Financial Forecast Variance: Impact of Payer Type & Revenue - Essay Sample

Introduction

Financial management is a crucial role in the success of an organization’s operations (Gapenski & Leiter, 2020; Nowicki, 2015; Waxman, 2015). In this context, the variance in the forecasted and actual financial data was contributed by the increase in patients’ cases by payer type classification, revenue collected and the number of expenses accrued in the hospital. Additionally, the income statement actual amount portrayed by the variable analysis illustrated that the patient type increased by $379,000, medical expenses by $169,250, and fixed expenses by $125,762. However, the net accrued variable operating expenses decreased by $58, 596 from the forecasted value projected at the beginning of the accounting period. Nevertheless, the total expenses in the Q3 period of the actual period increased by $236,416. Addition, from the illustrated financial data analyzed from the variance analysis, it is factual that the hospital’s financial department exceeded its expectations in the actual revenue expected by $142,784.

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There is are financial and operational causes of the differences that exist between the revenue, as well as actual expenses and those forecasted in the Q3 financials of the Sunvalley Hospital. First, the financial department provided more healthcare services to the commercial, government, and self-pay clients by Q3 compared to the number projected in the forecast report of the same period. Specifically, the revenues generated by commercial, government, and self-pay customers increased by 4%, 19.97%, and 2.35% respectively over the forecasted amounts. The hospital also increased its commercial, government, and self-pay expenses by 4%, 20%, and 2.35%. As such, it is plausible that the hospital should concentrate on promoting its healthcare services to commercial, government, and self-pay customers and enhances the reduction in the commercial, government, and self-pay expenses in the next financial period.

Analysis of the Change in Financial Performance over a Period of Time to Inform Healthcare Budget Planning

The financial data for the Sunvalley Hospital has changed over time, which has been represented by the institution’s financials for last year's Q3 and the current period’s Q3. In this case, the organization’s net revenue and expenses have increased over the stated period. The net income of the healthcare organization also increased in the current Q3 compared to last year’s Q3. The potential causes of the stated increment in revenue, expenses, and net income are inclusive of the rise of the number of patients seeking medical interventions at the medical facilities. Subsequently, the increment in the population of patients being served at the hospital has attracted additional expenditure for the hospital and consequential increment in the total revenue generated. The percentage increment in revenue, expenses, and net profit between last year’s Q3 and current Q3 are 18.06%, 13.27%, 47% respectively, which will be data that will be useful in the next financial year’s budget planning.

Summary of the Departmental Factors that Influence the Financial Performance of the Healthcare Organization

Departmental factors like the increase in the volume of patients visiting the hospital for medical services facilitated the increase in revenue recorded in current Q3. Particularly, the commercial, government, and self-pay customers were the highest sources of revenue for the organization. Second, the increment in the number of patients population visiting the hospital resulted in a consequential increment in the number of staffing personnel and the cost of acquiring medical drugs and equipment. Subsequently, this has increased the net expenses in the current Q3.

Recommendation of Two Changes to Improve the Financial Performance of the Hospital Using Financial Data

Such stated costs relate and impact the budget for the next year’s financial period for the Sunvalley Hospital. In this case, there are two distinct recommendations that should be made to improve the financial performance of the organization in the oncoming accounting period. First, the hospital’s financial department should increase its budgeted amount of operating capital for the oncoming accounting period. Also, this way, the hospital will be in a position to handle more customers and in the process elevated the net revenue and profit acquired for the next accounting period. Second, the financial department should reduce its expenses level by reducing redundant nursing personnel at the medical facility to save on the operating capital.

References

Gapenski, L. C., & Leiter, K. L. (2020). Healthcare Finance: An Introduction to Accounting & Financial Management (6th ed.). New York: McGraw-Hill.

Nowicki, M. (2015). Introduction to the Financial Management of Healthcare Organizations (6th ed.). Chicago, IL: Health Administration Press.

Waxman, K. (2015). Finance and Budgeting Made Simple Essential Skills for Nurses. Middleton, MA: HCPro.