14(15)For FY 2023, 0 Develop a statistical budget. 0 Develop a revenue budget and four expense budgets in statement of operations format including detailed footnotes explaining any changes in the numbers. 1) increase rates the maximum allowed and increase expenses the maximum requested; 2) increase rates the maximum allowed and maintain expenses at FY 2022 levels after adjusting for volumes; 3) increase order to 4) increase order to rates the maximum allowed and cut expenses in break-even in FY 2023. rates the maximum allowed and cut expenses in recover FY 2022 losses. (Chapter 14) Your Hospital It is December of 2022 and you have just accepted the CFO position at Panther Canyon Community Hospital(PCCH). You will be reporting to Mr. Salter (grandson of L.G. Salter), hospital chief executive officer (CEO) who had been Mayor of Panther before becoming the hospital CEO. Also reporting to Mr. Salter are Mr. Oh, hospital chief operating officer, Dr. Doctor, hOSpital medical director, and Ms. Nurse, hoSpital director of nursing. When announcing your appointment, Mr. Salter stated that your primary objective in the coming year which begins January 1, 2023, would be to reverse the ominous financial trend which began in 2021 with a $21,048 loss and continues in 2022 with a $1,000,000 budgeted loss (budgeted during the pandemic). PCCH is a 120-bed, community, non-profit hospital and medical office building built in 2002. PCCH is adjacent to a hospital- owned medical office building. The medical office building, in addition to providing a full range of outpatient physician services, also provides physician-owned outpatient radiology, lab and pharmacy. CCCH is one of three hospitals in Panther, , a city of 450,000. PCCH's primary competition includes Panther General Hospital (PGH), a 250-bed countyowned teaching hospital and Moneymaker, a ZOObed for-profit hospital owned by a small group of physicians. In order to acquire background information, you decide to meet with each of the principle players first. Meeting with Dr. Doctor Dr. Doctor, hospital medical director, told you: Most doctors have been on the medical staff for at least ten years. There is little loyalty to the hospital and most doctors also have admitting privileges at Moneymaker, a newer hospital with better facilities, but fewer nursing staff. There are few good reasons for the doctors to admit their patients to PCCH (you know that many doctors admit their commercially insured patients to Moneymaker and their Medicare, Medicaid, and charity care patients to CCCH and PGH. Mr. Meeting with Mr. Salter Salter, chief executive officer, stated: I just don't understand why we are losing money. I spent a considerable amount of time recruiting new doctors while keeping the existing doctors happy. The new, younger doctors just don't seem to have a sense of loyalty to PCCH. Furthermore, I've tried to establish a "family atmosphere" for our employees which stresses getting along with others in return for job security. Everyone seems happy. Everyone except Ms. Fi Nance Myway, whom you'll be replacing. She started last January and seemed increasingly frustrated with the way we do things hereshe just didn't fit in. I tried to accommodate her by implementing some of her recommendations, even though they were against my better judgmentlike charging visitors for parking when no other hospital in the area charges for parking ($100,00 of other operating revenue in 2022 (investment income in 2022 was $220,000)}. And when I announced that I was bringing in more business to the hospital by entering into a capitated managed care agreement with the citywe get $200 per month per family for taking care of the 800 city employees and their families, whether they're sick or not, Ms. Myway threw a fit at an exeCutive staff meeting. She claimed that my decisions were driving the hospital deeper into the red and as a result, I had to fire Ms. Myway for insubordination. That happened in November. Meeting with Ms. Controller Ms. Controller, hospital controller, in answer to your question regarding last year's loss, believes the following: While patient days are decreasing and outpatient visits are limited to the emergency room due to the physicians seeing outpatients in the physician office building next door. Our real financial problems involve our patient mix by financial classin 2020, 36% our our total patient days were Medicare: 23% were Medicaid; 30% were managed care; 4% were bad debt and implicit price concession, and 2% were charity care; and only 5% were commercial/selfpay (see Table IVA,B,C). Medicare inpatient DRG rates for our hospital are about 90% of our cost. This is largely due to the fact that our labor costs are too high. While our average acuity using DRG's as a severity index is 1.00 and our average length of stay is 6.5 days, Ms Nurse has always convinced Mr. Chief that SCH is a major trauma center and should be staffed with almost all RN's as a result. As you probably already know, Crocodile General is the trauma center in Crocodile Creek, and with a severity index of 1.12, their RN to total nursing staff is only .701 And Medicare emergenCy room rates are paid at Cost. Medicaid inpatient DRG rates fer our hospital are about 95% of our oost and emergenCy room rates are paid at oost. We expect Medicare and Medicaid rates to be increased 0.0% for 2021. 