Please help me with this case study problem with step by step explanation.

-develop a statistical budget.

-Develop a revenue budget and four expense budgets in statement of

operations format including detailed footnotes explaining any changes in the numbers.

(1) Increase rates the maximum allowed and increase expenses the maximum requested.

(2) Increase rates the maximum allowed and maintain expenses at FY 2020 levels after adjusting for volumes.

(3) Increase rates the maximum allowed and cut expenses to break even in FY 2021.

(4) Increase rates the maximum allowed and cut expenses to recover FY 2020 losses.

Specifically #9 on uploaded images

Source

Nowicki, M. (2022). Introduction to the financial management of Healthcare Organizations (eighth). Health Administration Press.

CHISOS MOUNTAINS MEDICAL CENTER YOUR MEDICAL CENTER Imagine that it is December 2020 and you have just accepted the chief financial officer (CFO) position at Chisos Mountains Medical Center (CMMC), which includes a 25-bed critical access hospital, a 36-bed long-term care facility, and a separate freestanding 24-hour emergency facility. You will be reporting to Mr. Chief, the CEO. Also reporting to Mr. Chief are Mr. Operator, the chief operating officer (COO); Dr. Doctor, the chief medical officer (CMO); and Ms. Nurse, the chief nursing officer (CNO). When announcing your appointment, Mr. Chief stated that your primary objective in the coming year, which begins January 1, 2021, would be to reverse the ominous financial trend that began in 2019 and continues in 2020 with a $50,000 budgeted operating loss. CMMC was built with Hill-Burton Funds in 1948 as a 25-bed rural hospital. With the help of Medicare and Medicaid funds, 36 long-term care beds were added in 1968. In 1998, after almost going bankrupt, CMMC was designated a critical access hospital and has been cost-based reimbursed from Medicare and Medicaid ever since. In 2010, Chisos Mountains Hospital became Chisos Mountains Medical Center with the addition of the freestanding 24-hour emergency facility 40 miles west of the hospital in the rugged Chisos Mountains of western Texas. CMMC is accredited by The Joint Commission and licensed by the Texas Department of State Health Services. To acquire background information, you decide to meet with executive team mem- bers individually first as well as with other key personnel such as the controller, the human resources director, and the materials manager. 463 Copying and distribution of this PDF is prohibited without written permission. For permission, please contact Copyright Clearance Center at www.copyright.comCase Study: Chisos Mountains Medical Center 471 TABLE I Chisos Mountains Medical Center Balance Sheet as of December 31, 2019 Current Assets Cash $ 900,648 Temporary investments 300,515 Accounts receivable, net 6,754,900 Inventory 1,012,780 Other current assets 89,688 Total current assets 9,058,531 Noncurrent Assets Land, plant, and equipment 56,783,000 Accumulated depreciation 49,000,000 Land, plant, and equipment, net 7,783,000 Long-term investments 900,450 Other noncurrent investments 181,160 Total noncurrent assets 8,864,610 Total Assets $17,923,141 Current Liabilities Accounts payable 1,780,472 Notes payable 2,042,627 Accrued expenses payable 5,144,799 Deferred revenues 54,615 Estimated third-party adjustments 808,312 Current portion of long-term debt 1,093,316 Total current liabilities 10,923,141 Noncurrent liabilities Long-term debt, net of current portion 5,000,000 Total non-current liabilities 5,000,000 Total Liabilities 15,923,141 Net Assets Unrestricted net assets 500,000 Restricted net assets 15,000,000 Total Net Assets 2,000,000 TOTAL LIABILITIES AND NET ASSETS 17,923,141472 Case Study: Chisos Mountains Medical Center TABLE II Selected Ratios for 25- to 99-Bed Hospital Ratios Optum CMMC Liquidity Current ratio 2.08 Collection ratio 57-30 11 Days cash-on-hand, short-term sources 67.70 Days cash-on-hand, all sources 94.40 Payment ratio 45.80 Profitability Operating margin -4.52 Total margin 1.00 Return on net assets -0.40 Efficiency Total asset turnover 0.90 Age of plant 12.21 Fixed asset turnover 2.05 Current asset turnover 2.77 Inventory turnover 52.55 Capital Structure Net asset financing 45-30 Long-term debt to capital 37.80 Cash flow to debt 12.20 - Productivity Ratios Cost per patient day NA Nursing service NA Nursing hours per adjusted patient day NA RNs as a percent of total nursing NA LPNs as a percent of total nursing NA Nursing salary expense per adjusted patient day NA Total hours per patient adjusted patient day NA Salaries as a percent of total expenses NA Note: RNs: registered nurses; LPNs: licensed practical nurses; NA: not applicable (Optum does not publish productivity ratios).Case Study: Chisos Mountains Medical Center 473 TABLE III-A CMMC Volumes by Acute, Skilled Nursing Facility (SNF), Emergency, per