Health care business analysis
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Health care business analysis
- 1. Health Care Business Analysis HCS/577 Sharon Sanders April 15, 2013 Team D Debbie Fernando-Leader Ashley Harrell Maureen Alfonso Susan Howard
- 2. 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
- 3. 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
- 4. Operating Budget Projection 2010 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
- 5. 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%
- 6. 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.
- 7. Managerial Accounting Operating budgets Operating budget projections Operating budget variances Revenues Expenses Trends Current market Operating income Allocation of resources
- 8. Financial Management Marketing Strategies Current health care trends Change in the health care industry Growth of managed care in the industry Strategies to increase contracts with manage care plans Increase patient volume
- 9. Generally Accepted Accounting Principles Objectivity Materiality Consistency Prudence
- 10. 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
- 11. 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
- 12. 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
- 13. 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
- 14. 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
- 15. Cost Measurement in Operating and Capital Budgets Cash Budgets Capital Budgets Operating Budgets
- 16. Cost Measurement in Variance Analysis Analyze Special Situations Improve Forecasting Year versus Year Comparisons Cash Flow and Accumulated Cash Sources of Cash
- 17. 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
- 18. 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
- 19. 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.
Notas do Editor
- Patton-Fuller Community Hospital is a 600 bed physician owned for profit hospital. The hospital’s mission is to develop, establish and maintain policies and programs that ensure the successful recruitment, employment and retention of a diverse, well qualified workforce to serve the patients. In the following Presentation we will be reviewing the Hospitals 2008, 2009 and 2010 budgets. Using these budgets along with the following key areas of: Differentiate Between Managerial Accounting and Financial Management, Generally Accepted Accounting Principles, The Effect of our Decision on the Operating Budget and, The Role of Cost Measurement in Maintaining the Operating and Capital Budgets via Variance Analysis; we will discuss and explain our decision on why we decided to give the nurses the $1 an hour raise.
- Patton-Fuller Community Hospital is a 600 bed physician owned for profit hospital. The hospital’s mission is to develop, establish and maintain policies and programs that ensure the successful recruitment, employment and retention of a diverse, well qualified workforce to serve the patients. Patton-Fuller Community Hospital’s operational goals includes retention of the employees by providing competitive and equitable compensation through modern marketplace surveys and research methods. Nursing supervisor has sent an e-mail to the CEO with an argument that the nurses are over-worked and that the nurses are over-worked having a negative effect on patient care and also leads to the nurses leaving Patton-Fuller to go to other hospitals. It was decided by the board after review of the nursing statistics to give the nurses a $1 and hour raise.
- Expenses have increased 387% due to $1 hr. raise for nurses. Total expenses will increase 238% from 462,293 to 1,098,844.
- The hospital will take advantage of price deflation and efficiency of new equipment and continued communication with managed care plans to improve contracts. The $1 per hour raise for the nurses will net a projected 621,655 income loss for the 2010 budget.
- Managerial accounting focuses on details of panning budgets for the immediate future. Managerial accounting is a continuation of the financial management process. Budgets are tools that are used to tie together planning and control functions. Corporates give managers precise targets to guide in the development of an operating budget. Operational planning provides a map for executing a financial management plan. Budgeting involves detailed pans in dollar amounts that specify how resources will be obtained and used during a specified period of time. Managerial accounting relies on revenues and cost estimates. These budgets provide managers the data to plan and communicate operational expectations of the organization. Managerial accounting enables managers to allocate resources to departments in the organization (Gapenski 2008).
- Financial management for Patton Fuller regarding projecting future revenues is dependent on Marketing’s strategies to increase donations. The change in the health care industry and the growth of managed care contracts will limit patient revenue. Relying on donations to increase revenues may not be an effective plan to increase revenues because of the variables associated with acquiring donations. A more strategic approach would be to look at opportunities to increase contracts with managed care plans and increase patient volume. Financial Management includes planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds for an organization. This includes general management principles of the organization including investment decisions. Financial management practices have considerable impact in the success of developing and monitoring operational budgets (Gapenski, 2008).
- Generally accepted accounting principles, or GAAP as they are more commonly known, are rules for the preparation of financial statements. Four Basic Constraints. The four basic constraints in generally accepted accounting principles are: objectivity, materiality, consistency and prudence. The objective constraint states that all the information included in the financial statements must be supported by independent, verifiable evidence. The standards of reporting under GAAP require auditors to state whether the company’s financial statements comply with Generally Accepted Accounting Principles (GAAP). Auditors must also clearly state any variances in the financial statements that do not comply with GAAP and whether any financial disclosures are adequate for disclosing pertinent financial information. The GAAP method of financial reporting allows the company to disclose all assets and still account for depreciation. The liabilities are listed in specific modules that show management which areas of business are in jeopardy and need attention. The method also allows the company to report pledges from donors and donations already received. This information allows management to incorporate new strategies to turn pledges into fulfilled donations and recognize if a fundraiser was worth the investment. A strong GAAP, which shows a long-term cash on hand operating budget, provides leverage in the event of a merger or takeover. The health company has the bargaining power to retain management and employees or continue special services offered to the clients. The company's financial standings are more transparent through the use of GAAP. Weaknesses in the business are quickly recognized and correctable. Management has the opportunity to build a strong company with a superior financial balance sheet.
