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Refer to the Metropolis Health System (MHS) comparative financial statements at the back of the Examples and Exercises section.
Common size the MHS Statement of Revenue and Expenses.
Preparing a Business Plan
Assumptions
Types of assumptions required for the financial portion of a business plan typically include answers to the following questions:
Example of Typical Income Statement Assumption Information Requirements:
- What types of revenue?
- How many services will be offered to produce the revenue (by month)?
- How much labor will be required (FTEs)?
- What will the labor cost?
- How many and what type of supplies, drugs, and/or devices will be required to offer the service?
- What will the supplies, drugs, and/or devices cost?
- How much space will be required?
- What will the required space occupancy cost?
- Is special equipment required? If so, how much will it cost?
- Is staff training required to use the special equipment? If so, how much time is required, and what will it cost?
Refer to the course project to add a nuclear cardiac stress lab.
Identify how many of the assumption items listed in the example above can be found in the project worksheets.
Use of Excel is strongly encouraged!
171
PART VII
Case Study
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BACKGROUND
1. The Hospital Syste
m
Metropolis Health System (MHS) offer
s
comprehensive health care services. It is
a midsize taxing district hospital. Al-
though MHS has the power to raise rev-
enues through taxes, it has not done so
for the past seven years.
2. The Area
MHS is located in the town of Metropo-
lis, which has a population of 50,000.
The town has a small college and a mod-
est number of environmentally clean in-
dustries.
3. MHS Services
MHS has taken significant steps to re-
duce hospital stays. It has developed a
comprehensive array of services tha
t
are accessible, cost-effective, and re-
sponsive to the community’s needs.
These services are wellness oriented in
that they strive for prevention rather
than treatment. As a result of these
steps, inpatient visits have increased
overall by only 1,000 per year sin
ce
1998, whereas outpatient/same-day sur-
gery visits have had an increase of over
50,000 per year.
A number of programmatic, service,
and facility enhancements support this
major transition in the community’s in-
stitutional health care. They are geared
to provide the quality, convenience, af-
fordability, and personal care that best
suit the health needs of the people
whom MHS serves.
• Rehabilitation and Wellness Center—for
outpatient physical therapy and re-
turn-to-work services plus cardiac and
pulmonary rehabilitation to get peo-
ple back to a normal way of living.
• Home Health Services—bringing skilled
care, therapy, and medical social serv-
ices into the home; a comfortable and
affordable alternative in longer term
care.
• Same-Day Surgery (SDS)—eliminating
the need for an overnight stay. Since
1998, same-day surgery procedures
have doubled at MHS.
• Skilled Nursing Facility—inpatient serv-
ice to assist patients in returning more
fully to an independent lifestyle.
• Community Health and Wellness—com-
munity health outreach programs that
173
CHAPTER 18
Case Study:
Metropolis Health System
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174 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM
provide educational seminars on a vari-
ety of health issues, a diabetes education
center, support services for patients with
cancer, health awareness events, and a
women’s health resource center.
• Occupational Health Services—helping
to reduce workplace injury costs at
over 100 area businesses through con-
sultation on injury avoidance and
work-specific rehabilitation services.
• Recovery Services—offering menta
l
health services, including substance
abuse programs and support groups
along with individual and family coun-
seling.
4. MHS’s Plant
The central building for the hospital is
in the center of a two–square block area.
A physicians’ office building is to the
west. Two administrative offices, con-
verted from former residences, are on
one corner. The new ambulatory center,
completed two years ago, has an L shape
and sits on one corner of the western
block. A laundry and maintenance
building sits on the extreme back of the
property. A four-story parking garage is
located on the eastern back corner. An
employee parking lot sits beside the
laundry and maintenance building. Vis-
itor parking lots fill the front eastern
portion of the property. A helipad is on
the extreme western edge of the prop-
erty behind the physicians’ office build-
ing.
5. MHS Board of Trustee
Eight local community leaders who
bring diverse skills to the board govern
MHS. The trustees generously volunteer
their time to plan the strategic direction
of MHS, thus ensuring the system’s abil-
ity to provide quality comprehensive
health care to the community.
6. MHS Management
A chief executive officer manages MHS.
Seven senior vice presidents report to
the CEO. MHS is organized into 23
major responsibility centers.