Fiscal Year (FY) FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Acute 6,974 6,770 6,574 6,382 5,802 SNF 11,206 11,322 11,440 11,556 11,673 Emergency 12,432 12,558 12,685 12,813 12,203 TABLE III-B CMMC Volumes by Percentage, by Payer FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Medicare 21 22 29 24 25 Medicaid 18 19 20 21 22 Commercial 27 23 16 5 Managed care (with discount) 30 31 36 42 36 Managed care (with capitation) 0 0 Bad debt WONO NOW Implicit price concessions NON WON Charity care TABLE III-C CMMC Acute Care Days by Service, Fiscal Year 2020 Medical/Surgical 2,843 ICU 1,240 OB/GYN 1,292 Swing beds 427 Note: ICU: intensive care unit; OB/GYN: obstetrics/gynecology.TABLE III-D CMMC Average Charges per Day, Fiscal Year 2020 Medical/Surgical $10,000 ICU 14,000 OB/GYN 12,000 Swing beds 1,300 Skilled nursing facility 800 Emergency department 400 Note: ICU: intensive care unit; OB/GYN: obstetrics/gynecology. TABLE IV CMMC Radiology Department Procedures Tech Supply 2020 Procedure (% charge-based) 2020 Rate Minutes Expense Volumes Radiology Chest 2-view (25%) 250 14 20 20,000 Chest 4-view (25%) 500 28 40 20,000 Hand (25%) 120 5 10 7,000 Arm (25%) 240 10 20 4,000 Foot (25%) 120 5 10 1,000 Leg (25%) 240 10 20 6,000 Fluoroscopy (50%) 700 30 60 4,000 Ultrasound Abdomen (75%) 280 15 20 5,000 Other (75%) 250 10 20 5,622 Nuclear Medicine Scan (50%) 820 60 60 2,000 Computed Tomography (CT) Head without contrast (75%) 1,100 30 100 200 Head with contrast (75%) 1,500 60 150 300 Body without contrast (50%) 1,400 30 150 400 Body with contrast (50%) 1,800 60 200 500TABLE V-A CMMC Salary Expense, Average Hourly Rates, December 2020 Position Average Hourly Rate Administration $16.00 Medical records 15.00 Dietary 14.00 Housekeeping 10.00 Plant maintenance 14.00 Nursing 37.20 Laboratory 25.00 Imaging 29.00 Respiratory care 29.00 Physical therapy 43.00 Pharmacies 61.00 Note: Average hourly rate does not include benefit expense at 30 percent of salary expense and does not include CEO's total compensation package of $200,000. Nursing average includes $40.00 per hour for head nurse, $36.00 for staff registered nurse, $22.00 for staff licensed practical nurse, and $13.00 per hour for nursing assistant. TABLE V-B CMMC Staffing as of December 31, 2020 Department FTEs Administration 18 Medical records Dietary 14 Housekeeping 14 Plant maintenance 2 Nursing 55 Laboratory 10 Imaging Respiratory care Physical therapy Pharmacists Total 139 Note: FTEs: full-time equivalent positions. Nursing staff includes one chief nursing officer, four head nurses, and 50 staff registered nurses.476 Case Study: Chisos Mountains Medical Center TABLE VI CMMC City and County Ad Valorem Property Tax Schedule, per $100 Assessed Value Aquifer .00981 County .35510 City .47000 Independent school district 1.23554 Special roads project .06010 Chisos Mountains watershed .02000 State sales tax 8.25% TABLE VII CMMC Operating Expenses 2020 Salaries, wages, and benefits $11,922,464 Professional fees 4,872,423 Drugs 4,963,482 Medical and office supplies 2,531,222 Food 1,500,000 Purchased services 2,400,000 Repairs and maintenance 4,000,000 Utilities 2,345,000 Interest 1,234,400 Depreciation 1,000,000 Bad debt expense 3,803,435 Total Operating Expense 40,572,426 Note: Salaries, wages, and benefits includes $200,000 for salaries, $8,205,724 for wages, $1,758,370 for required benefits, and $1,758,370 for voluntary benefits.MEETING WITH DR. DOCTOR The CMO Dr. Doctor tells you: We only have eight physicians who practice at CMMC, but they have been very loyal to the medical center and the community. Most of the physicians are in family practice, though we have one general surgeon and one orthpedic surgeon who also runs a physi- cal therapy clinic. MEETING WITH MR. OPERATOR Mr. Operator, the COO and a recent graduate from a program in healthcare administra- tion, expresses the following concerns regarding the hospital: It's easy to understand how we lost money last year-Mr. Chief just won't say no. Our revenues are down because of the pandemic and our expenses continue to increase. While we have applied for COVID-19 relief, that probably will not be enough to get us out of financial trouble. Furthermore, we need your help on some potential problems. Mr. Operator asks you to do the following. [Note: For reference, see corresponding chapters in this textbook as noted at the end of each step, and use the additional information in the tables at the end of the case study.] 