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Assignment 3: Course Project Task 1—Understanding Prospective Client Organizations
For this assignment, you will refer to the financial information you collected for the FP and NFP in M1: Assignment 2. You will also refer to the information on the fictional facility, Sakasegawa Memorial Hospital (SMH), for which financial data is supplied.
You will use ratio analysis to conduct a review of each organization’s financial information. You will carry out an analysis of the key components of the balance sheet and income statement. Then, you will address the differences in the accounting statements of NFPs and FPs, including an examination of operational issues.
Here are some questions you can use to direct your review:
- Which organization is bigger? Consider assets, liabilities, and equity.
- Which organization has more debt? Consider debt and risk.
- Which organization is making money? Consider patient care revenue, patient days, and hospital beds.
- How much money comes from sources other than patient revenue? Consider contributions and research.
- How does the structure differ between FP and NFP facilities? Consider organizational type and overall structure.
Write a 3- to 5-page paper in Microsoft Word format. All written assignments and responses should follow APA rules for attributing sources. Use the following file naming convention: LastnameFirstInitial_M1_A3 .By Friday, March 8, 2013, submit your assignment to the M1: Assignment 3 Dropbox.
Voluntary Discussion
As you work on your course project, you may want to discuss your work with your classmates. The Discussion Area below will be available throughout the week where you can share your thoughts about your project, seek your classmates’ views on it, and offer feedback on their work. This activity is optional and not graded.
| Assignment 3 Grading Criteria | Maximum Points |
| Summarized differences between the NFP, FP, and SMH financial data. | |
| Summarized differences between NFP, FP, and SMH organization operations. | |
| Supported assertions with reasons, examples, and references to reliable sources. | |
| Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources, displayed accurate spelling, grammar, and punctuation. | |
| Total: |
For assistance with any problems you may have when completing this
>SMH Introduction
0-bed metropolitan not-for-profit (NFP) hospital in a major city. The hospital competes with other hospitals for its patient base. Managed care is a significant part of its revenue stream and the hospital is not receiving competitive rates. This puts the hospital at a competitive disadvantage. 5 years and there is only a small mortgage on the building. This is an advantage for the hospital. payments and a number of people in the community losing their insurance coverage.
8 ,000.00
enue
– Medicare Medicaid
08,800.00
rev – sale of asset
Rev
Source $340,900.00 $0.00 .00
$1,005,000.00 rwmayer: Source .00
$573,833,500.00 $591,414,000.00 Medicare Medicaid total 160 6% 2% $407,909,342.40 Roger Mayer: patient days patient days patient days patient days square feet totals Inpatient allocated expenses Allocation basis Patient days Patient days Totals Allocation basis 100% to cardiology 100% to Orthopedic Patient days Patient days Patient days Totals Allocation basis 100% to cardiology 100% to Orthopedic Patient days total Assignment detail Roger Mayer: Assignment detail Expenses Direct Patient Care Expenses Assignment detail Patient days Expenses Clinical Salaries & Fringes Officers Salaries& Fringe Total Direct Expenses Roger Mayer:
2
Sakasegawa Memorial Hospital (SMH) is a
6
5
The hospital has been in existence for over
7
The hospital sold property and used the funds to build the infrastructure of the organization. While the hospital needs additional funding for major projects, it has no more property available for sale.