7. MHS Employees
All 500 team members employed by
MHS are integral to achieving the high
standards for which the system strives.
The quality improvement program, im-
plemented in 1995, is aimed at meeting
client needs sooner, better, and more
cost-effectively. Participants in the pro-
gram are from all areas of the system.
8. MHS Physicians
The MHS medical staff is a key part of
MHS’s ability to provide excellence in
health care. Over 75 physicians cover
more than 30 medical specialties. The
high quality of their training and their
commitment to the practice of medi-
cine are great assets to the health of the
community.
The physicians are very much a part
of MHS’s drive for continual improve-
ment on the quality health care services
offered in the community. MHS brings
in medical experts from around the
country to provide training in new tech-
niques, made possible by MHS’s techno-
logic advancements. MHS also ensures
that physicians are offered seminars,
symposiums, and continuing education
programs that permit them to remain
current with changes in the medical
field.
The medical staff’s quality improve-
ment program has begun a care path
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initiative to track effective means for di-
agnosis, treatment, and follow-up. This
initiative will help avoid unnecessary or
duplicate use of expensive medications
or technologies.
9. MHS Foundation
Metropolis Health Foundation is pre-
sently being created to serve as the phil-
anthropic arm of MHS. It will operate in
a separate corporation governed by a
board of 12 community leaders and sup-
ported by a 15-member special events
board. The mission of the foundation will
be to secure financial and nonfinancial
support for realizing the MHS vision of
providing comprehensive health care for
the community.
Funds donated by individuals, busi-
nesses, foundations, and organizations
will be designated for a variety of pur-
poses at MHS, including the operations
of specific departments, community
outreach programs, continuing educa-
tion for employees, endowment, equip-
ment, and capital improvements.
10. MHS Volunteer Auxiliary
There are 500 volunteers who provide
over 60,000 hours of service to MHS
each year. These men and women assist
in virtually every part of the system’s op-
erations. They also conduct community
programs on behalf of MHS.
The auxiliary funds its programs and
makes financial contributions to MHS
through money it raises on renting tele-
visions and vending gifts and other
items at the hospital. In the past, its do-
nations to MHS have generally been
designated for medical equipment pur-
chases. The auxiliary has given $250,000
over the last five years.
11. Planning the Future for MHS
The MHS has identified five areas of
desired service and programmatic en-
hancement in its five-year strategic plan:
I. Ambulatory Services
II. Physical Medicine and Rehabilita-
tive Services
III. Cardiovascular Services
IV. Oncology Services
V. Community Health Services
MHS has set out to answer the most
critical health needs that are specific to
its community. Over the next five years,
the MHS strategic plan will continue a
tradition of quality, community-oriented
health care to meet future demands.
12. Financing the Future
MHS has established a corporate depre-
ciation fund. The fund’s purpose is to
ease the financial burden of replacing
fixed assets. Presently, it has almost $2
million for needed equipment or reno-
vations.
I. MHS CASE STUDY
Financial Statements
• Balance Sheet (Exhibit 18–1)
• Statement of Revenue and Expense
(Exhibit 18–2)
• Statement of Cash Flows (Exhibit
18–3)
• Statement of Changes in Fund Bal-
ance (Exhibit 18–4)
• Schedule of Property, Plant, and
Equipment (Exhibit 18–5)
• Schedule of Patient Revenue (Exhibit
18–6)
• Schedule of Operating Expenses (Ex-
hibit 18–7)
MHS Case Study 175
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176 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM
Statistics and Organizational Structure
• Statistics (Exhibit 18–8)
• MHS Nursing Practice and Admin-
istration Organization Chart (Figure
