ACCT350, Assignment 7a&b – Health Care NFPS
Part I - Complete the following from the back of the chapter 7 in your textbook:
Questions #1-7
Exercises #1
Problems #2
Part II – In Ch. 6, we covered the overall principles of NFP accounting. In Ch. 7, we look at the unique regulatory and structural characteristics of
major types of NPFs. We will start with health care. To illustrate accounting and reporting for health care organizations, we will look at data for
two NW hospitals taken from their latest Forms 990, which is for fiscal year ended 12/31/14 (the 990s for 2015 were due 5/15/16, so are not
available yet). Forms 990 are available at http://nccsweb.urban.org/PubApps/search.php or www.guidestar.org
Financial Statements: From the Forms 990 (Part X), your instructor has completed the following balance sheets for Walla Walla General Hospital
(WWGH) and Portland Adventist Medical Center (PAMC). He could just have easily had students re-create these financials but I guess he has more
time than students do?  Note: It would have been fun to compare Providence St. Mary Medical Center, but its Form 990 is now being bundled
together with the parent organization in a group 990 . . . so no separate data are available. 
Balance Sheet
2014
Walla Walla General
Portland Adventist
HospitalPercent
Medical Center
Dollars
Dollars
Percent
2012
Walla Walla General
Portland Adventist
HospitalPercent
Medical Center
Dollars
Dollars
Percent
2010
Walla Walla General
Portland Adventist
HospitalPercent
Medical Center
Dollars
Dollars
Percent
Cash & Savings (lines 1 + 2)
1,567,391
3.5%
97,850,162
34.0%
1,164,541
3.0%
91,711,838
32.3%
16,033
0.1%
82,536,210
31.2%
Receivables (sum of lines 3-7)
7,557,066
16.8%
38,265,777
13.3%
7,437,600
19.1%
39,042,113
13.7%
6,057,256
33.3%
35,825,162
13.5%
Inventories (line 8)
1,870,923
4.2%
4,051,235
1.4%
1,583,560
4.1%
3,365,793
1.2%
1,010,675
5.6%
2,614,503
1.0%
588,986
1.3%
1,815,399
0.6%
87,077
0.2%
2,159,482
0.8%
142,040
0.8%
1,728,541
0.7%
11,584,366
25.8%
141,982,573
49.3%
10,272,778
26.4%
136,279,226
48.0%
7,226,004
39.8%
122,704,416
46.4%
67,964,779
n/a
300,600,390
n/a
59,125,593
n/a
282,929,215
n/a
39,008,983
n/a
268,268,579
n/a
(35,977,024)
n/a
(179,946,969)
n/a
(31,638,564)
n/a
(159,192,824)
n/a
(28,349,534)
n/a
(139,676,612)
n/a
31,987,755
71.3%
120,653,421
41.9%
27,487,029
70.7%
123,736,391
43.5%
10,659,449
58.7%
128,591,967
48.6%
Investments (sum lines 11-13)
-
0.0%
1,204,373
0.4%
-
0.0%
2,176,733
0.8%
-
0.0%
1,656,100
0.6%
Other assets (sum lines 14-15)
1,290,976
2.9%
24,104,563
8.4%
1,144,641
2.9%
21,949,254
7.7%
277,512
1.5%
11,479,715
4.3%
44,863,097
100.0%
287,944,930
100.0%
38,904,448
100.0%
284,141,604
100.0%
18,162,965
100.0%
264,432,198
100.0%
Prepaid Expenses (line 9)
Total Current Assets
Land, Bldgs & Equip (line 10a)
Less: Accum. Deprec. (line 10b enter negative)
Land, Bldgs & Equip (net of depr, line 10c)
TOTAL ASSETS (line 16)
S/T Liabilities (sum lines 17-19,21,22)
3,888,274
8.7%
19,410,266
6.7%
4,124,082
10.6%
21,786,590
7.7%
2,695,481
14.8%
18,353,580
6.9%
L/T Liabilities (sum lines 20, 22-25)
58,176,248
129.7%
72,023,976
25.0%
39,178,851
100.7%
68,978,770
24.3%
14,809,579
81.5%
65,872,146
24.9%
TOTAL LIABILITIES (line 26)
62,064,522
138.3%
91,434,242
31.8%
43,302,933
111.3%
90,765,360
31.9%
17,505,060
96.4%
84,225,726
31.9%
(17,840,320)
-39.8%
192,338,082
66.8%
