Change Proposal for Healthcare Organizations

Introduction

Major Forces

Modern healthcare is a complicated system affected by numerous factors and stakeholders. After the Affordable Care Act of 2010 has taken effect, healthcare organizations need to become accountable care organizations to stay competitive. This implies that organizations transition to value-based reimbursement instead of the Fee-For-Service model. While managing the internal change, care providers are also forced to deal with cultural and business-related forces affecting healthcare. Thus, managers of healthcare organizations need to appreciate the complexity of forces affecting healthcare delivery today.

While these forces are numerous, the present paper will consider only six of them. First, recent research demonstrated that more than 80% of US citizens are dissatisfied with their healthcare experience (Brook, 2016). With the current push to patient-centered care, winning the acknowledgment of customers is central to the success of healthcare organizations. Second, the rapid aging of the population also affects the wants and needs of customers, which requires care providers to change their priorities (Brook, 2016). Third, the shift from treating sicknesses to managing the health of the population also affects the decisions healthcare managers make (Sousa & Gomes, 2019). Fourth, healthcare delivery is highly dependent on the availability of frontline medical personnel, such as nurses and physicians (Sousa & Gomes, 2019). Fifth, the complexity of healthcare delivery increases, as medical facilities, doctors, insurers, and pharmaceutical companies need to communicate constantly (Brook, 2016). Finally, healthcare is affected by the rapid introduction of digital tools that increase convenience (Brook, 2016). In order to keep pace with shifting trends in major forces, managers of healthcare organizations need to maintain a culture of constant improvement.

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Impact of Forces

All the forces described above pose various difficulties and opportunities for health care managers. Customer dissatisfaction may lead to significant customer outflow, which may lead to the decreased financial stability of organizations (Brook, 2016). However, this implies that managers may attract customers from other hospitals that fail to hear the wants and needs of patients. Care providers also need to adapt care delivery taking into account the needs of the aging population. According to Lakin and Burke (2019), older adults often have numerous chronic conditions, such as substantial physical, cognitive, communication, health, and other impairment. Managers of healthcare organizations need to create incentives for employees to help the older persons plan their post-working years’ lifestyle, identify and secure the needed supports, manage polypharmacy, deal with grief and end-of-life issues, and avoid loneliness and isolation (Lakin & Burke, 2019). Addressing the complex needs of older adults may help hospitals win more customers, which can be transformed into financial security.

The shift to care for population health is associated with the high ambiguity of standards. In general, a step away from treating sicknesses means a larger focus on preventive care, which helps patients to stay healthy and avoid the conditions becoming overly complex (Sousa & Gomes, 2019). This implies that managers need to utilize the latest guidelines provided by the US Preventing Service Task Force using the latest evidence. The shortage of frontline personnel, such as nurses and physicians, is associated with high turnover rates. In healthcare, turnover is caused by dissatisfaction with the current workplace, increased workload, stress, and low pay (Farahani et al., 2016). Thus, the high mobility of front-line workers enables managers to use the best practices in human resource management to attract and retain the best professionals.

The rising complexity of care delivery leads to decreased reimbursement rates and confusion of patients and other stakeholders. According to Brook (2016), 43 million Americans have unpaid medical debt caused by the fact that patients do not know what they need to pay for. However, the promotion of transparent and comprehendible billing practices may decrease the confusion and bad debt. Finally, the adoption of the latest IT advances may lead to increased availability and decreased cost of care. However, inefficient adoption of the latest technology may lead to patient outflow, low quality of care, and confusion of the medical staff. In summary, the forces affecting the delivery of care are associated with potential problems and opportunities for healthcare managers.

Opportunities

The present paper aims at analyzing the opportunities that apply to AdaptHealth Corp. AdaptHealth Corp. is a leading provider of home healthcare equipment, supplies, and related services in the United States (Security and Exchange Commission [SEC], 2020). The company focuses on producing sleep therapy equipment, home medical equipment, oxygen therapy services, and other types of equipment (AdaptHealth Corp., n.d.). The company serves more than 1.4 million patients annually using a network of 187 locations in all 50 states. The company generated almost $530 million in net revenues in 2019 in comparison with $345 million in 2018. Thus, the company’s financial performance is steady; however, further, development is needed to sustain growth.

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Since AdaptHealth Corp. is not a care provider not all of the forces affecting the delivery of healthcare influence the organization. In particular, the shortage of frontline employees does not influence the performance of the organization directly. However, it may be affected indirectly since more patients choose to continue care at home. Thus, the demand for devices produced by AdaptHealth Corp. may be increasing. However, no research on the matter was conducted to confirm the idea.

