Healthcare Finance and Accounting Assignment #4

CHAPTER28CaseStudy_MetropolisHealthSystem.docx

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CHAPTER 28 Case Study: Metropolis Health System

BACKGROUND

· 1. The Hospital System Metropolis Health System (MHS) offers comprehensive healthcare services. It is a midsize taxing district hospital. Although MHS has the power to raise revenues through taxes, it has not done so for the past seven years.

· 2. The Area MHS is located in the town of Metropolis, which has a population of 50,000. The town has a small college and a modest number of environmentally clean industries.

· 3. MHS Services MHS has taken significant steps to reduce hospital stays. It has developed a comprehensive array of services that are accessible, cost-effective, and responsive to the community’s needs. These services are wellness oriented in that they strive for prevention rather than treatment. As a result of these steps, inpatient visits have increased overall by only 1,000 per year since 2008, whereas outpatient/same-day surgery visits have had an increase of over 50,000 per year. A number of programmatic, service, and facility enhancements support this major transition in the community’s institutional health care. They are geared to provide the quality, convenience, affordability, and personal care that best suit the health needs of the people whom MHS serves.

· • Rehabilitation and Wellness Center—for outpatient physical therapy and return-to-work services, plus cardiac and pulmonary rehabilitation, to get people back to a normal way of living.

· • Home Health Services—bringing skilled care, therapy, and medical social services into the home; a comfortable and affordable alternative in longer-term care.

· • Same-Day Surgery (SDS)—eliminating the need for an overnight stay. Since 1998, same-day surgery procedures have doubled at MHS.

· • Skilled Nursing Facility—inpatient service to assist patients in returning more fully to an independent lifestyle.

· • Community Health and Wellness—community health outreach programs that provide educational seminars on a variety of health issues, a diabetes education center, support services for patients with cancer, health awareness events, and a women’s health resource center.

· • Occupational Health Services—helping to reduce workplace injury costs at over 100 area businesses through consultation on injury avoidance and work-specific rehabilitation services.

· • Recovery Services—offering mental health services, including substance abuse programs and support groups, along with individual and family counseling.

· 4. MHS’s Plant The central building for the hospital is in the center of a two-square-block area. A physicians’ office building is to the west. Two administrative offices, converted from former residences, are on one corner. The new ambulatory center, completed two years ago, has an L shape and sits on one corner of the western block. A laundry and maintenance building sits on the extreme back of the property. A four-story parking garage is located on the eastern back corner. An employee parking lot sits beside the laundry and maintenance building. Visitor parking lots fill the front eastern portion of the property. A helipad is on the extreme western edge of the property behind the physicians’ office building.

· 5. MHS Board of Trustees Eight local community leaders who bring diverse skills to the board govern MHS. The trustees generously volunteer their time to plan the strategic direction of MHS, thus ensuring the system’s ability to provide quality comprehensive health care to the community.

· 6. MHS Management A chief executive officer manages MHS. Seven senior vice presidents report to the CEO. MHS is organized into 23 major responsibility centers.

· 7. MHS Employees All 500 team members employed by MHS are integral to achieving the high standards for which the system strives. The quality improvement program, reviewed and reestablished in 2010, is aimed at meeting client needs sooner, better, and more cost-effectively. Participants in the program are from all areas of the system.

· 8. MHS Physicians The MHS medical staff is a key part of MHS’s ability to provide excellence in health care. Over 75 physicians cover more than 30 medical specialties. The high quality of their training and their commitment to the practice of medicine are great assets to the health of the community. The physicians are very much a part of MHS’s drive for continual improvement on the quality of healthcare services offered in the community. MHS brings in medical experts from around the country to provide training in new techniques, made

· possible by MHS’s technologic advancements. MHS also ensures that physicians are offered seminars, symposiums, and continuing education programs that permit them to remain current with changes in the medical field. The medical staff’s quality improvement program has begun a care path initiative to track effective means for diagnosis, treatment, and follow-up. This initiative will help avoid unnecessary or duplicate use of expensive medications or technologies.

· 9. MHS Foundation Metropolis Health Foundation is presently being created to serve as the philanthropic arm of MHS. It will operate in a separate corporation governed by a board of 12 community leaders and supported by a 15-member special events board. The mission of the foundation will be to secure financial and nonfinancial support for realizing the MHS vision of providing comprehensive health care for the community. Funds donated by individuals, businesses, foundations, and organizations will be designated for a variety of purposes at MHS, including the operation of specific departments, community outreach programs, continuing education for employees, endowment, equipment, and capital improvements.

· 10. MHS Volunteer Auxiliary There are 500 volunteers who provide over 60,000 hours of service to MHS each year. These men and women assist in virtually every part of the system’s operations. They also conduct community programs on behalf of MHS. The auxiliary funds its programs and makes financial contributions to MHS through money it raises on renting televisions and vending gifts and other items at the hospital. In the past, its donations to MHS have generally been designated for medical equipment purchases. The auxiliary has given $250,000 over the last five years.

