6273 - Financial Analysis Case Study - UNIT 1 Assignment 1

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CASE1

CASE 1 Student Version Copyright 2014 Health Administration Press
8/6/15
RIVER COMMUNITY HOSPITAL (A)
Assessing Hospital Performance
Case 1 presents the opportunity to conduct an extensive financial statement and operating
indicator analysis on a 210-bed not-for-profit hospital. The case includes statement of cash
flows analyses, Du Pont analyses, ratio analyses, and economic value added analyses.
The instructor version of the model is the same as this model. The key to student success in
this case lies in interpretation of the data presented rather than number crunching.
However, there is ample opportunity for students to extend the model to include percentage
change analysis and common size analysis, as well as to create graphs (charts) as needed
to present their findings.
Note that the industry data used in this case are for instructional use only, and do
not represent actual industry data for the time period of the case.
Statements of Operations (Millions of Dollars):
Revenues 2011 2012 2013
Net patient service revenue $ 28.796 $ 30.576 $ 34.582
Other revenue 1.237 1.853 1.834
Total revenues $ 30.033 $ 32.429 $ 36.416
Expenses
Salaries and wages $ 12.245 $ 12.468 $ 13.994
Fringe benefits 1.830 2.408 2.568
Interest expense 1.181 1.598 1.776
Depreciation 2.350 2.658 2.778
Medical supplies and drugs 0.622 0.655 0.776
Professional liability 0.140 0.201 0.218
Other 9.036 10.339 11.848
Total expenses $ 27.404 $ 30.327 $ 33.958
Net income $ 2.629 $ 2.102 $ 2.458
Balance Sheets (Millions of Dollars):
Assets 2011 2012 2013
Cash and investments $ 4.673 $ 5.069 $ 2.795
Accounts receivable (net) 4.359 5.674 7.413
Inventories 0.432 0.523 0.601
Other current assets 0.308 0.703 0.923
Total current assets $ 9.772 $ 11.969 $ 11.732
Gross plant and equipment $ 47.786 $ 55.333 $ 59.552
Accumulated depreciation 11.820 14.338 17.009
Net plant and equipment $ 35.966 $ 40.995 $ 42.543
Total assets $ 45.738 $ 52.964 $ 54.275
Liabilities and Net Assets
Accounts payable $ 0.928 $ 1.253 $ 1.760
Accruals 1.460 1.503 1.176
Current portion of long-term debt 0.110 1.341 1.465
Total current liabilities $ 2.498 $ 4.097 $ 4.401
Long-term debt $ 15.673 $ 19.222 $ 17.795
Net assets $ 27.567 $ 29.645 $ 32.079
Total liabilities and net assets $ 45.738 $ 52.964 $ 54.275
Statements of Cash Flows (Millions of Dollars):
Cash Flows from Operating Activities 2012 2013
Net income $ 2.102 $ 2.458
Depreciation 2.633 2.756
Change in accounts receivable (1.315) (1.739)
Change in inventories (0.091) (0.078)
Change in other current assets (0.395) (0.220)
Change in accounts payable 0.325 0.507
Change in accruals 0.043 (0.327)
Net cash flow from operations $ 3.302 $ 3.357
Cash Flows from Investing Activities
Investment in plant and equipment $ (7.686) $ (4.328)
Cash Flows from Financing Activities
Change in long-term debt $ 3.549 $ (1.427)
Change in current portion of long-term debt 1.231 0.124
Net cash flow from financing $ 4.780 $ (1.303)
Net increase (decrease) in cash and investments $ 0.396 $ (2.274)
Beginning cash and investments 4.673 5.069
Ending cash and investments $ 5.069 $ 2.795
Note: The depreciation and fixed asset acquisitions data in the statements of
cash flows are somewhat different than they would be if calculated
directly from the other financial statements because of asset revaluations.
