Financial analysis Johns Hopkins
Description
Course Project
The course project will require students to select a healthcare organization and review its financial operations based on data available from various sources. The entity may be a healthcare system, individual hospital, medical group practice, managed care organization or government agency delivering healthcare services. Once the group has selected a healthcare entity it will obtain three years of financial statements to analyze along with appropriate literature reviews about the entity or similar entities. The final paper will be submitted in a case study format, which includes the following sections:
● Background
● Issues/problems identified
● Analysis utilizing ratios and other financial analysis tools
● Recommendations
● Implementation plan
● Monitoring methodology
● References demonstrating graduate level research
John Hopkins Financial Analysis
Name
Institution
Course
Date
Contents
General Background…………………………………………………………………………………………………….3
Issues/Problems Identified……………………………………………………………………….4
Analysis of ratios and other Financial Analysis tools….………………………………………5
Recommendations………….………………………………………………………………..…6-7
Implementation Plans.……………………………………………………………………………8
Monitoring Methodology……………………….………………………………………………..9
References……………………….……………………………………………………………….10
Background
The start of this prestigious hospital dates back to the late 1800’s when a wealthy Quaker philanthropist Johns Hopkins passed away. In his will, Johns Hopkins left seven million dollars to begin construction of a free hospital and medical colleges for the area of Baltimore, Maryland. The hospital was formally opened in the year 1889. Centuries later, Johns Hopkins Hospital is ranked in the top five hospitals in the nation. JHH serves as a leader in biomedical research, education and treatment of patients in the United States of America.
The founder of this institution Mr. Hopkins was a very charitable individual who had a very deep desire for everyone to receive university education. In his will, a school of medicine was to be part of the hospital. His desires came to pass with the launch of the school of medicine in 1883 which followed the founding of the university. Johns Hopkins Hospital has evolved to become a complex system with six different hospitals, numerous healthcare sites, and four surgery centers in different locations of the USA. The hospital has an estimated 37 buildings and more than 200 different clinical services spread across America. It also possesses an ultra-modern cancer research center that was inaugurated in 1999.
Issues / Problems Identified
An analysis of John Hopkins Health System was done using several key ratios. This case study will identify the key problems. It will also suggest solutions to the problems, an implementation plan, and monitoring methodology.
According to the text, total margin is obtained by dividing the net income with the total revenues. It is important because it provides a measure of the hospital overall profitability. Margin is very important for two reasons. It provides a form of security because proceeds from the profit can be utilized during low seasons enabling the business to survive. Margin also provides a growth path for the hospital as profit proceeds can be utilized to expand the hospital. The industrial average for total margin is 5%. According to the 2017 annual report, John Hopkins Health had a total profit margin of 2.9%. In comparison, UMass Memorial Health had a 2.8% profit margin. Both health institutions recorded a profit margin that is lower than the recommended industrial average.
The operating margin is obtained by dividing operating income with the total operating revenues. This is crucial as it determines the ability of the hospital to finance its daily operations through efficient management of revenues and expenditure. The industrial average operating margin is 3.5%. John Hopkins Health operating margin in the year 2017 was 2.5%. UMass Health had a slightly lower operating margin of 1.7%.
The Return on assets is obtained by dividing the net income with the total assets. The ROA tells managers how financially productive a business is using its assets to generate meaningful earnings for the company. It can also be used to gauge the management performance by profits that are generated using assets that are under their span of control. The higher the ROA, the greater the net income on each dollar invested in assets and hence the more productive the assets. The industry average is 4.8%. John Hopkins Health 2017 ROA was 3.7, which was lower than the industry average. UMass Health was also lower at 2.7.
The return on equity is net income divided by the total equity. ROE financial ratio serves the purpose of revealing to the management and other stakeholders the volume of profit that the corporation is generating using cash that has been invested by shareholders. In a not-for-profit organization, the ROE is used to determine how well in financial terms, its community supplied capital is used. The industry average for Return of Equity (ROE) is 8.4 percent. John Hopkins health had a 4.3 percent return of equity, which was lower than the industry average. U mass Health had a 6.9 percent (ROE) which was slightly better than JHHS, but still lower than the industry average.
Analysis Utilizing ratios and Financial Analysis tools
Ratio John Hopkins UMASS Health Industry Average
Total Margin 2.9% 2.8% 5.0%
Operating Margin 2.5% 1.7% 3.5%
Return on assets 3.7% 2.7% 4.8%
Return on Equity 4.3% 6.9% 8.4%Current Ratio 1.9% 1.7% 2.0%Day-Cash-on-Hand 808 days 41 days 31 days
Debt-to-Equity 53% 40% 73%
Recommendations:
Further analysis is required beyond the review of the financial data to identify opportunities that will greatly assist in minimizing the overall cost burden and maximize the profitability index of the institution. Deeper dives into the coding and billing processes, denial rate, as well as standardization of supplies to identify if there are other avenues to increase revenue. The hospital needs to streamline its procurement and supply chains management. This will serve the purpose of eliminating unnecessary bottlenecks that have greatly contributed to wastage. This will also boost profitability and future prospects of the entity.