(5,347,913)
-13.7%
189,297,501
66.6%
111,735
0.6%
176,372,456
66.7%
638,895
1.4%
1,606,049
0.6%
949,428
2.4%
1,573,794
0.6%
546,170
3.0%
1,341,516
0.5%
-
0.0%
2,566,557
0.9%
-
0.0%
2,504,949
0.9%
-
0.0%
2,492,500
0.9%
(17,201,425)
-38.3%
196,510,688
68.2%
(4,398,485)
-11.3%
193,376,244
68.1%
657,905
3.6%
180,206,472
68.1%
44,863,097
100.0%
287,944,930
100.0%
38,904,448
100.0%
284,141,604
100.0%
18,162,965
100.0%
264,432,198
100.0%
Unrestr. Net Assets (line 27)
Temp. Restr. Net Assets (line 28)
Perm. Restr. Net Assets (line 29)
TOTAL NET ASSETS (line 33)
TOTAL LIAB. & NET ASSSETS
In addition, your instructor has used the information in Part VIII and Part IX of Forms 990 to prepare the 2012 and 2014 common-sized income
statements for the same two hospitals.
Income Statement
2014
Walla Walla General
Portland Adventist
HospitalPercent
Medical Center
Dollars
Dollars
Percent
2012
Walla Walla General
Portland Adventist
HospitalPercent
Medical Center
Dollars
Dollars
Percent
REVENUE (see Part VIII)
Contributions (line 1h)
Net Program Service Revenue (line 2g)
Investment Income (lines 3-5)
Other Revenue (lines 6d+7d+8c+9c+10c+11e)
Total Revenue (line 12)
321,607
55,731,870
46,728
165,368
56,265,573
0.6%
99.1%
0.1%
0.3%
100.0%
776,259
347,303,371
2,767,202
366,310
351,213,142
0.2%
98.9%
0.8%
0.1%
100.0%
254,205
52,034,756
21,184
EXPENSES (see Part IX, Column A)
Compensation-related (lines 5-10)
Fees for services (line 11 a-g)
Advertising & promotion (line 12)
Office expense (line 13)
Information technology (line 14)
Occupancy (line 16)
Travel (line 17)
Conferences etc. (line 19)
Interest (line 20)
Depreciation (line 22)
Insurance (line 23)
Rent/Lease of equipment (line 24a)
Purchases Services (line 24c)
Patient Care Supplies (line 24d)
All other (plug)
Total Expenses (line 25)
33,404,757
2,162,990
181,920
902,651
3,036,593
1,869,455
268,827
1,601,310
2,528,127
946,312
406,394
7,407,633
6,832,474
990,562
62,540,005
59.4%
3.8%
0.3%
1.6%
5.4%
3.3%
0.5%
0.0%
2.8%
4.5%
1.7%
0.7%
13.2%
12.1%
1.8%
111.2%
158,190,593
14,017,889
1,034,838
4,093,856
13,404,869
11,247,747
1,004,946
391,805
2,770,392
11,554,386
2,647,642
942,978
52,154,317
40,278,554
32,315,501
346,050,313
45.0%
4.0%
0.3%
1.2%
3.8%
3.2%
0.3%
0.1%
0.8%
3.3%
0.8%
0.3%
14.8%
11.5%
9.2%
98.5%
34,079,196
1,678,492
217,981
965,542
1,363,605
1,533,201
277,553
Total Revenue less Expense
(6,274,432)
-11.2%
5,162,829
1.5%
0.5%
99.5%
0.0%
0.0%
100.0%
542,898
280,416,450
3,622,639
(97,790)
284,484,197
0.2%
98.6%
1.3%
0.0%
100.0%
836,719
1,726,889
799,614
223,345
5,018,832
5,309,085
621,844
54,651,898
65.1%
3.2%
0.4%
1.8%
2.6%
2.9%
0.5%
0.0%
1.6%
3.3%
1.5%
0.4%
9.6%
10.1%
1.2%
104.5%
157,261,458
14,107,825
1,481,832
4,208,675
7,879,849
10,021,533
775,682
328,065
2,886,058
10,728,287
1,083,408
2,264,587
19,496,138
34,840,222
10,559,266
277,922,885
55.3%
5.0%
0.5%
1.5%
2.8%
3.5%
0.3%
0.1%
1.0%
3.8%
0.4%
0.8%
6.9%
12.2%
3.7%
97.7%
(2,341,753)
-4.5%
6,561,312
2.3%
52,310,145
1. From the financial statements above, answer the following questions:
(A) Evaluate liquidity and working capital (ability to pay bills). At a minimum, determine for each hospital the following two ratios for
2010, 2012, and 2014: (1) cash/savings ratio (cash & savings / total assets); and (2) current ratio (current assets / current liabilities). Which
hospital had the best liquidity and working capital position?
