Ebook Fundamentals of healthcare finance: Part 2
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Ebook Fundamentals of healthcare finance: Part 2
CHAPTER 8BUSINESS FINANCING ANDTHE COST OF CAPITALBTheme Set-UpStarting a New Medical PracticeA few months ago, six primary care physicians in Seattle Ebook Fundamentals of healthcare finance: Part 2e met to discuss the feasibility of creating a new group practice. Of the six, four were operating solo practices, while the other two were just completing family practice residencies. Although a solo practice offers some advantages, such as complete control, it presents numerous disadvantages.Perha Ebook Fundamentals of healthcare finance: Part 2ps the largest disadvantage is that the business’s administrative and clinical overhead costs must be borne by a single physician, while larger groupEbook Fundamentals of healthcare finance: Part 2
practices can benefit from economies of scale (the spreading of fixed administrative and clinical costs over more patients). Also, solo practitioners CHAPTER 8BUSINESS FINANCING ANDTHE COST OF CAPITALBTheme Set-UpStarting a New Medical PracticeA few months ago, six primary care physicians in Seattle Ebook Fundamentals of healthcare finance: Part 2r bargaining power with third-party payers.The bottom line here is that more and more individual physicians are joining together to form groups. The trend toward multiphysician practices was recognized by the six physicians, who agreed to form a new business, Puget Sound Family Practice.209210 Funda Ebook Fundamentals of healthcare finance: Part 2mentals of Healthcare FinanceThe start-up of a new group practice is not an easy task. First, legal issues must be settled, such as what type of businEbook Fundamentals of healthcare finance: Part 2
ess organization to establish (the physicians decided on a professional corporation) and who would have the greatest say in running the practice. NextCHAPTER 8BUSINESS FINANCING ANDTHE COST OF CAPITALBTheme Set-UpStarting a New Medical PracticeA few months ago, six primary care physicians in Seattle Ebook Fundamentals of healthcare finance: Part 2 and that patients receive quality care in a timely, patient-friendly setting.All of these start-up tasks require capital. In fad, the initial analysis of capital needs for Puget Sound Family Practice indicated that about S1.8 million was required to get the business up and running. The next steps i Ebook Fundamentals of healthcare finance: Part 2n the start-up process are to (1) decide how to raise the required capital and (2) estimate how much the financing will cost.By the end of the chapterEbook Fundamentals of healthcare finance: Part 2
, you will see how the physicians at Puget Sound Family Practice decided to fund the new business. Furthermore, you will get a feel for the cost of thCHAPTER 8BUSINESS FINANCING ANDTHE COST OF CAPITALBTheme Set-UpStarting a New Medical PracticeA few months ago, six primary care physicians in Seattle Ebook Fundamentals of healthcare finance: Part 2ctivesAfter studying this chapter, you will be able to>Describe how interest rates are set on debt financing.>Discuss the various types of long-term and short-term debt instruments and their features.>Define the two types of equity and their features.>Briefly describe the capital structure decision. Ebook Fundamentals of healthcare finance: Part 2>Explain the corporate cost of capital and its use.Chapter 8: Business Financing and the Cost of Capital 2118.1IntroductionIf a business is co operateEbook Fundamentals of healthcare finance: Part 2
, it must have assets (c.g., land, buildings, and equipment). To acquire these assets, it must raise capital. Capitol comes in two basic forms: debt aCHAPTER 8BUSINESS FINANCING ANDTHE COST OF CAPITALBTheme Set-UpStarting a New Medical PracticeA few months ago, six primary care physicians in Seattle Ebook Fundamentals of healthcare finance: Part 2 by the owners ol investor-owned businesses and by the community at large for not-for-profit businesses. In this chapter, many facets of business financing are discussed, starting with how interest rales are set on borrowed capital.8.2Setting Interest RatesThe interest rate is the price paid to obta Ebook Fundamentals of healthcare finance: Part 2in debt capital. Many factors influence the interest rales set on business loans, but the two most important are risk and inflation. To see how theseEbook Fundamentals of healthcare finance: Part 2
factors operate, note that the owners of Puget Sound Family Practice do nor have sufficient personal funds to start the business, so they must supplemCHAPTER 8BUSINESS FINANCING ANDTHE COST OF CAPITALBTheme Set-UpStarting a New Medical PracticeA few months ago, six primary care physicians in Seattle Ebook Fundamentals of healthcare finance: Part 2ntories. Note that in economics, capital generally means the assets owned by a business.Risk1 he risk inherent in the prospective group practice, and thus in the ability to repay the loan, would affect the return lenders would require. In eflecl, lenders would assess the likelihood ol the practice e Ebook Fundamentals of healthcare finance: Part 2arning enough to make the required payments in full and on time. II there is a high probability’ that this will occur, the loan has minimal risk. ConvEbook Fundamentals of healthcare finance: Part 2
ersely, the higher the probability' that rhe practice will have difficulties malting rhe payments, the higher the risk to the lender.Lenders would be CHAPTER 8BUSINESS FINANCING ANDTHE COST OF CAPITALBTheme Set-UpStarting a New Medical PracticeA few months ago, six primary care physicians in Seattle Ebook Fundamentals of healthcare finance: Part 2hank would likely' require personal guarantees from the owner-physicians so that if the practice fails, the owners would lie personally liable for repaying the loan.CRITICAL CONCEPTis Interest Rateĩhe interest rate is the price paid by borrowers to obtain debt capital. Put another way, it is the pri Ebook Fundamentals of healthcare finance: Part 2ce charged by lenders to provide debt financing. For example. First National Bank might provide a loan to Puget Sound Family Practice with an 8 percenEbook Fundamentals of healthcare finance: Part 2
t interest rate, which means that the practice must pay the bank 0.08 X $1,000 = $80 per year for each $1,000 borrowed. The interest rate set on a loaCHAPTER 8BUSINESS FINANCING ANDTHE COST OF CAPITALBTheme Set-UpStarting a New Medical PracticeA few months ago, six primary care physicians in SeattleCHAPTER 8BUSINESS FINANCING ANDTHE COST OF CAPITALBTheme Set-UpStarting a New Medical PracticeA few months ago, six primary care physicians in SeattleGọi ngay
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