QUESTIONS:

1. Examine River Community Hospital's statements of cash flows. What information do they provide regarding the hospital's sources and uses of cash over the past two years? What were the major changes between 2020 and 2021?
2. What are three financial strengths of the hospital? (Hint: Do not provide a list of ratios. Make a statement and then justify it with information from the financial statements and operational / financial ratios.)
3. What are six financial weaknesses of the hospital? (Hint: Do not provide a list of ratios. Make a statement and then justify it with information from the financial statements and operational / financial ratios.)

Use the information provided in the case study and excel spreadsheet to answer the above 3 questions

CASE STUDY:

Thank you so much for your help!!!!!!

Exhibit 25.2 River Community Hospital is a 210 -bed, not-for-profit, acute care hospital with a long-standing reputation for providing quality healthcare services to a growing service area. River competes with three other hospitals in its metropolitan statistical area - two not-for-profits and one for-profit. It is the smallest of the four but has traditionally been ranked highest in patient satisfaction polls. Hospitals are accredited by The Joint Commission, an independent, not-for-profit organization whose mission is to improve the safety and quality of healthcare provided to the public through accreditation and related services. (For more information on The Joint Commission, visit The Joint Commission website \\( \\biguplus \\) ). Although accreditation is optional for hospitals, it is generally required to qualify for governmental (Medicare and Medicaid) reimbursement, and hence most hospitals apply for accreditation. River passed its latest Joint Commission survey, receiving its Gold Seal of Approval. In recent years, competition among the four hospitals in River's service area has been keen but friendly. However, a large for-profit chain recently purchased the forprofit hospital, resulting in some anxiety among the managers of the other three hospitals because of the chain's reputation for aggressively increasing market share in the markets they serve. Relevant financial and operating data for River are contained in exhibits 25.1 through 25.5 , and selected peer group data are contained in the case spreadsheet. In addition to the data in the exhibits, the following information was extracted from the notes section of River's 2021 annual report. 1. \"A significant portion of River's net patient service revenue was generated by patients who are covered either by Medicare, Medicaid, or other government programs or by various private plans, including managed care plans, that have contracts with River and specify discounts from charges.\" In general, the proportional amount of deductions is similar between inpatients and outpatients. A breakdown of the gross and net patient service revenues and operating expenses for both inpatient and outpatient services is given in exhibit 25.5. 2. \"River has a contributory money accumulation (defined contribution) pension plan that covers most of its employees.\" Participants can contribute up to 20 percent of earnings to the pension plan. River matches, on a dollar-for-dollar basis, employee contributions of up to 2 percent of wages, and pays 50 cents on the dollar for contributions of more than 2 percent and up to 4 percent. Because the plan is a defined contribution plan (as opposed to a defined benefit plan), River has no unfunded pension liabilities. Pension expense was approximately \\$0.543 million in 2020 and \\$0.588 million in 2021. 3. \"River is a member of the State Hospital Trust Fund, under which it purchases professional liability insurance coverage for individual claims up to \\( \\$ 1 \\) million (subject to a deductible of \\( \\$ 100,000 \\) per claim).\" River is self-insured for amounts of more than \\( \\$ 1 \\) million but less than \\( \\$ 5 \\) million. Any liability award in excess of \\( \\$ 5 \\) million is covered by a commercial liability policy. For example, the policy pays \\( \\$ 2 \\) million on a \\( \\$ 7 \\) million award. River is currently involved in eight suits involving claims of various amounts that could ultimately be tried before a jury. Determining the exact potential liability in these claims is impossible, but management does not believe that the settlement of these cases would have a material effect on River's financial position. CASE 25 RIVER COMMUNITY HOSPITAL (A) Assessing Hospital Performance This case presents the opportunity to conduct an extensive financial statement and operating indicator analysis on a 210-bed not-for-profit hospital. The key to student success in this case lied in interpretation of the data presented rather than number crunching. However, there is ample opportunity for students to extend the model to include percentage change analysis and common size analysis, as well as to create graphs (charts) as needed to present their findings. Note that the peer group data used in this case are for instructional use only, and do not represent actual peer group data for the time period of the case. Exhibit 25.1 Statamante of Mnaratinne and C.hannac in Nat \\( \\Delta \\) ceate (thnileande nf dollare) You have just joined the River staff as a special assistant to the CEO. On your first day on the job, the CEO, Melissa Randolph, stated that the best way to get to know the financial and operating conditions of the hospital is to conduct thorough financial statement and operating indicator analyses, and so she assigned you this task. Although you agree that such analyses are a good way to get started, you wonder whether Melissa has any ulterior motives. Perhaps the hospital is having problems and she thinks that you can spot them, or perhaps she wants to test your analytical skills. Melissa is from the \"old school\" of hospital management and has been looking for someone to bring modern management methods to the hospital. As you prepare for the analyses, several relevant factors come to light. First, in reviewing the policy decisions made by River's board of trustees over the past decade, you note that in 2020 the board made the decisions to significantly expand River's outpatient services. The rationale was that many procedures historically done on an inpatient basis were now being done in an outpatient setting, and if River did not offer such services, it would lose the patients to other providers. Second, the board chair has great concerns about the decline in profitability between 2020 and 2021 . Perhaps because she is CEO of a local company, the chair focuses on return on equity (ROE) as the key measure of profitability. She has requested that management develop some strategies to improve profitability and estimate the impact of the strategies on River's ROE. Third, the hospital had difficulties making payments on its long-term debt several years ago. As a consequence, the hospital's long-term debt agreement now includes a covenant that requires the hospital to maintain a current ratio of at least 3.75. Debt covenants are limits or thresholds for certain financial ratios that the company may not breach. Violating a covenant means that a lender can legally call the debt, or demand repayment in full, and the board of River Community Hospital strongly wants to avoid this situation. Finally, board members were complaining that too much time is being spent at quarterly board meetings discussing River's financial condition. \"There is so much to accomplish that we just don't have the time to consider a large number of ratios at each meeting,\" said one member. You know that many healthcare providers are now using dashboards to focus on key performance indicators (KPIs). A dashboard is nothing more than a way to summarize an organization's financial and operating performance. Of course, the name stems from an automobile's dashboard, which contains gauges that give drivers essential information about the car's performance and operating condition. Thus, you plan to develop two dashboards, each containing no more than five KPIs. One dashboard will use financial ratios to focus on financial performance, while the other will use operating indicator ratios to focus on operating performance. At the next board meeting, you plan to present your recommendations for the contents of these dashboards along with the rationale for the ratios chosen. Your ultimate goal is to replace the full financial and operating performance discussion at future board meetings with a limited discussion of the KPIs. Exhibit 25.2 River Community Hospital is a 210 -bed, not-for-profit, acute care hospital with a long-standing reputation for providing quality healthcare services to a growing service area. River competes with three other hospitals in its metropolitan statistical area - two not-for-profits and one for-profit. It is the smallest of the four but has traditionally been ranked highest in patient satisfaction polls. Hospitals are accredited by The Joint Commission, an independent, not-for-profit organization whose mission is to improve the safety and quality of healthcare provided to the public through accreditation and related services. (For more information on The Joint Commission, visit The Joint Commission website \\( \\biguplus \\) ). Although accreditation is optional for hospitals, it is generally required to qualify for governmental (Medicare and Medicaid) reimbursement, and hence most hospitals apply for accreditation. River passed its latest Joint Commission survey, receiving its Gold Seal of Approval. In recent years, competition among the four hospitals in River's service area has been keen but friendly. However, a large for-profit chain recently purchased the forprofit hospital, resulting in some anxiety among the managers of the other three hospitals because of the chain's reputation for aggressively increasing market share in the markets they serve. Relevant financial and operating data for River are contained in exhibits 25.1 through 25.5 , and selected peer group data are contained in the case spreadsheet. In addition to the data in the exhibits, the following information was extracted from the notes section of River's 2021 annual report. 1. \"A significant portion of River's net patient service revenue was generated by patients who are covered either by Medicare, Medicaid, or other government programs or by various private plans, including managed care plans, that have contracts with River and specify discounts from charges.\" In general, the proportional amount of deductions is similar between inpatients and outpatients. A breakdown of the gross and net patient service revenues and operating expenses for both inpatient and outpatient services is given in exhibit 25.5. 2. \"River has a contributory money accumulation (defined contribution) pension plan that covers most of its employees.