chief financial officer (CFO) position at Hays County Integrated
Delivery System (IDS), hereafter referred to as County. You will be
reporting to Mr. Salter, County’s chief executive officer, a
retired schoolteacher who was hired last year. When announcing your
appointment, Mr. Salter stated that your primary objective in the
coming year would be to reverse the ominous financial trend that
began in 2019 with an operating loss and continued in 2020.
Previous operating losses were funded with investment income.
However, your board recently passed a resolution discontinuing that
practice and restricting investment income to capital expenditures
in 2021.
County
is a non-for-profit, county-owned urban hospital and includes an
acute care hospital, a skilled nursing facility (SNF), a rehab
facility, a home health care agency, and an outpatient clinic. The
hospital, Hays County Hospital (HCH), is one of two hospitals in
the county (population is 175,000) and the only hospital in San
Marcos, Texas, with a population of 50,000. St. Teresa’s, a
not-for-profit Catholic-owned hospital, is the only other hospital
in Hays County. St. Teresa’s is about 25 miles from Hays County
IDS.
To
acquire background information on the primary challenges and
opportunities facing County, you meet with Mr. Salter, who
states:
“I
just don’t understand why we are losing money. I spent a
considerable amount of time recruiting new doctors while keeping
the existing doctors happy. Everyone seems happy—everyone except
Mr. Finance Myway, whom you’ll be replacing. He and I both started
in January 2019 and he seemed increasingly frustrated with the way
I do things here—he just didn’t fit in. I tried to accommodate him
by implementing some of his recommendations, even though they were
against my better judgement. And when I announced that I was
bringing in more business to the hospital by entering into a
two-year capitated managed care agreement with the city (it expires
this month)—we get $425 per month per family for taking care of the
300 city employees and their families, whether they’re sick or
not—Mr. Myway threw a fit at an executive team meeting. He claimed
that my decisions were driving County deeper into the red, and as a
result, I had to show Mr. Myway the highway for insubordination.
That happened last month.
Mr. Salter has asked you to do the following:
(1). Analyze the capitated managed care agreement with the city
using differential cost analysis. You already have the information
to determine the annual revenue from the agreement. The total
annual variable costs associated with treating patients from the
member pool is $730,600. The annual fixed costs allocated to
treating this group is $1,100,653. These fixed costs would remain
even if the program were dropped. Use the sheet entitled “Diff
Cost”.
(a). Your first task to determine the net profit or loss from
the agreement.
(b). Next, calculate the monthly reimbursement rate from the
managed care organization that would enable County to breakeven on
the treatment of the agreement’s members. You will need to make
some changes to the spreadsheet to carry out this step (Hint:
How much would each of the 300 members have to be charged each
month to cover the average monthly costs?).
- Imagine That It Is January 2021 And You Have Just Accepted The Chief Financial Officer Cfo Position At Hays County In 1 (119.58 KiB) Viewed 28 times