Sakasegawa Memorial Hospital Introduction

Smh Introductionsakasegawa Memorial Hospital Smh Is A 650 Bed Metrop

Smh Introductionsakasegawa Memorial Hospital Smh Is A 650 Bed Metrop

SMH Introduction Sakasegawa Memorial Hospital (SMH) is a 650-bed metropolitan not-for-profit (NFP) hospital in a major city. The hospital competes with other hospitals for its patient base. Managed care is a significant part of its revenue stream and the hospital is not receiving competitive rates. This puts the hospital at a competitive disadvantage. The hospital has been in existence for over 75 years and there is only a small mortgage on the building.

This is an advantage for the hospital. The hospital sold property and used the funds to build the infrastructure of the organization. While the hospital needs additional funding for major projects, it has no more property available for sale. In addition, while the hospital has enjoyed the benefits of several significant contributors, these contributors are getting "contributor fatigue." They are less interested in contributing because the hospital has not turned the corner on operation revenue and expenses. The hospital faces significant issues with the current economic crisis.

The issues include a drop in Medicaid payments and a number of people in the community losing their insurance coverage. 2007 revenue expense data Revenue Source Amount Net Patient revenue non-Medicare $260,183,000.00 Capitation Revenue $36,829,320.00 Patient Revenue - Medicare Medicaid $188,408,800.00 three items match line 1 Part 1 Unrelated business revenue Capitation Rev Other rev - sale of asset $5,492,700.00 Rent revenue $450,000.00 dividends $3,800,000.00 Investment Income $1,892,925.00 Other rev - other $5,290,000.00 Note - see detail Contributions $7,722,580.00 Net assets released from restrictions Ttl Unrestricted Rev $510,069,325.00 Expenses Source Total Clinical Services management & General Fundraising Salaries Salaries Officers 25a Part II $5,008,242.00 $540,392.00 $4,135,300.00 $332,550.00 Other Salaries 26 Part II $176,481,232.00 $158,833,127.00 $16,765,700.00 $882,405.00 Pension 27 Part II $17,942,172.00 $16,147,964.00 $1,704,508.00 $89,700.00 Fringe Benefits 28 Part II $23,783,424.00 $21,406,424.00 $2,259,000.00 $118,000.00 Payroll Taxes 29 Part II $13,336,000.00 $12,002,000.00 $1,266,000.00 $68,000.00 Total Salaries & Benefits total $236,551,070.00 $208,929,907.00 $26,130,508.00 $1,490,655.00 Fundraising fees 30 Part II $0.00 Accounting Fees 31 Part II $340,900.00 $340,900.00 Legal fees 32 Part II $1,345,300.00 $1,211,300.00 $134,000.00 Supplies & Other 33 Part II $226,106,126.00 $225,600,500.00 $500,210.00 $5,416.00 Telephone 34 Part II $1,049,247.00 $944,400.00 $99,600.00 $5,247.00 Postage and shipping 35 part II $339,584.00 $305,626.00 $32,260.00 $1,698.00 Occupancy 36 Part II $0.00 Equipment rental and maintenance 37 Part II $8,967,852.00 $8,071,152.00 $896,700.00 Printing and publications 38 Part II $177,000.00 $159,200.00 $16,800.00 $1,000.00 Conference conventions and meetings 40 Part II $78,500.00 $70,000.00 $8,000.00 $500.00 Interest exp (net) 41 Part II $9,601,800.00 $8,551,800.00 $1,000,000.00 $50,000.00 Depreciation 42 Part II $31,083,552.00 $27,975,052.00 $3,108,500.00 Provision for Bad debt 43a $1,005,000.00 $1,005,000.00 Other expenses 43b- Ttl exp $516,645,931.00 $482,823,937.00 $32,267,478.00 $1,554,516.00 Excess of rev over exp ($6,576,606.00) rwmayer: See detail - Hospital costs 2007 asset liab data Beginning of year End of Year ASSETS Source Cash line 45 Part IV $6,787,000.00 $2,210,000.00 Cash investments line 46 Part IV $19,850,000.00 $32,808,000.00 Accounts Receivable Line 47a Part IV $117,500,000.00 Less Allowance Line 47b Part IV $47,948,000.00 Net Accounts Receivable Line 47 Part IV $63,330,160.00 $69,552,000.00 Pledges Receivable Line 48a Part IV $4,700,900.00 Less Allowance Line 48b Part IV $576,000.00 Net Pledges Receivable Line 48 IV $6,123,000.00 $4,124,900.00 Other Note receivables Line 451cPart IV $13,378,061.00 $22,606,100.00 Inventory Line 52 Part IV $8,443,379.00 $10,362,000.00 Prepaid expenses line 53 Part IV $9,917,000.00 $7,705,000.00 Investments (FMV) line 54a Part IV $74,180,000.00 $78,800,000.00 Land line 57a Part IV $617,314,000.00 Accoumulated Depreciation line 57b Part IV $328,568,000.00 Net Land line 57c Part IV $290,824,900.00 $288,746,000.00 Other Assets line 58 Part IV $81,000,000.00 $74,500,000.00 Total Assets $573,833,500.00 $591,414,000.00 Liabilities Accounts Payable line 60 Part IV $83,829,885.00 $87,118,742.00 Tax exempt bond line64a part IV $139,233,400.00 $136,451,800.00 Mortgage and Note Payable line 64b Part IV $17,210,000.00 $17,900,000.00 Other Liabilities line 65 Part IV $122,683,500.00 $133,556,958.00 Total Liabilbites $362,956,785.00 $375,027,500.00 Fund Balances Unrestricted line 67 Part IV $155,132,000.00 $158,866,000.00 Temporarily restricted line 68 Part IV $38,523,000.00 $40,208,000.00 Permanently restricted line 69 Part IV $17,221,715.00 $17,312,500.00 Fund balance $210,876,715.00 $216,386,500.00 Liabilities and Net Assets $573,833,500.00 $591,414,000.00 Detailed revenue Part III Form 990 Patient days Inpatient 164,972 Ambulatory service visits outpatient 148,617 Patient days distribution % distribution total days Cardiology 6% 9,145 Orthopedic 10% 15,959 Medicine 72% 119,246 Other services 13% 20,622 distribution of patient days Medicare Medicaid Managed care/Insurance Private pay Column1 total Cardiology Orthopedic Medicine Other services % distribution 37% 6% 55% 2% 100% Revenue Distribution Payer Column2 Total Revenue Inpatient Revenue Outpatient Revenue Medicare Revenue $179,567,920.00 $154,045,694.40 $25,522,225.60 Medicaid Revenue $16,840,880.00 $14,956,792.00 $1,884,088.00 Managed Care $274,162,320.00 $226,729,856.00 $47,432,464.00 Private Pay $14,850,000.00 $12,177,000.00 $2,673,000.00 $485,421,120.00 $407,909,342.40 $77,511,777.60 Inpatient Revenue Distribution Cardiology Orthopedic Medicine Other Totals Inpatient Revenue $39,612,365.72 $41,460,795.08 $284,847,513.80 $41,988,667.80 $407,909,342.40 Roger Mayer: use this allocation basis to allocate expenses between payers in Module 3 assignment 2.

