoint. However, unlike IGS, robotic surgery is an
appropriate treatment option for younger patients, which should
translate into higher utilization rates. Such considerations
should open up an important discussion about the effects of
patient demographics and geographical considerations when
selecting technology. In an area with a high Medicare patient
population, IGS might be ideal. In an area with more young
patients, robotic surgery would be a more viable option—in part
due to the high accuracy of robotic surgeries, which extends the
life of the implant. Robotic technology also can perform custom
partial knee resurfacing, giving younger patients an option other

18. than joint replacement for surgical treatment of arthritis. It
should be noted that robotic surgery is still in the early stages
of application and might not be suitable for every hospital in a
network. Exhibit 1
The Example of Prostate Surgery For years, transurethral
resection of the prostate (TURP) was the standard of care for
benign prostatic hyperplasia (BPH), a common condition in
older men. The early 1990s saw the introduction of the Nd YAG
laser as a treatment option for BPH and by the mid-2000s,
photoselective vaporization of the prostate (PVP) through the
KTP laser became available on the market. Compared with
TURP, PVP represented a considerable investment in capital
and consumables. Studies also have found that although PVP
has a slightly longer procedure time, both YAG and TURP
require a longer LOS and catheterization time. When PVP first
hit the market, CMS reimbursed the technology at a rate more
than twice that of TURP because PVP resulted in fewer
complications, such as bleeding during surgery, erectile
dysfunction, and urinary incontinence after surgery, than TURP.
Today, under Ambulatory Payment Classification (APC) 429
(laser surgery of the prostate), payment for PVP is $3,261. By
comparison, the total cost of TURP ranges from $2,400 to
$2,800 under APC 163 (prostatectomy with TURP), which gives
providers the potential to generate margins of $230 per case
based on 200 procedures per year for five years. Based on these

19. numbers, PVP would generate far smaller margins ($100,000)
over five years than would TURP ($305,000) as a result of the
lower cost of consumables associated with TURP. PVP would
also generate smaller margins than the YAG laser ($709,000),
making the use of PVP questionable from a financial standpoint,
as shown in the exhibit below. Exhibit 2
Although these numbers seem to make a case for TURP or
YAG, patient outcomes and patient satisfaction also play a
factor in payment and utilization of any technology. The
superior clinical outcomes associated with PVP open up this
procedure to a larger volume of patients. Additionally, the
lower incidence of complications for minimally invasive laser
procedures has driven informed patients to push for use of these
procedures. However, a single facility may not be able to hit the
PVP break-even point of 120 patients per year. In this case, a
business plan based on multiple facilities feeding into one
geographic center of excellence might be the answer. Expanding
the Framework As the contribution of equipment and technology
to patient outcomes is called into question, hospitals and health
systems will want to expand their break-even analysis to take
the full range of financial and nonfinancial factors into
consideration. It is incumbent on healthcare finance leaders not
only to expand their break-even calculators to include the
quantifiable factors, but also to engage in discussions about the
role of a new technology or equipment in an increasingly value-

20. based world.
Capital Management
Lorie Lor
Financial Management of Health Care Organizations
April 25, 2019
Capital Management
Article review #1
Discuss why is it more difficult for healthcare companies to get
expansion financing in the current economic situation?
It was much harder for some healthcare companies to get
expansion financing because financial lenders became stricter
and carefully looked at who they lent money to after an
economic recession occurred. The recession was one of the main

21. factors that many healthcare organizations were in financial
trouble. Starting after 2009, financial lenders started to really
investigate into the history of their potential clients. They
would look at an organization’s previous performance ratings
and if the given the loan, if positive prospected growth would
occur. One reason why an organization could have a harder time
getting a loan for expansion could be due to their poor
operations previously or because they yielded earnings that
were not satisfactory. Lenders are less at risk to borrow money
to an organization who has had better operating performance
because it would yield better earnings; thus they know that the
organization would be in a better position to pay back their
financial obligations.
Explain the 2 major issues with the Caribbean expansion the
turnaround company found and why do you think they were
brought up?
The two major issues with the Caribbean expansion was the
company’s earnings in the year 2012. The earnings they made in
2012 was not enough to pay their current remaining debt. The
bank wanted results for earnings through mid 2013 before
committing to fund the expansion. Also, since the new
expansion would be located far away, the bank was concerned
about being able to put a hold on the new property. I think the
reason these two issues were brought up is because if the
medical device company is not in the position to pay back their

