HA 620 Unit 8 financial recommendation report example

Closing a $2.7 Million Inpatient Shortfall in Three Years: A Financial Recommendation Report Built From the Term's Figures

Student Name

Health Care Administration, Herzing University

HA 620: Healthcare Economics, Finance, and Resource Management

Instructor Name

March 5, 2026

Closing a $2.7 Million Inpatient Shortfall in Three Years: A Financial Recommendation Report Built From the Term's Figures

Executive Summary

The composite 180-bed hospital's inpatient services collected $116.1 million against costs of $118.8 million last year, a shortfall of about $2.7 million. This report recommends five actions that together are projected to improve inpatient and related results by about $4.95 million a year by Year 3, turning the shortfall into a surplus of about $2.2 million. The actions are: fund the emergency CT scanner now; convert percentage-based commercial contracts to case rates at renewal; enroll eligible self-pay patients in Medicaid; reduce inpatient cost per discharge by 2%; and open the infusion suite in Year 2. Two of the five, the scanner and the contract conversion, have been analyzed in detail earlier this term; the other three rest on assumptions stated below.

The Situation, With Figures Brought Forward

From the payer mix analysis (Unit 2): 9,000 discharges; commercial payers provide 41.03% of collections from 28.0% of discharges; Medicare fee-for-service and Medicare Advantage pay close to, but below, the $13,200 average cost per discharge; Medicaid pays about $7,600 and self-pay patients about $2,400 per discharge. The pattern is typical: private insurers now pay hospitals far more above Medicare's inpatient rates than they did in the 1990s (Selden et al., 2015), and hospitals' Medicare margins have been negative in aggregate in recent years (Medicare Payment Advisory Commission [MedPAC], 2025).

From the break-even and cost allocation work (Units 3 and 5): the infusion suite breaks even on direct costs at 1,493 visits and on full costs at 2,687 visits, against a projection of 3,000, with each year's contribution over its direct costs projected at $505,000.

From the capital request and allocation memo (Units 6 and 7): discounting the CT scanner's cash flows over seven years at 7% gives about $1.04 million of value, with net cash flows of $431,000 in Year 1 and $493,000 a year thereafter. The capital committee ranked it first and deferred the infusion suite to next year.

Financial Analysis of the Five Actions

Each action's annual effect at full run rate, with its source or assumption.

Timing

The effects arrive at different speeds. In Year 1, only the CT scanner ($431,000), about a third of the Medicaid enrollment effect as the program starts ($173,000), and about half of the cost reduction ($1,188,000) are realistic, a total of about $1.79 million, which narrows the shortfall to about $0.9 million. In Year 2, the infusion suite opens and two of five percentage-based contracts renew. By Year 3, all five actions reach full effect and the inpatient result moves to a surplus of about $2.2 million, assuming volume and payer mix hold steady.

Deliberate Exclusions

The plan improves the hospital's inpatient result without changing the services it offers to the community, the number of beds, or the payer mix it serves. It does not close services that lose money, such as inpatient behavioral health or obstetrics, both of which are needed in the county and have no nearby alternative. It does not raise list prices, which would increase charges without much effect on collections, since most payers do not pay on charges, and would worsen the position of self-pay patients. And it does not rely on growth in inpatient volume, which the county's population trends do not support. These exclusions were deliberate. A plan that closed essential services or pushed costs onto uninsured patients could close the shortfall faster but would conflict with the hospital's mission and, as a nonprofit, with the community benefit expectations attached to its tax exemption.

The plan also has an order of dependency. The CT scanner and Medicaid enrollment can begin immediately and do not depend on anything else. The infusion suite depends on capital in the next cycle. Contract conversion depends on renewal dates the hospital does not control. Cost reduction depends on physician and nursing engagement in length-of-stay work. Reporting each action separately, rather than only the total, will show early which of these dependencies is slipping.

Risks and Sensitivities

The largest single item, cost reduction, is also the least certain. A 2% reduction in cost per discharge is achievable through length-of-stay management and supply standardization in many hospitals, but it requires sustained effort and could be offset by wage inflation. If only a 1% reduction were achieved, the Year 3 improvement would fall to about $3.76 million, still enough to eliminate the shortfall. Contract conversion depends on negotiations; payers may accept case rates only at a lower overall level, which could reduce rather than raise the collection rate. The payer mix itself is a risk outside the hospital's control; the Unit 2 sensitivity showed that a five-point shift from commercial to Medicaid would cost about $5.1 million a year, more than the entire plan delivers. That exposure argues for completing the plan quickly and for diversifying outpatient revenue.

Recommendation and Implementation

Adopt the five-action plan, with owners and quarterly reporting: the CFO for contract conversion and the overall plan; the vice president of operations for the cost reduction program; the director of patient financial services for Medicaid enrollment; the imaging and oncology directors for the two service lines. Report actual results against the Year 1 target of $1.79 million at each quarterly finance committee meeting, and revisit the plan at the end of Year 1 if results fall more than 20% behind. The financial methods throughout follow the course text (Pink & Song, 2020). The first quarterly report is due in June. The hospital and figures are composite.

References

Medicare Payment Advisory Commission. (2025). Report to the Congress: Medicare payment policy.

Pink, G. H., & Song, P. H. (2020). Gapenski's fundamentals of healthcare finance (3rd ed.). Health Administration Press.

Selden, T. M., Karaca, Z., Keenan, P., White, C., & Kronick, R. (2015). The growing difference between public and private payment rates for inpatient hospital care. Health Affairs, 34(12), 2147-2150. https://doi.org/10.1377/hlthaff.2015.0706