ADVENTIST HEALTH SYSTEM Health Care Finance

 Running head: ADVENTIST HEALTH SYSTEM
Health Care Finance
Customer’s Name
Academic Institution
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Health Care Finance
Introduction
An enterprise whether for profit or non-profit should always find ways of how to improve
their operational status quo. These certain improvements can be realized by improving on
business processes, increasing revenue, improvement of the overall productivity and quality,
although most of the examples discussed are internal, external factors can be considered base on
strategic decisions for companies to improve. All organizations enters a decision, especially if it
gained a net income on their financial statements, this money depending on the company’s board
agreement can be redistributed for shareholders dividends, can be used for debt repayments or to
allocate a budget for a certain capital project with the purpose of amplifying revenue and profits,
increase shareholder’s wealth and expand its business operations each industry has some set of
methods on which how they could utilize the said allocated capital. Healthcare industry is no
exception either for profit and non-profit purposes, the challenge on “how best to allocate limited
capital across a large number of requests for capital investment” (Kleinmutz and Kleinmutz,
1999 p.52) is ever present. Some healthcare organizations may tend to focus on allocating capital
budget for procurement of new beds (Hardy, 2004 p. 199) to better meet the increasing number
of patient demands, while others may have focused on necessary replacement and renovation of
depreciated medical equipments (Kleinmutz and Kleinmutz, 1999 p.52). While those are
certainly necessary and should be part of budget allocation, certain firms may opt to use a certain
amount to fund an expansion project which if successful can received a fast return on investment
(ROI) and be profitable as well.
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As an example, non-profit health care organization the Adventist Health System has a
combined total of “43 hospitals and employs 55,000 individuals, Adventist Health System
hospitals are comprised of 7,700 plus licensed beds, providing care for 4 million patients each
year in inpatient, outpatient and emergency room visits” (adventisthealthsystem, 2010). This
statistics shows how significant as a health care system this institution is. In This study, we will
look on viable options for a capital project that will improve overall Adventist Health System
(AHS) demographic market range and analyze if the allocated capital can be recouped and what
would be the break even sales level. But first it is important that we need to look at AHS’ current
financial position.
Relevant Financial Figures (AHS Annual Report 2009).
Revenue
The total posted revenue for AHS is at $5.496 billion USD.
Net Income
Net income declared at $233 million USD. Which in this case as a non-profit institution,
this amount could be carried over for future expenses such as employee compensation, supplies.
Professional fees etc. But most importantly a significant part of this income can be a source of
capital available for a particular project.
Potential Project
For AHS to be able to serve more patients and fulfill their mission on reaching and
healing every individual, the best project would be for them to expand to other areas of the
country. In this study, we will create the “New Hospital Project” as our sample viable option. All
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statistics would be considered estimated and would be projected based and on consideration for
Break even analysis.
New Office Capital Project Projected Financial Figures
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Break-even analysis for Adventist Health System’s new hospital
Cost Description Fixed Costs ($) Variable
Expenses (%)
Price of a New Hospital $ 15,000,000 0.0
Direct labor (includes payroll
taxes) 0.0
Other expenses 500,000 0.0
Other expenses - 0.0
Salaries (includes payroll
taxes) 600,000 0.0
Supplies - 12.0
Repairs & maintenance - 0.0
Advertising - 0.0
Car, delivery and travel - 0.0
Accounting and legal - 0.0
Rent 100,000 0.0
Telephone - 0.0
Utilities 45,000 0.0
Insurance - 0.0
Taxes (Real estate, etc.) - 0.0
Interest - 0.0
Depreciation - 2.0
Other (specify) - 0.0
Other (specify) - 0.0
Miscellaneous expenses - 1.0
Principal portion of debt
payment
 - 0.0
Owner's draw - 0.0
Total Fixed Expenses $ 16,245,000
Total Variable Expenses 15.0
Breakeven Sales level = $ 19,111,765 
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On this chart, for simplicity purposes the projected costs of a New Hospital is disclosed at $15
Million USD, the total cost includes construction of the new building and its basic amenities,
other expenses such as permits, direct labor and taxes. And equipment, facilities and initial
supplies to be used for the new hospital which has an entry for other expenses is projected at
$500 thousand USD. Salaries for the whole staff will b