Finance Of Healthcare

171

PART VII

Case Study

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BACKGROUND

1. The Hospital System Metropolis Health System (MHS) offers comprehensive health care services. It is a midsize taxing district hospital. Al- though MHS has the power to raise rev- enues through taxes, it has not done so for the past seven years.

2. The Area MHS is located in the town of Metropo- lis, which has a population of 50,000. The town has a small college and a mod- est number of environmentally clean in- dustries.

3. MHS Services MHS has taken significant steps to re- duce hospital stays. It has developed a comprehensive array of services that are accessible, cost-effective, and re- sponsive 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 1998, whereas outpatient/same-day sur-

gery 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 in- stitutional health care. They are geared to provide the quality, convenience, af- fordability, and personal care that best suit the health needs of the people whom MHS serves.

• Rehabilitation and Wellness Center—for outpatient physical therapy and re- turn-to-work services plus cardiac and pulmonary rehabilitation to get peo- ple back to a normal way of living.

• Home Health Services—bringing skilled care, therapy, and medical social serv- ices 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 serv- ice to assist patients in returning more fully to an independent lifestyle.

• Community Health and Wellness—com- munity health outreach programs that

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CHAPTER 18

Case Study: Metropolis Health System

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174 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM

provide educational seminars on a vari- ety 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 con- sultation 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 coun- seling.

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, con- verted 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. Vis- itor parking lots fill the front eastern portion of the property. A helipad is on the extreme western edge of the prop- erty behind the physicians’ office build- ing.

5. MHS Board of Trustee 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 abil-

ity 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, im- plemented in 1995, is aimed at meeting client needs sooner, better, and more cost-effectively. Participants in the pro- gram 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 medi- cine are great assets to the health of the community.

The physicians are very much a part of MHS’s drive for continual improve- ment on the quality health care services offered in the community. MHS brings in medical experts from around the country to provide training in new tech- niques, made possible by MHS’s techno- logic 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 improve- ment program has begun a care path

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initiative to track effective means for di- agnosis, 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 pre- sently being created to serve as the phil- anthropic arm of MHS. It will operate in a separate corporation governed by a board of 12 community leaders and sup- ported 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, busi- nesses, foundations, and organizations will be designated for a variety of pur- poses at MHS, including the operations of specific departments, community outreach programs, continuing educa- tion for employees, endowment, equip- ment, 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 op- erations. 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 tele- visions and vending gifts and other items at the hospital. In the past, its do- nations to MHS have generally been designated for medical equipment pur- chases. 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 en- hancement in its five-year strategic plan:

I. Ambulatory Services II. Physical Medicine and Rehabilita-

tive 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 depre- ciation fund. The fund’s purpose is to ease the financial burden of replacing fixed assets. Presently, it has almost $2 million for needed equipment or reno- vations.

I. MHS CASE STUDY

Financial Statements

• Balance Sheet (Exhibit 18–1) • Statement of Revenue and Expense

(Exhibit 18–2) • Statement of Cash Flows (Exhibit

18–3) • Statement of Changes in Fund Bal-

ance (Exhibit 18–4) • Schedule of Property, Plant, and

Equipment (Exhibit 18–5) • Schedule of Patient Revenue (Exhibit

18–6) • Schedule of Operating Expenses (Ex-

hibit 18–7)

MHS Case Study 175

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176 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM

Statistics and Organizational Structure

• Statistics (Exhibit 18–8) • MHS Nursing Practice and Admin-

istration Organization Chart (Figure 18–1)

• MHS Executive-Level Organization Chart (Figure 18–2)

Variance Analysis Report and Recommendations

• Radiology Diagnostic Clinic Report

Exhibit 18–1 Balance Sheet

Metropolis Health System Balance Sheet

March 31, 20X7

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

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MHS Case Study 177

Exhibit 18–2 Statement of Revenue and Expense

Metropolis Health System Statement of Revenue and Expense For the Year Ended March 31, 20X7

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

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178 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM

Exhibit 18–3 Statement of Cash Flows

Metropolis Health System Statement of Cash Flows

For the Year Ended March 31, 20X7

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

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MHS Case Study 179

Exhibit 18–4 Statement of Changes in Fund Balance

Metropolis Health System Statement of Changes in Fund Balance

For the Year Ended March 31, 20X7

General Fund Balance April 1, 1999 $19,700,000

Revenue and Gains in Excess of Expenses and Losses 1,800,000

General Fund Balance March 31, 2000 $21,500,000

Exhibit 18–5 Schedule of Property, Plant, and Equipment

Metropolis Health System Schedule of Property, Plant, and Equipment

For the Year Ended March 31, 20X7 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

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180 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM

Exhibit 18–6 Schedule of Patient Revenue

Metropolis Health System Schedule of Patient Revenue

For the Year Ended March 31, 20X7

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

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Metropolis Health System Schedule of Operating Expenses

