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Posted on Oct 05, 2024

Utilizing River Community Hospital (A) Assessing Hospital performance article. Below please anwer the following questions. River Community Hospital is a 210-bed, not-for-profit, acute care hospital

Utilizing River Community Hospital (A) Assessing Hospital performance article. Below please anwer the following questions.

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 (MSA)two not-for-profit 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 its website at www.jointcommission.org.) Although accreditation is optional for hospitals, it is generally required to qualify for governmental (Medicare and Medicaid) reimbursement, and hence the vast majority of hospitals apply for accreditation. River passed its latest Joint Commission survey with flying colors, receiving the Gold Seal of Approval from that accrediting body. In recent years, competition among the four hospitals in Rivers service area has been keen but friendly. However, a large for-profit chain recently purchased the for-profit hospital, which has resulted in some anxiety among the managers of the other three hospitals because of the chains reputation for aggressively increasing market share in the markets they serve. Relevant financial and operating data for River are contained in Exhibits 1.1 through 1.5, and selected industry data are contained in Exhibits 1.6 and 1.7. (Note that the industry data given in the case are for illustrative purposes only and do not represent actual data for the years specified. For a better idea of the type of comparative data actually available for hospitals, see the Optum website at www.hospital benchmarks.com.) In addition to the data in the exhibits, the following information was extracted from the notes section of Rivers 2013 Annual Report. 1. A significant portion of the hospitals 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 the hospital that specify discounts from charges. In general, the proportional amount of deductions is similar between inpatients and outpatients. The gross and net patient service revenue and operating expenses breakdown for both inpatient and outpatient services is given in Exhibit 1.4. 2. River has a contributory money accumulation (defined contribution) pension plan that covers substantially all of its employees. Participants can contribute up to 20 percent of earnings to the pension plan. The hospital 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 over 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 2012 and $0.588 million in 2013. 3. The hospital 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 above $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. The hospital is currently involved in eight suits involving claims of various amounts that could ultimately be tried before juries. Although it is impossible to determine the exact potential liability in these claims, management does not believe that the settlement of these cases would have a material effect on the hospitals financial position. Assume that you have just joined the staff of River Community Hospital 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 condition of the hospital is to conduct a thorough financial statement and operating indicator analysis; thus, she assigned you the task. Although you also believe that this is 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 presentation, several relevant factors came to light. First, in reviewing the policy decisions made by Rivers board of trustees over the past decade, you noted that in 2008 the board made the decision to significantly expand the hospitals outpatient services. The rationale was that many procedures that historically were 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 concern about the decline in profitability between 2011 and 2012 and has not been assuaged by the recent modest upturn. 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 the hospitals ROE. Third, you discovered that board members were complaining that too much time is being spent at quarterly board meetings discussing the hospitals financial condition. There is so much to accomplish, said one member, that we just dont have the time to consider a large number of ratios at each meeting. 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 organizations financial and operating performance. Of course, the name stems from an automobiles dashboard, which contains gauges that give drivers essential information about the cars 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. You plan to present your recommendations for the contents of these dashboards, along with the rationale for the ratios chosen, at the board meeting. Your ultimate goal is to replace the full financial and operating performance discussion at future board meetings with a limited discussion of the KPIs.