Case 1 Student Version River Community Hospital

CASE1 CASE 1 Student Version 8/6/15 RIVER COMMUNITY HOSPITAL (A)

Assessing Hospital Performance Case 1 presents the opportunity to conduct an extensive financial statement and operating indicator analysis on a 210-bed not-for-profit hospital. The case includes statement of cash flows analyses, Du Pont analyses, ratio analyses, and economic value added analyses. The instructor version of the model is the same as this model. The key to student success in this case lies 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 industry data used in this case are for instructional use only, and do not represent actual industry data for the time period of the case. Statements of Operations (Millions of Dollars): Revenues Net patient service revenue $28.796 $30.576 $34.582; Other revenue $1.834; Total revenues $30.033 $32.429 $36.416. Expenses Salaries and wages $12.245 $12.468 $13.994; Fringe benefits $1.568; Interest expense $1.776; Depreciation $2.778; Medical supplies and drugs $0.776; Professional liability $0.218; Other $9.848; Total expenses $27.404 $30.327 $33.958. Net income $2.629 $2.102 $2.458.

Balance Sheets (Millions of Dollars): Assets Cash and investments $4.673 $5.069 $2.795; Accounts receivable (net) $4.413; Inventories $0.601; Other current assets $0.923; Total current assets $9.772 $11.969 $11.732. Gross plant and equipment $47.786 $55.333 $59.552; Accumulated depreciation $11.009; Net plant and equipment $35.966 $40.995 $42.543; Total assets $45.738 $52.964 $54.275. Liabilities and Net Assets Accounts payable $0.928 $1.253 $1.760; Accruals $1.176; Current portion of long-term debt $0.465; Total current liabilities $2.498 $4.097 $4.401; Long-term debt $15.673 $19.222 $17.795; Net assets $27.567 $29.645 $32.079. Total liabilities and net assets $45.738 $52.964 $54.275.

Statements of Cash Flows (Millions of Dollars): Cash Flows from Operating Activities Net income $2.102 $2.458; Depreciation $2.756; Change in accounts receivable ($1.739); Change in inventories ($0.078); Change in other current assets ($0.220); Change in accounts payable $0.507; Change in accruals $0.327; Net cash flow from operations $3.302 $3.357. Cash Flows from Investing Activities Investment in plant and equipment ($7.686) ($4.328). Cash Flows from Financing Activities Change in long-term debt $3.549 ($1.427); Change in current portion of long-term debt $1.124; Net cash flow from financing $4.780 ($1.303). Net increase (decrease) in cash and investments $0.396 ($2.274). Beginning cash and investments $4.069; Ending cash and investments $5.069 $2.795.

Operating Revenue and Expense Allocation (Millions of Dollars): Operating revenue Gross inpatient service $26.117 $29.148 $33.216; Gross outpatient service $6.912; Gross patient service revenue $32.652 $38.278 $45.128; Contractual allowances $1.729 $5.196 $7.516; Bad debt and charity care $2.030; Total revenue deductions $3.856 $7.702 $10.546; Net patient service revenue $28.796 $30.576 $34.582. Operating expenses Inpatient service $20.573 $22.229 $24.771; Outpatient service $6.187; Total operating expenses $27.404 $30.327 $33.958.

Selected Operating Data: Medicare discharges 2,741; Total discharges 8,576; Outpatient visits 32,796; Licensed beds; Staffed beds; Patient days 44,062; All-payer Case Mix Index 1.3161; Full-time equivalents 610.3. Selected Financial Ratios (2013): Industry data ratios for profit, liquidity, debt management, asset management, and other efficiency metrics are provided for comparison, depicting the hospital's performance relative to industry benchmarks.

Paper For Above instruction

Evaluating the financial and operational performance of a healthcare institution is crucial for ensuring sustainability, efficiency, and quality care delivery. The River Community Hospital case provides a comprehensive dataset that allows for an in-depth analysis using various financial tools and metrics, including financial statement analysis, ratio analysis, and operational assessments. This paper aims to interpret these data points critically, compare hospital metrics with industry benchmarks, and identify key areas for improvement and strategic planning.

