Assignment Discussion Phase 4 IP Assignment Discussion

Phase 4 IP Scenario / Introduction Established in 1987, ABC Community Hospital not-for-profit is an acute care hospital located in an east coast Metropolitan area. With a staff of nearly 200 physicians and specialists, 800 employees and 100 volunteers, they offer a full range of healthcare services. They are accredited by the Joint Commission. The hospital has been profitable for the last 5 years with a profit margin of 3-4%. In March 2012, XYZ Healthcare System, a private, for-profit health care chain, took over management of the 400-bed ABC Community Hospital. In May 2013, officials began to discuss a proposal to build a new wing devoted to a Cancer Center and ancillary services devoted to the treatment of Cancer. The new wing would have 30 acute care beds, four surgical operating rooms, intensive care unit and extensive support services, including physical therapy and Hospice care. All patient rooms would be private. There are no Cancer Centers within a 200 mile radius of the hospital service area.

Phase 4 IP Assignment The Board of directors is concerned with taking on the additional debt of the Cancer Center. They have tasked the CFO with developing a financial plan and strategic plan that will outline the impact of the Cancer Center. They want you to address the following areas:

Phase 4 IP Assignment (cont’d) What are the key financial policy targets for which the board is responsible for? List and explain each. How does the financial planning and strategic planning of the new for-profit status align with the financial and strategic plans of the existing community hospital status?  Explain how management control is used in conjunction with the financial plan. With the takeover, would the ABC Community Hospital CFO need to consult with XYZ Healthcare System executives for the decision making? A financial plan may be thought of as a bridge between two balance sheets. What are the major categories of assumptions that must be specified to project a future balance sheet, given the current balance sheets from the ABC Community Hospital and now XYZ Healthcare System?

Key Financial Targets Q1: What are the key financial policy targets for which the board is responsible for? List and explain each. 1. Growth rate in assets 2. Debt policy 3. Profitability objective (return on equity)

Financial Planning Alignment Q2: How does the financial planning and strategic planning of the new for-profit status align with the financial and strategic plans of the existing community hospital status? Differences between For-Profit and Not-for-profit? Assess financial position and prior growth patterns. Define growth needs in total assets for the planning period. Define acceptable level of debt for both current and long-term categories. Assess reasonableness of required growth rate in equity.

Management Control and Financial Planning Q3: Explain how management control is used in conjunction with the financial plan. With the takeover, would the ABC Community Hospital CFO need to consult with XYZ Healthcare System executives for the decision making? One of the primary purposes of gathering cost information is to aid the management control process. To facilitate evaluation of the management control process, costs must be assigned to individual responsibility centers These are usually departments, where a designated manager is responsible for cost control.

Management Responsibility for Control (cont’d) Controllability can be influenced by a designated responsibility center or departmental manager within a defined control period. It has been stated that all costs are controllable by someone at some time.

Balance Sheet Comparisons Q4: What are the major categories of assumptions that must be specified to project a future balance sheet, given the current balance sheets from the ABC Community Hospital and now XYZ Healthcare System? Asset valuation Traceability of Costs Liabilities of each organization

Phase 4 IP Template Page I. Cover Page Page 2. Introduction Page 3. Question1: Q1 Title Page 4. Question 2: Q2 Title Page 5. Question 3: Q3 Title Page 6. Question 4: Q4 Title Page 7. References

Questions