HC 466 - Plan & Org Comm Hlth Services
Mission Statement and Vision The Health Care Foundation (HFC) of Greater Kansas City is dedicated to the mission of providing leadership, advocacy and resources that eliminate barriers to quality health for uninsured and underserved in our service area. Our vision is simple - Healthy People in Healthy Communities (Unknown, 2008)!
Company Background In operation since July of 2003, Health Midwest, a regional nonprofit health care provider which owned or leased 11 general acute care and behavioral health centers in Missouri and Kansas, entered into an Asset Purchase Agreement with Hospital Corporation of …show more content…
America (HCA). The Attorneys General of Kansas and Missouri secure the assets from the sale and establish two healthcare conversion foundations – the Health Care Foundation of Greater Kansas City and the REACH Healthcare Foundation. Based on a court-approved settlement agreement, HCF will incorporate in Missouri and receive 80 percent of the assets while the REACH Foundation, will incorporate in Kansas and receive 20 percent of the net proceeds (Unknown, 2008). Operating Data HFC is a non-profit, public benefit corporation. The corporation funds/supports the indigent or underserved. HFC funds a regional network, and provide low‐income patients the opportunity to establish a relationship with a primary care provider who can help them manage their health needs so they don’t have to rely on hospital emergency departments for regular care. There are 17 safety net affiliate organizations operating 33 primary medical care clinics in the eight‐county region (Unkown, 2008). The HCF Corporation is an autonomously functioning corporation. organization that There are 74 Kindred hospitals across the nation. These hospitals provide long-term acute care services to the critically ill and medically complex patients. A few of these hospitals also provide outpatient services including diagnostic imaging, simple operative procedures, and laboratory services. Currently, the hospitals are primarily treating patients with lung and wound care problems as well as infections. During 2005 the patients’ average length of stay was 30 days and about 75% of the patients were older than 65 years. . in April of 2001 after a major reorganization (Mergent Online, 2005). In 2005, Kindred reorganized into four operational divisions: the hospital division, health services division, rehabilitation division and pharmacy division. As of September 30, 2006 Kindred’s hospital division operated 80 long-term acute care hospitals (LTAC’s); the health services division operated 242 nursing centers including skilled nursing facilities (SNF’s) and assisted living facilities (ALF’s); the rehabilitation division provided rehab services by contract to 366 nursing centers, 80 hospitals and 80 other health care locations and the pharmacy division operated 45 pharmacies (Kindred Healthcare, Inc., 2006). Today Kindred’s hospital division is the largest LTAC hospital holder in the U.S. with $1.7 billion in revenue, the health services division is the second largest publicly held nursing center operator in the U.S. with $1.9 billion in revenue, the pharmacy division is the third largest in the U.S. with $635 million in revenue and the rehabilitation division is the second largest publicly held contract rehab company in the U.S. with $288 million in revenue (Kindred Healthcare, Inc., 2006).
Financial Plan Setting goals and a plan on how to achieve them is the first step to ensuring the success of an organization. For a business, financial management and consideration of the “4 C’s”, costs, cash, capital and conservation are the basics of establishing a financial plan. A financial plan must identify operating costs and establish cost controls, understand its flow of cash and amount available to pay obligations, know how to achieve access to capital or funding while using conservation to preserve the asset base of the organization (McLean, 2003). In November 2006, Kindred held an investor conference and announced some plans for its future growth and viability. Kindred Healthcare, Inc. prides itself on being a National company with geographic and service diversity. The plan/hope is that this diversity will assist the company to maintain a strong position in the healthcare industry. Operating data. There are 74 Kindred hospitals across the nation. These hospitals provide long-term acute care services to the critically ill and medically complex patients. A few of these hospitals also provide outpatient services including diagnostic imaging, simple operative procedures, and laboratory services. Currently, the hospitals are primarily treating patients with lung and wound care problems as well as infections. During 2005 the patients’ average length of stay was 30 days and about 75% of the patients were older than 65 years.
