Understanding how finance affects business is essential to the success and longevity of the business. How a business earns its income, raises money, and how a business pays its bills and invests in the businesses future affects the financial growth of the company. The process of making money and spending money applies to health care just the same as other industries. The financial manager, and to some degree the non-financial manager must understand how to interpret, control, and manage the influxes of income to be effective with the company’s growth. This paper will review differences between audited and unaudited statements, the effects of revenue sources, and revenues and expenses grouped for planning and control at Patton-Fuller Community Hospital. Differences between financial statements
Patton-Fuller Community Hospital balance sheets for 2008-2009 show a discrepancy of $1,000,000 in the patient accounts received. This discrepancy shows on the 2009 unaudited statement of $59,787,000 and the 2009 audited statement of $58,787,000. This accounts for the $1,000,000 discrepancy in the patient accounts received. In addition, Patton-Fuller Community Hospital’s Statement of Revenue and Expense reports for 2008-2009 shows a discrepancy of $1,000,000 in the provision for doubtful accounts. This discrepancy shows on the 2009 unaudited report of $13,797,000 and the 2009 audited report of $14,797,000.
This accounts for the $1,000,000 discrepancy in the provision for doubtful accounts. The provision for doubtful accounts is normally based on the company’s historical data on debts from customers who cannot or do not pay their bill. Additionally, the 2009 unaudited and audited reports of operating income, exposes a $378,000 discrepancy on the statements of revenue and expenses. This type of over-estimation of income could cause a sizeable amount of stress on the organization’s funds. The net income is off by $254,000 as well. Effect of revenue sources on financial reporting
The effects of financial information of a hospital financial report can be very challenging and complex to predict because of the reimbursement cycle. Hospitals receive reimbursement for the services they provide after the fact; this is very risky and challenging way to run a business. Patton-Fuller, and most hospitals, has to prorate revenue based on good faith estimates from insurance reimbursement. Payments from revenue sources are hard to predict because of policy limitations, additional adjustments done by the insurance, denials, appeals, making it impossible to have accurate information because of this unpredictability (Karaesmen & Nakshin, 2007).
Patton-Fuller bases the net patient accounts revenue on commercial insurance payments from HMO and PPO plans, and government payers such as Medicare and Medicaid. Therefore, Patton-Fuller can only set financial goals based on insurance trends on passed income and revenue from these payers. Insurance companies will try their hardest to deny claims as often as possible, making it very hard and complicated for hospitals to get reimbursed for the services they provide. Hospitals spend large amounts of time and resources following up with insurance companies on pending claims. Although the time and cost can be immense with the follow-up involved, the financial outcomes are highly successful compared to facilities who only take self-pay patients. Revenue and Expenses
Financial managers understand how finance affects the smallest business to the largest organization. Understanding these affects is the origin to financial success in a business or and organization. Within every individual business or large organization, whether it be for profit or nonprofit, depends on the rates at which these businesses or organization spend or invest the money that the organization is producing. With this understood the financial manager would be able to interact more effectively with financial personal and follow financial procedures. Planning is the theoretical end of the activity and control is the more applied end. Planning is simple and requires organization and knowledge of the procedure. Planning involves deciding what to do and when to do it. Control involves making sure that the plans implemented in the organization to track the revenues and expenses begin responding when things do not happen according to plan. Grouping Patton-Fuller Community hospital revenues and expenses for planning and control allows financial managers the ability to understand what incomes are coming in and going out.
The revenue is grouped with the two categories net patient revenue and other revenue. The net patient revenue consists of gross revenue generated by the hospitals contractual agreements with the insurance companies or managed care programs. The second category is the “other revenue.” “Other revenue” generates from outside donations and has only one logical expense that deals with the revenue stream. If the marketing departments increased their efforts the donation revenue would be a collaboration; however, if this could not the departments were ineffective and the marketing department must change the methods or consider reducing the department altogether. If there is an increase in patients, expect physician and other professional costs to increase confirming that the net patient revenue increases if it has not done so already. Conclusion
Patton-Fuller Community Hospital had an undeniable difference on the 2008-2009 financial statements. Financial ratios for Patton-Fuller do not show improvement for the hospital’s growth. The financial managers should be reviewing the financial reports more regularly to help alleviate the differences between unaudited and audited reports for the hospital. To help steer Patton-Fuller to becoming a profitable hospital the financial managers need to review the company’s finances to make better decisions on increasing revenues and decreasing expenses.
Karaesmen, I. Z., & Nakshin, I. (2007). Applying pricing and revenue management in US hospitals — New perspectives. Journal of Revenue and Pricing Management, suppl. Special Issue: Futurology of Revenue Management and Pricing, 256-259. Retrieved