\" Participants can contribute up to 20 percent of earnings to the pension plan. River matches, on a dollar-for-dollar basis, employee contributions of up to 2 percent of wages, and pays 50 cents on the dollar for contributions of more than 2 percent and up to 4 percent. Because the plan is a defined contribution plan (as opposed to a defined benefit plan), River has no unfunded pension liabilities. Pension expense was approximately \\$0.543 million in 2020 and \\$0.588 million in 2021. 3. \"River is a member of the State Hospital Trust Fund, under which it purchases professional liability insurance coverage for individual claims up to \\( \\$ 1 \\) million (subject to a deductible of \\( \\$ 100,000 \\) per claim).\" River is self-insured for amounts of more than \\( \\$ 1 \\) million but less than \\( \\$ 5 \\) million. Any liability award in excess of \\( \\$ 5 \\) million is covered by a commercial liability policy. For example, the policy pays \\( \\$ 2 \\) million on a \\( \\$ 7 \\) million award. River is currently involved in eight suits involving claims of various amounts that could ultimately be tried before a jury. Determining the exact potential liability in these claims is impossible, but management does not believe that the settlement of these cases would have a material effect on River's financial position. CASE 25 RIVER COMMUNITY HOSPITAL (A) Assessing Hospital Performance This case presents the opportunity to conduct an extensive financial statement and operating indicator analysis on a 210-bed not-for-profit hospital. The key to student success in this case lied in interpretation of the data presented rather than number crunching. However, there is ample opportunity for students to extend the model to include percentage change analysis and common size analysis, as well as to create graphs (charts) as needed to present their findings. Note that the peer group data used in this case are for instructional use only, and do not represent actual peer group data for the time period of the case. Exhibit 25.1 Statamante of Mnaratinne and C.hannac in Nat \\( \\Delta \\) ceate (thnileande nf dollare) You have just joined the River staff as a special assistant to the CEO. On your first day on the job, the CEO, Melissa Randolph, stated that the best way to get to know the financial and operating conditions of the hospital is to conduct thorough financial statement and operating indicator analyses, and so she assigned you this task. Although you agree that such analyses are a good way to get started, you wonder whether Melissa has any ulterior motives. Perhaps the hospital is having problems and she thinks that you can spot them, or perhaps she wants to test your analytical skills. Melissa is from the \"old school\" of hospital management and has been looking for someone to bring modern management methods to the hospital. As you prepare for the analyses, several relevant factors come to light. First, in reviewing the policy decisions made by River's board of trustees over the past decade, you note that in 2020 the board made the decisions to significantly expand River's outpatient services. The rationale was that many procedures historically done on an inpatient basis were now being done in an outpatient setting, and if River did not offer such services, it would lose the patients to other providers. Second, the board chair has great concerns about the decline in profitability between 2020 and 2021 . Perhaps because she is CEO of a local company, the chair focuses on return on equity (ROE) as the key measure of profitability. She has requested that management develop some strategies to improve profitability and estimate the impact of the strategies on River's ROE. Third, the hospital had difficulties making payments on its long-term debt several years ago. As a consequence, the hospital's long-term debt agreement now includes a covenant that requires the hospital to maintain a current ratio of at least 3.75. Debt covenants are limits or thresholds for certain financial ratios that the company may not breach. Violating a covenant means that a lender can legally call the debt, or demand repayment in full, and the board of River Community Hospital strongly wants to avoid this situation. Finally, board members were complaining that too much time is being spent at quarterly board meetings discussing River's financial condition. \"There is so much to accomplish that we just don't have the time to consider a large number of ratios at each meeting,\" said one member. You know that many healthcare providers are now using dashboards to focus on key performance indicators (KPIs). A dashboard is nothing more than a way to summarize an organization's financial and operating performance. Of course, the name stems from an automobile's dashboard, which contains gauges that give drivers essential information about the car's performance and operating condition. Thus, you plan to develop two dashboards, each containing no more than five KPIs. One dashboard will use financial ratios to focus on financial performance, while the other will use operating indicator ratios to focus on operating performance. At the next board meeting, you plan to present your recommendations for the contents of these dashboards along with the rationale for the ratios chosen. Your ultimate goal is to replace the full financial and operating performance discussion at future board meetings with a limited discussion of the KPIs