ABC Health Care Income Statement

ABC Health Care’s Financial Situation

ABC Health Care’s latest income statement shows a net loss of $17,050 starting this month. With total revenues of $306,000 and expenses of $323,050, the Board is concerned about this situation. Revenues are insufficient to cover ABC’s costs and unless conditions improve, the agency may face operational difficulties. At the CFO’s request, I completed a review of the income statement to find out which categories were losing money and adjusted expenses to show the next month’s profit. Therefore, in the following discussion, we will discuss the newly adjusted budget reflecting profit and the newly received budget data.

Analysis of Monthly Revenues

Revenues from private pay can be increased by 10% through cost shifting where the institution will charge the privately uninsured patients and uninsured payments 10% more. Such a move involves negotiating higher charges as a result of the declining Medicare and Medicaid underpayments (Frakt, 2011). Through this plan, ABC revenue from private payers will increase by $3,400 to $83,450. The grants department can put in extra work and identify more partners in efforts to increase the revenue from grants. The department through greater partnerships with the Federal Government can get an extra funding of $3,000. Therefore, ABC Health Care through these two initiatives will increase their revenue by $6,450.These two adjustments mean that the organization will have to pay to keep more accurate records of its private payers so as to come up with an effective policy to charge them higher. Also, the organization will have to be more aggressive in its promotion activities in efforts to attract larger funding from institutional stakeholders.

Analysis of Expenses

The fixed expenses such as salaries, rent, insurance, and depreciation cannot be decreased. However, it is possible to cut expenses such as supplies by 1,500, overhead overheads by $3,000 by reducing service levels and changing the timing of tasks, utilities by $1,600 by putting in place stricter controls over the use of electricity, water, telephone, and fuel . The monthly benefits can be reduced by carrying out a review of benefits and propose that individuals will have to take a reduction. Monthly benefits can be cut by $4,500 taking the total expense cutting to $10,600. However, such drastic expense cuts might hurt the morale of the staff. Reducing the monthly benefits increases the financial burden on the staff while cutting down on utilities and supplies makes creates a challenging working environment where individuals have to share scarce resources.

Budgetary Recommendation

I am recommending a breakeven point where the revenues will be equal to the expenses. A break-even operating budget will allow the health care organization to carry out an assessment of the cost-cutting measures for one month and whether the revenue-generating measures are sustainable. An assessment will enable ABC to see whether there will be adverse effects of its actions and as a result, corrective action can be taken. I feel that taking drastic cost-cutting measures would lead even to a strike by the employees. Therefore, by breaking even, the institution will have an opportunity of reversing actions that face stiff opposition from the employees as well as figure out whether there are other ways of raising more revenues.

Conclusion

A total of $10,600 should be cut in expenses while revenues should be increased by $6,450 for ABC healthcare to breakeven. However, the cost-shifting might prove to be problematic because it is surrounded by a lot of controversies and most individuals do not support it. Therefore, the total revenues will amount to $312,450, the same as expenses resulting in a zero profit. In such a situation, the organization during the second month, the company can eliminate unnecessary costs. Such an approach is gradual allowing for review rather than taking a drastic decision which will result in irreversible consequences.

Ethical Dilemmas and Discussions

Cost shifting, where ABC will charge private payers more as a consequence of a shortfall in the public payments, remains a controversial debate in health care policy. Therefore, this is one of the ethical dilemmas facing the revenue increment plan, and I would hold discussions with the insurance providers. Also, I would look through the provisions of the Affordable Care Act and see whether such a practice is allowable. The reduction in the monthly benefits is the other ethical dilemma, and in this case, I would hold discussions with the staff and inform them that it is an urgent matter, which will be temporary for a short time after which they will receive their standard benefits. Even though most of them would not agree with the decision, informing them of situations is an indicator that the board of directors is interested in their actions.

References

Frakt, A. B. (2011). How Much Do Hospitals Cost Shift? A Review of the Evidence. The Milbank Quarterly, 89(1), 90–130. http://doi.org/10.1111/j.1468-0009.2011.00621.x

Gapenski, L. C. (1999). Healthcare finance: an introduction to accounting and financial management. Health Administration Press