ALL INFORMATION THAT WAS GIVEN HAS BEEN PROVIDED! NEED HELP WITH ASTERISK (**) INFORMATION

Transcript of the VOICEMAIL FROM George Costanza (CFO):

Hi, it's George. I hear you're working on a budget for the Med-Surg department for FY 2019. I'd like you to come to the budget meeting this afternoon, because I'm going to be sharing some numbers that are likely to have an impact on your budget. I've sent you the year-to-date statements through December, the overall budget for the year, and the year-to-date budget variance for your department. Take a look at them, and bring them with you to the meeting. See you later!

Transcript from BUDGET MEETING:

George C., CFO

Hi, everyone. Thanks for coming. We've got some important numbers to go through and a big challenge to respond to, so I think we better get started. Jerry, Vice President of Operations That sounds ominous. Newman, Vice President of Medical Support Well, can we at least get an idea of how we're doing year-to-date before you go to the 40,000-foot level? George I think you might need to hear this first. Here's the situation: The hospital has to cut operating expenses by 5 percent for next fiscal year. Kramer, Director of Clinical Operations I'm sorry, did you say 5 percent? Operating expenses? George That's right. Jerry That's a big ask. We're already operating awfully lean. George Agreed. But it's the situation we're in. I'll get to the reasons, but based on what I'm going to go over, I just want everyone to keep in mind that we can't make assumptions we were making before. So let me give you an overview of the budget and the year-to-date numbers, and I think you'll see why we're going to have to make those cuts. Now, last year, for the entire hospital, we assumed that we would see $1.2 billion in total patient revenue. But as you can see, for half the year, we've only hit just over $607 million. By this point in the year, we should be over $612 million. So already in terms of total patient revenue, we've got a deficit of nearly $5 million that we didn't expect. The problem is made worse when we see that other operating revenue is also under budget by $1.5 million. I believe that recent efforts in the billing department coupled with some of the solid work by the c-suite team on physician engagement and external marketing are going to have an impact on the revenue side of things. Were also currently negotiating with a couple of our primary commercial payers, but those negotiations remain uncertain. All things considered, Im hoping for about a 5% bump on the revenue side for FY 19. Our operating expenses are fairly close to target so far this year, but given the situation with uncertain revenue, we will need to try to find some additional cost savings opportunities. I want to be reasonably conservative in case market conditions change or negotiations with our payers dont go as expected. Newman Wow. Well, okay, so that's the reality. What's the timeline? How long do we have to make these cuts? George Well, implementation is obviously by June 30 since the next fiscal year starts July 1. The board will approve the new budget probably by mid-June, but all the negotiation at the unit and department level will be going on this month. Our first official budget committee meeting is in early May. So I'd suggest getting your ducks in a row within the next week or so.

In your proposal, think through the cuts that are being proposed. Do you simply want to take a salami slice cut across all areas of expense? Or, are there areas where it might make more sense to protect while others are more flexible? Since this is a simulation, you wont know everything that you normally would about the organization, the people involved, etc. However, think through what the second and third order effects are of a budget cut and provide some commentary regarding what other issues might surface and/or may need to be addressed as a result.

Your position is as the Director of the Medical Surgical Unit

Review the transcripts from the budget meeting and recent voicemails from your CFO and, using the available information and resources, develop an operating budget for your department (to be provided).

**Your departmental budget should include a memo with an accompanying Excel spreadsheet that:

**Provides the departmental revenue and expenses through the current month of the current year.

**Estimates the departmental revenue and expenses for the rest of the current fiscal year based on the assumptions provided in the transcript documents.