18–1)
• MHS Executive-Level Organization
Chart (Figure 18–2)
Variance Analysis Report and
Recommendations
• Radiology Diagnostic Clinic Report
Exhibit 18–1 Balance Sheet
Metropolis Health System
Balance Sheet
March 31, 20X7
Assets
Current Assets
Cash and Cash Equivalents $1,150,000
Assets Whose Use Is Limited 825,000
Patient Accounts Receivable 7,400,000
(Net of $1,300,000 Allowance
for Bad Debts)
Other Receivables 150,000
Inventories 900,000
Prepaid Expenses 200,000
Total Current Assets 10,625,000
Assets Whose Use Is Limited
Corporate Funded
Depreciation 1,950,000
Held by Trustee Under Bond
Indenture Agreement 1,425,000
Total Assets Whose Use Is
Limited 3,375,000
Less Current Portion <825,000>
Net Assets Whose Use Is
Limited 2,550,000
Property, Plant, and
Equipment, net 19,300,000
Other Assets 325,000
Total Assets $32,800,000
Liabilities and Fund Balance
Current Liabilities
Current Maturities of Long-Term
Debt 525,000
Accounts Payable and Accrued
Expenses $4,900,000
Bond Interest Payable 300,000
Reimbursement Settlement
Payable 100,000
Total Current Liabilities 5,825,000
Long-Term Debt 6,000,000
Less Current Portion of
Long-Term Debt <525,000>
Net Long-Term Debt 5,475,000
Total Liabilities 11,300,000
Fund Balances
General Fund 21,500,000
Total Fund Balances 21,500,000
Total Liabilities and Fund
Balances 32,800,000
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MHS Case Study 177
Exhibit 18–2 Statement of Revenue and Expense
Metropolis Health System
Statement of Revenue and Expense
For the Year Ended March 31, 20X7
Revenue
Net patient service revenue $34,000,000
Other revenue 1,100,000
Total Operating Revenue $35,100,000
Expenses
Nursing services $5,025,000
Other professional services 13,100,000
General services 3,200,000
Support services 8,300,000
Depreciation 1,900,000
Amortization 50,000
Interest 325,000
Provision for doubtful accounts 1,500,000
Total Expenses 33,400,000
Income from Operations $1,700,000
Nonoperating Gains (Losses)
Unrestricted gifts and memorials $20,000
Interest income 80,000
Nonoperating Gains, Net 100,000
Revenue and Gains in Excess of Expenses and Losses $1,800,000
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178 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM
Exhibit 18–3
Statement of Cash Flows
Metropolis Health System
Statement of Cash Flows
For the Year Ended March 31, 20X7
Statement of Cash Flows
Operating Activities
Income from operations $1,700,000
Adjustments to reconcile income from operations
to net cash flows from operating activities
Depreciation and amortization 1,950,000
Changes in asset and liability accounts
Patient accounts receivable 250,000
Other receivables <50,000>
Inventories <50,000>
Prepaid expenses and other assets <50,000>
Accounts payable and accrued expenses <400,000>
Reduction of bond interest payable <25,000>
Estimated third-party payer settlements <75,000>
Interest income received 80,000
Unrestricted gifts and memorials received 20,000
Net cash flow from operating activities $3,350,000
Cash Flows from Capital and Related Financing Activities
Repayment of long-term obligations <500,000>
Cash Flows from Investing Activities
Purchase of assets whose use is limited <100,000>
Equipment purchases and building improvements <2,000,000>
Net Increase (Decrease) in Cash and Cash Equivalents $750,000
Cash and Cash Equivalents, Beginning of Year 400,000
Cash and Cash Equivalents, End of Year $1,150,000
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MHS Case Study 179
Exhibit 18–4 Statement of Changes in Fund Balance
Metropolis Health System
Statement of Changes in Fund Balance
For the Year Ended March 31, 20X7
General Fund Balance April 1, 1999 $19,700,000
Revenue and Gains in Excess of Expenses and Losses 1,800,000
General Fund Balance March 31, 2000 $21,500,000
Exhibit 18–5 Schedule of Property, Plant, and Equipment
Metropolis Health System
Schedule of Property, Plant, and Equipment
For the Year Ended March 31, 20X7
Buildings and Improvements $14,700,000
Land Improvements 1,100,000
Equipment 28,900,000
Total $44,700,000
Less Accumulated Depreciation (26,100,000)
Net Depreciable Assets $18,600,000
Land 480,000
Construction in Progress 220,000
Net Property, Plant, and Equipment $19,300,000
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180 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM
Exhibit 18–6 Schedule of Patient Revenue
Metropolis Health System
Schedule of Patient Revenue
For the Year Ended March 31, 20X7
Patient Services Revenue
Routine revenue $9,850,000
Laboratory 7,375,000
Radiology and CT scanner 5,825,000
OB–nursery 450,000
Pharmacy 3,175,000
Emergency service 2,200,000
Medical and surgical supply and IV 5,050,000
Operating rooms 5,250,000
Anesthesiology 1,600,000
Respiratory therapy 900,000
Physical therapy 1,475,000
EKG and EEG 1,050,000
Ambulance service 900,000
Oxygen 575,000
Home health and hospice 1,675,000
Substance abuse 375,000
Other 775,000
Subtotal $48,500,000
Less allowances and charity care 14,500,000
Net Patient Service Revenue $34,000,000
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Metropolis Health System
Schedule of Operating Expenses
For the Year Ended March 31, 20X7
Nursing Services
Routine Medical-Surgical $3,880,000
Operating Room 300,000
Intensive Care Units 395,000
OB-Nursery 150,000
Other 300,000
Total $5,025,000
Other Professional Services
Laboratory $2,375,000
Radiology and CT Scanner 1,700,000
Pharmacy 1,375,000
Emergency Service 950,000
Medical and Surgical Supply 1,800,000
Operating Rooms and
Anesthesia 1,525,000
Respiratory Therapy 525,000
Physical Therapy 700,000
EKG and EEG 185,000
Ambulance Service 80,000
Substance Abuse 460,000
Home Health and Hospice 1,295,000
Other 130,000
Total $13,100,000
General Services
Dietary $1,055,000
Maintenance 1,000,000
Laundry 295,000
Housekeeping 470,000
Security 50,000
Medical Records 330,000
Total $3,200,000
Support Services
General $4,600,000
Insurance 240,000
Payroll Taxes 1,130,000
Employee Welfare 1,900,000
Other 430,000
Total $8,300,000
Depreciation 1,900,000
Amortization 50,000
Interest Expense 325,000
Provision for Doubtful
Accounts 1,500,000
Total Operating Expenses $33,400,000
MHS Case Study 181
Exhibit 18–7 Schedule of Operating Expenses
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182 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM
Inpatient Indicators:
Patient Days
Medical and surgical 13650
Obstetrics 1080
Skilled nursing unit 4500
Admissions
Adult acute care 3610
Newborn 315
Skilled nursing unit 440
Discharges
Adult acute care 3580
Newborn 315
Skilled nursing unit 445
Average Length of Stay (in days) 4.1
Departmental Volume Indicators:
Respiratory therapy treatments 51,480
Physical therapy treatments 34,050
Laboratory workload units
(in thousands) 2,750
EKGs 8,900
CT scans 2,780
MRI scans 910
Emergency room visits 11,820
Ambulance trips 2,320
Home Health visits 14,950
Approximate number of employees
(FTE) 510
Exhibit 18–8 Hospital Statistical Data
Metropolis Health System
Schedule of Hospital Statistics
For the Year Ended March 31, 20X7
Womens
Health
Pediatric
Nursing
Ambulatory
Nursing
Medical
Surgical
Emergency
Nursing
TQI
Education
Recruitment
Support
Finance
Information
Systems
Support
Director
of
Nurses
MRI
Dialysis
Oncology
Cardiac Rehab
Medical
Surgical
Emergency
OB/GYN
Health
&
Development
Children’s Medicine
Pediatric Medicine
Figure 18–1 MHS Nursing Practice and Administration Organization Chart. Courtesy of Resource Group,
Ltd., Dallas, Texas.
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MHS Case Study 183
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26605_CH18_BAKER.qxd 11/30/05 4:27 PM Page 183
184
Using Financial Ratios and
Benchmarking: A Case Study in
Comparative Analysis
APPENDIX 18–A
Sample Hospital is another facility within
the Metropolis Health System. Sample Hos-
pital has recently been acquired by Metrop-
olis. It is a 100-bed hospital that has been
losing money steadily over the last several
years. The new chief financial officer (CFO)
has decided to use benchmarking as an aid
to turn around Sample’s financial situation.
Benchmarking will illustrate where the hos-
pital stands in relationship to its peer group.
