Health Care Finance at Review Community Hospital

Health Care Finance at Review Community Hospital
Riverview Community Hospital is a 210-bed, not-for-profit, acute care hospital with a long-standing reputation for providing quality healthcare services to a growing service area. Riverview competes with three other hospitals in its metropolitan statistical area (MSA) – two not-for-profit and one for-profit. It is the smallest of the four but has traditionally been ranked highest in patient satisfaction polls.
Hospitals are accredited by the Joint Commission, an independent not-for-profit organization whose mission is to improve the safety and quality of healthcare provided to the public through accreditation and related services. (For more information on the Joint Commission, visit their website at www.jointcommission.org.) Although accreditation is optional for hospitals, it is generally required to qualify for governmental (Medicare and Medicaid) reimbursement, and hence the vast majority of hospitals apply for accreditation. Riverview passed its latest Joint Commission accreditation with “flying colors” receiving full ac-
creditation, the highest of the accreditation categories.
In recent years, competition among the four hospitals in Riverview’s service area has been keen but friendly. However, a large for-profit chain recently purchased the for-profit hospital, which has resulted in some anxiety among the managers of the other three hospitals because of the chain’s reputation for aggressively increasing market share in the
markets they serve.
Relevant financial and operating data for Riverview are contained in Exhibits 1.1 through 1.4, and selected industry data are contained in Exhibits 1.5 and 1.6. (Note that the industry data given in the case are for illustrative purposes only and do not represent actual data for the years specified. For a better idea of the type of comparative data actually available for hospitals, see
theIngenix website at www.hospital benchmarks.com.)

Assume that you have just joined the staff of Riverview Community Hospital as a specialassistant to the CEO. On your first day on the job, the CEO Melissa Randolph, stated thatthe best way to get to know the financial condition of the hospital is to conduct a thorough financial statement analysis; thus she assigned you the task. Although you also believe that this is a good way to get started, you wonder whether Melissa has any ulterior motives. Perhaps the hospital is having problems and she thinks that you can spot them or perhaps she wants to test your analytical skills. Melissa is from the “old school” of hospital management and has been looking for someone to bring modern management methods to the hospital.
In any event, she has already scheduled a financial performance analysis presentation at the next board of trustees meeting as a way for you to meet the board members. To help you structure your presentation, Melissa suggested that you make the following points;
1. Briefly interpret three key financial statements for Riverview Community Hospital.
2. Present an overview of the hospital’s financial position using the Du Pont equation as a guide.
3. Use ratio analysis to identify the hospital’s specific financial strengths and weaknesses. But, she warned, the board is not going to appreciate a lengthy dialogue with too many individual ratios. Focus on key findings and one or two ratios per category—don’t put them to sleep! Also, use graphs or other techniques to summarize the data.
4. Summarize your evaluation of the hospital’s financial condition. However, don’t just rehash the numbers; rather, present your views on the potential underlying economic and managerial factors that might have caused any problems that surfaced in the financial and operating analysis.
5. Make any recommendations that you believe the hospital should follow to ensure future financial soundness.
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