83% of our managed care Contracts include a 35% discount from charges. These contracts call for a 1% increased discount for every 1% increase in our rates. Our new managed care contract, which accounts for l?% of our managed care business, pays us $300 per month for each of the city's 800 employees and their families. We agreed to maintain that rate for the duration of the two- year contract--the contract started January 1, 2018. While commercial/self-pay payers pay our charges, it would be difficult to justify to the board an overall rate increase more than 3 percent. The hospital board, in response to public pressure, changed the charity care eligibility policy for the hospital from 100% of federal poverty guidelines to 140% of federal poverty guidelines. We expect our Charity care to increase in 2021 as a result, and with the new GAAP on bad debt, we expect bad debt expense to decrease (but implicit price concessions to increaseabout 33% of the bad debt expense will be written off as an implicit price concession). Meeting with Ms. Nurse Ms. Nurse, director of nursing, seeks your support in the following proposal: While our financial loss is serious; most of it is attributable to low rates--we need to increase our rates to reflect our quality services. Our nurses are overworked and underpaid. I've been working on two solutions that I would like you to support. First, I believe strongly in primary care nursing and as a result, 90 percent of the nursing staff is RN's. RN's can perform more tasks than LPN's and nursing assistants and therefore, are more efficient. This can be further justified by the acuity of our patients. Using the DRG scale as a severity index, our patients are sicker than the average hospital. However, I am having some difficulty getting the RN's to administer meds, empty bed pans, and feed patients. Therefore, I have developed a TQM program designed to convince the RN's that all their tasks are important. All RN's are required to attend 5 hours of TQM training each week for one year. Even though patient days are down, I would like to hire ten more RN's to help cover the floors when the other RN's are in training. In order to recruit these RN's, we need to increase their average hourly rate to $20.00, which is the average between Panther General and Moneymaker (see Table VIA). This, of course, would be in addition to the cost of living raises already announced by Human Resources. Meeting with Ms. Talent Seekers Ms. Seekers, human resources director, reluctantly admits the following to you. Hospital practice in the past has been to give the employees a cost of living raise equal to the year's percent increase in the CPI. Also, historically, we have allocated 5% of total wages to a merit pool to be awarded to meritorious employees based on their annual evaluations. Because Mr. Salter treats the employees like family, virtually everyone gets the raise. Here is a wage comparison to the facilities that we compete with for new hires (see Table VI-A). Mr. Salter asked us not to announce raises until your financial analysis is complete. In the event we can't give the expected raises, I need an explanation from you giving the reason. Meeting with Mr. Gotum When Youneedum Mr. Youneedum, materials manager, reports the following information to you. I am projecting a 10% increase in all non-labor prices next year with the exception of drugs and insurance should go up about 15%.Panther Canyon Community Hospital Balance Sheet as of December 31, 2022 Current Assets Cash Temporary investments Accounts receivable less allowances Inventory Prepaid expense Total Current Assets NonCurrent AS sets Land, plant, 0 equipment Accumulated depreciation Land, plant, 0 equipment, net Longterm investments Other noncurrent investments Total NonCurrent Assets TOTAL ASSETS Current Liabilities Accounts payable Notes payable Accrued expenses payable Deferred revenues Estimated thirdparty adjustments Current portion of longterm debt Total Current Liabilities NonCurrent Liabilities Longterm debt, net of current portion Total NonCurrent Liabilities TOTAL LIABILITIES Unrestricte net assets Restricted net assets Total Net