Health Care Business Analysis

HCS/577Sharon SandersApril 15, 2013

Team DDebbie Fernando-LeaderAshley HarrellMaureen AlfonsoSusan Howard

Introduction

Patton-Fuller Community Hospital Background Information

Review of Hospital 2008-2009 and 2010 Budgets Differentiate Between Managerial Accounting and Financial

Management Generally Accepted Accounting Principles The Effect of our Decision on the Operating Budget The Role of Cost Measurement in Maintaining the Operating and Capital

Budgets via Variance Analysis Explanation of Our Decision to Give the $1 an Hour raise to the Nurses

Nurses to Receive $1 Raise

Mission Statement Successful recruitment and retention of a qualified workforce

Operational Goals Retention of employees and equitable compensation

Nurses complaints Over-worked – negative affective on patient care

Management Concerns Nurses will leave Patton-Fuller to go to other hospitals

Financial Management Plan review of nursing statistics memo of 2009 budget issues

$1 hour raise for nurses approved

Operating Budget Projection2010 Operating Budget Projection

HCS/577 Version 3 1

Statement of Revenue and Expense 2009 to 2010 Operating Budget

Patton-Fuller Community Hospital

2009 (Proj)

2010 Budgeted % Change From 2009 Projection

2010 Budget

2010 Operating Budget Assumptions

Revenue Based on these 2009 assumptions: a 3% overall deflation rate for prices in 2009—due to the weak economy—will continue into 2010.

Net patient revenue 459,900 3% 473,697 Patient revenue will continue to increase, but at a decreased rate, with little or no increase in patient volume, due to new managed care contracts.

Other revenue 3,082 15% 3,544 Marketing's plan to increase donations by 15%

Total revenue 462,982 3% 477,241

Operating Budget Projection

2009 (Proj)

2010 Budgeted % Change

From 2009

Projection

2010 Budget

2010 Operating Budget Assumptions

Expenses

Salaries and benefits 220,752 387% 853,679

Salaries will hold to a 1% overall increase in cost due to price deflation nationwide, with no increase in labor hours, due to no increase in patient volume. Increase of nursing wages by $1 per hour.

Supplies 74,584 -3% 72,346

Supplies cost will decrease 3% due to the price deflation and our current over-stock purchased last year.

Physician and professional fees

110,376 3% 113,687 Contracts for fees have a built-in 3% increase.

Utilities 1,200 5% 1,260

Utilities cost will increase to the rising cost of oil partially offset by the efficiency of the hospital's new heating and cooling systems.

Other 1,840 0% 1,840 No net change in the cost or volume of these items.

Depreciation & amortization (noncash expenses)

36,036 0% 36,036 Some high-cost equipment—air conditioning, telephone system, all patient beds, and headwalls—were replaced in 2009, and depreciation rose sharply. Depreciation will remain at this level in 2010.

Interest 3,708 30% 4,820

The repayment plan for any monies borrowed in 2009 will come due in 2010, with a sharp increase in interest cost.

Provision for doubtful accounts

13,797 10% 15,176 The renegotiation of managed care plans has delayed collection and made collections less certain.

Total expenses 462,293 238% 1,098,844 Total expenses will rise 238%

Operating Budget Projection

2009 (Proj)

2010 Budgeted % Change From 2009 Projection

2010 Budget

2010 Operating Budget Assumptions

Income

Operating income 689 -90218 (621,603) Operating Income will improve, with the hospital's loss reduced by 2/3.

Loss (nonoperating income)

Investment income 0 0% 0

The market is down, expected to hold steady; a zero-return is expected, with neither losses nor gains.

Net income 689 -90218 (621,603) The hospital will continue its dramatic turnaround, taking advantage of the stagnation in patient volume, price deflation, the efficiency of new equipment, and the improved arrangements with the managed care companies.

Managerial Accounting

Operating budgets Operating budget projections Operating budget variances

RevenuesExpensesTrends

Current market

Operating incomeAllocation of resources

Financial Management

Marketing StrategiesCurrent health care trendsChange in the health care industryGrowth of managed care in the industryStrategies to increase contracts with manage care

plansIncrease patient volume

Generally Accepted Accounting Principles

Objectivity

Materiality

Consistency

Prudence

Why Give Nurses A $1.00 per hour Raise

600 Bed Hospital

Normal is 60% Occupancy

Well-Established Seasonal Fluctuations

Match Staffing Needs to Patient Load

Operating Budget Justifications

Time for Nurses Pay Increase Pay increase due for nurses Retain nurses

High Cost of New Employees Amount spent on hiring new staff

Pre-employment physical Pre-employment drug screen Background check

High Cost of Training New Nurses Orientation Special classes

Opportunity Cost

Expenses Increased Nurses to get increase in pay by $1.00/hr Will increase hospital expenses overall

Income Decreased Temporary decrease hospital income due to pay raise Worth the decrease to retain nurses Would have too many nurses during low census

Patient Care and Employee Satisfaction

Employee Satisfaction Higher pay = Increase in employee satisfaction Less financial worry for nursing staff

Patient Care Improve with more satisfaction of employee Satisfaction of some employees = higher morale High morale contagious

Employee moods affect other employee moods Daily patient care more tolerable with higher pay

Finance and Accounting

Operating Budget May have to be adjusted in other departments Raise will change from expense to asset Less expensive to increase pay than have nurse surplus

Increase in Expenses Increase Caused by the Decision to Give the Nurses $1 an

Hour Raise

Cost Measurement in Operating and Capital Budgets

Cash Budgets

Capital Budgets

Operating Budgets

Cost Measurement in Variance Analysis

Analyze Special Situations

Improve Forecasting

Year versus Year Comparisons

Cash Flow and Accumulated Cash

Sources of Cash

Conclusion

Completed 2010 Budget Review 2010 Budget Along with 2008-2009 Budgets Review Concluded that Nurses Should get $1 Raise

Differentiate Between Managerial Accounting and Financial Management

Generally Accepted Accounting Principles In the Health Care Industry

Conclusion Cont’d

The Effect of our Decision on the Operating Budget Opportunity cost Budget performance affects patient care and employee satisfaction Finance and accounting related to an operating budget

The Role of Cost Measurement in Maintaining the Operating and Capital Budgets via Variance Analysis

References

Finkler, S. A. and Ward, D. M. (2006). Accounting fundamentals for health care managements. Sudbury, MA: Jones and Bartlett.

Gapenski, L. C. (2008) Healthcare Finance. An introduction to accounting and financial management, (4th ed.). Chicago, IL: Health Administration Press and Association of University Programs in Health Administration.

Investopedia. (2013). Opportunity Cost definition. Retrieved from http://www.investopedia

University of Phoenix . (2006). Patton-Fuller community hospital virtual organization. Retrieved from University of Phoenix , HCS577

website.