In addition, while the hospital has enjoyed the benefits of several significant contributors, these contributors are getting “contributor fatigue.” They are less interested in contributing because the hospital has not turned the corner on operation revenue and expenses. The hospital faces significant issues with the current economic crisis. The issues include a drop in Medicaid
2007 revenue expense data
Revenue
Source
Amount
Net Patient revenue non-
Medicare
$260,
1
3
]
Capitation Rev
$36,829,320.00
Patient Revenue
$188,
4
three items match line 1 Part 1
Unrelated business revenue
Capitation Rev
Other
$5,492,700.00
Rent revenue
$450,000.00
dividends
$3,800,000.00
Investment Income
$1,892,925.00
Other rev – other
$5,290,000.00
Note – see detail
Contributions
$7,722,580.00
Net assets released from restrictions
Ttl
Unrestricted
$510,069,325.00
Expenses
Total
Clinical Services
management & General
Fundraising
Salaries
Salaries Officers
25a Part II
$5,008,242.00
$540,392.00
$4,135,300.00
$332,550.00
Other Salaries
26 Part II
$176,481,232.00
$158,833,127.00
$16,765,700.00
$882,405.00
Pension
27 Part II
$17,942,172.00
$16,147,964.00
$1,704,508.00
$89,700.00
Fringe Benefits
28 Part II
$23,783,424.00
$21,406,424.00
$2,259,000.00
$118,000.00
Payroll Taxes
29 Part II
$13,336,000.00
$12,002,000.00
$1,266,000.00
$68,000.00
Total Salaries & Benefits
total
$236,551,070.00
$208,929,907.00
$26,130,508.00
$1,490,655.00
Fundraising fees
30 Part II
$0.00
Accounting Fees
31 Part II
$340,900.00
Legal fees
32 Part II
$1,345,300.00
$1,211,300.00
$134,000.00
Supplies & Other
33 Part II
$226,106,126.00
$225,600,500.00
$500,210.00
$5,416.00
Telephone
34 Part II
$1,049,247.00
$944,400.00
$99,600.00
$5,247.00
Postage and shipping
35 part II
$339,584.00
$305,626.00
$32,260.00
$1,698.00
Occupancy
36 Part II
Equipment rental and maintenance
37 Part II
$8,967,852.00
$8,071,152.00
$896,700.00
Printing and publications
38 Part II
$177,000.00
$159,200.00
$16,800.00
$1,000.00
Conference conventions and meetings
40 Part II
$78,500.00
$70,000.00
$8,000.00
$500.00
Interest exp (net)
41 Part II
$9,601,800.00
$8,551,800.00
$1,000,000.00
$50,000.00
Depreciation
42 Part II
$31,083,552.00
$27,975,052
$3,108,500.00
Provision for Bad debt
43a *
$1,005,000.00
Other expenses
43b-*
Ttl exp
$516,645,931.00
$482,823,937.00
$32,267,478.00
$1,554,516.00
Excess of rev over exp
($6,576,606.00)
See detail – Hospital costs2007 asset liab data
Beginning of year
End of Year
ASSETS
2005
2006
Cash
line 45 Part IV
$6,787,000.00
$2,210,000.00
Cash investments
line 46 Part IV
$19,850,000.00
$32,808,000.00
Accounts Receivable
Line 47a Part IV
$117,500,000.00
Less Allowance
Line 47b Part IV
$47,948,000.00
Net Accounts Receivable
Line 47 Part IV
$63,330,
160
$69,552,000.00
Pledges Receivable
Line 48a Part IV
$4,700,900.00
Less Allowance
Line 48b Part IV
$576,000.00
Net Pledges Receivable
Line 48 Part IV
$6,123,000.00
$4,124,900.00
Other Note receivables
Line 451cPart IV
$13,378,061.00
$22,606,100.00
Inventory
Line 52 Part IV
$8,443,379.00
$10,362,000.00
Prepaid expenses
line 53 Part IV
$9,917,000.00
$7,705,000.00
Investments (FMV)
line 54a Part IV
$74,180,000.00
$78,800,000.00
Land
line 57a Part IV
$617,314,000.00
Accoumulated Depreciation
line 57b Part IV
$328,568,000.00
Net Land
line 57c Part IV
$290,824,900.00
$288,746,000.00
Other Assets
line 58 Part IV
$81,000,000.00
$74,500,000.00
Total Assets
$573,833,500.00
$591,414,000.00
Liabilities
Accounts Payable
line 60 Part IV
$83,829,885.00
$87,118,742.00
Tax exempt bond
line64a part IV
$139,233,400.00
$136,451,800.00
Mortgage and Note Payable
line 64b Part IV
$17,210,000.00
$17,900,000.00
Other Liabilities
line 65 Part IV
$122,683,500.00
$133,556,958.00
Total Liabilbites
$362,956,785.00
$375,027,500.00
Fund Balances
Unrestricted
line 67 Part IV
$155,132,000.00
$158,866,000.00
Temporarily restricted
line 68 Part IV
$38,523,000.00
$40,208,000.00
Permanently restricted
line 69 Part IV
$17,221,715.00
$17,312,500.00
Fund balance
$210,876,715.00
$216,386,500.00
Liabilities and Net Assets
Detailed revenue
Part III Form 990
Patient days
Inpatient
164,972
Ambulatory service visits
outpatient
148,617
Patient days distribution
% distribution
total days
Cardiology
6%
9,145
Orthopedic
10%
15,959
Medicine
7
2%
119,246
Other services