**Prepares a budget for the next fiscal year.

Additional Helpful Information: An important detail in the Assignment - remember you are the Director of the Med-Surg Department, and your budgets should reflect only that Department, you do not need to develop a budget for the whole hospital. When considering the information provided in the budget meeting transcript, the projections are for the whole hospital, of which the med-surf department is only a part. Consider the following:

Of the $1.2 billion in total hospital wide patient services revenue, approximately 57% of the total revenue is for in-patient care; the other 43% is for outpatient revenue

• The Medical Surgical Budget reflects only in-patient revenue
• Yearly budgeted Medical Surgical Dept. in-patient revenue: $50,000,000
• As a percent of the total in-patient revenue, the Med-Surg represents: 7%
• In-patient revenue for the Dept. in the first 6 months is below budget by approximately $1.9 million

The UMUC Medical Center FY 2019 YTD FY 2019 (Jul - Dec) FY 2019 Budget Variance YTD OPERATING REVENUE: Inpatient Revenue $ 375,040,349 $ 700,000,000 $ 25,040,349 Outpatient Revenue $ 232,498,397 $ 525,000,000 $ (30,001,603) TOTAL PATIENT SERVICES REVENUE $ 607,538,746 $ 1,225,000,000$ (4,961,254) DEDUCTIONS FROM REVENUE: Contractual Adjustments | $ 476,543,215 $ 950.000.000 $ 1.543.215 Charity and Uncompensated Care $ 6,725,412 $ 14,000,000 $ (274,588) TOTAL DEDUCTIONS FROM REVENUE $ 483,268,627 $ 964,000.000 $ 1.268.627 . NET PATIENT SERVICE REVENUE $ 124,270,119 $ 261,000,000$ (6.229.881) OTHER OPERATING REVENUE Other Operating Revenue $ 3,500,000 $ 10,000,000 $ (1,500,000) TOTAL OPERATING REVENUE $ 127,770,119 $ 271,000,000 $ (7,729,881) OPERATING EXPENSES Salaries and Wages | $ 42,932,230$ 88,000,000 $ (1,067,770) Employee Benefits | $ 12,624,012 $ 25,000,000 $ 124,012 Professional Fees $ 4,082,215 $ 9,000,000 $ (417,785) Supplies $ 23,883,407 $ 46,000,000 $ 883,407 Purchased Services - Utilities $ 1,632,191 $ 3,000,000 $ 132,191 | Purchased Services - Other $ 11,536,320 $ 22,000,000 $ 536,320 Depreciation $ 8,455,254 $ 17,000,000 $ (44,746) Rentals and Leases $ 2,252,670 $ 4,000,000 $ 252,670 Insurance $ 2,715,378 $ 5,000,000 $ 215,378 License and Taxes $ 7,992,144 $ 18,000,000 $ (1,007,856) Interest $ 8,393,790 $ 18,000,000 $ (606,210) Provision For Bad Debts Other Direct Expenses $ 4,744,642 $ 8,000,000 $ 744,642 TOTAL OPERATING EXPENSES $ 131,244,253 $ 263,000,000 $ (255.747) NET OPERATING REVENUE $ (3,474,134) $ 8,000,000 $ (7,474,134) NET REVENUE BEFORE ITEMS LISTED BELOW $ (3,474,134) $ 8,000,000 $ (7,474,134) EXTRAORDINARY ITEM NET REVENUE OR (EXPENSE) | $ (3,474,134) $ 8,000,000 $ (7,474,134) Med/Surg Department Budget | FY 2019 YTD 9 YTD FY 2019 Budapt FY 2019 Budget F Y 2019 (Jul - Dec) Variance TYD OPERATING REVENUE: Inpatient Revenue $ 23,123,516 $ 50,000,000 $ (1,876,484) TOTAL PATIENT SERVICES REVENUE $ 23,123,516 $ 50,000,000 $ (1,876,484) OPERATING EXPENSES Salaries and Wages $ 12,157,632 $ 23,000,000 $ 657,632 Employee Benefits $ 3,040,408 $ 5,750,000 $ 165,408 Professional Fees $ 250,160 $ 400,000 $ 50,160 Supplies $ 5,883,497 $ 10,000,000 $ 883,497 Purchased Services - Utilities 27,456 $ 50,000 $ 2,456 Purchased Services - Other 23,484 $ 50,000 $ (1,516) Insurance 57,315 $ 105,000 $ 4,815 License and Taxes 21,456 $ 40,000 $ 1,456 Other Direct Expenses 972,157 $ 1,500,000 $ 222,157 TOTAL OPERATING EXPENSES $ 22,433,565 $ 40,895,000 $ 1,986,065 NET REVENUE OR (EXPENSE) $ : 689,951 $ 9,105,000 $ (3,862,549) The UMUC Medical Center FY 2019 YTD FY 2019 (Jul - Dec) FY 2019 Budget Variance YTD OPERATING REVENUE: Inpatient Revenue $ 375,040,349 $ 700,000,000 $ 25,040,349 Outpatient Revenue $ 232,498,397 $ 525,000,000 $ (30,001,603) TOTAL PATIENT SERVICES REVENUE $ 607,538,746 $ 1,225,000,000$ (4,961,254) DEDUCTIONS FROM REVENUE: Contractual Adjustments | $ 476,543,215 $ 950.000.000 $ 1.543.215 Charity and Uncompensated Care $ 6,725,412 $ 14,000,000 $ (274,588) TOTAL DEDUCTIONS FROM REVENUE $ 483,268,627 $ 964,000.000 $ 1.268.627 . NET PATIENT SERVICE REVENUE $ 124,270,119 $ 261,000,000$ (6.229.881) OTHER OPERATING REVENUE Other Operating Revenue $ 3,500,000 $ 10,000,000 $ (1,500,000) TOTAL OPERATING REVENUE $ 127,770,119 $ 271,000,000 $ (7,729,881) OPERATING EXPENSES Salaries and Wages | $ 42,932,230$ 88,000,000 $ (1,067,770) Employee Benefits | $ 12,624,012 $ 25,000,000 $ 124,012 Professional Fees $ 4,082,215 $ 9,000,000 $ (417,785) Supplies $ 23,883,407 $ 46,000,000 $ 883,407 Purchased Services - Utilities $ 1,632,191 $ 3,000,000 $ 132,191 | Purchased Services - Other $ 11,536,320 $ 22,000,000 $ 536,320 Depreciation $ 8,455,254 $ 17,000,000 $ (44,746) Rentals and Leases $ 2,252,670 $ 4,000,000 $ 252,670 Insurance $ 2,715,378 $ 5,000,000 $ 215,378 License and Taxes $ 7,992,144 $ 18,000,000 $ (1,007,856) Interest $ 8,393,790 $ 18,000,000 $ (606,210) Provision For Bad Debts Other Direct Expenses $ 4,744,642 $ 8,000,000 $ 744,642 TOTAL OPERATING EXPENSES $ 131,244,253 $ 263,000,000 $ (255.747) NET OPERATING REVENUE $ (3,474,134) $ 8,000,000 $ (7,474,134) NET REVENUE BEFORE ITEMS LISTED BELOW $ (3,474,134) $ 8,000,000 $ (7,474,134) EXTRAORDINARY ITEM NET REVENUE OR (EXPENSE) | $ (3,474,134) $ 8,000,000 $ (7,474,134) Med/Surg Department Budget | FY 2019 YTD 9 YTD FY 2019 Budapt FY 2019 Budget F Y 2019 (Jul - Dec) Variance TYD OPERATING REVENUE: Inpatient Revenue $ 23,123,516 $ 50,000,000 $ (1,876,484) TOTAL PATIENT SERVICES REVENUE $ 23,123,516 $ 50,000,000 $ (1,876,484) OPERATING EXPENSES Salaries and Wages $ 12,157,632 $ 23,000,000 $ 657,632 Employee Benefits $ 3,040,408 $ 5,750,000 $ 165,408 Professional Fees $ 250,160 $ 400,000 $ 50,160 Supplies $ 5,883,497 $ 10,000,000 $ 883,497 Purchased Services - Utilities 27,456 $ 50,000 $ 2,456 Purchased Services - Other 23,484 $ 50,000 $ (1,516) Insurance 57,315 $ 105,000 $ 4,815 License and Taxes 21,456 $ 40,000 $ 1,456 Other Direct Expenses 972,157 $ 1,500,000 $ 222,157 TOTAL OPERATING EXPENSES $ 22,433,565 $ 40,895,000 $ 1,986,065 NET REVENUE OR (EXPENSE) $ : 689,951 $ 9,105,000 $ (3,862,549)