- Patton-Fuller is a physician owned 600 bed hospital. However, the normal occupancy of the hospital is 60%. We have documented well-established seasonal fluctuations which can lower this 60% occupancy to 30-40%. We take all these factors into consideration when preparing a budget.
- Our nurses have not had an across-the-board raise in many years. They are due one. In order to retain our nurses, we need to make certain that their pay is comparable to other health care facilities that may try to lure them away from us. The cost of hiring new employees is outrageous. We have to pay for their physicals, labs, including drug screens, background checks, and other various checks. Besides the amount of money we would have to spend on the hiring process, new nurses have to be trained. Even veteran nurses have to be trained to our system of how we operate, our electronic health records, and other special classes or certifications they may need. New graduates have an even longer orientation period. They need supervision longer before they are comfortable being totally responsible for a patient. The long orientation also ties up one of our regular nurses to be supervising the new grad.
- Opportunity cost is the “cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action” (Investopedia, 2013). The opportunity cost for the Patton-Fuller Community Hospital is that the expense increased due to the nurse pay raise. This will pay for itself within a few years. If we had hired more nurses instead of giving our present nurses a raise, it would have increased the expenses more. This being due to the fact that during the summer months our census decreases to almost half. If we had hired more nurses, we would have to pay them when the census is down as well. This would change the nurse patient ratio closer to 2:1 during these months causing an unnecessary expense.
- The $1.00/hr pay raise will increase employee satisfaction. Although they will still have the same nurse to patient ratio, the nurses will be more please that they have a higher income. This will make caring for the most difficult patients easier to tolerate which will lead to improved patient care. When we make the nurses happier, we make the rest of the staff happier as well. Our nurses spend more time with the patient than any other staff members. The nurses are the liaisons between the other departments and more often than not, their attitudes play a big part in the attitudes of the ancillary department staff. By improving employee satisfaction of our nurses, we are improving job satisfaction for many others.
- Good budgeting will keep the Patton-Fuller Community Hospital from spending more than it can afford. An operating budget is the overall financial plan for the Organization spanning an entire year. Our teams decision to increase the nurses wages by $1 per hour will give an increase to the Hospital’s expenses of their budget. This adjustments is other departments may need to be made to cover the nurses’ raise. Giving the nurses a raise will change from an expense to an asset in just a few months. Our nurses will stay in our hospital sparing us the expense of hiring and training new ones. The finance and accounting in the operating budget will be the increase expenses that this decision has on the organization.
- Most private entities employ multiple budgets: capital budgets, operating budgets, and cash budgets. Private-sector capital budgeting is concerned only with decisions that have significant future consequences. Its time horizon is the life of the decision; its focus is the discounted net present value of the decision alternative. It is always distinguished from operating budgeting, which is concerned with motivating managers to serve the organization to the best of their abilities. In the operating budget the relevant time horizon is the operational cycle of the administrative unit in question, perhaps a month or even a week in the case of cost and revenue centers, usually longer where investment and profit centers are concerned. Operating budgets focus on the performance of the administrative unit, outputs produced and resources consumed – where possible these are all measured in current dollars. Cash budgeting is concerned with providing liquidity when needed at a minimum cost. Most governments try to make one process do the work of three.
- Variance analysis compares monthly budgets against actual numbers to highlight deviations between strategy and execution. Variance analysis can illuminate the beginnings of unsustainable trends and help the organization manage its budget in a way that is better aligned with its strategic goals (Gapenski 2008). Variance analysis also helps track cash by comparing what was expected to happen versus what actually did. Together, cost measurement and variance analysis provide unique tactical insight. Cost measurement and variance analysis provides tactical insight into financial position. It can reveal if the implementation plan for long-term strategies, as expressed through the budget, is proceeding as anticipated. It can indicate the need for updates to long-range forecasts. It can provide special analysis of and perspective on a variety of operational issues. This kind of tactical financial insight is essential during the current environment of instability. It helps ensure that essential services can be provided consistently and that long-term strategies can stay on track despite short-term volatility (Gapenski 2008).
- In conclusion Team D completed the 2010 budget and reviewed it along with the 2008-2009 budgets. It was decided by the board after review of the nursing statistics to give the nurses a $1 an hour raise. In completing this budget we have differentiate between managerial accounting and financial management. Along with explaining generally accepted accounting principles applied to the health care industry and how they are applied to our Operating Budget Projection. We also included numbers from the Patton-Fuller Community Hospital that supports our analysis.
- We also analyzed the effect of our decision on the operating budget including the following: What is the opportunity cost of the decision? How does budget performance affect patient care and employee satisfaction? How are finance and accounting related to an operating budget? We then concluded with the role of cost measurement in maintaining the operating and capital budgets via variance analysis.