The CFO orders two benchmarking re-
ports: one for the hospitals that are 100 beds
or less and one for all hospitals, no matter the
size. The 100 beds or less report will allow di-
rect comparability for Sample, while the all-
hospital report will give a universal or overall
view of Sample’s standing. Both reports ap-
pear at the end of this case study. Exhibit
18–A–1 is the benchmark data report for Sam-
ple General Hospital compared with hospitals
less than 100 beds, whereas Exhibit 18–A–2 is
the benchmark data report for Sample Gen-
eral Hospital compared with all hospitals.
When the reports arrive, the CFO writes a
description of how the data are arranged so
that his managers will better understand the
information presented. His description in-
cludes the following points:
1. The percentile rankings are intended
to present the hospital’s performance
ranked against all other performers in
the comparison group. Whether the
hospital’s actual performance is good
or bad depends on the statistic being
evaluated.
2. The first column, labeled “Year 1,”
provides a historical trend of actual
performance of the hospital in the
previous year. It is provided for refer-
ence only so that the reader can see
the trend over time.
3. The column labeled “Q1 Year 2” rep-
resents the first quarter of the current
year. These are the most recent data
that this service has been provided for
Sample Hospital and are the data used
in the comparison columns that fol-
low.
4. The column labeled “Benchmark:
50th Percentile” represents the 50th
percentile of all of the hospitals in the
comparison group that supplied data
for the individual line item.
5. The “Variance” column compares the
data from Q1 Year 2 of Sample Hospi-
tal with the 50th percentile informa-
tion from the entire comparison
group.
6. The column labeled “Range” indicates
where Sample Hospital’s individual
score fell within a percentile range.
26605_CH18_BAKER.qxd 11/30/05 4:27 PM Page 184
For example, review the average length of
stay information for hospitals less than 100
beds in Exhibit 18–1. For the Q1 Year 2,
Sample Hospital has a length of stay of 3.91
versus a benchmark comparison number of
4.06, a favorable performance against the
50th percentile by 0.15 (the –0.15 indicates
an amount under the 50th percentile that,
in the case of average length of stay, would
be favorable). This performance places the
hospitals score in the 35th to 40th percentile
of all respondents.
As the CFO already knows, Sample Hospi-
tal is in trouble. In most cases, the facility is
either at or below (worse than) the 50th per-
centile information. Most of the labor pro-
ductivity measures are in the 60th to 65th
percentile range, with the cost information
in the same relative range. This indicates
that Sample is spending more than the peer
group for labor and supplies. The utilization
statistics also present a dismal picture.
Each statistic has to be evaluated against
what it means to the institution before a
conclusion can be drawn. For example, the
occupancy percentage for Sample is 46.36%
versus the 50th percentile of 57.66. This
places Sample in the 10th to 15th percentile
range for the comparison group of hospitals
less than 100 beds. In terms of utilization,
the CFO knows that a facility should be in
the 80th to 85th percentile range to use all
of its assets effectively.
What other statistics should the CFO re-
view to assure that a higher occupancy per-
centage is beneficial to the hospital? The
answer is average length of stay. Sample Hos-
pital has a length of stay of 3.91 (as discussed
earlier), which is favorable compared with
the peer group, but an occupancy rate that
is 11.30% below the 50th percentile for the
peer group of hospitals less than 100 beds. If
these two statistics are observed in combina-
tion, one could say that Sample efficiently
manages its patients, but just does not have
enough of them.
Other statistics bear the same message.
The hospital is not profitable, and much of
the problem is because the cost of running
the institution exceeds the availability of pa-
tients to pay the bills. In other words, all in-
stitutions have core staffing requirements,
and within a certain range of volume, most
costs are fixed. Sample has 100 beds in use
while the 50th percentile for its peer group
shows 66 beds in use. Sample’s plant is too
big for its patient volume. These circum-
stances can mean the hospital is heading for
disaster.
So what happened to Sample Hospital?
As you can surmise from the data, the previ-
ous year (labeled “Year 1” on Exhibits 18–1
and 18–2) was not favorable. Three years
previous, the institution was losing money at
a rate of over $1 million per month. The
next two years showed improvement (even
though the data still shows concern), and
the improvement trend continued through
the year labeled “Year 2” on Exhibits 18–1
and 18–2. By using benchmarking data (and
a lot of other analysis), management was
able to determine and address many issues
that forced this facility to perform below
market averages. By improving quality, man-
aging costs, and controlling productivity,
the hospital was able to stabilize its financial
position. In addition, with creative manage-
ment and attention to both clinical quality
and customer service, the occupancy per-
centage rose to above the 50th percentile.
