Discussion 6.1: Sample Balance Sheet
The snapshot provided by a balance sheet can inform leadership on the financial health of their institution. There are several reasons why a hospital would have an increase in assets from one year to the next. One reason is the addition of cash or investments. From table 7.1, there was a 40% increase in cash and investments from 2016 to 2017. This could be from a new investor or additional funding received by the hospital. Maybe a direct contribution from a donor or funds received for a clinical trial. Another reason a hospital would see an increase in assets would be an increase in patient revenue. This is also up 26% in 2017 over 2016 in table 7.1. Maybe the payor mix shifted towards commercially insured patients or more services were offered, and payments were received. An increase in patients that are served by the hospital alone does not mean an increase in revenue will be seen. Uninsured, or patients who cannot afford out-of-pocket expenses can contribute to bad debt. A reduction in bad debt as seen in table 7.1 of 26% can also account for the increase in assets. Perhaps outstanding bills were paid by patients who owed money over the past year. Maybe more of this patient population became insured and there were reimbursements for services rendered. There was also an 11% reduction in fixed assets from a decrease in equipment use. This could be due to a reduction in the use of rented equipment, a change in practice eliminating the need for additional equipment, or because procedures utilizing equipment are no longer performed at this facility. These factors driving an increase in assets ensure the hospital is operating at a position where assets are higher than liabilities.
Waxman, K.T. (2018). Financial and business management for the Doctor of Nursing practice (2nd ed.). Springer Publishing Company. ISBN 13: 9780826122063
One of the reasons driving the increase in assets is charitable allowance. Charitable allowance is free or donated care, whereas bad debt is the result of an unpaid bill (Waxman). In 3/31/2016, the charitable allowance was $13,680 whereas in 3/31/2017, the charitable allowance was $14,100. There was a 3% increase which means that there was a slight increase in assets. Another reason driving the increase in assets is bad debt which represents payment for care that, although expected to be paid, is not in fact paid (Waxman). In 3/31/2016, the bad debt was $77,250 whereas in 3/31/2017, the bad debt was $57,200. Since there was a decrease of 26% that means that there was an increase in assets because care was paid for and the company earned their money back. The last reason driving the increase in assets is contractual allowance. Contractual allowance reflects discount to charges accorded to third-party payers by the hospital (Waxman). In 3/31/2016, the contractual allowance was $233,750 whereas in 3/31/2017, the contractual allowance was $269,300. Since there was a 15% increase, that means that there was an increase in assets due to changes made by third-party payers. Due to the reasons above, the assets increased from year to year substantially.
References:
Waxman, K. T. (2018). Financial and business management for the Doctor of Nursing Practice, Second edition. Springer Publishing Company.
The balance sheet (Waxman, 2018) shows an increase in assets on March 31, 2017 in comparison to March 31, 2016. The probable reason behind this is the increase in total assets. Total assets are the sum of current and fixed assets. The balance sheet also shows a 29% increase in the current assets. The increase can also be due to the purchase of fixed assets. There is 94% increase in net assets stated on the balance sheet.
There are various driving forces that caused this increase. One reason is the deduction in bad debt. In 2016, the amount of bad debt for the company was more and the amount of current assets less than that in 2017. In 2017, bad debt decreased by 26% and current assets increased. Another reason is the 26% increase in patient revenue and this includes the money that the patients and insurers owe to the company. There has been a 40% increase in cash and investments which could be done by new investors or additional funds received by the company from existing investors. This is the another driving force that will increase the net assets for the company.
Waxman KT DNP MBA RN CNL CENP, (2018). Financial and Business Management for the Doctor of Nursing Practice, 2n
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