22. outstanding obligations, the lender would be at risk of losing
money and that it would not be favorable. Also, as the
expansion of a new building is being built in the Caribbean, it is
not exactly in the United States. Depending on what territory
the building is being built on, there could be different
regulations that could hinder a smooth transaction should any
problem arise in the future. I believe that hiring a team to focus
on problems with this transaction would be costly and time
consuming.
Describe why healthcare companies need to look beyond their
banks to secure financing?
Healthcare companies need to look beyond their banks to secure
financing because banks can only lend up to a certain amount.
Once the given amount has been exhausted, they cannot take out
more loans and it would be extremely difficult to convince them
otherwise. By having other financing secured such as private
investors, they can secure additional funding for other expenses
such as machinery or supplies. Without these other sources,
healthcare companies cannot go on because machinery or
supplies are the main sources that generates income and not the
building itself.

23. Article review #2
Do you think the authors make a good case for expanding
healthcare providers' methods of calculating break-even
analysis? Why or Why Not?
I think that the author brings in a good case for expanding
healthcare provider’s methods of calculating break-even
analysis. The author talks about four elements that can be used
to figure out when and how an organization can calculate or see
when they are in the “middle” and the starting point where they
will start potentially seeing profits. These four elements are
cost, utilization, payment and margins, and clinical
considerations. It is important to consider cost because this is
the first information an organization would need to know in
order to figure out when they can break-even and their Internal
Rate of Return. Sub-categories of cost include consumables and
service, with consumable materials needed to run a new
technologies and service needed to keep the technology up and
running. The element of utilization is needed be taken into
account also. Utilization plays a big part of bringing in the
income. The more a technology or machine is used, the more
income it can bring in for a company though the depreciation
also has to be considered also. Payments and clinical
considerations also influence income such as the cost they can
receive for a procedure and the training of staffs. These four

24. elements are essential to accurately determine a break-even
because one thing alone cannot accurately determine a point of
profitability and it can only be assumed if these 4 elements are
not taken into consideration.
Discuss non-financial factors do the authors believe need to be
included in break-even analysis?
Some of the non-financial factors that the author believes that
need to be included in a break-even analysis are demographics,
health status, populations, and patient satisfaction. I think that
the author is right because if a company cannot determine what
kind of population they are serving, then they cannot align their
services or won’t know what machines they need to invest in to
adequately provide healthcare to their patients. One example
could be that because certain race, gender, or age can have more
of a common illness than another. By determining if their
population is more concentrated with one or another, they can
better equip their company with the right tools such as training
or machinery. A great example would be if the population they
are serving has a greater concentration of female over the age of
40, they can determine that investing in a mammogram machine
would be a beneficial investment and that break-even would not
be an issue in the future.
Explain how the Affordable Care Act affect break-even
analysis?

25. The Affordable Care Act affects the break-even analysis
because they have strict guidelines that a healthcare
organization would have to adhere to if they do not want to be
penalized. The ACA will reduce payments for patients who are
readmitted for the same illness, thus the healthcare organization
would still have to treat the patient fully but will not receive
money at the full amount as the first admission treatment. When
money is not reimbursed or only reimbursed at less than the full
amount, this slows down the income that the organization could
have received. Services that were rendered but not reimbursed
would be considered written off services and this makes it more
difficult to reach the break-even point. This forces the company
to make sure they treat the patient correctly the first time
around. Also, the ACA’s “never event” rolled out which made
medical mistake non-reimbursable because those events or
procedure should have “never” occurred such as wrong blood
type transfusion or surgery in the wrong area of the body
(Torrey, 2018).
Ethical Scandal
How does professionalism and ethics influence decision-
making?
Ethics influence decision making every day in healthcare and
other daily living situations. Sometime ethics is not really
noticeable to a person when they are in the moment behaving
ethically or unethically unless they think of it afterwards. I

