Cavalier Hospital Case Solution

1. Is Cavalier Hospital financially healthy or sick?

By analyzing the facts and figures mentioned in the article, it would be justified to say that Cavalier Hospital currently is in a financially healthy position. Cavalier Hospital is operating well not only in terms of financial figures but also in terms of inspiration of the new director who has visualized to operate this hospital with operational excellence and skills, especially in the perspective of cardiovascular diseases. His discussions with key insurers were done to propose the “profitability concept”, around four insurers acknowledged the proposal and offered a commitment to operate with Cavalier. By assessing the figures and the financials, every successive year the Cavalier Hospital has outperformed and improved its position. This is evident in its sound financial decisions and commitment to function with determination. In terms of revenue, in FY 2006, Cavalier had earned around $151.3Mn and which swelled to $240.2Mn in FY 2010. The sheer reason that the net profits had declined in these years, would be that company is trying to invest the excessive returns to improve the operationality and quality of services provided to consumers, and eventually, that would result in increased profitability in the longer run. The gross assets of the company have also augmented severely from $100.9Mn in 2006 to $188.1Mn in 2010. In terms of financial ratios, the profitability ratios have reduced slightly on average over the previous four years, as the profits margin decreased from the decided threshold of 6% and the company functioned around 5.3%. In terms of the total asset turnover, in 2006 this was close to the decided standard and hovered around 0.7. However, there are some ratios that might raise some eyebrows, like the average number of days patients spend in the hospital, which had been on the increase in the past few years. Harrison needs to carefully analyze the reason behind such an increase, as it raises some questions in terms of the quality of service provided. Largely, the organization has done well and with the new director’s mission, it is apparent that the hospital is functioning in the right direction. 

2. What is Harrison’s rationale for seeking capitated payments?

The reason behind Harrison’s choice on pursuing capitated payments is mainly that it would be more sensible to make use of “bundled packages” because the insurance contributors will be paying the hospital the equivalent amount regardless of the illnesses that would be cured. Or in other words, there would be a fixed amount that would be charged initially and will treat the patients according to various illnesses that they are exposed to. And essentially, this means that this would be more “cost-effective” because now the consumers would not have to pay each time for the doctor’s consultancy every time, they get sick because of some disease. And also, the hospital will be making use of “cutting edge” technology without the need to have additional approvals or licensing. This is more beneficial in contrast to, “Fee-for-Service” because here the insurers will be paying for the number of patients that have been cured instead of the number of procedures that have been carried out on each patient. And the experts saw this as a reason for the “under-treatment” of patients. And this was in particular quite dominant in the cardiovascular treatment, and the doctors were instructing for more expensive diagnoses, instead of conventional tests carried out through old technologies. So, to have a good perception in the healthcare industry amongst the health industry fraternity and the customers and to use this as a promotional tool to sustain the existing patient base and to attract potential patients, the director, Harrison, suggested it would be better if capitated payments procedures would be implemented. Here the payments for diagnostic tests carried out are equivalent irrespective of the kind of diagnosis executed and the hospital would have the chance of making use of modern-day technologies and this will not require the need to have any sought of additional endorsements from the insurance providers, since it will not be costing the insurance providers or the patients any additional amount if the medical equipment were made use of.