| |Operating and Financial Data | |
| |Hospital Division Year Ending 12/31/2005 | |
|Revenues | | | |$1,608,120 |
|Operating income | | |$19,506 |
|Hospitals in operation at end of period | |7 |
|Licensed beds at end of period | |5,690 |
|Admissions | | | |38,182 |
|Patient days | | |1,158,101 |
|Revenues per admission | |$2,117 |
|Revenues per pt day | | |$1,388 |
|Average daily census | | |3,173 |
|Average length of stay | | |30 |
|Occupancy % | | |59 |
|Assets at end of period | | |$560,767 |
| | | | |
|Dollar in thousands except statistics. | | | |
|(Source: Kindred Healthcare) | | | |
Sources of revenue. Kindred’s hospital division obtains payments for hospital services from government programs (Medicare and Medicaid) as well as non-government resources (commercial insurances, HMO’s, network providers and preferred provider organizations). Patients insured by non-government payors typically are more profitable than the patients insured by Medicare and Medicaid programs. For 2005, hospital division’s revenues were approximately $1.6 billion (38%) total revenues. The table displays the approximated percent of patient days and revenues from the listed payor sources. (Kindred Healthcare, Inc., 2006).
| | | |Hospital Division Year Ending 12/31/2005 | | | |
|Medicare |Medicaid |Private/other |
|Admissions |
|Revenues | | | |$1,859,098 |
|Operating income | | |$22,090 |
|Nurcing centers in operation at end of period: | |
| |Owner/leased | |237 |
| |Managed | | |5 |
|Licensed beds at end of period | | |
| |Owner/leased | |30,260 |
| |Managed | | |605 |
|Patient days |* | | |9,057,066 |
|Revenues per patient day* | |$197 |
|Average daily census* | | |25,910 |
|Occupancy % * | | |85.6 |
|Assets at end of period | | |$385,860 |
| | | | | |
|Excludes managed facilities | | |
|Dollars in thousands, except statistics | | |
|(Kindred Healthcare, Inc., 2006). | | |
Sources of revenue. Revenues from this division are attained primarily through Medicare, Medicaid, and private paying patients. The division’s revenues were approximately $1.9 billion in 2005. Most of the revenue generated per patient day was from the Medicare and higher acuity patients. Profits from more acute patients were decreased from costs linked to increased levels of health care services needed; however these patients’ length of stay were typically shorter. The table below displays the approximate percent of the division’s patient days and revenues gained from payor sources.
|Health Services Division: Year Ending 12/31/2005 |
|Medicare |Medicaid |Private/other |
|Pt days |Revenues |Pt days |Revenues |Pt days |Revenues |
|16% |33% |67% |9% |17% |18% |
(Kindred Healthcare, Inc., 2006).
Strategic plan. The health services division goal is to be the provider of choice. This will allow an increase in census and enhance the payor mix. The strategies to achieve this goal are: • Providing quality, clinical based services. Efforts are made to continuously improve the quality of service and ability to care for complex patients through the recruitment, retention of experienced healthcare professionals. • Enhancing sales and marketing programs. Marketing efforts are focused on the quality of care provided at each facility. This is currently being done by increasing the number of nurse liaisons, admission coordinators and outreach programs within the community. Efforts are also made to increase awareness and availability of services through internet websites as well as maintaining and improving current/new relationships with local referral sources. • Increasing operating efficiency. Health Services continuously seeks ways to improve operating efficiency while maintaining high-quality care. In order to improve efficiency they have centralized the administrative functions as well as enhancing the quality assurance and risk management departments. • Repositioning nursing center assets. Kindred Healthcare, Inc. has made significant capital investments to improve facilities and is also expanding services to handle the needs of the more complex and acute patients.