For the Year Ended March 31, 20X7

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

MHS Case Study 181

Exhibit 18–7 Schedule of Operating Expenses

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182 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM

Inpatient Indicators:

Patient Days Medical and surgical 13650 Obstetrics 1080 Skilled nursing unit 4500

Admissions Adult acute care 3610 Newborn 315 Skilled nursing unit 440

Discharges Adult acute care 3580 Newborn 315 Skilled nursing unit 445

Average Length of Stay (in days) 4.1

Departmental Volume Indicators:

Respiratory therapy treatments 51,480 Physical therapy treatments 34,050 Laboratory workload units

(in thousands) 2,750 EKGs 8,900 CT scans 2,780 MRI scans 910 Emergency room visits 11,820 Ambulance trips 2,320 Home Health visits 14,950

Approximate number of employees (FTE) 510

Exhibit 18–8 Hospital Statistical Data

Metropolis Health System Schedule of Hospital Statistics

For the Year Ended March 31, 20X7

Womens Health

Pediatric Nursing

Ambulatory Nursing

Medical Surgical

Emergency Nursing

TQI Education

Recruitment Support

Finance Information

Systems Support

Director of

Nurses

MRI

Dialysis

Oncology

Cardiac Rehab

Medical

Surgical

Emergency

OB/GYN

Health &

Development

Children’s Medicine

Pediatric Medicine

Figure 18–1 MHS Nursing Practice and Administration Organization Chart. Courtesy of Resource Group, Ltd., Dallas, Texas.

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MHS Case Study 183

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184

Using Financial Ratios and Benchmarking: A Case Study in

Comparative Analysis

APPENDIX 18–A

Sample Hospital is another facility within the Metropolis Health System. Sample Hos- pital has recently been acquired by Metrop- olis. It is a 100-bed hospital that has been losing money steadily over the last several years. The new chief financial officer (CFO) has decided to use benchmarking as an aid to turn around Sample’s financial situation. Benchmarking will illustrate where the hos- pital stands in relationship to its peer group.

The CFO orders two benchmarking re- ports: one for the hospitals that are 100 beds or less and one for all hospitals, no matter the size. The 100 beds or less report will allow di- rect comparability for Sample, while the all- hospital report will give a universal or overall view of Sample’s standing. Both reports ap- pear at the end of this case study. Exhibit 18–A–1 is the benchmark data report for Sam- ple General Hospital compared with hospitals less than 100 beds, whereas Exhibit 18–A–2 is the benchmark data report for Sample Gen- eral Hospital compared with all hospitals.

When the reports arrive, the CFO writes a description of how the data are arranged so that his managers will better understand the information presented. His description in- cludes the following points:

1. The percentile rankings are intended to present the hospital’s performance

ranked against all other performers in the comparison group. Whether the hospital’s actual performance is good or bad depends on the statistic being evaluated.

2. The first column, labeled “Year 1,” provides a historical trend of actual performance of the hospital in the previous year. It is provided for refer- ence only so that the reader can see the trend over time.

3. The column labeled “Q1 Year 2” rep- resents the first quarter of the current year. These are the most recent data that this service has been provided for Sample Hospital and are the data used in the comparison columns that fol- low.

4. The column labeled “Benchmark: 50th Percentile” represents the 50th percentile of all of the hospitals in the comparison group that supplied data for the individual line item.

5. The “Variance” column compares the data from Q1 Year 2 of Sample Hospi- tal with the 50th percentile informa- tion from the entire comparison group.

6. The column labeled “Range” indicates where Sample Hospital’s individual score fell within a percentile range.

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For example, review the average length of stay information for hospitals less than 100 beds in Exhibit 18–1. For the Q1 Year 2, Sample Hospital has a length of stay of 3.91 versus a benchmark comparison number of 4.06, a favorable performance against the 50th percentile by 0.15 (the –0.15 indicates an amount under the 50th percentile that, in the case of average length of stay, would be favorable). This performance places the hospitals score in the 35th to 40th percentile of all respondents.

As the CFO already knows, Sample Hospi- tal is in trouble. In most cases, the facility is either at or below (worse than) the 50th per- centile information. Most of the labor pro- ductivity measures are in the 60th to 65th percentile range, with the cost information in the same relative range. This indicates that Sample is spending more than the peer group for labor and supplies. The utilization statistics also present a dismal picture.

Each statistic has to be evaluated against what it means to the institution before a conclusion can be drawn. For example, the occupancy percentage for Sample is 46.36% versus the 50th percentile of 57.66. This places Sample in the 10th to 15th percentile range for the comparison group of hospitals less than 100 beds. In terms of utilization, the CFO knows that a facility should be in the 80th to 85th percentile range to use all of its assets effectively.