Detailed costs Table I Personnel and other totals Inpatient allocated expenses Allocation basis Officers Salaries& Fringe $708,424.15 $566,739.32 patient days Clinical Salaries & Fringes $208,221,482.85 $197,810,408.70 hours of service 41. Other clinical expenses $20,318,478 $16,254,782 patient days Depreciation $27,975,052 $22,380,042 square feet Physician Fees $14,850,673.89 $11,880,539.11 patient days Other supplies $9,433,511.95 $7,546,809.56 patient days Utilities $17,289,172.12 $13,831,337.69 square feet Total Personnel and other $298,796,794.96 $270,270,658.39 Table II Direct Patient Care Expenses totals Inpatient allocated expenses Allocation basis Cardiology $12,506,205.80 $10,004,964.% to cardiology Orthopedic $12,339,125.41 $9,871,300.% to Orthopedic pharmaceuticals $23,391,254.11 $18,713,003.29 Patient days $69,545,157.89 Ancillary (lab x-ray) $63,540,193.25 $50,832,154.60 Patient days Total $111,776,778.57 $89,421,422.85 Table III Indirect Patient Care expenses Totals Inpatient Allocated expenses Allocation basis Cardiology medical supplies $2,659,459.72 $2,127,567.% to cardiology Orthopedic medical supplies $2,393,513.75 $1,914,811.% to Orthopedic pharmaceuticals $5,318,919.44 $4,255,135.55 Patient days $31,913,516.65 general medical supplies $21,275,677.77 $17,020,542.21 Patient days ancillary expenses $13,297,298.60 $10,637,838.88 Patient days Total $44,944,869.28 $35,955,895.43 Table IV Malpractice Totals Inpatient Allocated Expenses Allocation basis Cardiology $5,263,709.72 $4,210,967.% to cardiology Orthopedic $6,908,619.01 $5,526,895.% to Orthopedic Medicine $14,804,183.60 $11,843,346.% medicine Other services $328,981.86 $263,185.49 Patient days Total $27,305,494.19 $21,844,395.35 Table V Clinical Salaries & Fringes - Inpatient Allocation total Cardiology 324,648 Orthopedic 478,770 Medicine 3,458,134 Other services 484,,746,169 average rate per hour - $41.68 Table VI Square feet allocation - Inpatient services Cardiology 21% Orthopedic 26% Medicine 49% Other services 4% total 100% Module 3 Asgn 1 Instructions The SMH financial statement contains additional data that will allow you to conduct an analysis of revenue efficiency factors.

In this assignment, you will calculate direct expenses including labor, supply, and drug costs. Assignment detail Tabs to reference: "Detailed Revenue" allocates revenue by inpatient and outpatient "Detailed Expenses" allocated direct expenses by inpatient and outpatient "2007 Revenue Expense Data" provides data on other income sources and indirect expenses. 1 Create a table that shows gross profit (patient revenue - direct expenses) for inpatient and outpatient services. See example: Inpatient Revenue Outpatient Revenue Total Revenue Inpatient direct expenses Outpatient direct expenses Total Expenses IP Gross Profit OP Gross Profit Total Gross Profit 2 Calculate Gross Profit (GP) margin for both services.

3 Calculate GP per patient day and per operating theater (OT) procedure. 4 Compare your expenses to your benchmark data. (Because some of the comparative data does not have sufficient detail this may be a high-level review.) 5 Comment on the services from the perspective of expense and revenue distribution and explain why there are differences between gross profit margins 6 Complete a table that includes other expenses and other revenue. The table should clearly distinguish between direct and indirect expenses 7 Comment on why other income and contributions are critical to the survival of the organization. Does the reliance on investment income mean that the organization will take a higher risk in order to increase income?

Paper For Above instruction

The Sakasegawa Memorial Hospital (SMH) presents a complex financial landscape that offers insights into healthcare management, cost analysis, and strategic financial planning. This paper provides an in-depth analysis of SMH’s financial data, focusing on revenue and expenses, profit margins, and strategic considerations vital for sustainable operations. The goal is to understand how revenue efficiency factors and cost structures impact hospital performance, particularly within the context of a competitive metropolitan healthcare environment.

Introduction

SMH operates as a not-for-profit hospital with over 75 years of service in a major urban setting. Despite its longstanding presence, it faces significant financial challenges stemming from decreased managed care reimbursement rates, economic downturns, and community health needs such as declining insurance coverage. These issues threaten its operational sustainability and necessitate a comprehensive financial analysis to inform strategic decision-making. Critical to this effort is evaluating revenue sources, analyzing direct and indirect expenses, and understanding the implications of revenue margins and profit margins across various services.