Rehabilitation Division Kindred has big plans for its rehabilitation division with hopes to increase rehab units by at least 60%. The plan involves an increase in TCU’s (transitional care units) from the current 21 up to 60 and an increase in Alzheimers units from the current 64 up to 80 over the next 18 months (Kindred Healthcare, Inc., 2006). Kindred will focus on marketing name recognition of its People First rehabilitation program as well as on recruitment of qualified therapists in order to be prepared for the growth of this division. Operating data. This division provides rehabilitation services mainly to patients in long-term care settings, hospitals, clinics, home health agencies, assisted living facilities and hospice providers. Therapy services include physical, occupational, and speech therapy. The rehabilitation division also has specialized programs to address the special needs of patients with dementia, would care, and pain management. Other programs such as prevention of falls and bowel/bladder improvement are available.
|Operating and Financial Data of Rehabilitation Division Year ending 12/31/2005 |
|Revenues | | | | | |
| |Company operated | |$200,187 | |
| |Non-affiliated | |62,586 | |
| | | | |$262,773 | |
|Operating income (loss) | |$32,052 | |
|Number of customer contracts: | | | |
| |Company operated | |317 | |
| |Non-affiliated | |209 | |
|Assets at end of period | | |$7,120 | |
| | | | | | |
|(Source: Kindred Healthcare) | | | |
Sources of revenue. The rehab division collects payment for services mainly from hospitals, assisted living facilities, and nursing centers. Payments are based on pre-negotiated rates or fee schedules depending on the type of service(s) provided. The revenue gained for this division totaled approximately $263 million (6%) of total Kindred revenues for 2005. Trends and healthcare reimbursement rates will impact future revenue and growth. Strategic plan. The goals of the rehabilitation division are to become the top supplier of rehabilitation services and to improve market shares through the growth of programs, quality initiatives, and recruiting efforts. In order to obtain these goals the strategies are: • Maintaining quality care and customer satisfaction. The division will continue to provide effective and efficient care to all patients served. Specialized programs have been implemented to improve the quality initiative of customers as well as the development and implementation of a clinical tracking system (electronic medical record). These systems provide quality assurance, identify healthcare trends, and track patient outcomes. • Effective recruiting and retention of qualified therapists. The rehabilitation division is faced with a shortage of qualified therapists. In order to provide the highest quality care to patients the division will continue to focus efforts on recruiting and retaining qualified therapists by offering competitive salaries, recognition programs as well as continuing education opportunities. Efforts continue to reduce the amount of open positions, decrease contract labor and improve overall productivity. • Growing through business development and external contract sales. The rehabilitation division will increase awareness and promote their People First services through launching internet websites. The marketing strategy will focus on quality clinical care and excellent customer service to enhance the quality and clinical objectives for each patient.
Pharmacy Division In 2006 the focus seemed to be on the pharmacy division and on 10/25/06 an agreement was entered into for KPS Pharmacy (the pharmacy division of Kindred) to join with PharMerica LTC (the 2nd largest pharmacy in the U.S.). Kindred, as the parent company of KPS should reap the benefits of this joint venture in the year 2007 with increased revenues in the pharmacy division. Operating data. This division provides services to the other divisions. Services provided include full pharmacy services to nursing/specialized centers and hospitals operated by Kindred. There are 39 Kindred pharmacies and the pharmacy division is the third largest institutional pharmacy in the nation. The pharmacies have computer systems allowing access to computerized medical records which help to further improve quality of care. The division’s primary dealing is dispensing of medications to patients in assisted living and nursing center facilities. The facilities serviced are usually within a 120 mile radius from the pharmacy which provides pharmacist services 24 hours a day.
|Operation and Financial Data |
|Pharmacy Division: |
|Year ending 12/31/2005 |
|Revenues | | | | |$522,225 |
|Operating income | | | |$56,837 |
|Institutional pharmacies in operation at end of period |39 |
|Number customer licensed beds at end of period | | |
| |Company operated | | |28,657 |
| |Non-affilitated | | |60,625 |
| | |Total | | |93,282 |
|Assets at end of period | | | |$188,910 |
| | | | | | |
|Dollars in thousands, except | | | | | |
|statistics. | | | | | |
(Kindred Healthcare, Inc., 2006) Sources of revenue.
