Patton Fuller Community Hospital From Zachary Hardie CFO

Patton Fuller Community Hospital From Zachary Hardie Cfo

Patton Fuller Community Hospital From Zachary Hardie Cfo

PATTON – FULLER COMMUNITY HOSPITAL From: Zachary Hardie, CFO To: Davis Geach, President/CEO Fredric Adair, Chief Compliance Officer Jess Ducat, Chief Operating Officer Caterina Hossack, Chief Nursing Officer Brent Houze, Chief Medical Officer Nadene Saetteurn, Chief Human Resource Officer Re: 2010 Operating Budget Assumptions Based upon a review of the 2007, 2008 and 2009 Operating Budget variances, the long and short-term plans of the various hospital departments and an in-depth analysis of general economic conditions, we have arrived at the following assumptions that will be used in the preparation of the 2010 Operating Budget projections. In general, we anticipate a 3% overall “deflation rate” for prices in 2009 – due to the weak economy – will continue into 2010.

Revenues Net Patient Revenue Patient revenue will continue to increase - but at a decreased rate (3%) - with little or no increase in patient volume, due to new managed care contracts. Other Revenue Other revenue is projected to increase by 15% based on Marketing's plan to increase donations by 15%. Expenses Salaries and benefits Salaries will hold to a 1% overall increase in cost due to price "deflation" nation-wide, with no increase in labor hours (due to no increase in patient volume). This assumption could be affected by a board decision to either raise nursing wages by $1 per hour or to increase the nursing hour ratio. Operating Budget Assumptions Supplies Supplies cost will decrease 3% due to the price deflation and our current over-stock purchased last year. Physcian and Professional Fees Contracts for fees have a built-in 3% increase. Utilities Utilities cost will increase 5% due to the rising cost of oil partially offset by the efficiency of the hospital's new heating and cooling systems. Other No net change in the cost or volume of these items. Depreciation & Amortization (“non-cash” expenses) Some high-cost equipment (air conditioning, telephone system, all patient beds and headwalls) were replaced in 2009, and "depreciation" rose sharply. Depreciation will remain at this level in 2010 so no projected increase. Interest The repayment plan for any monies borrowed in 2009 will come due in 2010, with a sharp increase (30%) in interest cost. Provision for Doubtful Accounts The renegotiation of Managed Care plans has delayed collection and made collections less certain. We will assume a 10% increase in doubtful accounts. Operating Income Non-operating Income (Loss) We do not expect to have any non-operating income or loss. Investment Income (Loss) The Market is down, expected to hold steady, so a "zero" return is expected, with neither losses nor gains.

We believe that the hospital will continue its dramatic "turnaround", taking advantage of the stagnation in patient volume, price "deflation", the efficiency of new equipment and the improved arrangements with the managed care companies Operating Budget Assumptions If you have any further thoughts or comments regarding these assumptions, please communicate them to me no later than Friday. ZH Course Description Throughout our lives, we spend much of our time in various types of organizations including business enterprises, educational institutions, and social groups outside of the workplace. As an area of study, organizational behavior seeks to understand and explain people’s behavior and experiences in these organizations and groups. This course will cover the core areas of organizational behavior (OB) through an exploration of theory, research, and case studies on topics such as the changing nature of work, motivation, power and leadership, group dynamics, and organizational effectiveness. Throughout this course, we will explore how research and knowledge of OB topics can be applied to improve organizational functioning as well as our own performance within organizations. By the end of the quarter you will:  Gain an awareness of organizational issues and changing trends and challenges managers face.  Apply concepts and theories covered throughout the course to workplace problems and issues.  Evaluate real world problems and issues to better understand organizational behavior concepts.  Gain a better understanding of the interaction between humans and their organizational environment Sheet1 Patton - Fuller Community Hospital Operating Budget Variance Report Projected months actual data projected to 12 months) Variance Revenues Net Patient Revenue $447,805 $459,% Other Revenue $3,225 $3,% Total Revenues $451,030 $462,% Expenses Salaries and benefits $220,553 $220,% Supplies $73,487 $74,% Physician and professional fees $110,277 $110,% Utilities $1,222 $1,% Other $1,838 $1,% Depreciation & Amorization ("non-cash" expenses) $29,946 $36,% Interest $3,705 $3,% Provision for doubtful accounts $14,721 $13,% Total Expenses $455,749 $462,% Operating Income ($4,719) $689 P Non-operating Income (Loss) Investment income $304 ($% Net Income ($4,416) $627 P Sheet2 Sheet Oper. Budget Patton - Fuller Community Hospital Operating Budget 2009 (In Thousands) (Projection) Based on assumptions: a 3% overall "inflation rate" in 2009, with the cost of oil disproportionately affecting some expense items. Revenues Net Patient Revenue $418,% $447,805 Patient revenue will increase with little or no increase in patient volume, due to new managed care contracts. Other Revenue $2,% $3,225 Marketing's plan to increase donations by 15% Total Revenues $421,% $451,030 Expenses Salaries and benefits $214,% $220,553 Salaries will hold to a 3% overall increase in cost, no increase in labor hours due to no increase in patient volume. Supplies $71,% $73,487 Supplies cost will increase more due to the rising cost of oil and its effect on the cost of plastics and transpiration. Physician and professional fees $107,% $110,277 contracts for fees have a built-in 3% increase. Utilities $1,% $1,222 Utilities cost will increase more due to the rising cost of oil. Other $1,% $1,838 Depreciation & Amortization ("non-cash" expenses) $24,% $29,946 Some high-cost equipment (air conditioning, telephone system, all patient beds and headwalls) will have to be replaced this year, and "depreciation" will rise sharply. Interest $3,% $3,705 The repayment plan for any monies borrowed in 2009 will not come due until 2010. Provision for doubtful accounts $13,% $14,721 The renegotiation of Managed Care plans could make collections less certain. Total Expenses $437,% $455,749 Total expenses will rise 4% Operating Income ($16,110) ($4,719) Operating Income will improve, with the hospital's loss reduced by 2/3 Non-operating Income (Loss) Investment Income $% $304 The Market has been going up for years, the "bull market" should continue in 2009. Net Income ($15,846) ($4,416) The hospital's loss will be further reduced by good returns on investment income.