13%
20,622
distribution of
patient days
Managed care/Insurance
Private pay
Column1
Cardiology
3658
457
4481
549
9145
Orthopedic
5905
9097
798
15959
Medicine
41736
9540
66778
1192
119246
Other services
9223
496
10401
502
20622
60522
10653
90756
3041
164972
% distribution
37%
55%
100%
Revenue Distribution
Payer
Column2
Total Revenue
Inpatient Revenue
Outpatient Revenue
Medicare Revenue
$179,567,920.00
$154,045,694.40
$25,522,225.60
Medicaid Revenue
$16,840,880.00
$14,956,792.00
$1,884,088.00
Managed Care
$274,162,320.00
$226,729,856.00
$47,432,464.00
Private Pay
$14,850,000.00
$12,177,000.00
$2,673,000.00
$485,421,120.00
$407,909,342.40
$77,511,777.60
Inpatient Revenue Distribution
Cardiology Orthopedic Medicine Other
Totals
Inpatient Revenue
$39,612,365.72
$41,460,795.08
$284,847,513.80
$41,988,667.80
use this allocation basis to allocate expenses between payers in Module 3 assignment 2.Detailed costs
Table I
Personnel and other
totals
Inpatient allocated expenses
Allocation basis
Officers Salaries& Fringe
$708,424.15
$566,739.32
Clinical Salaries & Fringes
$208,221,482.85
$197,810,408.70
hours of service
41.6779152919
Other clinical expenses
$20,318,478
$16,254,782
Depreciation $27,975,052
$22,380,042
square feet
Physician Fees
$14,850,673.89
$11,880,539.11
Other supplies
$9,433,511.95
$7,546,809.56
Utilities
$17,289,172.12
$13,831,337.69
Total Personnel and other
$298,796,794.96
$270,270,658.39
Table II
Direct Patient Care Expenses
Cardiology
$12,506,205.80
$10,004,964.64
100% to cardiology
Orthopedic
$12,339,125.41
$9,871,300.33
100% to Orthopedic
pharmaceuticals
$23,391,254.11
$18,713,003.29
$69,545,157.89
Ancillary (lab x-ray)
$63,540,193.25
$50,832,154.60
Total
$111,776,778.57
$89,421,422.85
Table III
Indirect Patient Care expenses
Inpatient Allocated expenses
Cardiology medical supplies
$2,659,459.72
$2,127,567.78
Orthopedic medical supplies
$2,393,513.75
$1,914,811.00
pharmaceuticals
$5,318,919.44
$4,255,135.55
$31,913,516.65
general medical supplies
$21,275,677.77
$17,020,542.21
ancillary expenses
$13,297,298.60
$10,637,838.88
Total
$44,944,869.28
$35,955,895.43
Table IV
Malpractice
Inpatient Allocated Expenses
Cardiology
$5,263,709.72
$4,210,967.78
Orthopedic
$6,908,619.01
$5,526,895.21
Medicine
$14,804,183.60
$11,843,346.88
100% medicine
Other services
$328,981.86
$263,185.49
Total
$27,305,494.19
$21,844,395.35
Table V
Clinical Salaries & Fringes – Inpatient Allocation
Cardiology
324,648
Orthopedic
478,770
Medicine
3,458,134
Other services
484,617
4,746,169
average rate per hour – $41.68
Table VI
Square feet allocation – Inpatient services
Cardiology
21%
Orthopedic
26%
Medicine
49%
Other services
4%
total 100%
Module 3 Asgn 1 Instructions
The SMH financial statement contains additional data that will allow you to conduct an analysis of revenue efficiency factors.
In this assignment, you will calculate direct expenses including labor, supply, and drug costs.
Assignment detail
Tabs to reference:
“Detailed Revenue” allocates revenue by inpatient and outpatient
“Detailed Expenses” allocated direct expenses by inpatient and outpatient
“2007 Revenue Expense Data” provides data on other income sources and indirect expenses.
1
Create a table that shows gross profit (patient revenue – direct expenses) for inpatient and outpatient services.
See example:
Inpatient Revenue Outpatient Revenue Total Revenue
Inpatient direct expenses
Outpatient direct expenses
Total Expenses
IP Gross Profit
OP Gross Profit
Total Gross Profit
2
Calculate Gross Profit (GP) margin for both services.
3
Calculate GP per patient day and per operating theater (OT) procedure.
4
Compare your expenses to your benchmark data. (Because some of the comparative data does
not have sufficient detail this may be a high-level review.)
5
Comment on the services from the perspective of expense and revenue distribution and explain why
there are differences between gross profit margins
6
Complete a table that includes other expenses and other revenue. The table should clearly
distinguish between direct and indirect expenses
7
Comment on why other income and contributions are critical to the survival of the organization.
Does the reliance on investment income mean that the organization will take a higher risk in order
to increase income?