Finally, the operating margin improved dra-
matically. In the first quarter of year 2, the
margin was minus 3.18. By the end of year 3,
results showed a positive margin of greater
than 2.5%, a dramatic turnaround. Bench-
marking assisted in this turnaround by
showing management where the need for
improvement was greatest.
MHS Case Study 185
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186 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM
Exhibit 18A–1
Benchmark Data Report
Sample General Hospital
Compared to Hospitals of less than 100 beds
Current Quarter Benchmark
Annual Average Q 1 %ile
Year 1 Year 2 50%ile Variance Range
Severity/Length of Stay
Average Length of Stay 3.80 3.91 4.06 –0.15 35–40
Case Mix Index (All Patients) 1.02 1.04 1.04 0.005 50–55
Case Mix Index (Medicare) 1.24 1.26 1.19 0.07 80–85
Productivity/Labor Utilization
FTE per Adjusted Occupied Bed 5.11 4.68 4.44 0.24 60–65
Paid Hours per Adjusted Patient Day 29.12 26.67 25.3 1.37 60–65
Paid Hours per Adjusted Discharge 110.53 104.19 109.5 –5.32 35–40
Salary Cost per Adjusted Discharge $2,638 $2,510 $2,510 $0 50–55
Costs & Charges
Cost per Adjusted Patient Day $1,704 $1,608 $1,448 $161 70–75
Cost per Adjusted Discharge $6,467 $6,282 $5,909 $373 55–60
Cost per CMI (All Pat.) Adj Discharge $6,328 $6,041 $5,837 $204 50–55
Cost per CMI (All Pat.) Adjusted
Patient Day $1,667 $1,546 $1,408 $139 60–65
Supply Cost per Adjusted Discharge $1,046 $968 $867 $101 60–65
Supply Cost per CMI (All Pat.) Adj.
Discharge $1,024 $931 $829 $102 60–65
Gross Charges per Adjusted Discharge $12,987 $14,155 $12,536 $1,620 60–65
Deductions Percentage 0.40% 58.46% 51.04% 7.42% 60–65
Net Charges per Adjusted Discharge $6,112 $5,880 $5,929 ($49) 45–50
Net Charges per Adjusted Patient Day $1,610 $1,505 $1,424 $82 60–65
Utilization
Average Daily Census 43.15 46.36 37.69 8.67 65–70
Occupancy Percent 41.09% 46.36% 57.66% –11.30% 10–15
Outpatient Charges Percent 53.15% 54.02% 50.14% 3.88% 55–60
Beds In Use 100 100 66 34 90–95
Adjusted Occupied Beds 92.2 100.82 72.05 28.76 75–80
Total Patient Days excluding Newborns 3,936 4,172 3,392 780 65–70
Total Discharges excluding Newborns 1,036 1,068 751 317 80–85
Newborn Days as a % of Total Patient
Days 6.95% 5.40% 4.61% 0.79% 60–65
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MHS Case Study 187
Exhibit 18A–1 (continued)
Financial Performance—Profitability Ratios
Operating Margin –2.26 –3.18 1.95 –5.13 15–20
Profit Margin –2.26 –3.18 2.06 –5.24 20–25
Return on Total Assets
(Annualized) (%) –2.37% –3.58% 1.22% –4.80% 20–25
Return on Equity (Annualized) (%) –6.56% –11.19% 4.61% –15.80% 15–20
Financial Performance—Liquidity Ratios
Current Ratio 1.28 1.19 1.9 –0.71 15–20
Quick Ratio 0.54 0.56 1.56 –0.99 15–20
Net Days in Patient AR (Days) 50.73 49 51.86 –2.86 40–45
Financial Performance—Leverage and Solvency Ratios
Total Asset Turnover—Annualized 1.07 1.13 0.99 0.14 65–70
Current Asset Turnover—Annualized 3.21 3.65 3.57 0.08 50–55
Equity Financing 0.38 0.32 0.47 –0.15 25–30
Long-Term Debt to Equity 0.77 0.85 0.56 0.28 70–75
Current Quarter Benchmark
Annual Average Q 1 %ile
Year 1 Year 2 50 %ile Variance Range
