Question

Harrison, Carlene & Harrison, William P. Introduction to Health Care Finance and Accounting

Chapter 10, Study 10-1, page 179 Summit Regional Medical Center operates as a private not-for-profit hospital, providing services to a community of 20,000 and the surrounding rural areas. Summit has maintained a banking relationship with the local community bank for decades, and a number of individuals on the hospital’s board of directors are local business people who also maintain relationships with the local bank. Physicians and administrative staff of the hospital have developed a report showing that major pieces of medical equipment have become outdated by recent improvements in technology and need to be replaced. A financial review shows that new patient revenues from the use of the equipment will repay the capital investment over 5 years. The board of directors approves the purchases, and the hospital’s finance director schedules a meeting with the bank’s vice-president. The banker reports that due to an increase in nonperforming loans in the current recession and slow recovery, the bank cannot make the $1 million loan to the hospital. Another bank in the community is a branch of a major national banking system. When approached, that bank states that they only make new loans to established customers, but indicates that if all of the banking relationship were to be transferred from the community bank to the national bank, the loan would be approved. Required What action should the hospital’s finance director and chief executive officer make to the board?

Answer 1