(B) For 2012 and 2014, determine which hospital appears have the best receivable management (ability to collect receivables). At a
minimum, calculate each hospitals receivable turnover (net program service revenue / receivables) and Average Collection Period (365 /
receivable turnover). Discuss the results of your analysis.
(C) For 2010, 2012, and 2014, calculate the percentage that each hospital’s total land, bldgs. & equip. is depreciated (line 10b / 10a). Which
appears to have the oldest property and equipment?
(D) Calculate the total debt ratios for each hospital (total liabilities / total assets) for 2010, 2012, and 2014. Discuss the results of your
analysis.
(E) (1) For 2010, 2012, and 2014, determine which hospital had the healthiest position in terms of unrestricted net assets (as a percent of
assets); (2) Is it good or bad for a hospital to have temporarily restricted and permanently restricted net assets? Explain.
(F) From the above information, which hospital is in the strongest financial position at the end of 2014? Provide rationale for your answer.
2. To analyze the hospital operations, let’s take a look at their income statements.
(A) Review the common-size figures as well as the two-year trends. What revenue/expense areas, if any, appear unusual or out of line?
(B) Your instructor gathered the following information for you from the first page of Forms 990
2012
2014
WWGH
# of employees
# of volunteers
469
110
520
99
# of employees
2336
2469
PAMC
# of volunteers
285
285
(1) For both years, calculate total revenues and total expenses per employee for each hospital. Comment on your observations. [Note: the
number of volunteers is provided as supplementary information only and is not part of your calculations.]
(2) For both years, calculate the total compensation-related expense per employee for each hospital. Comment on the implications of your
analysis.
(C) Based on the income statements, discuss the health of operations for each hospital.
3. Adjustments to Gross Patient Service Revenue. Complete the common-size statement below by filling in the questions marks. (These
figures are derived from hospital databased maintained by the state health departments and do not perfectly agree with the Forms 990, but
they are close.) Obviously, in a common-size income statement, each percentage is determined by dividing all number by gross patient
program service revenue.
Calculation of Net Patient Revenue
(amounts in thousands of dollars)
Gross Patient Program Service Revenue
2014
2014
WWGH
PAMC
156,506
100%
878,137
100%
4,960
?
24,506
?
Medicare
49,731
?
257,443
?
Medicaid
15,752
?
74,202
?
Other non-gov’t
29,516
?
162,482
?
Total Contractual Adjustments
99,959
?
518,634
?
Net patient service revenue
56,547
?
359,503
?
809
?
12,243
?
55,738
35.61%
347,260
39.55%
Contractual Adjustments:
Charity Care
Less: Provision for Bad Debts
Net to be collected
4. (A) Explain what each of the following is: charity care, administrative adjustments, Medicare contractual adjustments, Medicaid contractual
adjustments, and other (non-gov’t) contractual adjustments.
(B) Based on the table above, which hospital collects more for each dollar billed?
(C) (1) Which hospital appears to have more low-income patients? (2) Which appears to have more retired patients? (3) Which appears to
have more patients who do not pay their balance?
(D) What effect should Obamacare have on the components of net patient service revenue? (See instructor notes).
5. Executive compensation. Refer to the excerpts below (at end of this document, taken from Forms 990, part VII, p. 7 and Schedule J.)
Determine how much each of the following executives made in total compensation (all columns) in 2014.