What other statistics should the CFO re- view to assure that a higher occupancy per- centage is beneficial to the hospital? The answer is average length of stay. Sample Hos- pital has a length of stay of 3.91 (as discussed earlier), which is favorable compared with the peer group, but an occupancy rate that is 11.30% below the 50th percentile for the peer group of hospitals less than 100 beds. If these two statistics are observed in combina- tion, one could say that Sample efficiently

manages its patients, but just does not have enough of them.

Other statistics bear the same message. The hospital is not profitable, and much of the problem is because the cost of running the institution exceeds the availability of pa- tients to pay the bills. In other words, all in- stitutions have core staffing requirements, and within a certain range of volume, most costs are fixed. Sample has 100 beds in use while the 50th percentile for its peer group shows 66 beds in use. Sample’s plant is too big for its patient volume. These circum- stances can mean the hospital is heading for disaster.

So what happened to Sample Hospital? As you can surmise from the data, the previ- ous year (labeled “Year 1” on Exhibits 18–1 and 18–2) was not favorable. Three years previous, the institution was losing money at a rate of over $1 million per month. The next two years showed improvement (even though the data still shows concern), and the improvement trend continued through the year labeled “Year 2” on Exhibits 18–1 and 18–2. By using benchmarking data (and a lot of other analysis), management was able to determine and address many issues that forced this facility to perform below market averages. By improving quality, man- aging costs, and controlling productivity, the hospital was able to stabilize its financial position. In addition, with creative manage- ment and attention to both clinical quality and customer service, the occupancy per- centage rose to above the 50th percentile. Finally, the operating margin improved dra- matically. In the first quarter of year 2, the margin was minus 3.18. By the end of year 3, results showed a positive margin of greater than 2.5%, a dramatic turnaround. Bench- marking assisted in this turnaround by showing management where the need for improvement was greatest.

MHS Case Study 185

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186 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM

Exhibit 18A–1

Benchmark Data Report Sample General Hospital

Compared to Hospitals of less than 100 beds

Current Quarter Benchmark

Annual Average Q 1 %ile Year 1 Year 2 50%ile Variance Range

Severity/Length of Stay Average Length of Stay 3.80 3.91 4.06 –0.15 35–40 Case Mix Index (All Patients) 1.02 1.04 1.04 0.005 50–55 Case Mix Index (Medicare) 1.24 1.26 1.19 0.07 80–85

Productivity/Labor Utilization FTE per Adjusted Occupied Bed 5.11 4.68 4.44 0.24 60–65 Paid Hours per Adjusted Patient Day 29.12 26.67 25.3 1.37 60–65 Paid Hours per Adjusted Discharge 110.53 104.19 109.5 –5.32 35–40 Salary Cost per Adjusted Discharge $2,638 $2,510 $2,510 $0 50–55

Costs & Charges Cost per Adjusted Patient Day $1,704 $1,608 $1,448 $161 70–75 Cost per Adjusted Discharge $6,467 $6,282 $5,909 $373 55–60 Cost per CMI (All Pat.) Adj Discharge $6,328 $6,041 $5,837 $204 50–55 Cost per CMI (All Pat.) Adjusted

Patient Day $1,667 $1,546 $1,408 $139 60–65 Supply Cost per Adjusted Discharge $1,046 $968 $867 $101 60–65 Supply Cost per CMI (All Pat.) Adj.

Discharge $1,024 $931 $829 $102 60–65 Gross Charges per Adjusted Discharge $12,987 $14,155 $12,536 $1,620 60–65 Deductions Percentage 0.40% 58.46% 51.04% 7.42% 60–65 Net Charges per Adjusted Discharge $6,112 $5,880 $5,929 ($49) 45–50 Net Charges per Adjusted Patient Day $1,610 $1,505 $1,424 $82 60–65

Utilization Average Daily Census 43.15 46.36 37.69 8.67 65–70 Occupancy Percent 41.09% 46.36% 57.66% –11.30% 10–15 Outpatient Charges Percent 53.15% 54.02% 50.14% 3.88% 55–60 Beds In Use 100 100 66 34 90–95 Adjusted Occupied Beds 92.2 100.82 72.05 28.76 75–80 Total Patient Days excluding Newborns 3,936 4,172 3,392 780 65–70 Total Discharges excluding Newborns 1,036 1,068 751 317 80–85 Newborn Days as a % of Total Patient

Days 6.95% 5.40% 4.61% 0.79% 60–65

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MHS Case Study 187

Exhibit 18A–1 (continued)

Financial Performance—Profitability Ratios Operating Margin –2.26 –3.18 1.95 –5.13 15–20 Profit Margin –2.26 –3.18 2.06 –5.24 20–25 Return on Total Assets

(Annualized) (%) –2.37% –3.58% 1.22% –4.80% 20–25 Return on Equity (Annualized) (%) –6.56% –11.19% 4.61% –15.80% 15–20