Revenue and Cost Analysis

Based on 2007 data, SMH's total revenue totaled approximately $510 million, generated from patient services, managed care, asset sales, investments, and contributions. Patient revenue, particularly from non-Medicare sources, accounts for the bulk of income, underscoring its dependence on managed care and private payors. Expenses, on the other hand, amount to over $516 million, with salaries, benefits, and clinical supplies constituting major cost centers.

To evaluate profitability, calculating gross profit margins—revenues minus direct expenses—is essential. SMH’s inpatient and outpatient services exhibited varying profit margins, influenced by differential cost allocations and payer mixes. For example, inpatient services, primarily funded by Medicare and Medicaid, typically have lower margins due to lower reimbursement rates, while outpatient revenues from managed care and private payors generally present higher margins, assuming effective cost management.

Gross profit margins are computed by dividing gross profit by total revenue for each service stream, revealing operational efficiencies and areas requiring cost containment or revenue enhancement. For SMH, such margins likely fluctuate significantly between inpatient and outpatient services, reflective of payer mix, service complexity, and operational structure.

Expense Analysis and Benchmarking

Analyzing expenses involves not only total costs but also their allocation across clinical, administrative, and ancillary categories. SMH’s expenditure structure indicates a large proportion allocated to personnel—salaries, fringes, and payroll taxes—highlighting the labor-intensive nature of hospital operations. Other expenses include supplies, utilities, depreciation, and professional fees. Comparing these costs against industry benchmarks can identify efficiency gaps, but due to data limitations, high-level comparisons are more feasible.

Cost per patient day and per procedure serve as critical metrics for performance benchmarking, assisting hospital management in identifying areas for operational improvement. For SMH, expenses allocated to inpatient and outpatient services vary due to differences in resource utilization, patient acuity, and reimbursement rates.

Revenue and Expense Distribution

The distribution of revenues from different payer classes illustrates the hospital's revenue dependence, which influences financial stability. Outpatient services, especially managed care, tend to be more profitable on a per-patient basis due to shorter lengths of stay and higher reimbursement rates. Conversely, inpatient services, heavily reliant on Medicare and Medicaid, often yield lower margins.

Cost structures also differ; inpatient care incurs substantial fixed costs such as depreciation and staffing, affecting profit margins, while outpatient services often have more variable costs aligned with patient volume. Understanding these differences is critical for hospital strategic planning and negotiations with payers.

Other Expenses and Revenue

Beyond core clinical costs, other expenses include administrative overhead, interest expenses, and depreciation, which are classified as indirect costs. Revenue sources such as investments and contributions are vital, especially when operating margins are tight. These supplemental income streams buffer against fluctuations in patient revenue and enable hospital reinvestment and growth.

Dependence on investment income introduces certain financial risks; investments can fluctuate, and reliance on such income may compel hospitals to seek higher-yield but riskier investments. Strategic management of these income sources is essential to ensure long-term financial health and stability.

Conclusion

SMH’s financial analysis emphasizes the importance of balancing revenue generation and expense management. Strategic focus should include optimizing payer mix, controlling costs, and diversifying income sources to mitigate economic uncertainties. Effective contracting, especially with managed care payers, hinges on detailed cost understanding and differentiation of service profitability. Recognizing the critical role of other income streams, such as investments and contributions, ensures the hospital’s resilience amid financial pressures. Ultimately, a strategic, data-informed approach is vital to sustaining SMH’s mission and operational excellence in a competitive environment.

References

• Berenson, R., Ginsburg, P., & Kemper, N. (2006). Hospital-Physician Cost and Revenue Data for Analyzing Revenue & Cost Disparities. Health Affairs, 25(1