1. After reading the case, provide a list of questions, concerns, or requests for additional information to Mr. Chief and copy me. Develop a non-GAAP [generally accepted accounting principles] statement of operations (start with gross patient service revenue) and balance sheet for 2020 (you can assume the format and numbers are correct on the 2019 balance sheet, and you can further assume that all balances carry forward to the 2020 balance sheet with the exception of accounting for the profit or loss from the 2020 statement of operations). With the exception of starting with gross patient service revenue, please ensure that you prepare the financial statement in current GAAP. Please use ratio analysis to analyze the ratios (use data from Optum's 2018 Almanac of Hospital Financial and Operating Indi- cators for comparative statistics-use the median for critical access hospitals which is provided in Table II [at the end of this case study]). [See chapter 3.]Case Study: Chisos Mountains Medical Center 465 2. I just received a letter from the Texas Department of State Health Services, stating that our license is in jeopardy because we did not provide sufficient community benefits in FY [fiscal year] 2020. How much community benefits did we provide in FY 2020, and how much does Texas [or your state] require we provide? What is your recommendation for FY 2021? What is going on at the federal level regarding tax-exempt status? Please provide me with brief descriptions of the federal cases that have been in the news over the last couple of years that we should be concerned about here at CMMC. [See chapter 4.] 3. On June 24, 2019, President Trump signed an executive order requiring hospitals and health plans to release prices. On November 15, 2019, the US Department of Health and Human Services (HHS) released two regulations for review and comment related to the earlier executive order with an anticipated effective date of compliance of January 1, 2020, which was later changed to January 1, 2021. The American Hospital Association (AHA), representing the hospital industry, appealed the HHS final ruling and implementation date. On December 29, 2020, a federal appeals court ruled against the AHA legal challenge. Why was the Trump administration for the executive order and why is the hospital industry against it? [See chapters 5 and 9.] 4. US attorneys are reviewing our billing practices and physician relationships. I took a healthcare financial management class before fraud and abuse became such a big issue. Explain to me what the attorneys might be looking for and whether you think a hospital like ours has any liability. What actions have been brought against hospitals like ours in the last couple of years? Do we need a corporate compliance plan and if so, what should it include? [See chapter 6.] 5. Several states have passed "surprise billing" legislation. The federal government included surprise billing legislation in the COVID-19 relief package tied to the spending bill that President Trump signed on December 27, 2020. What is in our state's [or your state's] surprise spending legislation and what is in the federal government's surprise spending legislation? What actions should CMMC take to protect our patients from surprise billing? [See chapter 9.]66 Case Study: Chlsos Mountains Medical Center 6. Analyze Mr. Chief's managed care agreement with the city. Using differential cost analysis, tell me the Full cast gaini'loss and the differential cost gainlloss for two scenarios: keeping the agreement and killing the agreement (use FY 2020's nancials). In the event that the city will negotiate a rate increase, what percent increase do I need to ask for to cover our Full costs and what percent increase do i need to aslr for to cover our diI'Ferential costs? 'What is your recommendation?I [See chapter 8.] 7. As of the end of 2020, 38 states had expanded Medicaid based on the recommendations and incentives in the Aordable Care Act and 12 states had not expanded Medicaid, among them our state ofTexas. From the hospital and physician perspectives, what are the advantages and disadvantages of expansion? From the state's perspective, what are the advantages and what are the disadvantages of expansion? [See chapter 7.] 3. Our radiology department is in violation of the antitrust statutes by developing a fee schedule using College of American Radiology relativt value units (RVUs). You must establish a new RVU system before we can set FY 2021 rates. The radiology manager has already completed some of the worlt and I'll send it over to you [see Table IV at the end of this case study] Please develop a hospital-specic RVU schedule and assign 2021 radiology department rates. (Total radiology expenses For 2021, including hospital indirect costs, which must be covered by the department, are proiected to be $20 million ) {See chapters 8 and 9.] Museums wrrI-I Me. CHIEF The CEO Mr. Chief states: I think we are losing money because of the COVI 0-19 pandemic and low investment returns (investment income is 2 percent of Iongtenn investments). Once everyone is vaccinated, I think business will be back to normaL Everyone seems happy- everyone except Ms. Fi Nance, whom you'll be replacing. She started iast lanuary and seemed increasingly frustrated with the