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.
(3). Happy Healthcare (a large MCO) is negotiating with County
to be the sole local provider of physical and occupational therapy
to its members. The payment plan would be a capitation plan meaning
that Happy Healthcare would pay a fixed amount per policy-holder
(i.e., covered life) regardless of the amount of rehab care they
receive, if any. The plan is projected to have 2000 covered lives.
County has the capacity to handle the additional rehab sessions
within the current cost structure. That means that fixed costs are
zero in the break-even analysis. County has variable costs of $60
per rehab session. Happy Healthcare has offered County $30 per life
covered per year. Use the sheet entitled “Breakeven Analysis” to
answer the following questions.
(a). Given the variable costs per
policy-holder, the zero additional fixed costs, and the payment
offered per covered life with Happy Healthcare’s capitation plan,
what is the break-even number of rehab sessions?
(b). Currently, Happy Healthcare has
2,000 covered lives. Staff analysts have collected data that leads
them to believe that 1% of Happy Healthcare’s covered lives will
require rehab services during a typical year. In addition, the
analysts believe that Happy Healthcare’s covered lives are similar
to County’s current patients and will, on average, require 25 rehab
sessions per patient. How many rehab sessions with Happy Healthcare
policy-holders are likely to occur given these assumptions? How
does this number of sessions compare to the breakeven number of
sessions that you calculated for part (a)? Given the assumptions,
should County take the deal? You will have to make additions to the
sheet in order to answer (b) through (e).
(c). As part of a sensitivity
analysis, determine whether County should take the deal if 2% of
the covered lives were likely to need services (still 25 sessions
per patient, on average).
(d). Extend the sensitivity analysis
further by determining whether county should take the deal if those
who required rehab services averaged 38 visits per year (but go
back to the assumption that 1% of the covered lives will require
services).
(e). Combine the above two scenarios
(2% will need rehab services and they will average 38 sessions
each) for a worst-case scenario.
- Imagine That It Is January 2021 And You Have Just Accepted The Chief Financial Officer Cfo Position At Hays County In 1 (103.97 KiB) Viewed 35 times