Question
Mr. John Smith, President & CEO of the St. Johns Healthcare system is concerned about the future of St. Johns financial stability with all the
Mr. John Smith, President & CEO of the St. Johns Healthcare system is concerned about the future of St. Johns financial stability with all the recent changes including ACA and sequestration cut. Although financially System is doing well but they have fallen short of budgeted results. One of his concern is organizations lack of discipline in managing the size of their workforces, which account for roughly half of all hospital expenses.
St. Thomas is one of the 10 hospitals which is not performing well as compared to other hospitals in the system due increased competition from the neighboring county hospital. St. Thomas is a small 40 bed community hospital. St. Thomas CFO is retiring and you are one of the finalist for this job. Mr. John Smith has provided all the finalist with the Year-End December 31, 2018 trial balance of St. Thomas.
You will be using this information to analyze the financial health of St. Thomas to prepare for the final interview. This will help you to examine past and current financial data so that the hospitals performance and financial position can be evaluated and future risks and potential can be estimated.
Beside Income Statement and Balance Sheet, you will also be using key financial ratios to analyze the financial position of the hospital system.
St. Thomas provides general medical and surgical inpatient services, emergency room care and outpatient services, including same day surgery. St. Thomas provides full time employment to 325 people in the community.
St. Thomas Hospital - Trial balance as of December 31, 2018:
Contractual Allowanceis the difference between what hospitals bill and what they receive in payment from third party payers, including government programs; also known as contractualadjustment.
St. Johns Healthcare offers Financial Assistance (Charity care) program that allows persons to receive medically necessary care at no charge or at a reduced charge when they meet financial eligibility requirements. This program provides financial relief to patients who qualify based on a comparison of their financial resources and/or income to the Federal Poverty Guidelines.
Questions:
Under existing GAAP, a healthcare service provider records revenue using the amount it bills for a service, even if it does not expect to collect that amount; the difference is recorded on the income statement as a provision for bad debt expense and helps calculate net revenue.
- Using the information given above, construct the Income Statement and Balance Sheet for the Fiscal Year ended December 31, 2018.
- What is the difference between gross patient service revenue and the net patient service revenue in the hospital accounting? Please explain your understanding of this difference, what it is comprised of, and why it is important to a Hospital.
- What is the Operating Margin (both definition and in words)? If the benchmark for operating income is 2.7% for the Health Care industry, how does St. John's compare to this benchmark? Why is managing the Operating Margin so important for all Health Care Organizations? What are the implications to St. John's of this ratio?
- What is the Profit Margin (both definition and in words)? If the benchmark for operating income is 4.67% for the Health Care industry, how does St. John's compare to this benchmark? What are the implications to St. John's of this ratio?
- What is the difference between operating margin and net income and why is it important to manage both?
- What is the estimated Cash Flow, or the actual amount of cash generated during the FY 2018? (Cash=Net Income+Noncash expenses). Why is this calculation Important to Manage?
- What is the Debt to Assets Ratio (both definition and in words)? What does it measure and why is it important? What is St. John's Debt-to-assets ratio? If the Healthcare industry benchmark is 0.4 for this measure, how does this ratio compare to the benchmark?
- Based on the information provided, would you accept the job if offered to you? Please provide 3-5 reasons why you would or wouldn't accept the job.
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