26. believe greed can definitely make a person or company
unprofessional and therefore their integrity to being ethical is
compromised. I believe that to behave ethically is to do the
right things for the right reasons. An example of a company
behaving unethically was when generic intravenous medications
became scarce due to no profits, pharmaceutical companies did
not want to produce these as there were no real incentives for
them (Larson, 2013). I think that the pharmaceutical company
was acting in its own interest and not the interest of the general
population.
How do unethical standards impact an organization's
performance and capital investments? Reference the concepts of
embezzlement and losses.
Unethical standards can impact an organizations performance
and capital investments negatively. Things that could be
impacted would be losing good employees and patients,
receiving lawsuits, loss of revenue, and ultimately being shut
down if unethical behavior is bad enough. Some example could
be a financial officer spending an organization’s money for
personal use, not spending money on its intended purpose as
agreed, embezzling money out of the company but reporting
high profits or making risky deals to cover up the unethical
behavior such as the executives in the Enron Scandal (Thomas,
2002). These two situations could lead to loss of financing or
investor funds which can lead to a shutdown of a company

27. which was the case for Enron.
Explain how you maintain ethical standards in relation to Code
of Ethics.
I maintain ethical standards by doing what is right for the right
reasons and not base on my personal interest or gain. I maintain
professional ethics by respecting the differences among the
different company standards and goals and co-worker’s religion
I’ve worked with before. I do not disclose private and personal
information for personal gain. Another great example is that I
do not fraud my company of working hours for income gain as
acting ethically will gain the trust of my company more than
anything. I believe behaving ethically gives me a sense of pride
of who I am and what I represent as a person of this community.
References
ACHE. (2015, November). Creating an Ethical Culture Within
the Healthcare
Organization. Retrieved April 25, 2019, from American
College of Healthcare
Executives website: https://www.ache.org/about-ache/our-
story/
our-commitments/ethics/ache-code-of-ethics/
creating-an-ethical-culture-within-the-healthcare-
organization

28. ACHE. (2016, November). Ethical Decision Making for
Healthcare Executives.
Retrieved April 25, 2019, from American College of
Healthcare Executives
website: https://www.ache.org/about-ache/our-story/our-
commitments/ethics/
ache-code-of-ethics/ethical-decision-making-for-healthcare-
executives
ACHE. (2019). ACHE Code of Ethics. Retrieved April 25, 2019,
from American
College of Healthcare Executives website:
https://www.ache.org/about-ache/
our-story/our-commitments/ethics/ache-code-of-ethics
Agran, S. (2013, October). Expanding Credit Lines in Order to
Expand: Assessing
a Company's Viability for Expansion Financing. Retrieved
from EBSCO
MegaFILE database. (Accession No. 91512447)
Larson, J. (2013, March 6). Five Top Ethical Issues in
Healthcare. Retrieved
April 25, 2019, from AMN Healthcare website:
https://www.amnhealthcare.com/

29. latest-healthcare-news/five-top-ethical-issues-healthcare/
Laskaris, J., & Regan, K. (2013, December). The new break-
even analysis.
Retrieved from MEDLINE with Full Text database.
(Accession No. 24380255)
Thomas, W. (2002, March 31). The Rise and Fall of Enron.
Retrieved April 25,
2019, from Journal of Accountancy website:
https://www.journalofaccountancy.com/issues/2002/apr/theri
seandfallofenron.html
Torrey, T. (2018, October 2). Medicare's Never Events Policy
There's More to It
Than Just Patient Safety. Retrieved April 25, 2019, from
Very well health
website: https://www.verywellhealth.com/
what-is-medicares-never-events-policy-2615384