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CHAPTER 2
Healthcare Business Basics

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Concept of a business Legal forms of business For-profit versus not-for-profit ownership Organizational goals Financial goals Taxes

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Concept of a Business  A business is an entity that
 raises money in the capital markets,  invests these funds in assets (land, buildings, equipment, inventories, and so on),  uses these assets to create products or services, and  sells these products or services to sustain itself.

 A pure charity is different. Why?

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Legal Forms of Business  There are four major categories of business organization (legal forms of business):
    Proprietorship (sole proprietorship) Partnership Corporation Hybrid forms

 How much does the organizational form influence the practice of healthcare finance?

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Proprietorships and Partnerships  Advantages:
 Ease of formation  Subject to few regulations  No corporate income taxes

 Disadvantages:
    Limited life Difficult to transfer ownership Unlimited liability Difficult to raise capital

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Corporation  Advantages:
    Unlimited life Easy transfer of ownership Limited liability Ease of raising capital

 Disadvantages:
 Cost of formation and reporting  Double (or triple) taxation for investor-owned corporations

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Hybrid Forms of Organization  Limited partnership (LP)
 General partners have control  Limited partners are liable only for their initial contribution  Not commonly used by healthcare providers

 Limited liability partnership (LLP)
 Partners share general business liability  However, partners are liable only for their own malpractice actions

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Hybrid Forms of Organization (cont.)  Limited liability company (LLC)
 Members are taxed like partners  Liability like that of stockholders

 Professional corporation (PC) or professional association (PA)
 Owners have benefits of