ASSIGNMENT | Mechanisms for Evaluating Financial Health of Health Care Organizations, C3

Pearland Medical Center reported revenues of $1,500,000,000 in 2012 and $1,250,000,000 in 2013. The revenue streams comprised 25% patient self-pay revenue, 50% third-party payors revenue, and the remaining 25% was a combination of grants from the Grant Foundation and investments. The medical center spent $15,000,000 in marketing for each of the past two years. The average hospital daily patient census was 570 in 2012 and 470 patients in 2013; patient hospital days were 202,920 in 2012 and 171,500 in 2013.

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Pearland Medical Center reported operating expenses of $500,000,000 in 2012; but due to layoffs and reorganization, operating expenses decreased by $200,000,000 in 2013. Depreciation expense was $50,000,000 in both years. The medical center spent $20,000,000 on research and education each year. Executive administration anticipates little growth in patient population in the coming year and will likely need to invest in new equipment. The nonprofit facility pays no shareholder dividends or taxes.

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Create an income statement based on the scenario. Determine the financial health of Pearland Medical Center. What were Pearland Medical Center’s net income, cash flow, total profit margin, and total profit margin excluding grants and investments for each year?
Discuss your suggestions for Pearland Medical Center based on your interpretation of the income statement. Is the facility financially healthy? Should the Grant Foundation reconsider their grant?
Length: 3–4 pages, excluding title page and references.

SAMPLE SOLUTION

Financial Health
The aim of any medical facility is to deliver quality care. To undertake various health care activities, hospitals and medical centers require money. The funds raised through medical bills is not enough to meet the needs of the facilities, and so the management team must look for ways to raise additional funds. Health Care Centers can raise money either internally or externally. The main source of internal funding is through revenue collected, whereas grants, gifts, donations, and debts form bulk of external sources (Panzarino, 2016). While donations are highly unpredictable and…