Financial Performance—Liquidity Ratios Current Ratio 1.28 1.19 1.9 –0.71 15–20 Quick Ratio 0.54 0.56 1.56 –0.99 15–20 Net Days in Patient AR (Days) 50.73 49 51.86 –2.86 40–45

Financial Performance—Leverage and Solvency Ratios Total Asset Turnover—Annualized 1.07 1.13 0.99 0.14 65–70 Current Asset Turnover—Annualized 3.21 3.65 3.57 0.08 50–55 Equity Financing 0.38 0.32 0.47 –0.15 25–30 Long-Term Debt to Equity 0.77 0.85 0.56 0.28 70–75

Current Quarter Benchmark

Annual Average Q 1 %ile Year 1 Year 2 50 %ile Variance Range

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188 CHAPTER 18 CASE STUDY: METROPOLIS HEALTH SYSTEM

Exhibit 18A–2

Benchmark Data Report Sample General Hospital

Compared to All Hospitals

Current Quarter Benchmark

Annual Average Q 1 %ile Year 1 Year 2 50%ile Variance Range

Severity/Length of Stay Average Length of Stay 3.80 3.91 4.81 –0.91 10–15 Case Mix Index (All Patients) 1.02 1.04 1.14 –0.103 25–30 Case Mix Index (Medicare) 1.24 1.26 1.38 –0.118 30–35

Productivity/Labor Utilization FTE per Adjusted Occupied Bed 5.11 4.68 4.87 –0.19 40–45 Paid Hours per Adjusted Patient Day 29.12 26.67 27.77 –1.1 40–45 Paid Hours per Adjusted Discharge 110.53 104.19 134.6 –30.41 10–15 Salary Cost per Adjusted Discharge $2,638 $2,510 $2,927 ($417) 25–30

Costs & Charges Cost per Adjusted Patient Day $1,704 $1,608 $1,530 $78 60–65 Cost per Adjusted Discharge $6,467 $6,282 $7,284 ($1,001) 30–35 Cost per CMI (All Pat.) Adj Discharge $6,328 $6,041 $6,115 ($74) 45–50 Cost per CMI (All Pat.) Adjusted

Patient Day $1,667 $1,546 $1,268 $278 80–85 Supply Cost per Adjusted Discharge $1,046 $968 $1,250 ($282) 25–30 Supply Cost per CMI (All Pat.)

Adj. Discharge $1,024 $931 $1,069 ($138) 30–35 Gross Charges per Adjusted

Discharge $12,987 $14,155 $17,196 ($3,041) 35–40 Deductions Percentage 0.40% 58.46% 56.31% 2.15% 55–60 Net Charges per Adjusted Discharge $6,112 $5,880 $7,419 ($1,539) 20–25 Net Charges per Adjusted Patient Day $1,610 $1,505 $1,529 ($24) 45–50

Utilization Average Daily Census 43.15 46.36 142.98 –96.62 15–20 Occupancy Percent 41.09% 46.36% 69.38% –23.02% < 5 Outpatient Charges Percent 53.15% 54.02% 39.64% 14.38% 85–90 Beds In Use 100 100 206 –106 20–25 Adjusted Occupied Beds 92.2 100.82 225.9 –125.09 15–20 Total Patient Days excluding Newborns 3,936 4,172 12,868 –8,696 15–20 Total Discharges excluding Newborns 1,036 1,068 2,506 –1,438 20–25 Newborn Days as a % of Total

Patient Days 6.95% 5.40% 4.52% 0.87% 60–65

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MHS Case Study 189

Exhibit 18A–2 Continued

Financial Performance—Profitability Ratios Operating Margin –2.26 –3.18 4.45 –7.63 10–15 Profit Margin –2.26 –3.18 4.66 –7.84 10–15 Return on Total Assets

(Annualized) (%) –2.37% –3.58% 4.04% –7.62% 10–15 Return on Equity (Annualized) (%) –6.56% –11.19% 8.46% –19.65% 5–10

Financial Performance—Liquidity Ratios Current Ratio 1.28 1.19 2.2 –1 10–15 Quick Ratio 0.54 0.56 1.74 –1.18 5–10 Net Days in Patient AR (Days) 50.73 49 55.76 –6.77 25–30

Financial Performance—Leverage and Solvency Ratios

Total Asset Turnover—Annualized 1.07 1.13 0.93 0.2 70–75 Current Asset Turnover—Annualized 3.21 3.65 3.48 0.18 50–55 Equity Financing 0.38 0.32 0.5 –0.18 20–25 Long-Term Debt to Equity 0.77 0.85 0.59 0.26 65–70

Current Quarter Benchmark

Annual Average Q 1 %ile Year 1 Year 2 50%ile Variance Range

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