Financial strategy-Case of National Medical Care Company
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Financial strategy-Case of National Medical Care Company
Introduction
Founded in 2004, the National Medical Care Company is a Saudi Arabian firm based in Riyadh. The company is a leading medical service provider engaged in the establishment, running, and management of hospitals and healthcare facilities. The firm also participates in the retail and wholesale of drugs, medical equipment, and supplies. The company has a workforce of 200 employees and had annual revenue of U.S$ 188 million at the end of 2019. The firm’s primary competitors are the CMAI Medical Center and Aldara Hospital and Medical Center (Abukhader, 2015). This paper will discuss the critical issues about the National Medical Care Company’s financial strategy and provide recommendations.
Key Issues
Working capital
All business entities, including hospitals and other healthcare facilities, require working capital to make regular payments, cater for unexpected expenditure, and buy raw materials needed in the production process. Working capital represents the efficiency, liquidity, and overall financial wellbeing of a company. Additionally, working capital indicates the outcomes of a company’s ability to collect revenue, manage debt, inventory, and supply payments (Baños-Caballero et al., 2014). The National Medical Care Company has changed and adopted different expansion strategies that have negatively impacted on its working capital. The company had to wait for more extended periods before receiving payments from patients and other stakeholders. The prolonged period for receiving payments resulted in limited growth of the firm.
Successful management of working capital translates into the overall profitability of institutions like the National Medical Care Company. Institutions that collect payments from their patients early enough record higher profit margins than those that take long to receive payments (Baños-Caballero, 2014). In 2018, the National Medical Care Company had 66 percent of its receivables from the government and its affiliates. This was a significant concern because of the long time the government and its affiliates take before making payments. The delay in payments by the government and other entities affiliated to it negatively impacted the company’s working capital by tying up the cash flows, thus affecting the firm’s financial strategy.
Information technology
The National Medical Care Company has embraced digital health technologies, albeit at a slower rate compared to similar facilities in the developed countries. The digital health technologies are used to address patients’ health problems. The technologies used include telemedicine, internet-based diagnosis, mobile phone apps, and remote monitoring sensors. These technologies assist medics and patients in managing diseases hence promoting the overall wellbeing of the patients (Khalifa, 2014). Due to the benefits accrued from the use of this technology, many medical institutions invested heavily in the digital health technology Healthcare consumers in Saudi Arabia perceive the digital health technology as a vital component of an effective health management system. Most of these patients use websites and social media platforms to track manage their wellbeing.
Additionally, health apps that provide information on physical wellbeing and diet are also popular among users. Proper incorporation of technology in the institution led to an increase in the efficiency of the firm’s services. The massive investment of resources in digital health research affected the National Medical Care Company’s financial strategy.
Recommendations
Efficient management of working capital
The National Medical Care Company can effectively manage working capital by reducing the repayment period. Medical facilities that collect from their revenue from patients early enough record a higher cash flow hence profitability. A hospital’s profitability is inversely related to its payment period. The National Medical Care Company must, therefore, endeavor to reduce the large balances in both the accounts receivables and account payable. According to working capital management theory, firms invest in working capital, manage cash flows, and account receivables if the working capital is managed as per the hypothesis prescribed (Baños-Caballero, 2014). Reducing these balances would result in a reduction in the costs arising from working capital management, which would improve the institution’s profitability. Improvement in profitability would, in turn, determine the company’s financial strategies. The firm can also efficiently manage its working capital by employing flawless revenue collections methods. To ensure continued cash flow, the company should cease overlying on payments from the government and its affiliated entities.
Embracing modern technology
The National Medical Care Company should adopt the latest technology in digital health care by overcoming the design and technical hurdles associated with the development and adoption of these technologies. The technologies will enable the sharing of clinical data and the patients’ medical history. Through the use of telehealth technologies, the National Medical Care Company will be able to link patients with their doctors via videos. This would, in turn, reduce the amount of resources and time spent on visiting the hospital (Khalifa, 2014). Employing the latest healthcare digital technologies would also help the company to outperform its competitors. According to Porter’s five forces, competition in any sector is founded on the internal economic structure. However, the high cost of modern technologies may adversely affect the firm’s financial strategy in the short-term.
Conclusion
The National Medical Care Company’s liquidity was adversely affected by the delay in payment by third party institutions such as the government. To improve cash flow, the company needs to employ revenue collections approaches that focus on early payments from patients. Adopting the latest technology in health care providers can help the company provide efficient services to its patients and manage its working capital.
References
Abukhader, S. M. (2015). ERP implementation in the private hospitals of Saudi Arabia. International Journal of Healthcare Management, 8(2), 77-88.
Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), 332-338.
Khalifa, M. (2014). Technical and human challenges of implementing hospital information systems in Saudi Arabia. Journal of Health Informatics in Developing Countries, 8(1).