Financial Forecasting Case Study
Eastside Memorial Hospital
Eastside Memorial Hospital is a 210-bed, not-for-profit, acute care hospital with a long-standing reputation for quality service to a growing community. Eastside competes with three other hospitals in its metropolitan statistical area (MSA)—two not-for-profit and one for-profit. Eastside is the smallest of the four but has traditionally been ranked highest in patient satisfaction surveys. For a complete description of the hospital, along with its 2002–2006 financial statements, please refer to the accompanying spreadsheet.
As the newly hired assistant administrator, you have completed the financial and operating analyses assigned by Melissa Randolph, the hospital’s administrator. In fact, your presentation to the board of trustees went off so well that Melissa asked you to present the hospital’s preliminary five-year financial plan at the next board meeting. To aid in the planning process, she has provided the following information:
Given your knowledge of the historical situation for Eastside, current trends in the healthcare industry, and the competitive situation facing hospitals today, use your best judgment to create the hospital’s financial plan. Make any assumptions you believe to be necessary to create an effective plan, including assumptions about inpatient and outpatient volume growth, capacity constraints, reimbursement patterns, hospital staffing patterns, input cost inflation, and so on. Be sure to completely document your assumptions in the report. The quality of your financial plan will be judged as much (or more) on the validity of your assumptions as on the mechanics of the forecasting process. (You have very limited specific information about Eastside, so use your general knowledge about trends in the hospital industry to make the forecasts.)
The emphasis should be on the forecast for the coming year (2008), but you should also create rough pro forma income statements, balance sheets,…