Tenet Healthcare Corp., the second largest publicly traded hospital chain in the United States, had a large amount of uncollectible accounts expense because so many patients were unable to pay their medical bills. Its uncollectible accounts expense amounted to about 11 percent of its revenues.

After management analyzed the problem, they found that 70 percent of the losses came from uninsured patients and 30 percent from those who had insurance. The company realized that many of the uninsured could not be expected to pay and that the large amount of the bills simply discouraged patients from seeking health care. The company decided to start charging these patients less, hoping it could eliminate 40 to 60 percent of its bad debts loss. The company’s chief financial officer said, “A significant amount of the revenue will never be recorded in the first place due to this pricing, so that it will not have to be written off as bad debt.21 In informal groups in class, discuss and report on the following questions:

What effect will the new pricing policy have on the company’s reported earnings? Why would the company want to show lower uncollectible accounts expense? Do you think the new policy has ethical ramifications?

Business Communication Case Cash Management and Cash Equivalents