Assets TOTAL LIABILITIES & NET ASSETS $ 280,000 30,000 8,860,000 140,000 40,000 9,350,000 60,580,000 60,000,000 580,000 400,000 50,000 1,030,000 $10,380,000 475,500 427,500 787,500 0 292,500 650,000 2,633,000 5,547,000 5,547,000 8,180,000 1,200,000 1,000,000 2,200,000 $10,380,000 Selected Industry Financial & Productivity Ratios For 100199 bed hospitals in Texas Financial Ratios PCCH Benchmark Liquidity Ratios Current ratio 2.08 Collection ratio 57.3 Days cashonhand, shortterm sources 11.6 Days cashonhand, all sources 15.2 Payment ratio 50.4 Profitability Ratios Operating margin 4.92 Total margin 5.54 Return on net assets 9.31 Efficiency Ratios Total asset turnover 1.21 Age of plant 9.1 Fixed asset turnover 2.? Current asset turnover 3.51 Inventory turnover 48.52 Capital Ratios Net asset financing 55.89 Longterm debt to capital 5.6 Debt service coverage 3.06 Cash flow to debt 15.82 Productivity Ratios Cost per patient day $2,833 Nursing service Nursing hours per patient day 6.25 RN's as a percent of total nursing 32.20 LPN's as a percent of total nursing 21.70 Nursing salary expense per patient day s 800 Full-time equivalent employees Per occupied bed 3.02 Per bed 2.49 Total hours per patient day 15.38 Salaries as a percent of total expenses 50.16 Table III-A PCCH Patient Volumes by Inpatient /Emergency FY2018 FY2019 FY2020 FY2021 FY2022 Inpatient Days 138, 020 130 , 208 124, 008 119, 240 121 , 624 Emergency Visits 17, 174 17 , 706 18 , 067 18 , 250 18 ,500 Table III-B PCCH Percentage of Total Patient Days by Financial Class FY2018 FY2019 FY2020 FY2021 FY2022 Medicare 31 32 34 35 36 Medicaid 18 20 21 22 23 Private Pay 27 23 16 7 5 Managed Care (dis) 19 20 24 26 Managed Care (cap) 0 0 5 NO Bad Debt N N NHWUTUT Implicit Price (IP) Charity Care 3 W 3 NTable III-C PCCH Patient Days by Financial Classification FY 2022 Managed Care Bad Debt Days M'care M'caid Private Disc. Cap. IP Charity Total Medical 28, 023 8,596 2,736 10 , 838 877 2, 517 839 1, 296 55 , 722 Surgical 10, 946 6, 102 547 4, 280 2, 164 536 179 536 25 , 290 ICU/CCU 2, 189 1, 276 304 1, 384 272 76 25 72 5,598 Psychiatric 2,627 1, 736 730 4, 344 852 150 50 164 10 , 653 Obstetrics O 4, 372 791 4, 848 972 162 54 156 11 , 355 Pediatrics 0 5, 892 973 4 , 712 944 208 69 208 13 , 006 Total 43, 785 27,974 6, 081 30, 406 6, 081 3, 649 1, 216 2, 432 121, 624 Visits Emergency 3,957 4, 687 4,378 2, 177 925 1, 446 185 745 18, 500Table III-D Hospital (Gross) Revenue per Patient Day FY 2022 Service PCCH PGH Moneymaker Medical $2 , 114 $ 2,220 $ 2, 008 Surgical 2, 404 2 ,524 2, 884 ICU/CCU 3 , 134 3, 291 2,977 Psychiatric 2,517 2,643 2, 391 Obtetrics (mother only) 1, 548 1, 625 1, 471 Pediatrics 2 , 215 2, 326 2, 104 Emergency Charges 855 898 812Table IV Radiology Department Procedures 2022 Tech Supply 2022 Procedure(% chargebased) Rate Minutes Expense Volume Radiology Chest 2view{25%) 126 14 10 20,000 Chest 4view{25%) 252 28 20 20,000 Hand(25%) 59 05 05 7,000 Arm(25%) 117 10 10 4,000 Foot(25%) 59 05 05 1,000 Leg(25%) 117 10 10 6,000 Flouroscopy(50%) 352 30 30 4,000 Ultrasound Abdomen(75%) 133 15 10 5,000 Other(75%) 117 10 10 5,622 Nuclear Medicine Scan(50%) 418 60 30 2,000 CT Head w/o contrast(75%) 542 30 50 200 Head w contrast(75%) 846 60 75 300 Body w/o contrast(50%) 781 30 75 400 Body w contrast(50%) 1,085 60 100 500 Table V-A Salary Survey of Area Hospitals Average Hourly Rates, December, 2022 Position PCCH PGH Moneymaker Head Nurse $48.00 $50 . 40 $52 . 80 Staff RN 37.00 38.85 40.70 Staff LPN 23.00 24 . 15 25.30 Nursing Assistant 18.00 18.90 19.80 Lab Tech 18.00 18.90 19.80 Imaging Tech 30.00 31.50 15 . 50 Food Server 9.20 9 . 66 8. 40 Housekeeper 9. 40 9. 87 8 . 60 Accountant 15.00 15. 75 14.00 Admitting Clerk 10.60 11 . 13 10.50 Pharmicist 62.00 65 . 10 65.00 Respiratory Therapist 30.00 31 .50 33. 00 Medical Records 22.00 23. 10 24.20 Maintenance Worker 16.00 16.80 17 .60 Laundry 8. 00 8 . 40 8. 80 Physical Therapy 48.00 50. 40 52 . 80 Administration 24.00 25.20 26.40Table V-B PCCH Staffing as of December 31, 2022 Department FTE'S Adminstration 184 Medical Records 32 Dietary 132 Housekeeping 84 Laundry 8 Maintenance 30 Nursing* 904 Laboratory 60 Imaging 36 Respiratory Care 16 Physical Therapy 12 Pharmacy 12 *90% RN head nurses, 60% employed RN's, 30% contracted RN'sTable VI Panther City and County Ad Valorem Property Tax Schedule per $100 assessed value Aquifer .00981 County .35510 City .47000 ISD 1.23554 Special Roads Project .06010 Crocodile Creek Watershed .02000 State Sales Tax 8.25% Table VII PCCH Operating Expenses 2022 Employee Compensation & Benefits 142,274,566 Employee Compensation 113,288,128 Benefits 28,986,438 Supplies, Drugs, Services 16,991,384 Estimated Bad Debt 9,173,042 Depreciation Expense 3,467,769 Interest Expense 1,155,923