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188 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM
Exhibit 18A–2
Benchmark Data Report
Sample General Hospital
Compared to All Hospitals
Current Quarter Benchmark
Annual Average Q 1 %ile
Year 1 Year 2 50%ile Variance Range
Severity/Length of Stay
Average Length of Stay 3.80 3.91 4.81 –0.91 10–15
Case Mix Index (All Patients) 1.02 1.04 1.14 –0.103 25–30
Case Mix Index (Medicare) 1.24 1.26 1.38 –0.118 30–35
Productivity/Labor Utilization
FTE per Adjusted Occupied Bed 5.11 4.68 4.87 –0.19 40–45
Paid Hours per Adjusted Patient Day 29.12 26.67 27.77 –1.1 40–45
Paid Hours per Adjusted Discharge 110.53 104.19 134.6 –30.41 10–15
Salary Cost per Adjusted Discharge $2,638 $2,510 $2,927 ($417) 25–30
Costs & Charges
Cost per Adjusted Patient Day $1,704 $1,608 $1,530 $78 60–65
Cost per Adjusted Discharge $6,467 $6,282 $7,284 ($1,001) 30–35
Cost per CMI (All Pat.) Adj Discharge $6,328 $6,041 $6,115 ($74) 45–50
Cost per CMI (All Pat.) Adjusted
Patient Day $1,667 $1,546 $1,268 $278 80–85
Supply Cost per Adjusted Discharge $1,046 $968 $1,250 ($282) 25–30
Supply Cost per CMI (All Pat.)
Adj. Discharge $1,024 $931 $1,069 ($138) 30–35
Gross Charges per Adjusted
Discharge $12,987 $14,155 $17,196 ($3,041) 35–40
Deductions Percentage 0.40% 58.46% 56.31% 2.15% 55–60
Net Charges per Adjusted Discharge $6,112 $5,880 $7,419 ($1,539) 20–25
Net Charges per Adjusted Patient Day $1,610 $1,505 $1,529 ($24) 45–50
Utilization
Average Daily Census 43.15 46.36 142.98 –96.62 15–20
Occupancy Percent 41.09% 46.36% 69.38% –23.02% < 5
Outpatient Charges Percent 53.15% 54.02% 39.64% 14.38% 85–90
Beds In Use 100 100 206 –106 20–25
Adjusted Occupied Beds 92.2 100.82 225.9 –125.09 15–20
Total Patient Days excluding Newborns 3,936 4,172 12,868 –8,696 15–20
Total Discharges excluding Newborns 1,036 1,068 2,506 –1,438 20–25
Newborn Days as a % of Total
Patient Days 6.95% 5.40% 4.52% 0.87% 60–65
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MHS Case Study 189
Exhibit 18A–2 Continued
Financial Performance—Profitability Ratios
Operating Margin –2.26 –3.18 4.45 –7.63 10–15
Profit Margin –2.26 –3.18 4.66 –7.84 10–15
Return on Total Assets
(Annualized) (%) –2.37% –3.58% 4.04% –7.62% 10–15
Return on Equity (Annualized) (%) –6.56% –11.19% 8.46% –19.65% 5–10
Financial Performance—Liquidity Ratios
Current Ratio 1.28 1.19 2.2 –1 10–15
Quick Ratio 0.54 0.56 1.74 –1.18 5–10
Net Days in Patient AR (Days) 50.73 49 55.76 –6.77 25–30
Financial Performance—Leverage and
Solvency Ratios
Total Asset Turnover—Annualized 1.07 1.13 0.93 0.2 70–75
Current Asset Turnover—Annualized 3.21 3.65 3.48 0.18 50–55
Equity Financing 0.38 0.32 0.5 –0.18 20–25
Long-Term Debt to Equity 0.77 0.85 0.59 0.26 65–70
Current Quarter Benchmark
Annual Average Q 1 %ile
Year 1 Year 2 50%ile Variance Range
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- PART VII Case Study
CHAPTER 18 Case Study: Metropolis Health System
BACKGROUND
I. MHS CASE STUDY
APPENDIX 18–A Using Financial Ratios and Benchmarking: A Case Study in Comparative Analysis
PRO FORMA INC STMT
REVENUE
S:
EXPENSES
:
$ – 0
$ – 0
$ – 0
$ – 0
$ – 0
$ – 0
$ – 0
$ – 0
$ – 0
$ – 0
$ – 0
$ – 0
$ – 0
expense
