CASE STUDY
Denison Specialty Hospital

Denison Specialty Hospital is planning its master budget for the coming year. The budget will include operating, capital, cash, and flexible budgets. The hospital is noted for its three fine programs: Oncology (cancer), Cardia (heart), and Rhinoplasty (nose jobs).

Part I. Section A

The managers at Denison have been busy working. They have reviewed past records, considered changes in competition, the general economy, and overall medical trends. Using past changes and anticipated rates of medical inflation, they have also made a first attempt at setting their prices. Based on a thorough review and discussion of these data, they have projected that next year will have 240 patients. They expect 120 oncology patients, 80 cardiac patients, and 40 rhinoplasty patients. The charge, or list price, for Oncology patients will average $50,000. Cardiac patients will be charged an average of $40,000, and rhinoplasty, $25,000 per patient. However, those charges often are not the actual amount ultimately received. The amount the hospital receives depends on whether patients pay their own hospital bills or have health care insurance. Assume that private insurance companies pay the full charge or list price. However, Medicare and Medicaid have announced rates they will pay for the coming year as follows: Oncology patients $40,000, Cardiac patients, $30,000, Rhinoplasty $10,000. Self-pay patients are supposed to pay the full charge, but generally 25 percent of self-pay charges become a bad debt. Note that bad debts are treated as expense in health care. They may not be shown as a reduction lowering revenues. The full charge for self-pay patients is shown as revenue, and then the uncollectible amount is shown as an expense. No payment for charity care is ever received, and charity care is not shown as a revenue or expense.

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