For this assessment, you will develop a 4-6 page analysis of St. Anthony Medical Center’s finances over three fiscal years. This analysis will include considerations such as assets, liabilities, revenues, and changes in financial position.
Introduction
Note: This assessment uses Vila Health: Financial Statement Analysis as the context for developing your analysis. Please make sure you have reviewed this multimedia before you complete your assessment submission.
Costs are evaluated very closely by all levels of health care administrators. Costs are broken down into different categories, such as direct costs versus indirect costs, and fixed costs versus variable costs (Finkler, Smith, & Calabrese, 2020). You will examine these types of costs and learn analytical methods such as break-even analyses and cost allocation methodologies. These methodologies explore the relationship between volume and cost and demonstrate why volume plays an important role in the planning process.
For this assessment, you will research how costs are allocated from overhead departments to revenue-generating departments. You will conduct independent research on cost allocation methodologies in addition to using the materials provided in the text. You will also consider the steps involved in preparing a cost-benefit analysis (CBA) when deciding to purchase a capital item such as an MRI machine.
The balance sheet, activity statement (also known as an income statement), and statement of cash flows are three of the most common types of financial statements that organizations prepare. You can think of balance sheets as a picture of the financial position of an organization at a given period in timefor example, as of December 31, 20xx. On the other hand, an activity statement or income statement will show the financial position of an organization over a longer period of timefor example, an entire month, quarter, or year (Finkler, Smith, & Calabrese, 2020).
You will explore these types of statements and apply your new knowledge to the health care administration field. You will analyze specific financial statements and think about the financial health of an organization based on the statements provided. You will have several opportunities to practice your analytical skills within this assessment by exploring the concept of ratio analysis. Ratio analysis is one more way that both internal and external stakeholders can increase understanding of the financial position of an organization. Ratio analysis compares financial statement data to provide another view that may then be benchmarked or compared to other organizations. Some common ratio types include common size ratios, liquidity ratios, asset turnover ratios, and leverage or coverage ratios (Finkler, Smith, & Calabrese, 2020).
Additionally, it is important to support your analysis with reference to relevant literature. While it is appropriate to use your textbook as part of that support, your paper should reference at least three outside articles in addition to your textbook.
Demonstration of Proficiency
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
Competency 1: Explain the importance of reporting in health care.
Explain the financial position of St. Anthony Medical Center by comparing assets and liabilities.
Explain the financial position of St. Anthony Medical Center compared to previous years.
Explain how accounts receivable changed from previous years.
Competency 2: Develop a departmental budget.
Analyze the financial obligations of St. Anthony Medical Center and their implications for the upcoming year.
Analyze patient revenue compared to previous years and the implications for the financial health of St. Anthony Medical Center.
Competency 3: Communicate in a manner that is scholarly, professional, and respectful of the diversity, dignity, and integrity of others and consistent with the expectations for health care professionals.
Adhere to the rules of grammar, usage, and mechanics.
Apply APA formatting to in-text citations and references.
Reference
Finkler, S. A., Smith, D. L., & Calabrese, T. D. (2020). Financial management for public, health, and not-for-profit organizations (6th ed.). CQ Press.
Instructions
This assessment has two main parts.
Analysis of the Balance Sheet
This part of the assessment will focus on analyzing the balance sheet for St. Anthony Medical Center. Relevant scoring guide criteria:
Explain the financial position of St. Anthony Medical Center by comparing assets and liabilities shown in the Financial Statement [XLSX].
Explain means to make something (an idea, situation, or problem) clear to someone by describing it in more detail or revealing relevant facts or ideas.
Explain the financial position of St. Anthony Medical Center compared to previous years.
Explain how accounts receivable changed from previous years.
Analyze the financial obligations of St. Anthony Medical Center and their implications for the upcoming year.
Analyze means to examine methodically and in detail the constitution or structure of something (especially information), typically for purposes of explanation and interpretation.
Adhere to the rules of grammar, usage, and mechanics.
Grammar refers to the basic rules for how sentences are constructed and how words combine to make sentences (for example, word order, case, and tense).
Usage refers to correct word choice and phrasing, particularly with regard to the meanings of words and phrases.
Mechanics refers to correct use of capitalization, punctuation, and spelling.
Apply APA formatting to in-text citations and references.
Be sure to include a separate references page.