Paper For Above instruction

In analyzing the financial strategy of Patton Fuller Community Hospital for 2010, it is essential to understand the foundational assumptions that guide the hospital’s budget projections and operational planning. The assumptions outlined by Zachary Hardie, CFO, reflect a comprehensive review of prior years' variances, economic conditions, and future projections, which collectively shape the hospital’s approach to managing revenues, expenses, and overall financial health.

Revenue Projections and Challenges

The hospital anticipates modest growth in net patient revenue, projecting a 3% increase aligning with the anticipated deflationary economic environment. This increase is primarily driven by new managed care contracts rather than an increase in patient volume, which remains stable or slightly decreases. Managed care contracts are a double-edged sword; while they may contain costs and stabilize revenue, they often limit revenue growth due to fixed rates (Zelman et al., 2019). Additionally, other revenue sources such as donations are expected to surge by 15%, underpinning the hospital's marketing and community engagement efforts.

However, revenue growth faces constraints from static patient volumes amid broader healthcare trends, including increased competition, regulatory pressures, and shifts toward outpatient care, which may reduce inpatient hospital stays (Young & Clarke, 2020). The hospital’s strategy must therefore balance maintaining income streams with controlling costs amidst these challenges.

Expense Management and Cost Controls

On the expense side, salaries and benefits are projected to see only a 1% rise, a conservative estimate reflecting nationwide price deflation and no expected increase in labor hours. This cautious outlook suggests a focus on efficiency rather than expansion of labor resources (Vining & Weimer, 2018). Yet, potential policy decisions such as increasing nurses’ wages by $1 per hour or adjusting nursing ratios could significantly influence labor costs, which constitute a substantial portion of hospital expenses (American Hospital Association [AHA], 2020).

Supply costs are forecasted to decrease by 3%, a reflection of previous overstocking and prices impacted by lower oil prices affecting plastics and transportation costs. Interestingly, some expenses like physician and professional fees are set to rise by 3%, a contractual increase built into agreements, underscoring the fixed nature of some payments. Utility costs are expected to climb by 5% due to rising energy prices; however, the hospital’s implementation of energy-efficient systems might mitigate some of these increases (U.S. Energy Information Administration [EIA], 2020).

The depreciation expense, which spiked in 2009 with the replacement of high-cost equipment, is expected to remain stable in 2010. This indicates capital investment plans are in place but not expanding at a rate that would dramatically increase non-cash expenses.

Debt, Interest, and Capital Planning

One notable assumption concerns the increase in interest expenses by 30%, driven by the repayment of borrowed funds. Effective debt management and refinancing strategies will be critical to minimize the financial burden during this period (Huang & Rice, 2017). Additionally, the retention of high depreciation levels due to equipment replacement indicates ongoing capital investments intended to support operational efficiency and quality of care.

Risks in Accounts and Revenue Collection

The hospital expects a 10% increase in doubtful accounts, reflecting ongoing uncertainties in collections, particularly with renegotiated managed care contracts that have delayed payments. This highlights an important area for financial management—robust revenue cycle and collections processes are essential for stability (Zhang et al., 2019).

Overall Financial Outlook and Strategic Considerations

Overall, the hospital’s financial forecast for 2010 is cautiously optimistic. The projected modest revenue growth amid controlled expenses suggests a focus on efficiency, cost containment, and strategic revenue enhancement through donations. The absence of anticipated non-operating income or losses simplifies the financial picture but underscores the importance of careful cash flow and debt management.

The hospital’s assumption to leverage equipment efficiency, manage costs prudently, and explore opportunities in donor contributions reflects an approach aligned with sustainable financial health in a challenging environment. Nonetheless, external economic factors, regulatory changes, and evolving healthcare models will continue to pose risks that require vigilant management and adaptive strategies (Kumar & Keating, 2021).

Conclusion

In conclusion, the assumptions for the 2010 operating budget are cautiously constructed on insights from recent variances, economic forecasts, and strategic initiatives. These form a foundation for effective financial planning that aims to sustain hospital operations, improve financial stability, and support continuous quality care despite economic uncertainties and shifting healthcare landscapes.

References

• American Hospital Association (AHA). (2020). The Role of Nursing in Healthcare Cost Management. Hospital & Health Networks.
• Huang, J., & Rice, J. (2017). Debt Management Strategies in Healthcare. Journal of Healthcare Finance, 43(2), 15-24.
• Kumar, S., & Keating, J. (2021). Healthcare Financial Management During Economic Uncertainty. Healthcare Management Review, 46(3), 151-161.
• U.S. Energy Information Administration (EIA). (2020). Energy Costs and Healthcare Facility Operations. Annual Energy Outlook.
• Vining, A., & Weimer, D. (2018). Efficiency and Cost Control in Hospitals. Health Economics, 27(5), 849-864.
• Young, R., & Clarke, N. (2020). Trends in Hospital Revenue and Patient Volume. Journal of Health Economics, 70, 102263.
• Zhang, W., et al. (2019). Revenue Cycle Management in Healthcare. Medical Care Research and Review, 76(4), 388-400.
• Zelman, W. N., et al. (2019). Managed Care Contracts and Hospital Revenue. Journal of Managed Care & Specialty Pharmacy, 25(8), 909-912.