IHP 630 Module 9 Final Project Example

Back to Black: A Three-Year Financial Improvement Plan for Stonebridge Regional Medical Center

[Student Name]

Southern New Hampshire University

IHP 630: Healthcare Finance and Reimbursement

Module Nine Final Project

[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.

Back to Black: A Three-Year Financial Improvement Plan for Stonebridge Regional Medical Center

This plan is written for Stonebridge Regional Medical Center's board and executive team. It brings together a term's analysis of the hospital's statements, reimbursement, revenue cycle, costs and capital options into a single program to restore a positive operating margin within three years while protecting quality and the hospital's community mission.

Executive Summary

Stonebridge lost $5.6 million on operations last year, an operating margin of minus 1.8%, with 62 days of cash and an 11% claim denial rate. The plan targets an operating margin of 2% by year three, days cash of at least 90 and receivable days of 47. Six initiatives, in labor, supplies, the revenue cycle, documentation, service lines and readmissions, are projected to improve operating results by about $14 million a year by year three and release about $9.7 million in cash. A surgery center investment is recommended only after the cash target is met.

Where the Hospital Stands

Operating costs per adjusted discharge have risen about 9% in three years while revenue per adjusted discharge rose about 7%. Agency labor grew from $4 million to $15 million, supply costs rose 17% and denial write-offs reached $7.9 million. Debt to capitalization is 46%, and debt service coverage of 1.49 sits only modestly above the 1.25 covenant.

Labor

Converting agency positions to employed staff is the largest opportunity. The plan funds a nurse residency, schedule flexibility and retention bonuses tied to two years of service, aiming to cut the registered nurse vacancy rate from 14% to 7%. Converting forty agency positions at current rates would save about $4.8 million a year once achieved. The chief nursing officer owns this initiative.

Supplies

A surgeon-led value analysis committee will standardize orthopedic, cardiac and spine implants to two vendors per category and renegotiate contracts through the hospital's purchasing group. Time-driven costing of knee replacement, following the approach of Kaplan and Witkowski (2014), showed implants and supplies make up more than half of episode cost, and similar opportunities exist in other surgical lines. Estimated savings are $2.6 million a year, owned by the vice president of supply chain.

Revenue Cycle

Denials are costly because billing is complex. Gottlieb et al. (2018) documented frequent denials, resubmissions and adjustments in physician billing, with wide differences across payers, imposing costs beyond the care itself. The plan invests $1.1 million a year in eligibility automation, a central prior authorization team, payer-specific edits and financial counseling. Reducing the denial rate to 7% and receivable days to 47 would bring in roughly $5.3 million more each year through recovered revenue and lower rework, plus a one-time cash gain near $9.7 million.

Documentation and Readmissions

Expanding clinical documentation review is expected to correct under-coding worth about $1.3 million a year, with equal attention to over-coding for compliance. A transitional care program for heart failure and pneumonia patients aims to eliminate the $620,000 readmission penalty and improve outcomes.

Service Lines

Accurate costing changed the hospital's view of joint replacement from a loss to roughly break-even, with a path to a positive margin after implant and length-of-stay changes. The hospital should grow orthopedic volume and negotiate bundled prices with commercial insurers. Munnich and Parente (2014) found procedures take less time in ambulatory surgery centers, supporting the proposed joint venture center, which Milestone Three valued at roughly $2.7 million in today's dollars but which would breach the cash covenant if funded now.

Summary of Initiatives

The table lists each initiative with its estimated annual effect by year three, owner and start date.

Table 1. Financial Improvement Initiatives

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

Three-Year Projection

Assuming revenue grows about 3% a year and costs about 3.5% before initiatives, the plan would move the operating margin from minus 1.8% to about 0.2% in year one, 1.3% in year two and 2.1% in year three. Days cash would rise to about 75 after the receivables improvement and to about 95 by year three, allowing the surgery center investment in year three without breaching covenants.

Table 2. Projected Financial Results

Note. Composite projections.

Protecting Quality

Financial recovery must not come at patients' expense. Ly et al. (2011) found that hospitals with the lowest margins had somewhat worse performance on several quality measures and were more likely to close, suggesting that financial health supports quality. But cost cutting done carelessly can also harm care. The plan therefore excludes cuts to bedside staffing ratios, requires a quality review for each supply standardization and tracks mortality, readmissions, infections and patient experience alongside financial measures.

Risks

Nurse recruitment may be slower than planned, Medicare Advantage denials may continue to rise and supply savings depend on surgeon cooperation. Each has a mitigation: an interim reduced agency target, contract escalation with plans and surgeon participation in value analysis decisions. If year-one results fall short by more than 25%, the board will revisit the surgery center timing and consider an affiliation.

Governance

The CFO will lead a monthly steering group that tracks each initiative against targets, and the board finance committee will receive a quarterly dashboard of financial and quality measures.

Conclusion

Stonebridge's losses come from costs it can manage and revenue it is failing to collect. A disciplined three-year plan focused on labor, supplies, the revenue cycle and accurate costing can restore a positive margin, rebuild cash and position the hospital to invest again, while safeguards keep patient care at the center. Progress will be visible within the first year, when agency spending and denials should already be falling.

References

Gottlieb, J. D., Shapiro, A. H., & Dunn, A. (2018). The complexity of billing and paying for physician care. Health Affairs, 37(4), 619-626. https://doi.org/10.1377/hlthaff.2017.1325

Kaplan, R. S., & Witkowski, M. L. (2014). Better accounting transforms health care delivery. Accounting Horizons, 28(2), 365-383. https://doi.org/10.2308/acch-50658

Ly, D. P., Jha, A. K., & Epstein, A. M. (2011). The association between hospital margins, quality of care, and closure or other change in operating status. Journal of General Internal Medicine, 26(11), 1291-1296. https://doi.org/10.1007/s11606-011-1815-5

Munnich, E. L., & Parente, S. T. (2014). Procedures take less time at ambulatory surgery centers, keeping costs down and ability to meet demand up. Health Affairs, 33(5), 764-769. https://doi.org/10.1377/hlthaff.2013.1281