I need to review the 2009 Operating Budget Projections and the assumptions following the projected numbers in the Budgets tab under Chief Financial Officers in the Patton-Fuller Community Hospital Virtual Organization attached. Assume the 2009 projections were realized. Use the 2010 Operating Budget Projections. Develop a budget for Patton-Fuller Community Hospital based on the 2009 Operating Budget and the 2010 Operating Budget Assumptions. Write a 700- to 1,050-word paper in which you do the following: ? Discuss which financial management practices are most effective in creating and monitoring an operating budget. ? Discuss which financial management practices are least effective in creating and monitoring an operating budget. Patton - Fuller Community Hospital Operating Budget 2009 (In Thousands) (Projection) 2008 Budget % Based on these 2008 assumptions: a 3% overall 2009 Change "inflation rate" in 2009, with the cost of oil (Projection) disproportionately affecting some expense items. from 2008 Revenues Net Patient Revenue $418,509 7% Patient revenue will increase with little or no increase in patient volume, due to new managed $447,805 care contracts Other Revenue Total Revenues $2,805 $421,314 15% 7% $3,225 Marketing's plan to increase donations by 15% $451,030 Expenses Salaries and benefits $214,129 3% $220,553 Supplies Physician and professional fees $71,346 $107,065 3% 3% $73,487 $110,277 $1,164 $1,784 5% 3% $1,222 $1,838 Utilities Other Depreciation & Amorization ("non-cash" expenses) $24,955 20% Salaries will hold to a 3% overall increase in cost, no increase in labor hours due to no increase in patient volume. Supplies cost will increase more due to the rising cost of oil and its effect on the cost of plastics and transporation contracts for fees have a built-in 3% increase Utilities cost will increase more due to the rising cost of oil. Some high-cost equipment (air conditioning, telephone system, all patient beds and headwalls) will have to be replaced this year, $29,946 and "depreciation" will rise sharply. Interest Provision for doubtful accounts Total Expenses Operating Income $3,597 3% $13,383 $437,424 10% 4% The repayment plan for any monies borrowed in $3,705 2009 will not come due until 2010. The renegotiation of Managed Care plans could $14,721 make collections less certain. $455,749 Total expenses will rise 4% Operating Income will improve, with the ($4,719) hosptial's loss reduced by 2/3 ($16,110) Non-operating Income (Loss) Investment Income Net Income $264 ($15,846) 15% The Market has been going up for years, the $304 "bull market" should continue in 2009. The hospital's loss will be further reduced by ($4,416) good returns on investment income. Patton-Fuller Community Hospital Statement of Revenue and Expense 2009 to 2010 Operating Budget Complete the Operating Budget. Assume the 2009 projections were realized. Use the 2009 budget and the 2010 budget assumptions to calculate expenses and income for 2010. The revenues have been completed for you. 2009 (Proj) 2010 Budgeted % Change From 2009 Projectio n 2010 Budget 2010 Operating Budget Assumptions Based on these 2009 assumptions: a 3% overall deflation rate for prices in 2009 due to the weak economywill continue into 2010. Revenue Net patient revenue 459,900 3% 473,697 Patient revenue will continue to increase, but at a decreased rate, with little or no increase in patient volume, due to new managed care contracts. Other revenue 3,082 15% 3,544 Marketing's plan to increase donations by 15% 462,982 3% 477,241 Total revenue 2009 (Proj) 2010 Budgeted % Change From 2009 Projectio n 2010 Budget 2010 Operating Budget Assumptions Expenses Salaries and benefits 220,752 1% Salaries will hold to a 1% overall increase in cost due to price deflation nationwide, with no increase in labor hours, due to no increase in patient volume. This assumption could be affected by a board decision either to raise nursing wages by $1 per hour or to increase the nursing hour ratio. Supplies 74,584 -3% Supplies cost will decrease 3% due to the price deflation and our current overstock purchased last year. Physician and professional fees 110,376 3% Contracts for fees have a built-in 3% increase. Utilities 1,200 5% Utilities cost