Operating Revenue and Expense Allocation (Millions of Dollars):
2011 2012 2013
Operating revenue
Gross inpatient service $ 26.117 $ 29.148 $ 33.216
Gross outpatient service 6.535 9.130 11.912
Gross patient service revenue $ 32.652 $ 38.278 $ 45.128
Contractual allowances $ 1.729 $ 5.196 $ 7.516
Bad debt and charity care 2.127 2.506 3.030
Total revenue deductions $ 3.856 $ 7.702 $ 10.546
Net patient service revenue $ 28.796 $ 30.576 $ 34.582
Operating expenses
Inpatient service $ 20.573 $ 22.229 $ 24.771
Outpatient service 6.831 8.098 9.187
Total operating expenses $ 27.404 $ 30.327 $ 33.958
Selected Operating Data:
2011 2012 2013
Medicare discharges 2,721 2,860 2,741
Total discharges 8,784 8,318 8,576
Outpatient visits 32,285 32,878 36,796
Licensed beds 210 210 210
Staffed beds 193 197 178
Patient days 44,085 42,434 40,062
All-payer Case Mix Index 1.2869 1.2993 1.3161
Full-time equivalents 610.8 625.8 619.3
Selected Financial Ratios:
2013 Industry Data (200-299 Beds)
2011 2012 2013 +Quartile Median -Quartile
Profitability Ratios
Total margin 8.75% 6.48% 6.75% 5.58% 3.48% 0.53%
Return on assets 5.75% 3.97% 4.53% 5.80% 3.10% 0.40%
Return on equity 9.54% 7.09% 7.66% 15.66% 6.01% 0.62%
Deductible ratio 0.12 0.20 0.23 0.34 0.26 0.18
Liquidity Ratios
Current ratio 3.91 2.92 2.67 2.53 1.99 1.48
Days cash on hand 68.08 66.87 32.72 32.35 15.89 6.24
Debt Management Ratios
Debt ratio 39.73% 44.03% 40.90% 62.90% 48.40% 35.20%
Debt to equity 56.85% 64.84% 55.47% 127.00% 64.70% 26.90%
Times interest earned 3.23 2.32 2.38 4.29 2.23 1.14
Cash flow coverage 5.22 3.98 3.95 5.32 3.22 1.76
Asset Management Ratios
Fixed asset turnover 0.84 0.79 0.86 2.20 1.76 1.49
Total asset turnover 0.66 0.61 0.67 1.04 0.89 0.75
Current asset turnover 3.07 2.71 3.10 3.94 3.38 2.88
Days in patient accounts receivable 55.25 67.73 78.24 87.53 75.67 63.33
Average payment period (days) 36.39 54.05 51.52 71.24 56.52 45.84
Other Ratios
Average age of plant (years) 5.03 5.39 6.12 8.86 7.39 6.14
Selected Operating Indicators:
2013 Industry Data (200-299 Beds)
2011 2012 2013 +Quartile Median -Quartile
Profit Indicators
Profit per inpatient discharge $280.03 $126.72 $79.61 $89.04 ($21.30) ($120.08)
Profit per outpatient visit ($33.07) ($24.49) ($1.60) $6.22 $0.66 ($7.01)
Net Revenue Indicators
Net revenue per discharge $2,622 $2,799 $2,968 $4,091 $3,411 $2,815
Net revenue per visit $179 $222 $248 $201 $139 $98
Medicare revenue percentage 30.98% 34.38% 31.96% 43.47% 36.60% 31.25%
Bad debt / charity care percentage 6.51% 6.55% 6.71% 7.89% 4.76% 2.97%
Contractual allowance percentage 5.30% 13.57% 16.65% 25.27% 20.02% 12.12%
Outpatient revenue percentage 20.01% 23.85% 26.40% 25.26% 21.03% 17.44%
Volume Indicators
Occupancy rate 62.58% 59.01% 61.66% 67.12% 58.10% 47.84%
Average daily census 120.78 116.26 109.76 173.23 144.73 114.39
Length of Stay Indicators
Average length of stay (days) 5.02 5.10 4.67 6.80 6.07 5.41
Adjusted length of stay 3.90 3.93 3.55 6.48 5.36 4.52
Expense Indicators
Expense per discharge $2,342 $2,672 $2,888 $3,937 $3,392 $2,972
Expense per adjusted discharge $1,820 $2,057 $2,195 $3,417 $2,924 $2,572
Expense per visit $212 $246 $250 $202.23 $141.97 $111.53
All-payer Case Mix Index 1.2869 1.2993 1.3161 1.2795 1.1756 1.0259
Efficiency Indicators
FTEs per occupied bed 4.04 4.10 4.15 4.59 4.15 3.77
Labor hours/visit 7.88 9.44 9.24 8.66 5.84 4.68
Unit Cost Indicators
Salary per FTE $20,047 $19,923 $22,596 $24,447 $22,517 $20,347
Fringe benefits percentage 14.94% 19.31% 18.35% 19.58% 17.04% 15.18%
Liability expense per discharge $15.94 $24.16 $25.42 $80.94 $42.05 $18.31
Note:
The quartile values are based on the upper and lower numerical values regardless of whether that value is
good or bad. The interpretation is left to the analyst.