Describe the challenges of developing and operating the unit/agency budget based on institutional history. Incorporate research finding where applicable.

Healthcare Economic Issues
Extra Credit Project

The documents attached are for the purposes of extra credit. It is a culmination of a number of healthcare economic issues.

1- Describe the challenges of developing and operating the unit/agency budget based on institutional history. Incorporate research finding where applicable.

2-Utilize various financial decision tools such as budget development and analysis, medical staff productivity, expense variance analysis, and break-even calculations.

3- Critique various management/financial models from the perspective of mission, organizational culture and business strategy.

The paper should be in APA style and cited as appropriate. Please pay close attention to the background information, as it will help you to answer the questions correctly.
This will require you to use your analytical skills.

Case Study
Healthcare Budgeting

The Atlantic Medical Center is a 562 bed full service acute care hospital on the east coast of New Jersey. By full service, it means that the hospital provides all services such as trauma, obstetrics, inpatient psychiatry, oncology services, operating rooms, same day surgery, clinics, etc. In addition, they are a teaching hospital meaning that they are affiliated with Atlantic Coast Medical School and University. Residents rotate through the organization as do nursing students, physical therapy students, respiratory therapy students, etc. The occupancy of the hospital is 75% which has become a concern to the Board of Trustees. They are looking at multiple mechanisms to increase volume in the hospital.
The mission of the hospital is: “To provide exceptional patient care and health education to consumers in the region.”
The hospital has a vision statement which reads:
“Atlantic Medical Center will be the hospital of choice on the eastern coast due to the high quality of care, commitment to education of staff and exceptional working environment.”
The values of the organization are: patient safety, high quality patient care, efficiency, staff education, and patient centered care.
Some of the difficulties the hospital is experiencing at present are:
• Decreased volume due to competition from other hospitals
• Excessive staff overtime
• Lack of educational in-services for staff
The management and the board of trustees have developed some strategic initiatives which are:
• Improve staff retention
• Decrease orientation expenses
• Increase volume through new or expanded programs
• Reduce overtime
• Improve the work environment through updating the hospital equipment and the building structure
• Improve profit margins

Section I (25%):
The Statement of Operations (Income Statement, Profit and Loss Statement) was presented to the Board of Trustees and a portion of this is included as Exhibit A. Please answer the following questions about this Statement of Operations:
What is happening with the revenue?
What are allowances? Should these ever be a positive number? Why?
Can allowances be reduced? How?
Is the organization profitable?
What are the major concerns that you see in the Statement of Operations? What areas would you target for expense reduction and why?

Atlantic Medical Center
Statement of Operations
For the Month Ending August 31st
Current Month Year-to- Date
Actual Budget Variance Actual Budget Variance
Patient Service Revenue
154,885,174 158,174,173 (3,288,999) Inpatient Revenue 805,402,905 790,870,865 14,532,040
47,782,967 47,687,221 95,746 Outpatient Revenue 334,480,769 238,436,105 96,044,664
202,668,141 205,861,394 (3,193,253) Gross Patient Service Revenue 1,139,883,674 1,029,306,970 110,576,704

Deductions
(158,476,920) (145,903,875) (12,573,045) Contractual Allowances (824,079,984) (729,519,375) (94,560,609)
(5,580,855) (6,150,795) 569,940 Charity Care (27,904,275) (30,753,975) 2,849,700
(164,057,775) (152,054,670) (12,003,105) Net Patient Service Revenue (851,984,259) (760,273,350) (91,710,909)

2,707,623 3,157,182 (449,559) Other Operating Revenue 18,953,361 15,785,910 3,167,451
307,839 432,839 (125,000) Charity Appropriations 2,154,873 2,164,195 (9,322)
33,385 115,797 (82,412) Net Assets Released from Restrictions 166,925 578,985 (412,060)

41,659,213 57,512,542 (15,853,329) Total Operating Revenue 309,174,574 287,562,710 21,611,864

Operating Expenses
23,472,851 22,522,083 (950,768) Salaries and Wages 117,364,255 112,610,415 4,753,840
20,963,207 19,508,413 (1,454,794) Supplies and Other 104,816,035 97,542,065 7,273,970
3,880,877 4,253,174 372,297 Employee Benefits 19,404,385 21,265,870 (1,861,485)
4,920,575 6,426,687 1,506,112 Provision for Bad Debts 24,602,875 32,133,435 (7,530,560)
3,435,168 3,461,334 26,166 Depreciation and Amortization 17,175,840 17,306,670 (130,830)
993,117 990,319 (2,798) Interest 4,965,585 4,951,595 13,990
57,665,795 57,162,010 (503,785) Total Operating Expenses 288,328,975 285,810,050 2,518,925

