Question
Answer the question below using the case study of Goth Medical Center as a guide. You must include numbers as well and words. You must
Answer the question below using the case study of Goth Medical Center as a guide. You must include numbers as well and words. You must use appropriate finance terms.
Below, please find Newport Hospital Financial and Operations Indicators (Exhibit 3).
- Determine the financial healthiness of the facility. (Use the ratio analysis on Page 7 of the Goth Medical Center Case Study as a guide for the ratios that need to be calculated for this assignment.)
- Make recommendations based on your conclusions to move toward and maintain financial healthiness
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Goth Medical Center: Assessing Hospital Performance
Goth Medical Center is a 210 bed, not-for-profit, acute-care hospital with a long-standing reputation for providing quality healthcare services to a growing service area. Goth competes with three other hospitals in its metropolitan statistical area two not-for-profit and one for profit. It is the smallest of the four, but has traditionally been ranked highest in patient satisfaction polls. Goth passed its latest Joint Commission accreditation with flying colors, receiving full accreditation, the highest of six accreditation categories.
In recent years, competition among the four hospitals in the Goth service area has been keen, but friendly. However, a large for profit chain recently purchased the for-profit hospital, which has resulted in some anxiety among the managers of the other three hospitals, because of the chains reputation for aggressively increasing market share in the markets they serve.
Relevant financial and operating data for Goth are contained in Tables 1.1 through 1.4, and selected industry data are contained in Tables 1.5 and 1.6. In addition to the data in the exhibits, the following information was extracted from the notes section of Goths annual report.
- A significant portion of the hospitals Net Patient Service Revenue was generated by patients who are covered either by Medicare, Medicaid, or other government programs, or by various private plans, including managed care plans, that have contracts with the hospital that specified discounts from charges. In general, the proportional amount of deductions is similar between inpatients and outpatients. The Gross/Net Revenue breakdown for both inpatient and outpatient services is given below (in millions of dollars);
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Breakdown For Both Inpatient and Outpatient Services Is Given Below (In Millions of Dollars):
2005
2006
2007
2008
2009
Gross Patient Service Revenue
Inpatient
$25,161
$25,275
$26,117
$29,148
$33,216
Outpatient
4748
5969
6535
91. 30
11,912
Gross Patient Revenue
$29,909
$31,244
$32,652
$38,278
$45,128
Revenue Deductions
Contractual Allowances
$2489
$2053
$1729
$5196
$7516
Charity Care
1759
1955
2127
2506
3030
Total Deductions
$4248
$4008
$3856
$7702
$10,546
Net Patient Service Revenue
$25,661
$27,236
$28,796
$30,576
$34,582
- Inventories are stated at market value.
- The breakdown of Operating Expenses between inpatient and outpatient activities is as follows (in millions of dollars):
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Breakdown of Operating Expenses Between Inpatient and Outpatient Activities
(In Millions of Dollars)
2005
2006
2007
2008
2009
Inpatient Expenses
$18,635
$19,221
$20,573
$22,229
$24,771
Outpatient Expenses
5261
6062
6831
8098
9187
Total Operating Expenses
$23,896
$25,283
$27,404
$30,327
$33,958
- Goth Medical Center has a pension plan that covers substantially all of its employees. Participants can contribute up to 20% of earnings to the pension plan. The hospital matches, on a dollar for dollar basis, employee contributions of up to 2% of wages and pays $.50 on the dollar for contributions over 2%, and up to 4%. Because the plan is a defined contribution plan (as opposed to a defined benefit plan), there are no underfunded pension liabilities. Pension expense was approximately $543 million in 2004, and $588 million in 2005.
- The hospital is a member of the State Hospital Trust Fund under which it purchases professional liability insurance coverage for individual claims up to $1 million (subject to a deductible of $200,000 per claim). Goth Medical Center is self insured for amounts above $1 million, but less than $5 million. Any liability award in excess of $5 million is covered by a commercial liability policy; for example, the policy pays $2 million on a $7 million award. The hospital is currently involved in eight lawsuits involving claims of various amounts that could ultimately be tried before juries. Although it is impossible to determine the exact potential liability in these claims, management does not believe that the settlement of these cases would have a material effect on the hospital's financial position.
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Assumptions for the Exercise
Assume that you have just joined the staff of Goth Medical Center as an Assistant Administrator. On your first day of the job, the Administrator, Melissa Randolph, stated that the best way to get to know the financial and operating condition of the hospital is to do a thorough Financial Statement and Operating Indicator Analysis; thus, she assigned you the task. Although you also believe that this is a good way to start, you wonder whether Melissa has any ulterior motives. Perhaps the hospital is having problems, and she thinks that you can spot them, or perhaps she wants to test your analytical skills. Melissa is from the old school on hospital management and has been looking for someone to bring modern management methods to the hospital.
In any event, she has already scheduled a Financial and Operating Performance Analysis Presentation at the next Board of Trustees meeting as a way for you to meet the Board members. To help you structure your presentation, Melissa suggested that you make the following points:
- Interpret the hospitals, Statement of Cash Flows;
- Present an overview of the hospital's financial position by analyzing financial ratios;
- Use Operating Indicator Analysis to identify the operational factors that explain the hospital's current financial condition;
- Based on the above, identify the hospitals financial strengths and weaknesses;
- Summarize your evaluation of the hospitals financial condition. However, she advises that you not just rehash the numbers; rather, present your views on the potential underlying economic and managerial factors that might have caused any problems that surfaced in the financial and operating analysis.
- Create Dashboards for the Board presentation.
- Make any recommendations that you believe the hospital should follow to ensure future financial soundness.
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In preparing for the presentation, several relevant factors came to light.
You discovered that Board members were complaining that too much time is being spent at quarterly meetings discussing the hospital's financial condition." A Board member stated, there is so much to accomplish that we just don't have the time to consider a large number of ratios at each meeting."
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