Community Hospital Operating Margins Discussion ESSAY

Community Hospital Operating Margins Discussion

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Community Hospital Operating Margins

1.Operating margins in your hospital have been consistently below national norms for the past 3 years. Discuss the factors that might have created this situation and the ways in which you might determine specific causes.

2.Your firm reported net income of $5,000,000, but the change in equity was only $3,000,000. What could account for this difference?

3.Determine the amount of incremental profit that would be realized with a 10% across-the-board rate increase at Thunderbird Hospital. Thunderbird’s present payment composition is 80% fixed fee and 20% charges or discounted charges. Present operating income is defined below: Gross patient revenue$100,000,000less Contractual allowances40,000,000Net patient revenue$60,000,000less Expenses59,000,000Operating income$1,000,000

4. You have been reviewing documentation in your medical records department for the last week and have discovered a potential issue with respect to documentation for MS-DRG 193 (Simple Pneumonia and Pleurisy w MCC) and MS-DRG 194 (Simple Pneumonia and Pleurisy w CC). You have discovered 20 cases that were coded as MS-DRG 194 when in fact these patients did have diagnosis to support the major comorbidity and complication assignment. If the hospital’s base payment rate for a case weight of 1.000 is $5,000, determine the incremental payment the hospital would have received. Assume the case weight for is 1.000 for MS-DRG 194 and 1.4378 for MS-DRG 193.

5. Your firm’s investment portfolio was valued at $100,000,000 at the beginning of the year. Approximately 60% of the portfolio was invested in fixed income securities, primarily U.S. government bonds. The remaining 40% was invested in mutual funds selected by your firm’s portfolio manager. During the year U.S. government bonds yielded 6.0%, and the change in the Standard and Poor’s 500 index was 10.0%. Reported investment income during the year was $6,000,000, including realized gains. The firm also reported an unrealized loss of $1,000,000. Total yield on the portfolio was thus $5,000,000. What value would you have expected given the facts above?

6. Your present length of stay on Medicare patients is 6.3 days for 2,000 Medicare admissions. This value is unadjusted for case-mix effects. You have discovered that a normal length of stay should have been 5.0 days. If this level had been realized, you would have had 2,600 fewer days of care for Medicare patients. You are trying to determine the amount of actual savings that would be realized if the shorter length of stay could be affected. You have been told that a shorter length of stay would affect only direct costs of nursing. Your present direct cost of nursing per day is $300. Some of this cost is considered fixed and would not be changed. If 60% of the nursing cost were considered variable, how much saving would be realized through the length-of-stay reduction?

7. Charles S. Lewis has just been named the CEO of Community Hospital, a 230-bed hospital located in an agricultural community of approximately 150,000. There is one other similar-size hospital in the community. C.S. Lewis has been told by his CFO, J.R.R. Tolkien, that the hospital is in excellent financial condition, but Mr. Lewis is not convinced. He has requested and received summary financial statements presented in Table 11–5.

Table 11-5Summary Financial Information, Community Hospital,* 20X3–20X7 (data in thousands)

20X3

20X4

20X5

20X6

20X7

Balance sheet accounts

Cash and cash equivalents

$ 34,402

$ 30,444

$ 45,848

$ 46,010

$ 73,711

Patient accounts receivable

39,506

38,878

35,444

38,853

35,647

Inventory

2,133

2,318

2,398

3,197

3,279

Gross fixed assets

187,278

221,548

240,988

256,652

276,458

Accumulated depreciation

73,227

79,523

89,324

101,007

113,851

Net fixed assets

114,051

142,025

151,664

155,645

162,607

Unrestricted capital funds

10,720

13,625

20,160

25,615

17,716

Total assets

$ 238,365

$ 265,784

$ 276,965

$ 287,193

$ 311,140

Current maturities of long-term debt

111

1,794

1,431

2,211

1,143

Current liabilities

$ 37,426

$ 38,492

$ 33,240

$ 31,699

$ 35,862

Long-term debt

2,032

12,821

11,720

9,578

9,570

Net assets

$ 188,743

$ 204,262

$ 222,606

$ 237,022

$ 251,241

Income statement accounts

Net patient revenue

$208,861

$ 225,950

$ 244,976

$ 257,784

$ 282,461

Other revenue

1,569

1,756

1,929

2,170

1,757

Total operating revenue

$ 210,430

$ 227,706

$ 246,905

$ 259,954

$ 284,218

Total operating expenses

$ 203,043

$ 219,768

$ 233,867

$ 254,382

$ 278,629

Operating income

7,387

7,938

13,038

5,572

5,589

plus nonoperating revenue

6,806

7,579

8,971

8,430

8,696

Excess of revenue over expenses

$ 14,193

$ 15,517

$ 22,009

$ 14,002

$ 14,285

Depreciation

$ 10,588

$ 11,161

$ 11,659

$ 12,184

$ 12,524

Interest

115

611

471

419

392

*Note that not all asset and liability items are shown. The totals therefore do not foot to the individual account values.

Community Hospital Operating Margins Discussion ESSAY

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