(16,006,582) 350,532 (15,349,544) Operating Income 20,845,599 1,752,660 19,092,939

Section II (25%): The following financial ratios are presented to the Board of Trustees

Atlantic Medical Center TABLE
Ratio Standard 2014 2015 YTD Evaluation
Liquidity
Current 1.97 1.99 1.79
Quick 1.86 3.13 2.75
Acid Test 0.20 1.81 1.49
Collection Period 63.31 68.76 71.50
Days cash on hand 22.05 24.88 21.00
Average Payment Period 56.50 58.77 60.10
Profitability
Operating Margin 0.029 .080 .067
Return on Net Assets 0.072 .066 .122
Total asset turnover 1.02 .90 .89
Fixed asset turnover 2.20 2.02 1.94
Age of plant 8.35 13.2 13.8
Current asset turnover 3.57 2.62 2.81
Inventory turnover 59.32 61.00 61.50
Capital Structure
Equity financing .53 .67 .65
Long term debt to net assets .59 .32 .36
Debt service coverage 3.28 3.60 4.18
Cash flow-to-debt .21 .27 .35
Other Information
Average daily census 506 495 422
Occupancy Rate 90% 88% 75%
Average Length of Stay 5.4 5.8 5.9
Inpatient Revenue Percentage 0.4 0.28 0.29
Case Mix Index 1.0 0.8 0.7
Turnover Rate 15% 18% 22%

Use the column on the left to indicate whether these ratios are good or poor as compared to the standard and what you know about financial ratios.
1. What do liquidity ratios tell us about the organization? What are the latest results telling us about this organization? Why is this important?

2. What do profitability ratios tell us about an organization? What are the latest results telling us about this organization?

3. What do capital structure ratios tell us about an organization? What are the latest results telling us about this organization?

4. The average daily census is going down. Considering what you know about the future of health care, should the management be concerned?

5. What is case mix index? What are these results telling us about the organization?

6. As part of the management staff, and looking at the total picture, what would your recommendations be to the hospital leadership?

Section III (50%):

Given this information, you and other Nurse Managers for the organization have been asked to come up with ideas for a new type of nursing unit. The organization is prepared to allow a 30 bed patient unit to be converted into some type of innovative clinical care area which would enhance services or add new services. You may propose any type of unit. The “standard hours per patient day” are noted below. These are to be used for the budget calculations. If the type of unit or service you are looking to create is not listed, you must find a resource to give you that information. You must list a logical reason for creating such a unit/service given the organization’s mission, vision and values.

Unit Type Hours Per Patient Day
General Medical Surgical: 5.0 -6.0 HPPD
Orthopedics 5.5 -6.0 HPPD
Burn/Neuro: 6.5 – 7.0 HPPD
Diabetes: 5.4 – 6.2 HPPD
Oncology: 6.5 – 7.5 HPPD
Intermediate Care: 6.5 – 5.0 HPPD
Pediatric Oncology / Critical Care: 17.5 -19. 5 HPPD
Post-Partum: 4.5 – 5.5 HPPD
Neonatal ICU: 11.0 – 13.0 HPPD
Labor and Delivery: 9.0 -11.5 HPPD
Psychiatry, Inpatient: 15.0 -16.5 HPPD
Emergency Services: 2.0 -2.5 HPPV (Hours per patient visit)

You must first project revenue by first listing a payer mix and hospital charges. (You can make up this data). In projecting revenue, you need to understand the negotiated reimbursement and the percentage of the reimbursement this entity will consume. See example below:
Example: Anticipated Revenue: $1,000,000
Payer Negotiated Rate Percent of Population Total Revenue
Aetna 100% hospital charges 15% $150,000
Horizon Blue Cross 75% of charges 6% $45,000

TABLE

Personnel Budget Form
Unit Type: _________________
Brief description:
Projected patient days, visits or units of service: ________________

Title or Position FTE(S) Total Hours Hourly Salary Yearly Salary

*Source of hourly salary:

Supply Expense Budget

Subaccount Item Descriptions Total

(You may expand the table if need be)

Capital Budget

Item Descriptions Number needed Individual Price Total Price

Please answer the following questions:
1. What are some important considerations in developing a personnel budget?

2. Looking at the projected revenue and the personnel and supply budget, what do you project as the net revenue for year one? Do you anticipate a difference in year 2? Why?

3. In what way(s) is your program consistent with the strategic objectives? Do you anticipate it will improve the financial ratios? How?

4. What are some important considerations in developing a personnel budget?
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