chapter 2 note: what is busniess

Definition of Business

• Business involves the act of providing a product or service to customers for profit.

• It incurs costs associated with materials, labor, and equipment necessary for creating the product or service.

• Profit is calculated by subtracting these costs from revenue.

Importance of Profit

• All businesses, regardless of their industry type, must generate profit to sustain operations.

  • For-Profit Businesses:

  • Example: Pharmaceutical companies; profit is the primary reason for existence.

  • Non-Profit Businesses:

  • Objective extends beyond profit; focus may include serving community needs (e.g., nonprofit hospitals).

  • Non-profit hospitals may incur losses while serving low-income patients but need sufficient revenue from operations or donations to cover expenses.

Legal Structures for Businesses in the U.S.

• Three legal structures for operating a business:

  1. Sole Proprietorship:

  • Owned by one individual.

  • Examples: Typical practice among dentists, ophthalmologists.

  1. Partnership:

  • Involves two or more individuals collaborating to achieve business objectives.

  • Medical group practices often organized this way.

  1. Corporation:

  • Distinction between ownership and management.

  • Shareholders own the business; management responsibilities are delegated to managers.

  • State laws may impose specific ownership forms for physicians and hospitals.

Management Functions

• Management encompasses planning, organizing, directing, and controlling business resources to meet objectives.

  • Planning:

  • Define business objectives and develop strategies.

  • Organizing:

  • Create an organizational structure indicating responsibility areas.

  • Directing:

  • Focus on motivating human resources effectively.

  • Controlling:

  • Act as a feedback loop; monitor performance and adjust strategies if necessary.

Organizational Hierarchy

• Top Management:

  • Includes positions like the board of directors and the CEO.

  • Example: CEO of a hospital oversees its operations.

• Middle Management:

  • Managers overseeing specific segments within the business (e.g., Vice President of Patient Care).

Functions of Marketing, Accounting, and Production

• Marketing:

  • Focus on the exchange between business and customers.

  • Develop plans covering product, pricing, promotion, and distribution.

  • Conduct research to gauge customer demands for products/services.

• Accounting:

  • Tracks financial flow into (accounts receivable) and out of (accounts payable) the business.

• Production:

  • Involves the physical creation of products/services.

  • Focus on productivity through factors like machine layout.

• Information Technology (IT):

  • Managing data through technology and systems; critical for healthcare organizations collecting patient data.

  • Electronic health records have spurred the growth of health information management.

Legislative Framework Impacting Healthcare

• Health Insurance Portability and Accountability Act (HIPAA) 1996:

  • Regulates healthcare data privacy and security; some provisions came into effect later in 2003.

• American Recovery and Reinvestment Act (ARRA) 2009:

  • Introduced incentives for adopting electronic health records.

• Sector Classification:

  • Under code 62 (NAICS), 'Health and Social Assistance' includes categories like:

  1. Ambulatory healthcare services

  2. Hospitals

  3. Nursing and residential care facilities

  4. Social assistance

Economic Conditions and Indicators

• Market Economy:

  • U.S. operates within a market economy, affecting healthcare

• Market Structures:

  • Oligopoly: Few sellers dominate, limiting competition.

  • Monopoly: Single seller controls market (e.g., unique pharmaceutical drugs).

• Demand Function:

  • Price elasticity example: willingness to buy products changes with price fluctuations.

Key Economic Indicators

1. Interest Rates:

   • Borrowing cost expressed as an annual percentage rate.

   • Lower rates encourage borrowing and spending.

2. Inflation:

   • Increase in overall price levels; affects consumer purchasing power negatively.

   • Can stem from excessive demand or government spending.

3. Unemployment:

   • Lack of jobs; considered a normal aspect unless it rises substantially above full employment levels.

The Business Cycle

• Phases of the business cycle affecting economic conditions and healthcare:

  1. Prosperity:

  • Rising GDP, low inflation, low unemployment; individuals may spend on elective healthcare.

  1. Recession:

  • Economic slowdown leads to higher inflation and reduced healthcare access; unemployment rises.

  1. Depression:

  • Severe recession; drastic decrease in economic activity affecting healthcare purchasing.

  1. Recovery:

  • Improvement; businesses hire back employees, increasing overall spending.

Government's Role in Healthcare

• Provider: Offers healthcare services directly.

• Payer: Covers costs for services rendered by other providers.

• Regulator: Oversees healthcare providers and practices.

• Legislative actions and lobbying impact healthcare policy:

  • Established laws maintain fair competition and public safety.

• Antitrust Laws:

  • Prevent monopolistic behaviors; includes regulations against harmful mergers and fixed pricing.

Healthcare Legislation Impact

• Social Security Act of 1965: Established Medicare and Medicaid as crucial elements of healthcare assistance.

• Affordable Care Act (Obamacare):

  • Signed into law March 2010, aimed at expanding insurance access and improving quality and prevention.

  • Substantial reduction in uninsured rates since its implementation.

  • Imposes regulations on insurance companies regarding coverage and premium rates.

Strategic Planning in Businesses

• SWOT Analysis:

  • Technique for analyzing Strengths, Weaknesses, Opportunities, and Threats in relation to the business environment.

  • Provides insights for managers to plan strategically for the future based on identified strengths and environmental opportunities.