Some questions to consider that may help you organize your analysis are:
Do assets exceed liabilities?
What does this tell you about the financial position of St. Anthony Medical Center?
How has the financial position of St. Anthony Medical Center changed since last year?
How has it changed since the year prior?
How have the accounts receivable changed from previous years, and what does this tell you?
Using the balance sheet, what financial obligations does St. Anthony Medical Center need to consider in the upcoming year?
The goal of this analysis is to create an accurate picture of the financial trends for St. Anthony Medical Center, its current financial obligations, and how the upcoming fiscal year projects in light of this information.
Analysis of the Income Statement
This part of the assessment will focus on analyzing the income statement for St. Anthony Medical Center. Relevant scoring guide criteria:
Analyze patient revenue compared to previous years and the implications for the financial health of St. Anthony Medical Center.
Adhere to the rules of grammar, usage, and mechanics.
Apply APA formatting to in-text citations and references.
Some questions to consider that may help you organize your analysis are:
Has patient revenue increased or decreased from previous years?
What could this indicate about the financial position of St. Anthony Medical Center?
The goal of this analysis is to create an accurate picture of trends tied to the overall financial health of St. Anthony Medical Center.
Financial Statement Analysis
Introduction
Your Office
Board Meeting
Conclusion
Introduction
Financial statements are much more than numbers. If you know how to read them, a financial statement illustrates the financial health of an entire organization even an organization as complex as a hospital. It also can serve as a road map to guide decisions about upcoming choices.
After completing the activity, you should be able to:
Understand what financial statements say about St. Anthony Medical Center’s financial position.
Understand how to analyze a financial statement in categories such as accounts receivable, asset-liability ratios, and others.
Your Office
You continue in your role as the administrator of the Medical-Surgical Department at St. Anthony Medical Center, the third largest hospital in the Twin Cities metro area. It’s been six months since the mid-year budget meeting, and the fiscal year is over. Owen Welch, the hospital’s CFO, is going to be reviewing the financials with the hospital’s board, and you’ll use what he explains to inform your own financial analysis.
You have an email from Owen Welch, CFO.
Email
From: Owen Welch, CFO
Subject: End-of-year financials
I’m presenting the end-of-fiscal-year numbers to the board tomorrow morning at 9:00. If you can be there to help field their questions, that will really help me out. I saved the final financials in your folder.
See you tomorrow!
Owen
St. Anthony Medical Center Financial Statements
Please download the Excel file for financial data.
Board Meeting
Owen Welch meets with the St. Anthony Medical Center board to talk about the end-of-year financials for the hospital.
Budget Meeting Conversation
Owen Welch, CFO: Hi, everyone. As you know, we’re going to go over the financials for the fiscal year just past and the outlook for the current fiscal year. Did everyone get the end-of-year statements and the budget data for the past three years? [pause] Okay, good. Let’s get started.
One of my primary concerns right now is the negative balance in our cash account. We do not have the cash reserves that we should have to run the hospital. Now, our accounts receivable team has been working hard to reduce the days in accounts receivable, and they’ve been more aggressive with collections to bring money in the door. But despite all this, we’ve been overdrawing our accounts to make payroll.
I don’t need to tell you that this needs to be addressed immediately. Now, some of this is timing. We’ve got significant expenditures and construction costs for the new buildings in our expansion. At the same time, we haven’t recognized the increase in revenue yet to cover these additional costs.
Now, our debt to assets ratio indicates a high level of leverage. We currently stand at 1.2, with $231,341,925 in liabilities and $191,246,229 in assets. Now, as we know, anything above 1 indicates financial risk. Again, our recent expansion has caused a lot of this, but simply knowing why doesn’t solve the problem. That’s why we need to tighten our belts this next year.
Raman Gupta, Board Member: Owen, I talked to Geoffrey about this. I’m a little confused about the disconnect between what you’re saying and what we’re seeing in the patient revenue numbers. Shouldn’t we be celebrating, not worrying?
Owen Welch: You’re right about the disconnect, Raman. Let me explain. Our inpatient revenue is definitely up, and that makes it look like we’re doing just fine. But what you can’t see from the numbers I gave you is that our inpatient volume is actually down.
We had fewer surgeries and deliveries here in the past fiscal year, because of the construction. But the decline in the number of surgeries was offset by the revenue from each surgery.