· 11. Planning the Future for MHS The MHS has identified five areas of desired service and programmatic enhancement in its five-year strategic plan:

· I. Ambulatory Services

· II. Physical Medicine and Rehabilitative Services

· III. Cardiovascular Services

· IV. Oncology Services

· V. Community Health Services

· MHS has set out to answer the most critical health needs that are specific to its community. Over the next five years, the MHS strategic plan will continue a tradition of quality, community-oriented health care to meet future demands.

· 12. Financing the Future MHS has established a corporate depreciation fund. The fund’s purpose is to ease the financial burden of replacing fixed assets. Presently, it has almost $2 million for needed equipment and renovations.

MHS CASE STUDY

Financial Statements

· • Balance Sheet ( Exhibit 28 –1 )

· • Statement of Revenue and Expense ( Exhibit 28 –2 ) Exhibit 28–1Balance Sheet

· Metropolis Health System Balance Sheet March 31, 2___
· Assets	·
· Current Assets	·
· Cash and Cash Equivalents	· $1,150,000
· Assets Whose Use Is Limited	· 825,000
· Patient Accounts Receivable	· 7,400,000
· (Net of $1,300,000 Allowance for Bad Debts)	·
· Other Receivables	· 150,000
· Inventories	· 900,000
· Prepaid Expenses	· 200,000
· Total Current Assets	· 10,625,000
· Assets Whose Use Is Limited	·
· Corporate Funded Depreciation	· 1,950,000
· Held by Trustee Under Bond Indenture Agreement	· 1,425,000
· Total Assets Whose Use Is Limited	· 3,375,000
· Less Current Portion	· (825,000)
· Net Assets Whose Use Is Limited	· 2,550,000
· Property, Plant, and Equipment, Net	· 19,300,000
· Other Assets	· 325,000
· Total Assets	· $32,800,000
· Liabilities and Fund Balance	·
· Current Liabilities	·
· Current Maturities of Long-Term Debt	· $525,000
· Accounts Payable and Accrued Expenses	· 4,900,000
· Bond Interest Payable	· 300,000
· Reimbursement Settlement Payable	· 100,000
· Total Current Liabilities	· 5,825,000
· Long-Term Debt	· 6,000,000
· Less Current Portion of Long-Term Debt	· (525,000)
· Net Long-Term Debt	· 5,475,000
· Total Liabilities	· 11,300,000
· Fund Balances	·
· General Fund	· 21,500,000
· Total Fund Balances	· 21,500,000
· Total Liabilities and Fund Balances	· $32,800,000

· Exhibit 28–2Statement of Revenue and Expense

· Metropolis Health System Statement of Revenue and Expense for the Year Ended March 31, 2___
· Revenue	·	·
· Net patient service revenue	· $34,000,000	·
· Other revenue	· 1,100,000	·
· Total Operating Revenue	·	· $35,100,000
· Expenses	·	·
· Nursing services	· $5,025,000	·
· Other professional services	· 13,100,000	·
· General services	· 3,200,000	·
· Support services	· 8,300,000	·
· Depreciation	· 1,900,000	·
· Amortization	· 50,000	·
· Interest	· 325,000	·
· Provision for doubtful accounts	· 1,500,000	·
· Total Expenses	·	· 33,400,000
· Income from Operations	·	· $1,700,000
· Nonoperating Gains (Losses)	·	·
· Unrestricted gifts and memorials	· $20,000	·
· Interest income	· 80,000	·
· Nonoperating Gains, Net	·	· 100,000
· Revenue and Gains in Excess of Expenses and Losses	·	· $1,800,000

· • Statement of Cash Flows ( Exhibit 28 –3 )

· • Statement of Changes in Fund Balance ( Exhibit 28 –4 )

· • Schedule of Property, Plant, and Equipment ( Exhibit 28 –5 )

· • Schedule of Patient Revenue ( Exhibit 28 –6 )

· • Schedule of Operating Expenses ( Exhibit 28 –7 )

Statistics and Organizational Structure

· • Hospital Statistical Data ( Exhibit 28 –8 )

· • MHS Nursing Practice and Administration Organization Chart ( Figure 28 –1 )

· • MHS Executive-Level Organization Chart ( Figure 28 –2 )