will increase to the rising cost of oil partially offset by the efficiency of the hospital's new heating and cooling systems. Other 1,840 0% No net change in the cost or volume of these items. Depreciation & amortization (noncash expenses) 36,036 0% Some high-cost equipmentair conditioning, telephone system, all patient beds, and headwallswere replaced in 2009, and depreciation rose sharply. Depreciation will remain at this level in 2010. Interest 3,708 30% The repayment plan for any monies borrowed in 2009 will come due in 2010, with a sharp increase in interest cost. Provision for doubtful accounts 13,797 10% The renegotiation of managed care plans has delayed collection and made collections less certain. Total expenses 462,293 Total expenses will rise ____%. 2009 (Proj) 2010 Budgeted % Change From 2009 Projectio n 2010 Budget 2010 Operating Budget Assumptions Income Operating income 689 Operating Income will improve, with the hospital's loss reduced by 2/3. (62) The market is down, expected to hold steady; a zero-return is expected, with neither losses nor gains. 627 The hospital will continue its dramatic turnaround, taking advantage of the stagnation in patient volume, price deflation, the efficiency of new equipment, and the improved arrangements with the managed care companies. Loss (nonoperating income) Investment income Net income Patton-Fuller Community Hospital Statement of Revenue and Expense 2009 to 2010 Operating Budget Complete the Operating Budget. Assume the 2009 projections were realized. Use the 2009 budget and the 2010 budget assumptions to calculate expenses and income for 2010. The revenues have been completed for you. 2009 (Proj) 2010 Budgeted % Change From 2009 Projectio n 2010 Budget 2010 Operating Budget Assumptions Based on these 2009 assumptions: a 3% overall deflation rate for prices in 2009 due to the weak economywill continue into 2010. Revenue Net patient revenue 459,900 3% 473,697 Patient revenue will continue to increase, but at a decreased rate, with little or no increase in patient volume, due to new managed care contracts. Other revenue 3,082 15% 3,544 Marketing's plan to increase donations by 15% 462,982 3% 477,241 Total revenue 2009 (Proj) 2010 Budgeted % Change From 2009 Projectio n 2010 Budget 2010 Operating Budget Assumptions Expenses Salaries and benefits 220,752 1% Salaries will hold to a 1% overall increase in cost due to price deflation nationwide, with no increase in labor hours, due to no increase in patient volume. This assumption could be affected by a board decision either to raise nursing wages by $1 per hour or to increase the nursing hour ratio. Supplies 74,584 -3% Supplies cost will decrease 3% due to the price deflation and our current overstock purchased last year. Physician and professional fees 110,376 3% Contracts for fees have a built-in 3% increase. Utilities 1,200 5% Utilities cost will increase to the rising cost of oil partially offset by the efficiency of the hospital's new heating and cooling systems. Other 1,840 0% No net change in the cost or volume of these items. Depreciation & amortization (noncash expenses) 36,036 0% Some high-cost equipmentair conditioning, telephone system, all patient beds, and headwallswere replaced in 2009, and depreciation rose sharply. Depreciation will remain at this level in 2010. Interest 3,708 30% The repayment plan for any monies borrowed in 2009 will come due in 2010, with a sharp increase in interest cost. Provision for doubtful accounts 13,797 10% The renegotiation of managed care plans has delayed collection and made collections less certain. Total expenses 462,293 Total expenses will rise ____%. 2009 (Proj) 2010 Budgeted % Change From 2009 Projectio n 2010 Budget 2010 Operating Budget Assumptions Income Operating income 689 Operating Income will improve, with the hospital's loss reduced by 2/3. (62) The market is down, expected to hold steady; a zero-return is expected, with neither losses nor gains. 627 The hospital will continue its dramatic turnaround, taking advantage of the stagnation in patient volume, price deflation, the efficiency of new equipment, and the improved arrangements with the managed care companies. Loss (nonoperating income) Investment income Net income