Our new bariatric surgical practice generally yields more revenue per patient than other practices which is one reason why we pursued it. But obviously, we can’t subsidize the other practices long-term, and that’s why there’s the concern even if the financials don’t reflect it. We hope those inpatient volumes will return to the levels we’re used to this year, but we may need to take a more proactive stance on getting that volume up again.
Jennifer Nash, Board Member: So what would you say is our position as we move forward with the strategic plan? Are we in good shape or do we need to look at a different time line with implementation?
Owen Welch: Keep in mind that back in January, we required a 5 percent cut in operating expenses for the current fiscal year. So with those cuts, we’ve developed a cushion that will keep us on track we hope.
We didn’t want to have to do that, but when it came down to it, as you remember, we decided that we would proactively find some efficiencies rather than hope for increased growth. It’s my belief that we can continue implementing on the established schedule, but we’ll obviously be revisiting that at mid-year to make sure the variance isn’t going in the wrong direction.
Paul Darnell, Board Member: Are we comfortable with what we’re seeing in those wage and benefit numbers?
Owen Welch: I certainly am. The changes reflect two factors: One is the normal wage inflation, and the other is expanded staff.
Most of that staff expansion comes from the new doctors and other staff in the bariatric practice, which as we’ve discussed is already generating the ROI we were hoping for. But a portion of it comes from a single new plastic surgeon we hired. She is also part of that per-surgery increase that made up for our lack of volume, because she brought new patients with her. Those patients yielded revenues we needed, without requiring the normal marketing expenditures for bringing in new patients.
Thanks for coming, everyone! Questions?
Conclusion
You have completed the Vila Health: Financial Statement Analysis activity.
In this activity, you learned how the year turned out for St. Anthony Medical Center, and how budget numbers don’t always tell the whole story. They must be analyzed and given context so that they can be used to make financial decisions.
Hospital: St. Anthony Medical Center, Vila Health
BALANCE SHEET
2 Years Prior,
Ending: 6/30
1 Year Prior,
Ending: 6/30
Current Year,
Ending: 6/30
ASSETS
CURRENT ASSETS:
Cash
Accounts Receivable
Less-Estimated Uncollectable & Allowances
Receivables From Third Party Payors
Pledges And Other Receivables
Inventory
Prepaid Expenses
TOTAL CURRENT ASSETS
$
$
$
$
$
$
$
$
1,587,292
46,165,929
7,428,652
(3,983,360)
3,067,078
7,438,974
982,465
47,829,726
$
$
$
$
$
$
$
$
(2,464,387)
39,102,464
2,038,650
(3,067,704)
1,770,581
7,328,984
1,230,053
41,861,341
$
$
$
$
$
$
$
$
(1,027,622)
32,410,207
3,891,982
(247,989)
1,889,617
8,014,988
1,301,476
38,448,695
$
$
$
$
$
$
$
$
TOTAL $
Less Accumulated Depreciation $
NET PROPERTY, PLANT & EQUIPMENT $
15,239,201
981,929
114,791,925
977,950
7,243,962
56,465,517
360,086
129,971
196,190,541
53,467,581
142,722,960
$
$
$
$
$
$
$
$
$
$
$
15,239,201
1,005,843
85,916,245
28,562,665
9,305,052
57,547,957
425,606
225,682
198,228,251
62,102,069
136,126,182
$
$
$
$
$
$
$
$
$
$
$
15,239,201
1,009,492
122,015,477
77,067,373
425,606
1,089,603
216,846,752
75,384,791
141,461,961
PROPERTY, PLANT AND EQUIPMENT:
Land
Land Improvements
Buildings
Fixed Equipment – Building Service
Fixed Equipment – Other
Equipment
Leasehold Improvements
Construction In Progress
INVESTMENTS AND OTHER ASSETS:
Other Investments
$
TOTAL INVESTMENTS & OTHER ASSETS $
1,200,000
1,200,000
$
$
1,200,000
1,200,000
$
$
1,200,000
1,200,000
INTANGIBLE ASSETS:
Other Intangible Assets
$
8,136,660
$
8,785,276
$
10,135,573
TOTAL INTANGIBLE ASSETS $
8,136,660
$
8,785,276
$
10,135,573
TOTAL ASSETS $
199,889,346
$
187,972,799
$
191,246,229
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts Payable
$
12,401,459
$
15,538,863
$
16,230,075
Accrued Compensation and Related Liabilities
$
12,314,912
$
10,399,590
$
11,777,836
Other Accrued Expenses
$
2,866,697
$
2,147,237
$
1,866,967
Current Maturities of Long Term Debt
$
106,871
$
110,036
$
TOTAL CURRENT LIABILITIES $
27,689,939
$
28,195,726
$
$
297,706
$
185,548
$
–
TOTAL DEFERRED CREDITS $
297,706
$
185,548
$
–
DEFERRED CREDITS:
Other Deferred Credits
29,874,878
LONG TERM DEBT:
Notes Payable
$
5,709,416
$
5,674,827
$
5,296,930
Notes and Loans Payable to Parent
$
200,510,267
$
189,173,761
$
196,170,117
TOTAL $
Less Current Maturities of Long Term Debt $
206,219,683
$
194,848,588
$
201,467,047
106,871
$
110,036
$
TOTAL LONG TERM DEBT $
TOTAL LIABILITIES $
206,112,812
$
194,738,552
$
201,467,047
234,100,457
$
223,119,826
$
231,341,925
(35,147,027) $
(40,095,696)
–
EQUITY:
Retained Earnings
$
(34,211,111) $
TOTAL EQUITY $
TOTAL LIABILITIES AND FUND BALANCE OR EQUITY $
(34,211,111) $
(35,147,027) $
(40,095,696)
199,889,346
187,972,799
191,246,229
$
$
INCOME STATEMENT
2 Years Prior
Ending: 6/30
1 Year Prior
Ending: 6/30
Current Year
Ending: 6/30
OPERATING REVENUE:
Inpatient Revenue
$
613,250,730
$
666,080,698
$
752,813,180
Outpatient Revenue
$
379,474,731
$
464,996,793
$
529,706,918
TOTAL PATIENT SERVICES REVENUE $
992,725,461
$
1,131,077,491
$
1,282,520,098
DEDUCTIONS FROM REVENUE:
Contractual Adjustments
$
717,932,468
$
855,811,021
$
1,010,760,525
Charity and Uncompensated Care
$
13,000,000
$
13,400,000
$
7,483,718
TOTAL DEDUCTIONS FROM REVENUE $
730,932,468
$
869,211,021
$
1,018,244,243
NET PATIENT SERVICE REVENUE $
261,792,993
$
261,866,470
$
264,275,855
$
10,700,496
$
9,969,048
$
10,171,428
TOTAL OPERATING REVENUE $
272,493,489
$
271,835,518
$
274,447,283
OTHER OPERATING REVENUE:
Other Operating Revenue
OPERATING EXPENSES:
Salaries and Wages
$
83,640,502
$
85,864,459
$
88,523,453
Employee Benefits
$
23,409,379
$
25,248,024
$
25,937,607
Professional Fees
$
7,771,092
$
8,144,426
$
9,613,656
Supplies
$
45,829,243
$
47,766,813
$
46,386,989
Purchased Services – Utilities
$
2,876,784
$
3,264,382
$
3,043,368
Purchased Services – Other
$
18,060,203
$
23,072,640
$
22,184,388
Depreciation
$
17,664,788
$
16,910,508
$
17,408,824
Rentals and Leases
$
4,457,609
$
4,505,340
$
4,866,384
Insurance
$
4,958,436
$
5,430,756
$
5,740,788
License and Taxes
$
20,456,465
$
15,984,288
$
18,828,504
Interest
$
18,559,323
$
16,787,580
$
18,671,136
Provision For Bad Debts
$
14,054,177
$
2,564,197
$
Other Direct Expenses
$
6,905,494
$
9,489,283
$
8,522,136
TOTAL OPERATING EXPENSES $
NET OPERATING REVENUE $
268,643,495
$
265,032,696
$
269,727,233
3,849,994
$
6,802,822
$
4,720,050
NET REVENUE BEFORE ITEMS LISTED BELOW $
3,849,994
$
6,802,822
$
4,720,050
(2,600,229) $
1,374,000
$
750,000
1,249,765
8,176,822
$
5,470,050
EXTRAORDINARY ITEM $
NET REVENUE OR (EXPENSE) $
$
–
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