Financial Statement Analysis

Jacquelyn Hawkins-Phillips

Dr. Laura Forbes 

Health Financial Management- HSA 525

July 28, 2013

Based on your review of the financial statements, suggest a key insight about the financial health of the company. Speculate on the likely reaction to the financial statements from various stakeholder groups (employee, investors, shareholders). Provide support for your rationale

The UHS strategy is to build or purchase healthcare properties in rapidly-growing markets and create a strong franchise based on exceptional service and effective cost control. UHS owes its success to a responsive management style and to a service philosophy that is based on integrity, competence and compassion. UHS receives the majority of its revenues from its hospital facilities, while its behavioral health services segment accounts for most of the remainder. Acute Care Hospitals (73% of revenues): UHS’s largest segment consists of 25 general hospitals, as well as surgical hospitals, ambulatory surgery centers and radiation oncology centers. Behavioral Health Services (25% of revenues): This segment consists of 102 centers, including residential facilities for teenagers, psychiatric hospitals, and substance abuse hospitals. Because average patient stays at these facilities are longer than in traditional hospitals (15.4 days in 2009 compared to 4.4 days in UHS’s hospitals) (Palank, 2013) and their occupancy rates higher (73% in 2009 compared to 58% in UHS’s hospitals), Behavioral Health has much higher profit margins than its sister segment. Other (1% of revenues): This is a catchall segment for expenses and revenues not associated with hospitals or BHS facilities.

The number of uninsured patients has been rising throughout the nation(Liederman,2013). Since hospitals are legally required to provide care to anyone who needs it, whether they are insured or not, UHS faces high expenses (specifically bad debt expense) from this trend (Liederman,2013). Because uninsured patients make up 18% of the firm’s revenues, higher than many competitors, UHS stands to lose more than its peers from this trend. At the same time, the percentage of uninsured patients has fallen in the past few years, which mitigates the potential negative impact of increasing bad debt expense on the firm.

Identify the current industry trend that has the most significant impact on your chosen organization’s financial performance. Indicate the trend’s impact on the financial performance of the organization. As the CFO, suggest at least one (1) way that you might minimize the impact of the trend on the organization.

The health information technology provisions of the American Recovery and Reinvestment Act (referred to as the “HITECH Act”) established criteria related to the “meaningful use” of electronic health records (“EHR”) for acute care hospitals and established requirements for the Medicare and Medicaid EHR payment incentive programs (Liederman,2013).    

During 2011, UHS began implementing EHR applications at certain of our acute care hospitals and continued to do so, on a hospital-by-hospital basis, until completion which occurred at the end of June, 2013. Our acute care hospitals are eligible for Medicare and Medicaid EHR incentive payments upon implementation of the EHR application, assuming they meet the “meaningful use” criteria.  As of June 30, 2013, fifteen of our acute care hospitals met the “meaningful use” criteria and we expect the remainder to do so by the end of 2013(Liederman,2013).

As reflected on the Supplemental Schedule, in connection with the implementation of EHR applications, our consolidated results of operations include the net unfavorable after-tax impact of $4.9 million ($7.9 million pre-tax) during the second quarter of 2013 and $5.0 million ($8.0 million pre-tax) during the second quarter of 2012.  In connection with the implementation of EHR applications, our consolidated results of operations include the net unfavorable after-tax impact of $5.3 million ($8.4 million pre-tax) during the first six months of 2013 and $5.0 million ($8.0 million pre-tax) during the comparable six-month period of 2012

As the CFO, suggest one (1) key strategy that you might use in order to improve the financial performance of the organization. Recommend an approach to implement the suggested strategy. Provide support for your recommendation.

UHS owns, operates or has under construction 25 hospitals (including a new facility being constructed) and 102 behavioral health centers located in 32 states (Palank, 2013). Many of the company’s facilities are located in suburban areas, but it also has a presence in urban markets, most significantly Las Vegas, Memphis, and Austin. UHS’s facilities provide healthcare services, including general and specialty surgery, internal medicine, obstetrics, emergency room care, diagnostic care, and behavioral health services.

The firm receives revenue from private insurers, including managed care plans, the federal government (under the Medicare program), state governments (under their respective Medicaid programs), and directly from patients. Over the past few years, the company’s growth has been fueled by both acquisitions and the establishment of new operations in mid-size markets with above-average population growth rates. As a result, its acute care facilities are highly concentrated in three key geographies: Las Vegas, McAllen-Edinburg, Texas and San Bernadino, California. Because UHS receives the majority of its revenues from its hospitals, the company has been significantly impacted by a shift in the hospital industry towards physician-owned healthcare facilities, which has increased competition for the company’s hospitals in urban markets (Palank, 2013). Another drag on UHS’s financial performance is bad debt expense resulting from rising numbers of uninsured patients nationwide (Palank, 2013). UHS’s behavioral health services segment, however, lets the firm benefit from a more favorable market environment and higher profit margins at psychiatric and substance abuse facilities (almost 20%, compared to about 7% in UHS’s hospitals.

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http://www.wikinvest.com/stock/Universal_Health_Services_(UHS)/Sources_Revenue

Palank, Jacqueline. “Hospitals Face Financial Squeeze.” Wall Street Journal. April 30,2008.Liederman, Eric M., M.D., et al. “Web Messaging: A New Tool for Patient-Physician

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