St. Johns Healthcare was established in 1917 by a group of philanthropists and concerned citizens with two goals in mind: To make healthcare services readily available to all people, regardless of race, color or creed, or their ability to pay, and to create a hospital where physicians would be allowed to practice medicine without fear of discrimination. More than 100 years later, it remained a not-forprofit hospital that provides vital health care services to all citizens. Through the years, they have steadily gained the expertise, resources and facilities necessary to serve an ever-expanding population of people in need.

St Johns includes 10 acute care and specialty (heart, childrens, orthopedic and rehab) hospitals, more than 200 physician practices and outpatient facilities, 10,000 co-workers and more than 500 Clinic physicians in Kansa Kansas, Missouri and Louisiana.

St. Johns Virtual Care Center is dedicated to care outside its own walls, monitoring patients 24/7/365 across the country, using high-speed data and video connections and medically intervening when and where patients need it with a comprehensive team approach.

St. Johns Healthcares ten outpatient diagnostic centers provide convenient access to some of the most common outpatient services. Offering advanced technology for same-day screening and diagnosis.

Much has been written about the impact that healthcare industry reform is having on hospitals and health systems. And with the challenge of reduced reimbursements looming, Finance teams understand that realizing the bottom-line benefits of cost containment and process improvement initiatives is becoming a business imperative. However, as organizations critically evaluate their financial management capabilities, many realize they have ineffective approaches designed around antiquated tools that arent up to the task.

In addition, hospitals have seen their prices growing at a slower rate than inflation. Revenues from private insurance have not fully offset the reductions in Medicare payments stemming from the Affordable Care Act and federal budget sequestration initiated in 2012. Many hospitals and health systems strove to gain market share at the expense of competitors by deeply discounting their rates for new narrow network health plans targeted at public and private health exchanges, enrollments from which have far underperformed expectations.

Mr. John Smith, CFO 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 in 2012. Although financially System is doing well but they have fallen short of budgeted results. The main cause of the variance has been organizations lack of discipline in managing the size of their workforces, which account for roughly half of all hospital expenses. While budget variance inherently looks at past performance, the insights gathered provide guidance for future decisions.

He knows when done effectively, variance reporting can provide each Manager visibility and reasons for the variance between actual and budgeted performance. Budget variance is the difference between budgeted and actual expenses and revenue. Budget variance provides a quick picture of how an entity or a department is performing in comparison to your budget. For example, when actual revenue is higher than budgeted, its on a positive trend. When your actual expenses are more than what budgeted, its a clear indicator that there is a need to reduce spending unless it helped, or it will help to generate more revenue.

Mr. Smith has recently hired you as a Budget Manager and would like to develop Department Budget variance Report to manage the financials better in the future. You have decided to use one of their Outpatient Diagnostic Center report for the last year and develop Budget-Variance report for that department. Your plan is that if CFO approves the new budget variance report then you will roll out that to all the departments in the System.

	Actual FY 2017	Budget FY 2017
Gross Patient Service Revenue	$ 5,981,250	$ 6,375,000
Contractual Allowance	$ 3,093,750	$ 3,375,000
Charity Care	$ 275,000	$ 225,000
Bad Debt	$ 55,000	$ 75,000
Units of Service (Total # of Imaging Services)	$ 13,750	$ 5,000
Net Patient Service Revenue	$ 2,557,500	$ 2,700,000
(Net Revenue=Gross Rev-Contractual allowance-Charity care-Bad Debt)
Expenses: Variable
Salaries & Benefits-Diagnostic Imaging Tech	$ 618,292	$ 540,000
Supplies	$ 59,813	$ 60,000
Expenses: Fixed
Salaries & Benefits- Management	$ 175,000	$ 165,000
Purchased Services	$ 36,500	$ 22,500
Rent	$ 240,000	$ 240,000
Utilities	$ 156,000	$ 144,000
Maintenance	$ 25,500	$ 28,000
Administrative	$ 32,500	$ 30,000
Depreciation	$ 600,000	$ 600,000
Additional Information on Diagnostic Imaging Techs
Productive Hours	14896	13750
Non-Productive Hours	1375	1250
Total Hours	16274	15000
Full Time Staff Work Hours	2080

Contractual Allowance is the difference between what hospitals bill and what they receive in payment from third party payers, including government programs; also known as contractual adjustment. 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. 4 | P a g e 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.

1. Using the information given above, develop a budget variance report for the FY 2017 for the Outpatient Diagnostic center.

2. Using the units of Service, calculate the revenue and expense for per unit of service for both actual and budget. Also, show the variance between actual and budget.

3. An FTE is the hours worked by one employee on a full-time basis. The concept is used to convert the hours worked by several part-time employees into the hours worked by full-time employees. On an annual basis, an FTE is considered to be 2,080 hours, which is calculated as: 8 hours per day. x 5 work days per week. Using this information, how many Technician FTEs were budgeted and worked in FY 2017?

4. What are some of the reasons for the budget variance for variable salaries and supplies?