The major forces affecting AdaptHealth are the aging population, customer dissatisfaction, and demand for highly technological solutions. The company’s business is based upon serving the aging population, as the company’s products are used for numerous chronic conditions (AdaptHealth Corp., n.d.). At the same time, the company uses the latest innovation in different technologies to provide top-quality products and services (SEC, 2020). However, the company’s performance in terms of customer satisfaction is poor. According to the Better Business Bureau (BBB, 2020), customer reviews in 2020 were very low due to extended delivery time and a lack of available customer support. Therefore, it is appropriate to focus on patient satisfaction as the primary driving force affecting the delivery of healthcare services by AdaptHealth Corp.

Proposal

The analysis of the organization demonstrated that the top concern for the organization us the dissatisfaction of patients. According to BBB (2020), the primary factors that affect customers’ satisfaction with AdaptHealth Corp. are the lack of customer support availability and slow delivery of products. The delivery time is a long and costly matter that may require a considerable amount of resources. Delivery time is affected by the performance of the entire supply chain, which is associated with collaboration with numerous stakeholders. Therefore, the present paper proposes to address another factor of patient dissatisfaction, which is customer support. In order to address the problem of customer support, AdaptHealth Corp. needs to create an effective customer relations department that should provide high-quality timely customer support. The analysis of customer reviews demonstrates that currently, the company outsources customer support services, which is a path to failure according to Gazley and Simmonds (2018). Even though the endeavor may be costly, it will pay off in the long run.

Financial and Budgetary Considerations

Financial Statements

The proposed solution for customer satisfaction problems is associated with increased operational costs, as a new department is created. Therefore, the primary statement under analysis is in the 10-k form provided by SEC (2020). Currently, the financial performance of the organization is poor in terms of operations. The consolidated statement of operations of AdaptHealth Corp. is presented in Figure 1 below. According to the statement, the current financial performance of the organization in terms of operations is poor. Even though in 2019 the revenues increased by more than 50%, the total expenses skyrocketed by almost 60% (SEC, 2020). The proposal described in the present paper will increase both expenses and revenues. Estimations will be made by how much both lines in the consolidated statement of operations increase. The impact will be measured by adjusting the values in the financial statements after the change has taken effect and determining the outcomes.

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Consolidated Statements of Operations 
Figure 1. Consolidated Statements of Operations 

Proposal Impact

As mentioned above, the most evident affect the implementation of the proposed plan will have is the increased cost of operations. Currently, customer support is outsourced, which is associated with decreased costs. The establishment of a new department is associated will require human resources, additional offices, and equipment. The estimated cost of creating a new department with 10 frontline employees, two supervisors, and a department head is presented in Table 1 below. The calculations suppose that a maximum of seven employees works at any given point in time. All the estimations are based on average payments provided by payscale.com and prices of equipment on amazon.com. The cost associated with the creation of the new department will add to operating expenses.

Table 1. Proposal cost estimation

TYPE OF COST Estimated Unit Cost Unit Multipliers Total Cost
HUMAN RESOURCES
Frontline Employees
Supervisor
Department Head
$50k/employee
$65k/employee
$80k/employee
10 employees
2 employees
1 employee
$500k
$130k
$80k
OFFICE COST
Office Rent (French, 2015)
Furniture
Cleaning
$14k/employee
$2k/employee
$1k/employee
7 employees
7 employees
7 employees
$98k
$14k
$7k
SUPPLIES AND EQUIPMENT
Computers
Printing Equipment
Network Equipment
Office Supplies
$1k/employee
$3k
$5k
$1k/employee
7 employees
N/A
N/A
13 employees
$7k
$3k
$5k
$13k
Total Proposal Cost: $857k

Apart from calculated costs, the proposal is expected to have a considerable impact on revenues. According to Gazley and Simmonds (2018), outsourcing customer support may lead to decreased quality of service and customer loyalty. This may lead to up to 20% losses in revenues. Since the required resources for the implementation of the present proposal are significant, the expenses need to be justified by comparing the potential losses with potential benefits.

Flexed versus Fixed

The present proposal uses a fixed budget instead of a flexed one since the variability is low. According to Wall Street Mojo (n.d.), a flexed budget considers the changes that may happen with an organization. A fixed budget is static, while a flexed budget considers the actual amount of work done and changes depending on the circumstances (Wall Street Mojo, n.d.). In the present proposal, the only type of cost associated with considerable variation is the number of frontline employees. However, the number can be easily adjusted depending on the actual number of employees needed, as the per-employee cost is provided. A fixed budget was used to avoid overcomplicating the proposal.

