HS440 Unit 10 Financial Management Report Example

Three Actions, Priced: A Unit 10 Financial Management Report Closing an Endoscopy Center's Planned Loss

[Student Name]

Purdue University Global

HS440: Finance for Health Care

Unit 10 Financial Management Report

[Instructor Name]

[Date]

The center, its statements, budget, variances and projections are composite; the finance texts, the study of hospital markups and the screening recommendation cited are real.

Recommendation

Approve three actions: a financial counselor to enroll eligible self-pay patients in coverage, a scope reprocessor and four colonoscopes to add one slot per room-day, and a revenue cycle effort to bring days in receivables from 52 to 42. Together they would turn the budgeted loss of about 247,000 dollars into a small surplus within eighteen months and release about 120,000 dollars of cash tied up in unpaid bills.

Financial Position

Three figures summarize the center's position. Its operating margin was minus 2.8 percent last year against a peer median of 8.0. Its days in accounts receivable were 52.3 against 38. Its days cash on hand were 15.9 against 45. The center is efficient in its rooms, running 11.64 cases per room-day against a peer median of 10.5, and below peers on salary cost per case. Its problems are payment per case, which fell as commercial patients left for a narrow network, and slow collection. Its cash fell by more than half last year, mainly because it bought replacement scopes with help from an advance from the parent hospital.

The Budget Year

The budget assumes 5,760 cases at 96 percent of 6,000 slots, a mix of 39 percent Medicare, 33 commercial, 22 Medicaid and 6 self-pay, and a renegotiated commercial rate of 1,215 dollars. Fixed costs rise by 136,900 dollars. At an average contribution of about 573 dollars a case, breaking even would take 6,191 cases, beyond what two rooms on a five-day week can deliver, so the budget plans a loss.

The First Quarter

The quarter fell 82,294 dollars short on revenue. Of that, 47,654 came from 64 missing cases and 34,640 from a lower payment per case, as commercial cases fell to 30 percent of the mix. Supply spending ran 20,112 dollars over the flexible budget, mostly from kits opened for procedures canceled after poor preparation. Should the quarter's payer mix persist, lower payment per case would by itself take about 140,000 dollars from the year, widening the planned loss.

None of the center's problems is a shortage of patients; each is about which patients pay what, how quickly they pay, and how many slots the scope cycle allows, so the actions target those three things.

Action 1: Financial Counseling

A financial counselor, at about 35,000 dollars a year, would screen self-pay patients for Medicaid and marketplace eligibility before their procedures. If 200 of the roughly 350 self-pay patients a year were enrolled in Medicaid, each would move from a contribution of minus 77 dollars to plus 208 at budget rates, a gain of about 57,000 dollars, or about 22,000 net of the counselor. Patients would also avoid bills they cannot pay. This action can start within a month.

Action 2: Reprocessing Capacity

As set out in the capital request, one reprocessor and four colonoscopes for 318,000 dollars would add 500 slots a year. At 96 percent fill and the budgeted mix, the added 480 cases bring about 275,000 dollars of contribution, less 45,000 of new cash costs, for a net gain of about 230,000 a year, a payback of about 1.4 years and a five-year net present value of about 625,000 at a 7 percent discount rate (Pink & Song, 2020). Equipment would arrive about four months after approval, so the first year captures roughly two thirds of the gain.

Action 3: Faster Collection

Days in receivables of 52 against a peer median of 38 mean the center waits two weeks longer than peers to be paid. A revenue cycle review would target three causes found in a sample of open accounts: claims held for missing documentation, denials not appealed and slow follow-up on secondary insurance. Reducing receivables to 42 days would release about 120,000 dollars of cash once, at a one-time cost of about 20,000 dollars in staff time. This improves cash, not profit, and the report keeps the two apart, since mixing them overstates the effect on the operating result (Finkler et al., 2019).

How Far the Actions Close the Gap

Budgeted operating loss: 246,937 dollars. Action 1, net annual gain: about 22,000. Action 2, net annual gain at full year: about 230,000; in the budget year, about 153,000. Action 3, one-time cost: about 20,000; one-time cash release about 120,000.

In the budget year, the actions would cut the loss to about 92,000 dollars. In the first full year after the equipment arrives, they would produce a surplus of about 5,000 dollars before any recovery in commercial volume, and cash would rise by the one-time collection gain.

What the Report Does Not Count On

The projections assume the budgeted mix. They do not count on winning back the commercial employer, which would improve every figure. They do not assume the list price matters; contractual adjustments are a result of mix, not a lever (Bai & Anderson, 2015). And they assume demand stays high, which the 34-day wait and screening guidance that begins at age 45 support (US Preventive Services Task Force, 2021).

Who Does What

The center's business manager would hire and supervise the financial counselor and report enrollments monthly. The director would manage the equipment purchase with the parent hospital's biomedical engineering department and infection prevention team. The parent hospital's revenue cycle office would lead the collection review, since it already handles the center's billing, with the center's front desk responsible for capturing complete insurance information at scheduling. Each action has one owner, and the finance committee would receive a single monthly page showing all three against their targets.

Risks

If the commercial share falls further, each percentage point costs about 48,000 dollars, and the actions would not be enough alone. If physicians reduce lists, added slots will go unfilled. If the counselor enrolls fewer patients than expected, the first action may only cover its own cost. Each risk is tracked monthly against the variance report, and the committee would be asked to revisit the plan if any one of them moves the projected result by more than 50,000 dollars.

Conclusion

The center does not need more patients. It needs better payment per patient, faster payment, and the slots its scope cycle is withholding. The three actions address each, cost little relative to their return, and bring the center back to break-even without relying on factors outside its control.

References

Bai, G., & Anderson, G. F. (2015). Extreme markup: The fifty US hospitals with the highest charge-to-cost ratios. Health Affairs, 34(6), 922-928. https://doi.org/10.1377/hlthaff.2014.1414

Finkler, S. A., Calabrese, T. D., & Smith, D. L. (2019). Financial management for public, health, and not-for-profit organizations (6th ed.). CQ Press.

Pink, G. H., & Song, P. H. (2020). Gapenski's healthcare finance: An introduction to accounting and financial management (7th ed.). Health Administration Press.

US Preventive Services Task Force. (2021). Screening for colorectal cancer: US Preventive Services Task Force recommendation statement. JAMA, 325(19), 1965-1977. https://doi.org/10.1001/jama.2021.6238