Exhibit 28–3 Statement of Cash Flows

Metropolis Health System Statement of Cash Flows for the Year Ended March 31, 2___
Statement of Cash Flows
Operating Activities
Income from operations	$1,700,000
Adjustments to reconcile income from operations
to net cash flows from operating activities
Depreciation and amortization	1,950,000
Changes in asset and liability accounts
Patient accounts receivable	250,000
Other receivables	(50,000)
Inventories	(50,000)
Prepaid expenses and other assets	(50,000)
Accounts payable and accrued expenses	(400,000)
Reduction of bond interest payable	(25,000)
Estimated third-party payer settlements	(75,000)
Interest income received	80,000
Unrestricted gifts and memorials received	20,000
Net cash flow from operating activities	$3,350,000
Cash Flows from Capital and Related Financing Activities
Repayment of long-term obligations	(500,000)
Cash Flows from Investing Activities
Purchase of assets whose use is limited	(100,000)
Equipment purchases and building improvements	(2,000,000)
Net Increase (Decrease) in Cash and Cash Equivalents	$750,000
Cash and Cash Equivalents, Beginning of Year	400,000
Cash and Cash Equivalents, End of Year	$1,150,000

Exhibit 28–4 Statement of Changes in Fund Balance

Metropolis Health System Statement of Changes in Fund Balance for the Year Ended March 31, 2___
General Fund Balance April 1, 2____	$19,700,000
Revenue and Gains in Excess of Expenses and Losses	1,800,000
General Fund Balance March 31, 2____	$21,500,000

Exhibit 28–5 Schedule of Property, Plant, and Equipment

Metropolis Health System Schedule of Property, Plant, and Equipment for the Year Ended March 31, 2___
Buildings and Improvements	$14,700,000
Land Improvements	1,100,000
Equipment	28,900,000
Total	$44,700,000
Less Accumulated Depreciation	(26,100,000)
Net Depreciable Assets	$18,600,000
Land	480,000
Construction in Progress	220,000
Net Property, Plant, and Equipment	$19,300,000

Exhibit 28–6 Schedule of Patient Revenue

Metropolis Health System Schedule of Patient Revenue for the Year Ended March 31, 2___
Patient Services Revenue
Routine revenue	$9,850,000
Laboratory	7,375,000
Radiology and CT scanner	5,825,000
OB–nursery	450,000
Pharmacy	3,175,000
Emergency service	2,200,000
Medical and surgical supply and IV	5,050,000
Operating rooms	5,250,000
Anesthesiology	1,600,000
Respiratory therapy	900,000
Physical therapy	1,475,000
EKG and EEG	1,050,000
Ambulance service	900,000
Oxygen	575,000
Home health and hospice	1,675,000
Substance abuse	375,000
Other	775,000
Subtotal	$48,500,000
Less allowances and charity care	(14,500,000)
Net Patient Service Revenue	$34,000,000

Exhibit 28–7 Schedule of Operating Expenses

Metropolis Health System Schedule of Operating Expenses for the Year Ended March 31, 2___
Nursing Services
Routine Medical/Surgical	$3,880,000
Operating Room	300,000
Intensive Care Units	395,000
OB–Nursery	150,000
Other	300,000
Total	$5,025,000
Other Professional Services
Laboratory	$2,375,000
Radiology and CT Scanner	1,700,000
Pharmacy	1,375,000
Emergency Service	950,000
Medical and Surgical Supply	1,800,000
Operating Rooms and Anesthesia	1,525,000
Respiratory Therapy	525,000
Physical Therapy	700,000
EKG and EEG	185,000
Ambulance Service	80,000
Substance Abuse	460,000
Home Health and Hospice	1,295,000
Other	130,000
Total	$13,100,000
General Services
Dietary	$1,055,000
Maintenance	1,000,000
Laundry	295,000
Housekeeping	470,000
Security	50,000
Medical Records	330,000
Total	$3,200,000
Support Services
General	$4,600,000
Insurance	240,000
Payroll Taxes	1,130,000
Employee Welfare	1,900,000
Other	430,000
Total	$8,300,000
Depreciation	1,900,000
Amortization	50,000
Interest Expense	325,000
Provision for Doubtful Accounts	1,500,000
Total Operating Expenses	$33,400,000

Exhibit 28–8 Hospital Statistical Data

Metropolis Health System Schedule of Hospital Statistics for the Year Ended March 31, 2___
Inpatient Indicators:		Departmental Volume Indicators:
Patient Days
Medical and surgical	13,650	Respiratory therapy treatments	51,480
Obstetrics	1,080	Physical therapy treatments	34,050
Skilled nursing unit	4,500	Laboratory workload units (in thousands)	2,750
Admissions		EKGs	8,900
Adult acute care	3,610	CT scans	2,780
Newborn	315	MRI scans	910
Skilled nursing unit	440	Emergency room visits	11,820
		Ambulance trips	2,320
Discharges		Home health visits	14,950
Adult acute care	3,580
Newborn	315	Approximate number of employees (FTE)	510
Skilled nursing unit	445
Average Length of Stay (in days)	4.1

Figure 28–1 MHS Nursing Practice and Administration Organization Chart.

Courtesy of Resource Group, Ltd., Dallas, Texas.