(A) WWGH President/CEO, Monte Knittel (former WWU business faculty)
(B) PAMC President/CEO, Thomas Russell
(C)
(D)
(E)
(F)
Scott Reiner (in 2012, he became CEO of AH Corporate; his son is WWU business grad, Rees Reiner)
Rodney Wehtje, Corporate Treasurer (former WWU business faculty, and current WWU board member).
Greg McColluch, VP Finance at WWGH (WWU accounting grad)
Mark Perry, VP Finance at PAMC (former WWU student)
6. (A) Review the instructor notes about the renewed watchfulness of the IRS about nonprofit hospital executive pay. Why do you think the
government has a vested interest in making sure nonprofit executives are not being paid too much?
(B) Prepare a well-crafted short paragraph on the appropriateness of high executive pay at NFP hospitals. As part of your discussion, refer
to http://www.modernhealthcare.com/article/20150808/magazine/308089988 and http://www.aha.org/advocacyissues/taxexempt/execcomp.shtml (see also linked report entitled “Executive Compensation: A Primer for Establishing Reasonable
Compensation”)
7. About 15% of hospitals are for-profit. Many people have wondered how a for-profit and NFP hospital differ, if any all.
(A) Scan the Washington Post article linked here https://www.washingtonpost.com/news/to-your-health/wp/2016/05/02/these-hospitalsmake-the-most-money-off-patients-and-theyre-mostly-nonprofits/ and write a short summary of the article.
(B) Refer to statement below (excerpted from WWGH’s 2014 Form 990, Part III). Do you believe that WWGH adequately justifies its
exempt status? Why or why not?
8. (A) PAMC reports $2.6 million of income subject to UBIT, mostly related to lab services. (See Form 990, Part VIII, p. 9, column C).
Speculate why lab income might be subject to UBIT?
(B) What are some other examples of typical UBIT activities at a hospital? Is income from gift stores or parking garages usually subject to
UBIT? (See instructor notes).
9. The Joint Commission is a nonprofit organization that audits U.S. hospitals for quality. Hospital employees are nervous wrecks every time a
JC visit occurs. Go to https://www.qualitycheck.org/ and search for Walla Walla General Hospital and Adventist Medical Center (in
Portland). Download the Quality Report for each hospital.
(A) At either hospital, did any areas of care exist that exceeded the target range/value? If so, list one area.
(B) At either hospital, did any areas exist below the target range? If so, list one area.
10. (A) Review the WWGH charity care policy for uninsured patients located at the end of the instructor notes for health care NFPs. Suppose
Ignatius, who is single, works full-time at $10/hour (takes two weeks off a year). When he is injured in an accident, the ambulance takes him
to WWGH, which is closer than Providence St. Mary. What amount of charity care discount would Igy get from WWGH?
(B) Because a hospital emergency room cannot legally turn anyone away, are hospital executives correct (in your opinion) when they say
that everyone already has access to free medical care, whether they have health insurance or not?
11. Refer to http://www.businesswire.com/news/home/20150115006270/en/Fitch-Affirms-Adventist-Health-CAs-Rev-Bonds to answer the
following questions:
(A) What bond rating did AH receive from Fitch? What does the rating mean? See below.
(B) According to Fitch’s assessment, what are AH’s major financial strengths and weaknesses? In other words, why were the bonds given
their particular rating?
BOND CREDIT RATINGS
CREDIT RATINGS
Credit Risk
Moody's*
Standard Fitch
Duff &
& Poor's* IBCA** Phelps**
INVESTMENT GRADE
Highest quality
Aaa
AAA
AAA
AAA
High quality (very strong)
Aa
AA
AA
AA
Upper medium grade (strong)
A
A
A
A
Medium grade
Baa
BBB
BBB
BBB
NON-INVESTMENT GRADE – JUNK BONDS
Lower medium grade (somewhat speculative)
Ba
BB
BB
BB
Low grade (speculative)
B
B
B
B
Poor quality (may default)
Caa
CCC
CCC
CCC
Most speculative
Ca
CC
CC
CC
No interest being paid or bankruptcy petition filed
C
C
C
C
In default
C
D
D
D
WWGH
PAMC