You are the administrator of the medical - surgical department. Review the transcripts from the budget meeting and recent voicemails from your CFO and, using the available information and resources, develop an operating budget for your department. Your budget should include a 2-4 page document with an accompanying Excel spreadsheet that: Provides the revenue and expenses through the current month of the current year. Estimates the revenue and expenses for the rest of the current fiscal year based on the assumptions provided in the transcript documents. Prepare a budget for the next fiscal year. Service Line Break Even Analysis Memo Transcript of the VOICEMAIL FROM George Costanza (CFO): Hi, it's George. I hear you're working on a budget for the Med-Surg department for FY 2019. I'd like you to come to the budget meeting this afternoon, because I'm going to be sharing some numbers that are likely to have an impact on your budget. I've sent you the year-to-date statements through December, the overall budget for the year, and the year-to-date budget variance for your department. Take a look at them, and bring them with you to the meeting. See you later! Transcript from BUDGET MEETING: George C., CFO Hi, everyone. Thanks for coming. We've got some important numbers to go through and a big challenge to respond to, so I think we better get started. Jerry, Vice President of Operations That sounds ominous. Newman, Vice President of Medical Support Well, can we at least get an idea of how we're doing year-to-date before you go to the 40,000-foot level? George I think you might need to hear this first. Here's the situation: The hospital has to cut operating expenses by 5 percent for next fiscal year. Kramer, Director of Clinical Operations I'm sorry, did you say 5 percent? Operating expenses? George That's right. Jerry That's a big ask. We're already operating awfully lean. George Agreed. But it's the situation we're in. I'll get to the reasons, but based on what I'm going to go over, I just want everyone to keep in mind that we can't make assumptions we were making before. So let me give you an overview of the budget and the year-to-date numbers, and I think you'll see why we're going to have to make those cuts. Now, last year, for the entire hospital, we assumed that we would see $1.2 billion in total patient revenue. But as you can see, for half the year, we've only hit just over $607 million. By this point in the year, we should be over $612 million. So already in terms of total patient revenue, we've got a deficit of nearly $5 million that we didn't expect. The problem is made worse when we see that other operating revenue is also under budget by $1.5 million. I believe that recent efforts in the billing department coupled with some of the solid work by the c-suite team on physician engagement and external marketing are going to have an impact on the revenue side of things. Were also currently negotiating with a couple of our primary commercial payers, but those negotiations remain uncertain. All things considered, Im hoping for about a 5% bump on the revenue side for FY 19. Our operating expenses are fairly close to target so far this year, but given the situation with uncertain revenue, we will need to try to find some additional cost savings opportunities. I want to be reasonably conservative in case market conditions change or negotiations with our payers dont go as expected. Newman Wow. Well, okay, so that's the reality. What's the timeline? How long do we have to make these cuts? George Well, implementation is obviously by June 30 since the next fiscal year starts July 1. The board will approve the new budget probably by mid-June, but all the negotiation at the unit and department level will be going on this month. In your proposal, think through the cuts that are being proposed. Do you simply want to take a salami slice cut across all areas of expense? Or, are there areas where it might make more sense to protect while others are more flexible? Since this is a simulation, you wont know everything that you normally would about the organization, the people involved, etc. However, think through what the second and third order effects are of a budget cut and provide some commentary regarding what other issues might surface and/or may need to be addressed as a result.

YTD Statements:

The Medical Center

FY 2018 YTD FY 2018 Variance YTD FY 2018 Budget Jul-Dec) OPERATING REVENUE Inpatient Revenue Outpatient Revenue TOTAL PATIENT SERVICES REVENUE DEDUCTIONS FROM REVENUE Contractual Adjustments Charity and Uncompensated Care TOTAL DEDUCTIONS FROM REVENUE $483,268,627 S NET PATIENT SERVICE REVENUE $124,270,119 S $375,040,349 S $232,498,397S $607,538,746 S 1,225,000,000 S (4,961,254) 700,000,000 S 25,040,349 525,000,000 S (30,001,603) $476,543,215 $ S 6,725,412S 950,000,000 S 1,543,215 14,000,000 S 964,000,000 S 1,268,627 261,000,000 S (6,229,881) (274,588 OTHER OPERATING REVENUE 10,000,000 S (1,500,000) 271,000,000 S (7,729,881) Other Operating Revenue S 3,500,000S TOTAL OPERATING REVENUE $127,770,119 S OPERATING EXPENSES Salaries and Wages Employee Benefits Professional Fees Supplies 42,932,230S $12,624,012S $ 4,082,215 s $ 23,883,407 S S 1,632,191S $11,536,320 S 8,455,254 S $ 2,252,670 $ S 2,715,378 S 7,992,144S S 8,393,790 S S 88,000,000 S (1,067,770) 25,000,000 $ 9,000,000S 46.000.000 S 124.012 (417,785) 883.407 Purchased Services Utilties Purchased Services-Other Depreciation Rentals and Leases Insurance License and Taxes Interest Provision For Bad Debts 3,000,000 S 22,000,000 $ 17,000,000 $ 4,000,000 $ 5,000,000 S 18,000,000 (1,007,856) 18,000,000 S 132,191 536.320 (44,746) 252,670 215,378 (606,210) S 4,744,642 s TOTAL OPERATING EXPENSES $131,244,253 S NET OPERATING REVENUE$ (3,474,134) S Other Direct Expenses 8,000,000 S 263,000,000 S 8,000,000 S(7,474,134) 744.642 (255,747) NET REVENUE BEFORE ITEMS LISTED BE S (3,474,134) 8,000,000 S(7,474,134) EXTRAORDINARY ITEM NET REVENUE OR (EXPENSE) $ (3,474,134) S 8,000,000 S (7.474,134) Med/Surg Department Budget FY 2018 YTD (Jul- Dec) FY 2018 FY 2018 Budget Variance TYD OPERATING REVENUE Inpatient Revenue TOTAL PATIENT SERVICES REVENUE $ 23,123,516 $ 23,123,516 S 50,000,000 S (1,876.484) 50,000,000 S (1,876.484) OPERATING EXPENSES Salaries and Wages Employee Benefits Professional Fees Supplies Purchased Services-Utilities Purchased Services Other Insurance License and Taxes Other Direct Expenses $12,157,632 $ 3,040,408 $ 250,160 $ 5,883,497 $ 27,456 S 23,484 $ 57,315 S $ 23,000,000 S 5,750,000 S 400,000 S 10,000,000 S 50,000 S 50,000 S 105,000 S 40,000 S 1,500,000 S 40,895,000 S1,986,065 657,632 165,408 50,160 883 497 2,456 (1,516) 4,815 1,456 $ 21,456 $ 972,157 S 222,157 TOTAL OPERATING EXPENSES $ 22,433,565 $ NET REVENUE OR (EXPENSE) 689,951 S 9,105,000 S (3,882,549) FY 2018 YTD FY 2018 Variance YTD FY 2018 Budget Jul-Dec) OPERATING REVENUE Inpatient Revenue Outpatient Revenue TOTAL PATIENT SERVICES REVENUE DEDUCTIONS FROM REVENUE Contractual Adjustments Charity and Uncompensated Care TOTAL DEDUCTIONS FROM REVENUE $483,268,627 S NET PATIENT SERVICE REVENUE $124,270,119 S $375,040,349 S $232,498,397S $607,538,746 S 1,225,000,000 S (4,961,254) 700,000,000 S 25,040,349 525,000,000 S (30,001,603) $476,543,215 $ S 6,725,412S 950,000,000 S 1,543,215 14,000,000 S 964,000,000 S 1,268,627 261,000,000 S (6,229,881) (274,588 OTHER OPERATING REVENUE 10,000,000 S (1,500,000) 271,000,000 S (7,729,881) Other Operating Revenue S 3,500,000S TOTAL OPERATING REVENUE $127,770,119 S OPERATING EXPENSES Salaries and Wages Employee Benefits Professional Fees Supplies 42,932,230S $12,624,012S $ 4,082,215 s $ 23,883,407 S S 1,632,191S $11,536,320 S 8,455,254 S $ 2,252,670 $ S 2,715,378 S 7,992,144S S 8,393,790 S S 88,000,000 S (1,067,770) 25,000,000 $ 9,000,000S 46.000.000 S 124.012 (417,785) 883.407 Purchased Services Utilties Purchased Services-Other Depreciation Rentals and Leases Insurance License and Taxes Interest Provision For Bad Debts 3,000,000 S 22,000,000 $ 17,000,000 $ 4,000,000 $ 5,000,000 S 18,000,000 (1,007,856) 18,000,000 S 132,191 536.320 (44,746) 252,670 215,378 (606,210) S 4,744,642 s TOTAL OPERATING EXPENSES $131,244,253 S NET OPERATING REVENUE$ (3,474,134) S Other Direct Expenses 8,000,000 S 263,000,000 S 8,000,000 S(7,474,134) 744.642 (255,747) NET REVENUE BEFORE ITEMS LISTED BE S (3,474,134) 8,000,000 S(7,474,134) EXTRAORDINARY ITEM NET REVENUE OR (EXPENSE) $ (3,474,134) S 8,000,000 S (7.474,134) Med/Surg Department Budget FY 2018 YTD (Jul- Dec) FY 2018 FY 2018 Budget Variance TYD OPERATING REVENUE Inpatient Revenue TOTAL PATIENT SERVICES REVENUE $ 23,123,516 $ 23,123,516 S 50,000,000 S (1,876.484) 50,000,000 S (1,876.484) OPERATING EXPENSES Salaries and Wages Employee Benefits Professional Fees Supplies Purchased Services-Utilities Purchased Services Other Insurance License and Taxes Other Direct Expenses $12,157,632 $ 3,040,408 $ 250,160 $ 5,883,497 $ 27,456 S 23,484 $ 57,315 S $ 23,000,000 S 5,750,000 S 400,000 S 10,000,000 S 50,000 S 50,000 S 105,000 S 40,000 S 1,500,000 S 40,895,000 S1,986,065 657,632 165,408 50,160 883 497 2,456 (1,516) 4,815 1,456 $ 21,456 $ 972,157 S 222,157 TOTAL OPERATING EXPENSES $ 22,433,565 $ NET REVENUE OR (EXPENSE) 689,951 S 9,105,000 S (3,882,549)