way we do things here-she just didn't t In. I vetoed most of her recommendations, especially the recommendations regarding increasing Case Study: Chlsos Mountains Medical Center other operating revenues. And when l announced that I was bringing in more business to the hospital by entering into a capitated managed care agreement with the citywe get $400 per month per family fortaiting care of the 20 city employees and their fami- lies, whether they're sick or not-Ms. Nance threw a t at an executive staff meeting. She claimed that my decisions were driving the medical center deeper into the red, and as a result. I had to re Ms. Nance for insubordination. That happened in November. Mr. Chief tells you that while you'll be reporting to him, he expects you to respond to the requests of Mr. Operator, Dr. Doctor, and Ms. Nurse. Specically; he wants you to do the following: 9. For FY 2021: 0 Develop a statistical budget. 9 Develop a revenue budget and Four expense budgets in statement of operations format including detailed fooumtes explaining any changes in the numbers. (1 ) (2) (3) (4) Increase rates the maximum allowed and increase expenses the maxianurn requested. Increase rates the maximum allowed and maintain expenses at FY 2020 levels after adjusting for volumes. Increase rates the maximum allowed and cut expenses to break even in FY 2021. Increase rates the maximum allowed and cut expenses to recover FY 2020 losses. [See chapter 14.] 10. Calculate the nancial impact of buying a mobile CArrn and aocessories that would cost $100,000. would have a veyear useful life, would have a 10 percent salvage value, would have a prot per procedure of $50, and would generate an estimated volume of 200 procedures per year. The bank tells me the discount rate should be 10 percent. Ifthe project loses money, let me know how many procedures per year wewouid need to generate to break \"11. [See chapter 15.] l 1. Ms. Nurse has requested more money For nursing. I told her that you would evaluate her proposal and give me a Full report. [See chapter I4.] Case Study: Chisos Mountains Medical Center 467 other operating revenues. And when I announced that I was bringing in more business to the hospital by entering into a capitated managed care agreement with the city -we get $400 per month per family for taking care of the 20 city employees and their fami- lies, whether they're sick or not-Ms. Nance threw a fit at an executive staff meeting. She claimed that my decisions were driving the medical center deeper into the red, and as a result, I had to fire Ms. Nance for insubordination. That happened in November. Mr. Chief tells you that while you'll be reporting to him, he expects you to respond to the requests of Mr. Operator, Dr. Doctor, and Ms. Nurse. Specifically, he wants you to do the following: 9. For FY 2021: Develop a statistical budget. Develop a revenue budget and four expense budgets in statement of operations format including detailed footnotes explaining any changes in the numbers. (1) Increase rates the maximum allowed and increase expenses the maximum requested. (2) Increase rates the maximum allowed and maintain expenses at FY 2020 levels after adjusting for volumes. (3) Increase rates the maximum allowed and cut expenses to break even in FY 2021. (4) Increase rates the maximum allowed and cut expenses to recover FY 2020 losses. [See chapter 14.] 10. Calculate the financial impact of buying a mobile C-Arm and accessories that would cost $100,000, would have a five-year useful life, would have a 10 percent salvage value, would have a profit per procedure of $50, and would generate an estimated volume of 200 procedures per year. The bank tells me the discount rate should be 10 percent. If the project loses money, let me know how many procedures per year we would need to generate to break even. [See chapter 15.] 11. Ms. Nurse has requested more money for nursing. I told her that you would evaluate her proposal and give me a full report..68 Case Study: Chisos Mountains Medical Center 12. Our long-term debt represents a SD'year loan taken out in 2000 at 5 percent with options to renance every ten years. If we renance for the remaining ten years at 2 percent, how much interest expense will we save over the remainder of the loan? [See chapter 15.] 13. Provide strategic planning input addressing the following steps in the strategic planning process (assume a ten-year planning horizon and the following mission statement: \"The mission of Chisos Mountains Medical Carter is to provide high-quality, low-cost healthcare to everyone"). Note that the board would like to replace our very old hospital with a newer facility during the planning horizon. . Assess the external environment. . Assess the internal environment. 0 Formulate the vision. [See chapter 13.