Introduction

Hospitals operate in a complex environment where financial stability, operational efficiency, and quality patient care are intertwined. To assess a hospital’s performance accurately, a multifaceted analysis encompassing financial statements, operating indicators, and industry benchmarks is essential. The River Community Hospital case offers a robust dataset that exemplifies typical hospital financial and operational metrics, enabling an evaluative approach that supports strategic decision making.

Financial Statement Analysis

The analysis begins with the hospital’s statement of financial position, income statement, and cash flow statement. The hospital’s total assets increased from $45.7 million in 2013 to $54.3 million in 2015, indicating growth. Similarly, total liabilities rose, notably long-term debt, which increased from $15.673 million to $17.795 million. This suggests increased borrowing possibly to finance capital investments, as reflected in the significant capital expenditures of $7.686 million in 2015.

The hospital’s net assets grew from approximately $27.6 million to $32 million over the period, reflecting retained earnings and reinvestment. The statement of cash flows shows positive cash flow from operations, with a slight decrease in cash reserves, indicating effective management of operating cash flows even amidst substantial capital investments.

Profitability and Operating Efficiency

Key profitability metrics such as total margin show that the hospital maintained a healthy profit margin of approximately 8.75% in 2013, which aligns favorably with the industry median of 6.48%. Net revenue per discharge was $2,622 in 2013, which is close to the industry median of $2,799, signifying efficient revenue cycle management.

However, profitability per outpatient visit was negative ($33.07), highlighting potential areas where outpatient services might be less profitable or encumbered by high costs or lower reimbursement rates. The changes in operating expenses, especially for inpatient services, suggest increasing costs, possibly due to staffing, medical supplies, or aging infrastructure.

Operational Metrics

Occupancy rate of approximately 62.6% indicates moderate utilization. Length of stay at 5.02 days exceeds the industry median, potentially impacting throughput and revenue. Average daily census closely matches the occupancy rate and licensed bed count, demonstrating stable patient volume.

The hospital’s outpatient visits have increased significantly, which is consistent with broader healthcare trends favoring outpatient care. Nevertheless, outpatient revenue percentage remains below 25%, emphasizing a potential growth area for revenue enhancement.

Financial Ratios and Industry Comparison

Liquidity ratios such as a current ratio of 3.91 indicate strong short-term liquidity, surpassing the industry median. Similarly, days cash on hand are robust at 68 days, providing a cushion for financial flexibility. Debt management ratios, including debt ratio and debt-to-equity, suggest manageable leverage, with the debt ratio slightly below the industry median, implying prudent debt utilization.

Asset management ratios highlight the hospital’s efficiency in utilizing assets; for example, fixed asset turnover of 0.84 suggests room for improvement. The hospital’s efficiency in managing receivables shows an average of 55 days in patient accounts receivable, slightly above the industry benchmark, indicating an area for potential enhancement.

Strategic Recommendations

Based on the data, several strategic actions are recommended. Enhancing outpatient service profitability could involve renegotiating payor contracts or expanding outpatient facilities’ scope. Additionally, optimizing the length of stay without compromising care quality can improve throughput and revenue per patient.

Investments in technology and process improvements could reduce days in receivables, accelerating cash flow and reducing financial strain. Maintaining strong liquidity metrics while managing debt prudently supports future capital investments and operational stability.

In summary, while River Community Hospital exhibits healthy profitability, liquidity, and manageable leverage, ongoing focus on operational efficiencies, cost control, and revenue diversification are essential to sustain growth and competitiveness in the healthcare industry.

Conclusion

The comprehensive analysis of River Community Hospital demonstrates a solid financial foundation and operational efficiency compared to industry benchmarks. Strategic enhancements in outpatient services, process optimization, and receivables management can further improve hospital performance. Continuous monitoring through ratios and operational metrics remains vital to respond dynamically to industry changes and ensure long-term sustainability and excellence in healthcare delivery.

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