Trusted by Students Everywhere

Facebook

Why Choose Us?

0% AI Guarantee

Human-written only.

24/7 Support

Anytime, anywhere.

Plagiarism Free

100% Original.

Expert Tutors

Masters & PhDs.

100% Confidential

Your privacy matters.

On-Time Delivery

Never miss a deadline.

CASE 1 Instructor Version Copyright 2006 7/7/05 by FACHE CREEKSIDE COMMUNITY HOSPITAL (A) Assessing Hospital Performance Case 1 presents the opportunity to conduct an extensive financial statement and operating indicator analysis on a 210-bed not-for-profit hospital

Business Jan 21, 2021

CASE 1

Instructor Version

7/7/05

by FACHE

CREEKSIDE COMMUNITY HOSPITAL (A)

Assessing Hospital Performance

Case 1 presents the opportunity to conduct an extensive financial statement and operating indicator

analysis on a 210-bed not-for-profit hospital. The case includes statement of cash flows analyses,

Du Pont analyses, ratio analyses, and economic value added analyses.

The INPUT DATA section of the model contains historical financial and operating data. The OUTPUT

DATA section contains all of the relevant analyses. Note that the model extends out to Column K.

The student version of the model is essentially the same as this model (only one cell [C226] has been

zeroed out). The key to student success in this case lies in interpretation of the data presented rather

than number crunching. However, there is ample opportunity for students to extend the model to

include percentage change analysis and common size analysis, as well as to create graphs (charts)

as needed to present their findings.

Note that the industry data used in this case are for instructional use only, and do not

represent actual industry data for the time period of the case.

INPUT DATA:

Statements of Operations:

(Millions of Dollars)

REVENUES

2001

2002

2003

2004

2005

Net patient service revenue

$ 25.661

$ 27.236

$ 28.796

$ 30.576

$ 34.582

Other revenue

1.305

1.261

1.237

1.853

1.834

Total revenues

$ 26.966

$ 28.497

$ 30.033

$ 32.429

$ 36.416

EXPENSES

Salaries and wages

$ 10.829

$ 11.135

$ 12.245

$ 12.468

$ 13.994

Fringe benefits

1.496

1.731

1.830

2.408

2.568

Interest expense

1.341

1.305

1.181

1.598

1.776

Depreciation

1.708

1.977

2.350

2.658

2.778

Provision for bad debts

0.546

0.589

0.622

0.655

0.776

Professional liability

0.102

0.157

0.140

0.201

0.218

Other

7.874

8.389

9.036

10.339

11.848

Total expenses

$ 23.896

$ 25.283

$ 27.404

$ 30.327

$ 33.958

Excess of revenues over expenses

$ 3.070

$ 3.214

$ 2.629

$ 2.102

$ 2.458

Balance Sheets:

(Millions of Dollars)

ASSETS

2001

2002

2003

2004

2005

Cash and investments

$ 3.513

$ 5.799

$ 4.673

$ 5.069

$ 2.795

Accounts receivable (net)

5.915

4.832

4.359

5.674

7.413

Inventories

0.338

0.403

0.432

0.523

0.601

Other current assets

0.693

0.294

0.308

0.703

0.923

Total current assets

$ 10.459

$ 11.328

$ 9.772

$ 11.969

$ 11.732

Gross plant and equipment

$ 37.999

$ 42.005

$ 47.786

$ 55.333

$ 59.552

Accumulated depreciation

8.831

10.092

11.820

14.338

17.009

Net plant and equipment

$ 29.168

$ 31.913

$ 35.966

$ 40.995

$ 42.543

Total assets

$ 39.627

$ 43.241

$ 45.738

$ 52.964

$ 54.275

LIABILITIES AND NET ASSETS

Accounts payable

$ 1.068

$ 1.273

$ 0.928

$ 1.253

$ 1.760

Accruals

0.692

0.942

1.460

1.503

1.176

Current portion of LT debt

0.136

0.290

0.110

1.341

1.465

Total current liabilities

$ 1.896

$ 2.505

$ 2.498

$ 4.097

$ 4.401

Long-term debt

$ 15.959

$ 15.775

$ 15.673

$ 19.222

$ 17.795

Net assets (Equity)

$ 21.772

$ 24.961

$ 27.567

$ 29.645

$ 32.079

Total liabilities and net assets

$ 39.627

$ 43.241

$ 45.738

$ 52.964

$ 54.275

Revenue and Cost Breakdown:

2001

2002

2003

2004

2005

Gross patient revenue

Inpatient

$ 25.161

$ 25.275

$ 26.117

$ 29.148

$ 33.216

Outpatient

4.748

5.969

6.535

9.130

11.912

Total gross patient revenue

$ 29.909

$ 31.244

$ 32.652

$ 38.278

$ 45.128

Revenue deductions

Contractual allowances

$ 2.489

$ 2.053

$ 1.729

$ 5.196

$ 7.516

Charity care

1.759

1.955

2.127

2.506

3.030

Total deductions

$ 4.248

$ 4.008

$ 3.856

$ 7.702

$ 10.546

Net patient service revenue

$ 25.661

$ 27.236

$ 28.796

$ 30.576

$ 34.582

Inpatient operating costs

$ 18.635

$ 19.221

$ 20.573

$ 22.229

$ 24.771

Outpatient operating costs

5.261

6.062

6.831

8.098

9.187

Total patient costs

$ 23.896

$ 25.283

$ 27.404

$ 30.327

$ 33.958

Selected Operating Data:

(Millions of Dollars)

2001

2002

2003

2004

2005

Medicare discharges

3,008

2,960

2,721

2,860

2,741

Total discharges

9,680

9,311

8,784

8,318

8,576

Outpatient visits

30,754

31,960

32,285

32,878

36,796

Licensed beds

210

Staffed beds

192

196

193

197

178

Patient days

45,296

45,983

44,085

42,434

40,062

Case mix index

1.2531

1.2674

1.2869

1.2993

1.3161

Employee FTEs

604.5

618.1

610.8

625.8

619.3

OUTPUT DATA:

Statements of Cash Flows:

(Millions of Dollars)

CASH FLOWS FROM OPERATIONS

2002

2003

2004

2005

Income from operations

$ 3.214

$ 2.629

$ 2.102

$ 2.458

Noncash expenses

1.952

2.326

2.633

2.756

Change in accounts receivable

1.083

0.473

(1.315)

(1.739)

Change in inventories

(0.065)

(0.029)

(0.091)

(0.078)

Change in other current assets

0.399

(0.014)

(0.395)

(0.220)

Change in accounts payable

0.205

(0.345)

0.325

0.507

Change in accruals

0.250

0.518

0.043

(0.327)

Change in current portion of LT debt

0.154

(0.180)

1.231

0.124

Net cash flow from operations

$ 7.192

$ 5.378

$ 4.533

$ 3.481

CASH FLOWS FROM INVESTING ACTIVITIES

Fixed asset acquisitions

$ (4.722)

$ (6.402)

$ (7.686)

$ (4.328)

CASH FLOWS FROM FINANCING ACTIVITIES

Long-term debt

$ (0.184)

$ (0.102)

$ 3.549

$ (1.427)

Net increase (decrease) in cash

$ 2.286

$ (1.126)

$ 0.396

$ (2.274)

Beginning cash and investments

3.513

5.799

4.673

5.069

Ending cash and investments

$ 5.799

$ 4.673

$ 5.069

$ 2.795

Note: The noncash expenses and fixed asset acquisitions data in the statements of cash flows are somewhat different than

they would be if calculated directly from the other financial statements because of asset revaluations.

Financial Statement Analysis: Du Pont Analysis

2005 Ind Data (200-299 Beds)

2001

2002

2003

2004

2005

+Quartile

Median

Total margin

11.38%

11.28%

8.75%

6.48%

6.75%

5.58%

3.48%

Total asset turnover

0.68

0.66

0.61

0.67

1.04

0.89

ROA = TM x TATO

7.75%

7.43%

5.75%

3.97%

4.53%

5.80%

3.10%

Equity multiplier

1.82

1.73

1.66

1.79

1.69

2.70

1.94

ROE = ROA x Equity multiplier

14.10%

12.88%

9.54%

7.09%

7.66%

15.66%

6.01%

Check ROE (Excess/Funds)

14.10%

12.88%

9.54%

7.09%

7.66%

Note: The quartile values are based on the upper and

lower numerical values regardless of whether that

value is good or bad. The interpretation is

left to the analyst.

Financial Statement Analysis: Ratios

2005 Ind Data (200-299 Beds)

2001

2002

2003

2004

2005

+Quartile

Median

Profitability Ratios:

Deductible ratio

0.14

0.13

0.12

0.20

0.23

0.34

0.26

Total margin

11.38%

11.28%

8.75%

6.48%

6.75%

5.58%

3.48%

Return on assets

7.75%

7.43%

5.75%

3.97%

4.53%

5.80%

3.10%

Return on equity

14.10%

12.88%

9.54%

7.09%

7.66%

15.66%

6.01%

Liquidity Ratios:

Current ratio

5.52

4.52

3.91

2.92

2.67

2.53

1.99

Days cash on hand

57.79

90.82

68.08

66.87

32.72

32.35

15.89

Debt Management Ratios:

Debt ratio

45.06%

42.27%

39.73%

44.03%

40.90%

62.90%

48.40%

LT debt to equity

73.30%

63.20%

56.85%

64.84%

55.47%

127.00%

64.70%

Times interest earned

3.29

3.46

3.23

2.32

2.38

4.29

2.23

Fixed charge coverage

2.99

2.83

2.95

1.26

1.31

2.18

1.35

Cash flow coverage

4.56

4.98

5.22

3.98

3.95

5.32

3.22

Asset Management Ratios:

Inventory turnover

79.78

70.71

69.52

62.01

60.59

98.68

63.95

Current asset turnover

2.58

2.52

3.07

2.71

3.10

3.94

3.38

Fixed asset turnover

0.92

0.89

0.84

0.79

0.86

2.20

1.76

Total asset turnover

0.68

0.66

0.61

0.67

1.04

0.89

Avgerage collection period

84.13

64.76

55.25

67.73

78.24

87.53

75.67

Average payment period

31.19

39.23

36.39

54.05

51.52

71.24

56.52

Other Ratios:

Average age of plant (years)

5.17

5.10

5.03

5.39

6.12

8.86

7.39

Operating Indicator Analysis:

2005 Ind Data (200-299 Beds)

2001

2002

2003

2004

2005

+Quartile

Median

Profit Indicators:

Profit per inpatient discharge

$305.00

$301.98

$280.03

$126.72

$79.61

$89.04

($21.30)

Profit per outpatient visit

($38.61)

($26.87)

($33.07)

($24.49)

($1.60)

$6.22

$0.66

Net Price Indicators:

Net price per discharge

$2,230

$2,366

$2,622

$2,799

$2,968

$4,091

$3,411

Net price per visit

$132

$163

$179

$222

$248

$201

$139

Medicare payment %

31.07%

31.79%

30.98%

34.38%

31.96%

43.47%

36.60%

Bad debt/charity %

5.88%

6.26%

6.51%

6.55%

6.71%

7.89%

4.76%

Contractual allowance %

8.32%

6.57%

5.30%

13.57%

16.65%

25.27%

20.02%

Outpatient revenue %

15.87%

19.10%

20.01%

23.85%

26.40%

25.26%

21.03%

Volume Indicators:

Occupancy rate

64.63%

64.28%

62.58%

59.01%

61.66%

67.12%

58.10%

Average daily census

124.10

125.98

120.78

116.26

109.76

173.23

144.73

Length of Stay Indicators:

Length of stay (days)

4.68

4.94

5.02

5.10

4.67

6.80

6.07

Adj length of stay

3.73

3.90

3.93

3.55

6.48

5.36

Intensity of Service Indicators:

Cost per discharge

$1,925

$2,064

$2,342

$2,672

$2,888

$3,937

$3,392

Adjusted cost per discharge

$1,536

$1,629

$1,820

$2,057

$2,195

$3,417

$2,924

Cost per visit

$171

$190

$212

$246

$250

$202.23

$141.97

Case mix index

1.2531

1.2674

1.2869

1.2993

1.3161

1.2795

1.1756

Efficiency Indicators:

FTEs per occupied bed

4.10

3.97

4.04

4.10

4.15

4.59

4.15

Outpat manhours/visit

6.49

7.69

7.88

9.44

9.24

8.66

5.84

Unit Cost Indicators:

Salary per FTE

$17,914

$18,015

$20,047

$19,923

$22,596

$24,447

$22,517

Employee benefits %

13.81%

15.55%

14.94%

19.31%

18.35%

19.58%

17.04%

Liability costs/disc

$10.54

$16.86

$15.94

$24.16

$25.42

$80.94

$42.05

EVA Analysis:

Cost of capital input

10.0%

2001

2002

2003

2004

2005

Economic value added (EVA)

$ 0.4

$ 0.2

$ (0.8)

$ (1.6)

$ (1.2)

Assignment Instructions:

The Consultant Report provides an opportunity for the student (working in groups) to synthesize the topics learned in this course into a project. This project provides the group with a hypothetical organization with some financial, operational, and strategic assumptions and asks the group to prepare a report to the Organization’s Senior Management and Board of Directors with an assessment as to how the Organization is currently performing and what recommendations are important to implement in order for the Organization to succeed in the future.

For this assignment, you will need to refer to the Creekside Community Hospital Data (also attached).

Utilize the following information:

Hospital Characteristics (see attached financials)
- Competitive environment, declining market share to competitors
- Moderate to substantial debt
- Facility and equipment that is fairly current, but will have future investments in capital
- Partial electronic medical record system
- Mediocre quality and patient satisfaction scores
- Few employed physicians/ no hospitalist program
- Split payor mix between public and private
- Overall not profitable from operations in most recent fiscal year
Local Physician Practices Characteristics
- Small primary care and specialty practices (mixture of solo and small groups)
- Independent ownership
- Loose affiliation with hospital
- Combination of office and hospital practice

Both Hospital and Physician organizations have contract only relationships with payors and suppliers and are currently not working with either in any strategic way financially.

Your group is hired as a financial consultant to prepare a financial strategy (or strategies) to the hospital as they transition from the current environment to the future environment that will be impacted by healthcare reform due to governmental intervention as well as changes from within the industry itself.

Specifically, your strategy should consider more than one alternative (outcomes). When formulating your response, consider addressing the following topics at a minimum (feel free to add other financial topics as well). This Consultant’s Report should include about one page for each topic:

Address how a strong operating and capital budget process would assist achieving future financial goals (what tools might you employ?). Explain why accurate cost allocation is important. What would be the priorities for capital budgets (in general, not specifically)?
Explain how you would advise both the hospital and physicians (separately or jointly) to work with payors and suppliers in this new environment.

All sources, including course materials, must be cited in text in APA style.

Expert Solution

PFA

Download Solution Attachment (PDF/Doc)

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote