HCM 400 Module 7 Project Two Example

Project Two: A Three-Year Financial Improvement Plan for Pine Hollow

[Student Name]

Southern New Hampshire University

HCM 400: Healthcare Finance

Project Two

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Project Two: A Three-Year Financial Improvement Plan for Pine Hollow

Pine Hollow Memorial Hospital has posted operating losses for three straight years, most recently minus 2.4%, and its days cash on hand have fallen from 71 to 48. Earlier modules analyzed its statements, payment system, ratios, clinic budget and a capital decision. This project combines those findings into a three-year plan to restore financial stability while protecting the services the community relies on.

Targets

The plan sets three targets for the end of year three: an operating margin of at least 1%, days cash on hand of at least 90 and days in accounts receivable at or below the peer median of 47. It also sets a guardrail: no reduction in emergency, inpatient or clinic services without a community review. These targets match the medians of peer critical access hospitals, so meeting them would put Pine Hollow on equal footing with similar hospitals.

What Works for Small Hospitals

Holmes and Pink (2012) found in their survey that small rural hospitals had widely adopted measures like strengthening billing and collections, reviewing charges, improving cost reports, managing staffing and adding outpatient services, with leaders rating several as effective. The plan draws on that list, focusing on the areas where Pine Hollow's ratios lag peers.

Initiative One: Revenue Cycle

Collections take about two weeks longer than at peer hospitals. The business office will fix registration errors at the front desk, add weekly denial reviews and work older accounts systematically. Reaching 47 days would release about $1.35 million in cash once, raising days cash by roughly thirteen, and reduce write-offs by an estimated $150,000 a year. The business office manager owns this initiative.

Initiative Two: Reduce Traveling Nurse Costs

Salaries and benefits are 58% of expenses, against a peer median of 54%, largely because traveling nurses fill six positions at nearly double the cost of employed staff. A grow-your-own partnership with the community college, tuition support for local students and a retention bonus for staff who stay two years aim to cut traveling nurses to two positions by year two, saving about $600,000 a year. The chief nursing officer owns this initiative.

Initiative Three: Expand Swing Beds

Swing beds already help Pine Hollow's occupancy and are paid on cost by Medicare. By accepting more post-surgical patients from the regional hospital, which is often short of rehabilitation beds, the hospital could raise swing bed census by an average of two patients, adding an estimated $450,000 in net revenue a year. A transfer agreement and a liaison nurse are required. The chief operating officer owns this initiative.

Initiative Four: Cost Report Accuracy

A review found about $180,000 in allowable costs misallocated on the prior cost report. The hospital will contract with a cost report specialist, train staff in cost allocation and review interim Medicare rates quarterly, worth an estimated $180,000 a year. The chief financial officer owns this initiative.

Initiative Five: Commercial Contracts

Commercial insurers pay about 24% of patient revenue and are the only payers that typically cover more than cost. Two contracts have not been renegotiated in five years. Using cost data from the cost report and comparisons with peer rates, the hospital will seek increases averaging 4%, worth about $250,000 a year. The chief financial officer owns this initiative.

Initiative Six: Outpatient Drug Savings

Critical access hospitals are eligible for the federal 340B drug pricing program, which allows eligible providers to buy outpatient drugs at discounted prices. Pine Hollow enrolled years ago but uses the program only for its infusion clinic. Extending it to the rural health clinic's prescriptions through a contract pharmacy could save an estimated $200,000 a year, with strict compliance oversight. The pharmacy director owns this initiative.

Summary of Initiatives

The table summarizes estimated annual effects by year three, owners and start dates.

Table 1. Financial Improvement Initiatives

Note. Composite estimates; effects phase in over three years.

Projected Results

If initiatives reach about 80% of their estimated effect, annual operating results would improve by roughly $1.46 million, turning the $0.9 million loss into a gain of about $0.56 million, an operating margin near 1.4% on revenue that grows modestly. Days cash would reach about 90 by year three, combining the one-time release from faster collections with operating gains.

Using Free Support

Reiter et al. (2023) described how state Flexibility Programs help critical access hospitals improve operations and finances through benchmarking, consulting and training. Pine Hollow has used little of its state program's help. The plan will request revenue cycle and cost report consulting hours and monthly benchmarking reports, reducing the cost of the first and fourth initiatives.

A Decision Point on Affiliation

Carroll et al. (2023) traced how rural hospitals' profits typically slid before they closed or merged, and noted that system membership kept some of them open. If, by the end of year two, the operating margin is still negative and days cash below 60, the board should formally explore affiliation with a regional system, setting conditions to protect local emergency, inpatient and clinic services.

Monitoring

The finance committee will review a monthly dashboard with operating margin, days cash, days in receivables, traveling nurse positions, swing bed census and progress on each initiative. Owners will report quarterly to the board. Staff will see a simplified version on the intranet so that everyone understands how their work affects the hospital's recovery.

Conclusion

Pine Hollow's losses are serious but addressable. Six initiatives focused on collections, labor, swing beds, cost reporting, contracts and drug pricing could restore a positive margin and rebuild cash within three years without cutting core services, and a clear decision point ensures the board acts if they fall short. The first quarterly review will show whether that path is working.

References

Carroll, C., Euhus, R., Beaulieu, N., & Chernew, M. E. (2023). Hospital survival in rural markets: Closures, mergers, and profitability. Health Affairs, 42(4), 498-507. https://doi.org/10.1377/hlthaff.2022.01191

Holmes, G. M., & Pink, G. H. (2012). Adoption and perceived effectiveness of financial improvement strategies in critical access hospitals. The Journal of Rural Health, 28(1), 92-100. https://doi.org/10.1111/j.1748-0361.2011.00368.x

Reiter, K. L., Gurzenda, S., Thompson, K., Holmes, G. M., & Pink, G. H. (2023). Supporting critical access hospital operational and financial improvement through the Medicare Rural Hospital Flexibility Program. The Journal of Rural Health, 39(4), 710-715. https://doi.org/10.1111/jrh.12762