For this assignment read the Operating Budget Case Study and use this case study for analysis.

You are asked to analyze the finances of the Major Health System in the study and put together a budget. This budget should address 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 by 5% over the next 3 years and improving its outcomes for its community.

In your assignment, be sure you articulate the assumptions you relied on in making your decisions. In other words, explain why you made your decisions.

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MHA 527 HEALTH CARE FINANCE Operating Budget Case Study 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 PAGE 1 OF 4

MHA 527 HEALTH CARE FINANCE 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 PAGE 2 OF 4

MHA 527 HEALTH CARE FINANCE Net Assets 370,267 Total Liabilities and Net Assets 690,712 12 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% PAGE 3 OF 4

MHA 527 HEALTH CARE FINANCE 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 by 5% over the next 3 years and improving its outcomes for its community. PAGE 4 OF 4