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Proposal Justification

Ratio Selection

The most appropriate ratio to understand the impact of the proposed change is the operating ratio. According to Murphy (2020), “the operating ratio shows the efficiency of a company’s management by comparing the total operating expense of a company to net sales” (para. 2). A decreasing operating ratio is considered a good sign, as it demonstrates that less money is needed to pay for sales (Murphy, 2020). The ratio is often used to evaluate the operating performance of organizations (Murphy, 2020). The selected ratio seems most appropriate as it captures both changes associated with the implementation of the proposed change.

Ratio Results

Operating ratio is calculated using the following formula:

Formula

The calculations are presented in Table 2 below. According to the calculations, the implementation of the proposed change is associated with a significant decrease in the operating ratio, which is a positive tendency.

Table 2. Ratio calculations

Item Before Implementation After Implementation Percent change Net change
Total revenues $529,644,247 $635,573,096.4 20.00% $105,928,849
Cost of goods sold $440,386,387 $528,463,664.4 20.00% $88,077,277
Operating expenses $56,492,554 $57,349,554 1.52% $857,000
Operating ratio 93.81% 92.17% -1.75% 1.64%

Short- and Long-Term Impact

The calculations provided in Table 2 demonstrate the impact of the proposal in a one-year period considering that the changes take place at the beginning of the financial year. The short-term results of the proposal may differ considerably from the projected values. The issue is that calculations do not take into consideration how the cost of the creation of the support department will be financed. There is a high probability that the changes will be financed using debt. Therefore, the short-term impact will be poor, as it will increase the debt to equity ratio and increase operating expenses. If the implementation of the project is planned at the end of the fiscal year, the positive impact of the change will be inconsiderable.

However, in the long run, the proposed change is expected to increase revenues and income. According to calculations, a 1.52% increase in operating expenses is associated with the proposal will lead to a 20% increase in revenues. The operating ratio will decrease by 1.64%, which is significant considering the investments made. Therefore, it is for the management personnel to understand that positive dynamics will be seen only a year after the implementation. All the stakeholders need to be informed about the short- and long-term impacts of the proposal. Overall, the analysis demonstrates that the proposal is worth to be implemented.

Conclusion

Added Value

The present proposal will add significant value to the current value proposition of AdaptHealth Corp. The establishment of a customer support department is associated with increased customer loyalty and satisfaction. Considering that one of the forces affecting the delivery of healthcare is patient dissatisfaction, improving customer relations is one of the central concerns for all healthcare organizations. Additionally, customer reviews about the service provided by AdaptHealth Corp. are poor, and a customer support department may improve the matter within a year. Thus, the proposition adds significant value to the organization.

Justification of Proposal

The proposal is also justified by the analysis of the financial impact of the change. The investigations demonstrated that the proposed change would increase total revenues by 20% with only a 1.52% increase in operating expenses. At the same time, the operating ratio is expected to drop by 1.64%, which is a significant change considering the investments. In summary, given the analysis provided in the present paper is correct, AdaptHealth Corp. will benefit from the establishment of a customer relations department.

References

AdaptHealth Corp. (n.d.). Products and services. Web.

Better Business Bureau. (2020). AdaptHealth. BBB. Web.

Brook, P. (2016). The six forces transforming the healthcare industry. Modern Healthcare. Web.

Farahani, M. A., Oskouie, F., & Ghaffari, F. (2016). Factors affecting nurse turnover in Iran: A qualitative study. Medical journal of the Islamic Republic of Iran, 30, 356-359.

French, S. (2015). Here’s how much your company pays to rent office space. MarketWatch. Web.

Gazley, A., & Simmonds, H. (2018). When service providers fail: outsourcing help and consumer attitudes. Journal of Business Strategy, 39(5).

Lakin, K. C., & Burke, M. M. (2019). Looking forward: Research to respond to a rapidly aging population. Research and Practice for Persons with Severe Disabilities, 44(4), 280-292.

Murphy, C. (2020). Operating ratio. Investopedia. Web.

Security and Exchange Commission. (2020). Form 10-K: AdaptHealth Corp. SEC. Web.

Sousa, S.C.G., & Gomes, C. (2019). The demand for healthcare services and resources: patterns, trends and challenges in healthcare delivery. Repositorio-Aberto. Web.

Wall Street Mojo. (n.d.). Difference between fixed and flexible budget. Web.

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