BOBCAT INTEGRATED DELIVERY SYSTEM

CASE STUDY

It is December 2014, and you have just accepted the CFO position at Bobcat Integrated Delivery System (IDS). You will be reporting to Mr. Salter, Bobcat IDS chief executive officer, a retired school teacher who was hired last year. Also reporting to Mr. Salter, and Mr. Wannabe, Bobcat IDS chief operating officer; Dr. Spok, Bobcat IDS medical director; and Ms. Patty Care, Bobcat IDS director of nursing. When announcing your appointment, Mr. Salter stated that your primary objective in the coming year (2015) would be to reverse the ominous financial trend which began in 2013 with an operating loss and continued in 2014. Previous operating losses were funded with investment income (however, investment income was $200,000 in 2014 because of weakening conditions). Moreover, your board recently passed a resolution discontinuing that practice and restricting investment income to capital expenditures.

Bobcat IDS is a not-for-profit corporation and includes a 120 - bed acute care hospital, a 25 - bed skilled nursing facility, a 15 - bed rehab facility, a home health care agency, and an out- patient clinic. The hospital, Bobcat Community Hospital (BCH), is the only hospital in Bobcat, a rural community of 50,000 in your state. To acquire background information, you decide to meet with each member of the executive team first, and then meet with selected members of senior management.

MEETING WITH DR. SPOK

Dr. Spok, the hospital medical director, told you: Most doctors have been on the medical staff for at least 10 years. There is little loyalty to the hospital. I and most doctors also have admitting privileges at County Hospital, a never public hospital with better facilities 30 miles away. While it is a hassle for the doctors to drive to County Hospital to make rounds, there are few good reasons for the doctors to admit their patients to BCH. County Hospital has a hospitalist and pays physicians large amounts of money for menial service assignments like committee work (a practice that Bobcat has refused to participate in).

MEETING WITH Mr. Salter

MR. Salter, chief executive officer, stated: 73 Practice Problems and Case Study I just don't understand why we are losing money. I spent a considerable amount of time recruiting new doctors while keeping the existing doctors happy. The new, younger doctors just don't seem to have a sense of loyalty to BCH. Furthermore, I've tried to establish a "family atmosphere" for our employees, which stresses getting along well with others in return for job security. Everyone seems happy. Everyone except Ms. Fi Nance My-way, whom you'll be replacing. She and I both started January, 2013, and she seemed increasingly frustrated with the way I do things hereshe just didn't fit in. I tried to accommodate her by implementing some of her recommendations, even though they were against my better judgmentlike charging visitors for parking (generating $100,000 in other operating revenue for 2010). And when I announced that I was bringing in more business to the hospital by entering into a two- year capitates managed care agreement with the city (it expires this month)we get $250 per month per family for taking care of the 300 city employees and their families, whether they're sick or notMs. My-way threw a fit at an executive team meeting. She claimed that my decisions were driving Bobcat IDS deeper into the red, an, as a result, I had to show Ms. My-way the Highway for insubordination. That happened in November of 2014.

Mr. Salter has asked you to do the following:

1) Develop a 2014 statement of operations and a 2014 balance sheet (you can assume the format and numbers are correct on the 2013 balance sheet, and you can further assume that all balances carry forward to the 2014 balance sheet, with the exception of accounting for the 2014 loss from the statement of operations).

2) Analyze these 2014 financial statements using ratio analysis and identifystrengths, weaknesses, and recommendations for improvement.

Bobcat IDS balance Sheet as of December 31, 2013

2013

Assets

Current Assets

Cash and cash equivalents $178,750

Marketable securities 1,100,500

Accounts receivable less allowance 11,250,000

Inventories at cost 3,368,000

Other current assets 992,500

Total Current Assets 16,889,750

Land and improvements 3,250,000

Buildings 36,485,750

Fixed equipment 8,063,250

Moveable equipment 4,466,750

Property, Plant & Equipment 52,265,750

Less accumulated depreciation (18,080,750)

Total Property, Plant & Equipment 34,185,000

TOTAL ASSETS $ 51,074,750

Liabilities and Net Assets

Current Liabilities

Current portion of long-term debt $2,151,000

Accounts payable and accrued expenses5,400,000

Estimated amounts due to third-party payers 1,423,750

Other current liabilities 1,500,000

Total Current Liabilities 10,474,750

Long-term debt, net of current portion 37,000,000

TOTAL LIABILITIES 47,474,750

Net Assets

Unrestricted 2,100,000

Temporarily restricted 1,000,000

Permanently restricted 500,000

TOTAL NET ASSETS 3,600,000

TOTAL LIABILITIES & NET ASSETS $51,074,750

Bobcat IDS Actual Expenses through December 31, 2014

Wages, taxes, benefits $42,000,000

Professional fees and commissions3,000,000

Drugs4,000,000

Medical and other supplies4,000,000

Food2,000,000

Purchased services2,000,000

Repairs and maintenance 4,000,000

Utilities 2,000,000

Interest4,019,000

Depreciation6,500,000

TOTAL EXPENSES $73,519,000