Question
Assumptions The goal is to put together a budget for both operations and capital for the following year that will improve the operations and gain
Assumptions The goal is to put together a budget for both operations and capital for the following year that will improve the operations and gain market share for the organization. The budget should utilize the resources most efficiently and set the course for the organizations long-term objectives of improving market share for the organization. The budget should utilize the resources most efficiently and set the course for the organizations long-term objectives of improving market share by 5% over the next 3 years and improving its outcomes for its community.
Background
The Major Health System is located in a major metropolitan area where there is significant competition in both the inpatient and outpatient settings. Physicians are dedicated to the health system and it includes a residency program in multiple specialties.
The market share of the organization has been stagnant at best in the past three years, hovering around 35%, with significant pressures by managed care payors on the ambulatory or outpatient rates. The system is looking at several projects and would like to implement at least one of these over the next fiscal year with more upcoming:
trauma program, skilled nursing facility, ambulatory surgery center, community wellness center with rehab, and open heart program.
The health system employs approximately 20,000 people including 1,000 employed physicians in various inpatient and outpatient specialties.
The statistics are included in the below table with market growth of 1% in the overall statistics for next year:
Statistics FY 2016
Admissions 35,453
ER Visits 243,719
Outpatient Surgeries 7,659
Cardiac Catheterizations 14,963
Patient Days 159,539
Case Mix Index 1.61
Financial Statements
The health system has endured some tough years financially in the past 3 years with reimbursement challenges and outmigration of its more profitable services to physician-owned surgery and imaging centers. Below is the balance sheet and income statement for the organization:
September 30, 2016 ($ in 000s)
Assets Cash and Equivalents $54,651
Patient Accounts Receivable 124,589
Other Current Assets 79,154
Total Current Assets 258,394
Property, Plant, & Equipment 225,632
Long Term Investments 120,000
Other Assets 86,686
Total Assets 690,712
Liabilities and Net Assets
Current Maturities of Long-Term Debt 18,651
Accounts Payable and Accrued Expenses 65,498
Other Current Liabilities 12,484
Total Current Liabilities 96,633
Long-term Debt 223,812
Total Liabilities 320,445
Net Assets 370,267
Total Liabilities and Net Assets 690,712
Months Ended 9/30/16 ($ in 000s)
Net Patient Revenue $385,251
Other Revenue 14,781
Total Revenues 400,032
Expenses:
Salaries, Wages, & Benefits 225,585
Supplies 81,687
Purchased Services 51,698
Depreciation and Amortization 21,898
Interest 11,191
Total Expenses 392,059
Income from Operations 7,973
Nonoperating Gains/(Losses) 4,329
Excess Revenues over Expenses 12,302
Assumptions Net revenue for the organization is based on the following payor mix:
Medicare 49%
Managed Care 31%
Medicaid 12%
Self Pay 8%
Supply inflation is estimated at 2% over the next year with rate increases for Medicare and Medicaid at the same. Managed care rate increases are challenging with early estimates at 3% but could go to 5% with better negotiations. Personnel cost increases for salaries and wages are estimated to increase 4% next year with more competition for labor resources.
Capital requests include $18 million of routine replacement with $30 million available in project capital for the following key projects:
Trauma center: $25 million plus $10 million in operational expenses each year with $4 million in revenues for year 1
Skilled nursing facility: $30 million plus $5 million in operational expenses each year with $3 million in revenues for year 1
Ambulatory surgery center: $12 million plus $8 million in operational expenses and $12 million in revenues for year 1
Wellness center with rehab services: $8 million plus $3 million in operational expenses and $2 million in revenues for year 1
Open heart program: $12 million plus $5 million in operational expenses and $4 million in revenues for year 1
Assumptions The goal is to put together a budget for both operations and capital for the following year that will improve the operations and gain market share for the organization. The budget should utilize the resources most efficiently and set the course for the organizations long-term objectives of improving market share for the organization. The budget should utilize the resources most efficiently and set the course for the organizations long-term objectives of improving market share by 5% over the next 3 years and improving its outcomes for its community.
Step by Step Solution
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