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$ – 0
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INCOME TAX
ES:
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CONT MGN and BREAK-EVEN
| CONTRIBUTION MARGIN | ||||
| BREAK-EVEN ANALYSIS | ||||
| VOLUME | ||||
| REVENUES: | PER EXAM | TYPE OF EXP | ||
| Net patient revenue per exam | ||||
| EXPENSES: | ||||
| Total Variable Expenses | Total Variable Expense per exam | |||
| Contribution Margin | Contribution Margin per exam | |||
| FIXED EXPENSES: | ||||
| Total Fixed Expenses | ||||
| BREAK-EVEN POINT | ||||
| INCOME TAXES: |
INCOME TAX
| RATES | AMOUNT |
| Total taxes | 0% |
REVENUE
| PAYOR | % OF PATIENTS | % OF MPFS | BAD DEBT % | |
| Medicare | ||||
| Medicaid | ||||
| Blue Cross/Blue Shield | ||||
| Aetna | ||||
| Cigna | ||||
| United Healthcare | ||||
| Other commercial | ||||
| Workers’ Comp | ||||
| Self pay | ||||
| Charity care | ||||
| DESCRIPTION | CPT CODE | BALTO MD RATE | ||
| Radionuclide | various | $ 265.00 | estimate per patient | |
| Myocardial perfusion imaging; tomographic (SPECT), multiple studies (including attenuation correction when performed), at rest and/or stress (exercise and/or pharmacologic), and redistribution and/or rest injection, with or without quantification | 78465 | Use participating, non-facility price (with no modifiers) | ||
| Myocardial perfusion study with wall motion, qualitative or quantititative study (use in conjunction with 78460, 78461, 78464, 78465) | 78478 | |||
| Myocardial perfusion study with ejection fraction (use in conjunction with 78460, 78461, 78464, 78465) | 78480 | |||
| Cardiovascular stress test using maximal or submaximal treadmill or bicycle exercise, continuous electrocardiographic monitoring, and/or pharmacological stress; with physician supervision, with interpretation and report | 93015 | |||
| TOTAL | ||||
| GROSS CHARGE PER TEST | ||||
| % OF PATIENTS NEEDING STRESS TEST | ||||
| PHYSICIAN CASELOAD | LOW | MEDIUM | HIGH | |
| TOTAL ANNUAL TEST VOLUME | ||||
| Physician | ||||
| # of cardiologists | ||||
| % of patients needing stress testing | ||||
| Annual anticipated test volume | ||||
| GROSS REVENUE | NET FEE PER TEST | CONTRACTUAL ALLOWANCE | NET REVENUE | BAD DEBT EXPENSE |
| TOTALS |
EXPENSES
| PROJECTED VOLUME: | |||||||
| STAFFING: | AVG HR RATE | HOURS/TEST | TOTAL STAFF COUNT | COST | FTE | ||
| Registered Nurse | |||||||
| Respiratory Technician | |||||||
| Nuclear Medicine Technician | |||||||
| Receptionist | |||||||
| Insurance verifier | |||||||
| Biller | |||||||
| Collector | |||||||
| Benefits as % of salary cost | |||||||
| OPERATING EXPENSES: | UNITS | ||||||
| Routine medical supplies | |||||||
| Radiation exposure monitors | |||||||
| TOTAL EXPENSES (not including bad debts) | |||||||
| CAPITAL EXPENDITURES: | USEFUL LIFE (YRS) | DEPRECIATION | |||||
| Dual-headed nuclear camera | |||||||
| “Hot lab” renovations | |||||||
| Additional plumbing | |||||||
| Electrical & data cabling | |||||||
| Treadmill, exam table, etc. | |||||||
| Computer equipment | |||||||
| Structural renovations | |||||||
| FINANCING: | |||||||
| Borrow | |||||||
| Interest rate | |||||||
| Term in years |