According to the Advisory Board (2017) the average amount of cash that the hospital has lost is close to one million dollars due to net revenue loss over the past four years due to penalties originating from pay for performance (P4P). This is something that can be eliminated through compliance with existing laws that govern contracts to avoid unnecessary fines that decrease the profit margins of the hospital. The Advisory Board also noted in 2016 that hospitals and health systems showed significant weakened margins for the first time since 2012. This is a very worrying trend because weakened profit margins will have a negative impact on its ability to provide quality healthcare services as well the expansion prospects of the entity. Hospitals must define and implement a multi-year margin strategy. While in previous years volume and price growth was enough to sustain margin weakness, it does not appear that this will be the answer to the problem. Hospitals must prioritize and focus on cost containment as the key strategy to strengthen margins. Unnecessary expenditures must be completely eliminated for this to be realized.
According to the Advisory Board (2016) organization-specific financial, operational and quality data must be benchmarked to tailor margin strategy. It is essential for hospitals to know their performance data and benchmark themselves to local competitors and “like” hospitals across the country. Benchmarking will also the serve the purpose of implementing better financial controls as it provides a perfect opportunity for comparison using best financial controls practices from reputable institutions.
Total Margin: (**increase collections/ increase successful appeals**)
We would recommend that John Hopkins expand their ambulatory and long-term care to manage populations within their networks.They should also join the network that is managing their dollar, there are opportunities for financial growth, delivering the right diagnosis and treatment at the right time; this includes making sure patients receive the right medications and nurses are moving patients through the hospital and educating them about their medication regimen before discharge.
Operating Margin: (**increase collections/ increase successful appeals**)
We would recommend workforce reduction (primarily in non-patient care areas), management restructuring and flattening benefit changes, and an examination of operations and the way work is done. Every aspect of support services would be analyzed, including opportunities to consolidate service contracts, consolidate programs, streamline vendor relationships, improve supply chain, and cut waste. Efficiency will be achieved without compromising on the quality of services that are offered to patients.
Return on Assets: (assets=equipment, property, receivables, land. Reduce what is owed**)
We recommend instituting an enterprise asset management (EAM) program. EAM is management of an enterprise’s assets across all departments, facilities, business units and geographical locations. EAM integrates techniques for holistic control and optimization throughout those assets’ varying lifecycles. It brings together planning, acquisition, commissioning, operations and eventual replacement. This will also eliminate conflict of interest that has contributed to wastes due to centralized procurement planning process that is based on merit rather than individual interests. Once implemented, EAM’s benefits are substantial. A successful EAM program could save John Hopkins between 5 and 20 percent in annual capital equipment purchases.
Return on Equity (**increase revenue, decrease costs**)
We recommend increasing the return on equity by reducing overall costs.
An example of this would be to reduce or eliminate unnecessary tests in a way that does not shortchange or endanger the patients. Reducing length of stay can be done through preventing errors that would extend a stay or delay a discharge when patients are medically ready to go home. Because of miscommunication, poor planning, or when families or nursing homes are not yet ready to take on the person that is being discharged, a four-day stay can suddenly turn into a five- or six-day stay. These process-related things are not medical issues, but they often extend length of stay which can cost millions.
Implementation Plans
Consider utilizing a revenue integrity specialist to identify whether coding or billing is optimal. Improved MD documentation will lead to increased DRG reimbursement and appropriately capture MCCs→ can be reflected in risk-adjusted quality data. Standardizations of practice and order-sets will decrease variability. Ensure that all supplies are on the HPG contracts so that costs can be as minimal as possible. Monitor supply utilization & partner with MDs and Clinical staff to reduce waste. Hire inventory supply (materials management) specialists to monitor supply utilization and limit the amount of staff that has the responsibility ordering supplies. Increased point of service cash collections, even collecting twenty dollars per patient at the time of the visit will increase revenue.
Monitoring Methodology
(**internal benchmarks to gauge performance**)
• Comparing Johns Hopkins hospital to itself throughout the quarters and against reputable health institutions across the world. This serves the purpose of identifying weakness so that corrective measures can be implemented. Strengths can also be capitalized on so as to achieve the set objectives.
• The hospital should also consider enlisting the services of outside professionals who can give a neutral and unbiased monitoring assessment. Internal monitors may sometimes not provide a neutral assessment because they want to protect the image of the entity or may want to hide inefficiencies of their colleagues.
References
1. https://www.hopkinsmedicine.org/about/downloads/jhm-brief.pdf
2. https://emma.msrb.org/ER1106106-ER865043-.pdf
3. https://monkessays.com/write-my-essay/hscrc.state.md.us/Documents/Hospitals/ReportsFinancial/Audited/fy-2014/0009_JHH_AFS_FY14.pdf
4. https://www.hopkinsmedicine.org/about/index.html
5. http://nonprofits.findthecompany.com/l/422333/The-Johns-Hopkins-Hospital
6. http://brand.hopkinsmedicine.org/gui/content.asp?w=pages&r=5&pid=186
7. https://www.beckershospitalreview.com/hospital-management-administration/massachusetts-general-vs-johns-hopkins-6-key-comparisons.html
8. https://www.beckershospitalreview.com/finance/40-financial-benchmarks-for-hospital-executives-august11.html