Module 3 Assgn 2 Instructions
You will use the information from M3: Assignment 1, develop a gross profit analysis for managed care payers
to develop a strategic plan for a managed care contract negotiation.
Tabs to reference:
“Detailed Revenue” allocates revenue by inpatient and outpatient
“Detailed Expenses” allocated direct expenses by inpatient and outpatient 1
Calculate inpatient gross profit for the major payers at the hospital.
Inpatient analysis
Medicare Revenue Medicaid Revenue Managed Care Private Pay Totals
Patient Revenue
Expenses
Personnel and other
Direct Patient Care Expenses
Indirect Patient Care expenses
Malpractice
Total Direct Expenses
Gross profit by Payer
2
Calculate gross profit and gross profit percentage by payer.
3
Comment on the results of your GP calculations.
4
In this example we assumed that patients from each payer incurred costs at the same rate.
Is this assumption correct? What level of detail of cost identification should the Hospital attempt to obtain?
5
Based on your understanding of your costs, you will develop a plan for contract negotiations with a managed care provider. In your plan,
outline a strategy for contract negotiation.
6
Based upon your analysis of the other organizations are you in a better or worse position when it comes for contract negotiations?
7
Payers always want to move procedures from the Inpatient setting to an Outpatient setting.
How does this affect the hospital strategy?
use revenue distribution table
Roger Mayer:
Allocate expenses based upon patient day distribution %.Module 4 Assgn 1 Instructions
You will analyze the SMH Data Set to identify costs associated with specific clinical product lines and measure gross profit.
You will compare results your analysis and become familiar with activity based costing and managed care contracting in this study.
The “Detailed Cost” tab provides inpatient costs and the allocation basis for each cost. You will put this information into a model
and a model that analyzes costs by product line. In this case we have for product lines including Cardiology, Orthopedic Medicine, and Other.
Tabs to reference:
“Detailed Revenue” allocates revenue by inpatient and outpatient
“Detailed Expenses” allocated direct expenses by inpatient and outpatient 1
Calculate inpatient gross profit for each product line. The template that students can use is as follows:
Note: Allocate revenue based upon patient day distribution between product lines
Cardiology Orthopedic Medicine Other Totals
Inpatient Revenue
Officers Salaries& Fringe
Clinical Salaries & Fringes
Other clinical expenses
Depreciation
Physician Fees
Other supplies
Utilities
Indirect Patient Care expenses
Malpractice
Total Direct Expenses
Gross profit by Product Line
2
Comment on the results of your inpatient GP calculations. What product line is most profitable by dollar amounts and gross profit percentage?
3
Is there value in separating product lines into more detail? What detail would you recommend?
For example, what is the value in separating revenue and expenses by physician? Surgery type? And others?
Module 4 Assgn 2 Instructions
In this assignment, students will carry out a profit analysis for a specific product line.
We are using the example of Cardiology. However, students can use another product line
Students will develop a Cost-Volume-Profit template to help measure costs and changes to variable and indirect costs using SMH data.
Tabs to reference:
“Detailed Revenue” allocates revenue by inpatient and outpatient
“Detailed Expenses” allocated direct expenses by inpatient and outpatient
“Module 4 Assgn 1 Instructions” for baseline cost information
1
Develop a template of costs.
You should separate expenses between variable and fixed expenses.
To assist, the template provides some guidance:
Inpatient Cardiology
Cardiology total
Per patient day
Revenue
Variable
Other clinical expenses
Physician Fees
Other supplies
Direct Patient Care Expenses
Indirect Patient Care expenses
Total Variable Expenses
Fixed
Depreciation
Utilities
Malpractice
Total Fixed Expenses
Gross profit for Inpatient Cardiology
2
Calculate the break even point in patient days
Note: Break even point
Total Fixed cost / (per patient day revenue – per patient day variable expenses)
3
Calculate the break even point assuming a 5 percent increase in clinical salaries and a 4 percent increase in officer salaries.
4
A physician wants to add a new procedure that will increase direct patient care expense by $200 per day.
What is the impact on gross profit and the breakeven point?
5
The hospital is considering hiring a physician. This will increase annual costs by $250,000. However, with the addition of this
physician it is anticipated that patient days will increase by 6 percent. Is this a good move for the Hospital?
6
Many times it is difficult to determine if a cost is variable or fixed. In addition, costs may be variable, but only in a relevant range.
Do you agree with the categorization of costs as they are presented on this template? Would you recommend changes? What additional
information would help you analyze the data?
do not calculate fixed costs on a per patient day basis.