The pharmacy division receives payment of services mainly from government programs (Medicare and Medicaid) as well as non-government resources (commercial insurance, HMOs, preferred provider networks and contracted health providers). Revenue for 2005 was approximately $522 million. Over the last three years this division has received a large portion of its annual revenue from state Medicaid programs and skilled nursing facilities (SNF) from patients insured through Medicare Part A. The remaining revenue is from self/private pay and other types of insurance. The table below demonstrates revenues derived by payor source.
|Pharmacy revenue by payor source. Year ending 12/31/2005 |
|Medicare |Medicaid |Private/other |
|16% |5% |39% |
(Kindred Healthcare, Inc., 2006)
Strategic plan. The goal of the pharmacy division is to continue to maintain and improve its reliability and efficiency of pharmacy services for institutions allowing the expansion of market sharing. The strategies to achieve this goal
include: • Maintaining a focus on customer satisfaction. This division will continue to improve its focus on providing the customers with medications dispensed/delivered in a timely manner with competitive pricing. • Improving operating efficiency. The pharmacy division will implement systems allowing them to maintain and improve service standards, achieve regulatory compliance, and stay up-to-date with individual state Medicaid program changes. The systems will also continue to seek ways to lower pharmaceutical costs directly with pharmaceutical organizations/manufacturers. • Growing through business development and external contract sales. This division is in the works of opening additional pharmacies to provide services to new customers and markets.
Analysis of Financial Statements Analysis of financial statements such as the balance sheet, income statement and cash flow statement allow Kindred management to understand the overall financial picture of the organization and what/how future financial decisions, investments and financing should/need to take place. These same financial statements also tell stockholders and lenders where the company stands and if they are making a wise investment in working with the organization. Let’s take a look at Kindred Healthcare, Inc. financials. The last reported annual statistics are for the year 2005; these statistics will be used for analysis in this paper unless otherwise distinguished by a different year (all statistics received from Mergent Online, 2006, December 8, unless otherwise noted).
Balance Sheet Assets. For the year ending 12/31/2005, Kindred reports total assets of $1,760,561,000. The two largest factors of Kindred’s assets are accounts receivable with a net amount of $479,605 and property/equipment with a net amount of $891,009. Kindred’s financials show an overall growth in assets of over 10% from 2004 which includes a close to 20% growth in accounts receivable and over 16% growth in property/equipment. Liabilities. Total liabilities equal $890,025,000 for the year ending 12/31/05. The largest single liability for Kindred is salaries/wages/compensation in the amount of $244,851,000; the second highest cost is professional liability risk at $182,113,000. Although salaries/wages and compensation was slightly higher in 2005 than in 2004, professional liability risk decreased by $22,600,000. Accounts payable and income taxes also increased slightly from ’04 to ’05 so total liabilities grew by just under 2%. Equity. Total stockholders’ equity increased by approximately 21% from 2004 to 2005 with 2005 stockholders’ equity in the amount of $870,536,000. In the last two years stockholders’ equity has increases by over 45%.
Income Statement Revenue. Revenues for the period ending 12/31/05 equaled $3,923,999,000. This amount is just over an 11% increase from the year 2004. Expenses. Total expenses for the period ending 12/31/05 equaled $3,710,861,000. The greatest expense came in the form of salaries/wages/benefits at $2,112,736,000 and the second largest expense was supplies at $574,911,000. These two expense categories made up 68.5% of total expenses. Net income. Net income for period ending 12/31/05 totaled $144,909,000. This figure consists of revenues of $3,923,999,000 minus operating expenses and taxes in the amount of $3,779,090,000. The net income for period ending 2005 more than doubled the previous years net income of $70,580,000.
Cash Flow Statement Cash Flows from Operating Activities. For period ending 12/31/05 the net cash flows from operating activities was $263,133,000. This is a slight decrease of less than 1% from 2004. Cash Flows from Investing Activities. For period ending 12/31/05 the net cash flows from investing activities was a negative $220,225,000. This amount shows an increase of over 22 % from the previous year but is slightly lower than 2003 figures. Cash Flows from Financing Activities. For period ending 12/31/05 the net cash flows from financing activities was a negative $28,616,000. This figure is a decrease of about 60% over 2004 figures.
Financial Analysis Ratios Liquidity. “Liquidity…means how quickly an organization can raise cash to meet its short-term obligations (McLean, 2003,p.69). As of 12/31/05 Kindred’s current liquidity ratio (current assets divided by current liabilities) was 1.52 and working capital/total assets ratio was 0.18. Kindred’s liquidity has been relatively stable over the last few years fluctuating by only 1/100th from 2004 to 2005 and 6/100th since 2003. This liquidity ratio shows that Kindred can meet its debts yet maintains control over opportunity costs by not being “too” liquid. Asset management. Ratios analyzed in this area provide information on organizational performance and how well it uses its assets to generate revenue (McLean, 2003). Kindred shows a revenue/asset ratio of 2.23 as of 12/31/05. “A high value indicates effective revenue generation from the asset base (McLean, 2003, p.71). For reference the 1999 U.S. average asset turnover ration for acute care hospitals was 1.01 (McLean, 2003). Kindred Healthcare, Inc. shows a ratio above this indicating effective management of revenue generation. Debt management. For period ending 12/31/05 the following are some statistics related to Kindred’s debt management: current liabilities/equity = 0.71, total debt/equity = 0.04 and long-term debt to assets = 0.01. The “times interest earned” ratio assess the organizations ability to meet debt obligation. Analysts state a times interest earned ratio of 3.00 is “safe” (McLean, 2003). For period ending 12/31/05 Kindred had a times interest earned ratio (net income + interest expense + income tax divided by interest expense) of 24.09 and a cash flow coverage ratio (EBITDA/interest expense) of 41.0 indicating that Kindred can easily afford its current debt and placing the organization in an excellent position to obtain any needed financing for future investment. Profitability. For the period ending 12/31/05 Kindred had a net profit margin of 3.69%, up considerably from the last two years but still with definite room for improvement. The operating margin for 2005 was 5.36% showing the need to be aware of operating expenses. This figure although not at goal level is much improved at over 200% from 2003 figures. Kindred’s ROA figure was 7.31% and ROE figure 14.78%. Return on investment was 670.73. These figures indicate that Kindred Healthcare is primed to make investments and should have the support of its investors in doing so and contributing capital.
Operations Budgeting and Working Capital Projections
Historical Data Kindred Healthcare, Inc. (NYSE: KND), is a Fortune 500 healthcare services company, based in Louisville, Kentucky, with annualized revenues of $4.3 billion that provides services in over 500 locations in 39 states. Kindred through its subsidiaries operates long-term acute care hospitals, skilled nursing centers, institutional pharmacies and a contract rehabilitation services business, Peoplefirst Rehabilitation Services, across the United States. Kindred’s 56,000 employees are committed to providing high quality patient care and outstanding customer service to become the most trusted and respected provider of healthcare services in every community we serve (Kindred Healthcare, Inc., 2006).
Conclusion An analysis of Kindred Healthcare has shed important light on how best to focus efforts on costs, cash, capital and conservation which led to an established financial plan. Recognition of the operating costs has assisted in determining where cost controls need to be implemented. The four major divisions within the company are currently maintaining a high quality of care, have improving operating efficiency, expanding program development, increasing patient volume and improving relationships with referring providers. This concentration has resulted with an end of year cash balance increase and no outstanding borrowings under the credit facility. Identification of the past and present cash flow enables the company to plan efficiently and effectively for the future success and viability of the organization.
References
Unknown (2008) The Health Care Foundation of Greater Kansas City. Retrieved April 1, 2010 from http://parkonline.org/ec/crs/default.learn?CourseID=3995737&CPURL=par konline.org&Survey=1&47=6945589&ClientNodeID=403003&coursenav= 0&bhcp=1Mergent Online. (2005).
Kindred Healthcare Inc. Financials. Retrieved December 8, 2006, from University of Phoenix online library at http://www.reachhealth.org/_FileLibrary/FileImage/regionalhealthinitiative-press%20release.pdf McLean, R.A. (2003). Financial Management in Health Care Organizations (2nd ed.) [University of Phoenix e-text]. Albany, NY: Delmar. Retrieved December 5, 2006, from University of Phoenix, rEsource, HCS405 – Health Care Financial Accounting Course Web site.