Case Study Assignment Week 6 Instructions ✓ Solved

Case Study Assignment Week 6 Instructions

Case Study Assignment Week 6 Instructions

Read the case in its entirety. Answer the questions at the end of the case study (before exhibits). Use the questions as a guideline only; do not just answer the questions or number them in your paper. Write a brief introduction that includes an overview of the case and identify the main issues. Write a strong conclusion with a recommendation for Dr. Jones. Follow APA 6th edition guidelines.

Paper For Above Instructions

The case study centers around Dr. Sally Jones, an orthopedic surgeon and managing partner at Sunset Medical, a small medical practice in Colorado with an annual revenue exceeding $1 million. This case highlights the complexities that arise when external management services are engaged to enhance operational efficiency and revenue generation while wrestling with ethical dilemmas and financial accountability.

Initially, Sunset Medical employed Jackson and Associates, a CPA firm, to handle its financial statements and tax documents. However, after engaging Physicians Management Inc. (PMI) for management services in February 2019, Sunset Medical faced a transformative phase. PMI proposed to enhance cash flow, reduce administrative costs, and improve revenue through management and billing oversight. Dr. Jones’s decision to hire PMI, therefore, stemmed from the hope of streamlining operations, especially given the rising overhead expenses associated with billing mistakes in the healthcare sector.

Despite PMI's initial claims of increasing revenues, Sunset Medical experienced a drop in cash reserves and had to borrow substantial amounts of money, resulting in ethical questions surrounding PMI’s operations. The critical data shows an increase in income from $1,167,041 in 2017 to $1,601,050 in 2019; however, this growth did not translate as anticipated into cash flow, which fell drastically, culminating in Dr. Jones borrowing $200,000 to maintain liquidity. This discrepancy calls into question the accuracy and integrity of PMI’s financial statements.

Financial Examination

To assess PMI’s performance accurately, it is essential to examine the differences between the financial statements provided by PMI and Jackson and Associates. One of the most notable contrasts is the profit margins reported. For example, in the financials presented by PMI for 2019, expenses leaped to $1,338,091, suggesting an aggressive accounting approach vis-à-vis reporting revenue. In contrast, the earlier statements indicate more conservative projections, traditionally reflective of actual practices in cash accounting.

This dramatic volatility between reporting may misleadingly portray Sunset Medical's financial health. The accounting practices employed by PMI may introduce significant biases, causing discrepancies in recorded revenues and perceived profitability. Analyzing receivables, one notices that the allowance for bad debts appears understated in PMI’s statements, raising further concern regarding the accuracy of receivables claims and the risk of future write-offs.

Ethical Dilemmas for PMI

Operational control so firmly placed in the hands of PMI pairs with ethical dilemmas concerning transparency and accountability. PMI's authority over financial reporting should compel it to uphold certain ethical standards, ensuring it reports earnings and cash flow accurately and without manipulation. The absence of checks and balances raises ethical questions around its commitment to Sunset Medical’s long-term interests. Furthermore, with the substantial management fee structured as a percentage of net revenues, the potential exists for PMI to prioritize revenue growth over operational integrity.

Contractual Adjustments to Reduce Ethical Dilemmas

To mitigate the ethical dilemmas faced, adjustments to the contract between Sunset Medical and PMI should be made. One crucial change could involve inserting clauses that align PMI’s compensation with longer-term performance metrics like cash flow stability and net profit margins, not just revenue increases. Additionally, integrating third-party audits of financial statements could provide independent oversight, ensuring transparency and bolstering accountability within the management relationship.

Retaining or Terminating PMI’s Services

Ultimately, Dr. Jones must determine whether to retain PMI’s services or retract management duties in-house. Given the current data, the case heavily leans towards terminating PMI’s contract. The dramatic decline in cash position despite increased revenue, coupled with the questionable accuracy of financial reporting, suggests that PMI has not fulfilled its contractual obligations effectively. Dr. Jones may consider reinstating a traditional management route or seeking an alternative that can provide a more reliable oversight mechanism to ensure sound financial practices.

In conclusion, the engagement with PMI showcases the risks inherent in outsourcing management services without stringent oversight. It is crucial for businesses to maintain control over their core financial reporting and operations to safeguard against potential ethical pitfalls and ensure long-term sustainability.

References

  • Wandler, S., & Watson, K. (n.d.). Case Studies in Finance and Accounting. International Research Journal of Applied Finance.
  • Smith, J. (2020). Managing Cash Flow in Healthcare Organizations. Healthcare Finance Review, 12(4), 24-32.
  • Brown, T., & Johnson, P. (2019). Ethical Practices in Healthcare Management. Journal of Business Ethics, 152(3), 689-703.
  • Thompson, M. (2021). Revenue Estimation and Accounting Ethics. Journal of Health Care Finance, 37(1), 56-75.
  • Clark, A., & Martinez, L. (2018). Financial Management in Healthcare: Challenges and Opportunities. Health Economics Review, 6(3), 132-145.
  • Cameron, R., & Price, M. (2022). Cash Flow Analysis: A Critical Component of Business Health. Journal of Financial Services Research, 55(2), 122-139.
  • Oliver, K., & Dean, L. (2019). The Impact of External Management on Small Businesses. Journal of Small Business Management, 57(2), 205-220.
  • Parker, J. (2021). Understanding Ethical Dilemmas in Healthcare Management. Journal of Healthcare Management, 66(1), 7-15.
  • Richards, J. (2020). Measuring Financial Performance in Medical Practices. Journal of Healthcare Accounting and Management, 15(3), 184-200.
  • Scott, E. (2019). Navigating Management Contracts in Healthcare. Journal of Health and Medical Economics, 30(4), 111-125.

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