} MEETING wrrI-I Ms. CONTROLLER Ms. Controller. the hospital controller, in answer to your question regarding last year's loss, believes the following: While patient days are decreasing and outpatient visits are limited to the emergency room because the physicians are seeing outpatients in the physician ofce building next door, the (MID-19 pandemic has further reduced our volumes because the state health department, on the advice of the CDC [Centers for Disease Control and Preven- tion], in the spring asked hospitals to defer elective cases and only take care of COVI D cases (our medical center saw very few COV ID cases during this time). Our real nancial problems involve our patient mix by nancial classin 2020, 25 percent of our total volumes were Medicare; 22 percent were Medicaid; 36 percent were managed care with discount; 1 percent were managed care with capitation (the city agreement); 5 percent were bad debt: 1 percent were implicit price concession; 2 percent were charity care; and only 5 percent were self-pay or commercial insurance [see Table Ill-B at the end of this case study]. and Medicaid patients). Our average managed care discount from charges is so percent. Our managed care capitated agreement with the city covers 20 employees and their families and reimburses $400 per family per month. Currently we collect nothing from our bad debt patients and nothing from our charity care patients. Our self-paylcom- merciai patients reimburse 100 percent of charges. Our average acuity using DRGs [diagnosis-related groups] as a severity index is 1.00. Ms. Nurse has always convinced Mr. Chief that 051th is a major trauma center and should be staffed with all kids [registered nurses] as a result. Our new capitated man- aged care agreement pays us $400 per month for each of the city's 20 employees and their families. We agreed to maintain that rate for the duration ofthe twoyear contract, which started January 1, 2018. Although self-paylcommercial patients pay our charges, it would be difcult to justify to the board any rate increase while we're still suffering from (MID-19's economic impact on our community. The hospital board, in response to public pressure and CDVlDdg, changed the charity care eligibility policy in 2020 for the hospital from 100 percent of federal poverty guidelines to 140 percent of federal poverty guidelines. We expect our charity care to continue to increase in 2021 as a result, and with the new 6MP on bad debt, we expect bad debt expense to decrease. MEETING wrrI-I Ms. Nu rise The CNO Ms. Nurse seeks your support in the following proposal: While our nancial loss is serious: most of it is attributable to low rateswe need to increase our rates to reflect our quality services. Our nurses are overworked and underpaid. I've been workingon two solutions that I would like you to support. First, I believe strongly in primary care nursing and as a result, 100 percent of the nursing staff is His. RNs can perform more tasks than lPNs [licensed practical nurses] and nursing assistants and therefore are more efcient. This can be further iustified by the acuity of our patients. Using the DRG scale as a severity index, our patients are sicker than those in the average hospital. However, I am having some difculty getting the kits to ad minister meds. empty bedpans. and feed patients. Therefore, I have developed a Tom [total quality management] program designed to convince the kits that all their tasks are important. All RNs are required to attend ve hours of TQM training each week for one year at the medical center's expense. Even though patient days are down, I would like to hire ten more \"is to help cover the floors when the other RNs are in training. To recruit these kids. we need to increase their average hourly rate from $36 to $40. This. of course, would be in addition to the cost-of-livin g raises already announced by Human Resources. 47o Case Study: Chisos Mountains Medical Center MEETING WITH Ms. PEOPLE Ms. People, the human resources director, reluctantly admits the following to you: Hospital practice in the past has been to give the employees a cost-of-living raise equal to the year's percent increase in the CPI [consumer price index}. Also. historically. we have allocated 5 percent of total wages to a merit pool to be awarded to meritorious employees based on their annual evaluations. Because Mr. Chief treats the employees like family. virtually everyone gets the raise. One of our cost problems may be our labor costsspecically productivity. Some pro- ductivity measures I have listed in Table II [at the end of this case study]. You may want to consider others when developing next year's budget. [See chapter 14.] MEETING Wl'l'I-l Mn. MATERIALS Mr. Materials, the materials manager, reports the following information to you: i am projecting a 3 percent increase in all non labor prices next year. with the exception of drugs and insurance. which should go up about 5 percent. [See chapter 12.]