For this assignment use the
Avalon Health Care Organization Case Study Template
to address the following:
Summarize the key problems and issues identified in the case study.
Discuss relevant facts that contributed to the issues.
Analyze the accounting practices Avalon Health Care Organization used in determining whether to acquire XYZ Health Care Organization.
Calculate the following for XYZ from the information provided:
Current ratio
Discuss the purpose of each accounting method, including the information obtained from each and how it will be used to make the decision for acquisition.
Write a narrative of at least one paragraph to indicate which data you selected, why you selected it, and what information it conveys.
Equal access to treatments
Devising ethical responses to pandemics and other widespread medical emergencies (AdventHealth University, 2020)
Equitable patient care
Impact of expansion, both advantageous and detrimental (e.g., increase in jobs versus negative impact on marginalized populations), to the surrounding community
Formulate an informed opinion of whether you would recommend Avalon Health Care Organization to proceed with the acquisition of XYZ Health Care Organization. Support your response with your rationale including factors that influenced your decision.
Review the list of goals and revise the priority order or the dollar amount attributed to that goal. Provide your rationale as to how the revised order or revised budget could positively influence the strategic plan and long-term viability of the newly acquired organization.
Avalon Health Care Organization Case Study
Background Information
Avalon Health Care Organization (HCO) is looking to acquire another organization, XYZ Health Care Organization.
The purchase includes two hospitals – one with 100 beds, the other is a 150-bed hospital, which are located in
neighboring cities to each other. XYZ Health Care Organization also has multiple satellite doctors’ offices, and the
doctors, nurses, and other support staff are all employees of the health care organization. Avalon HCO is
considering the purchase of XYZ Health Care Organization because they (XYZ) are in danger of closing and filing
bankruptcy. More than 300 employees would be laid off, and two communities would be completely without
health care access if that happens. Avalon HCO leadership and board members believe this purchase is a good
opportunity to expand their operations in a new market.
The Discovery Phase
When Avalon HCO initially determined they wanted to pursue purchasing XYZ Health Care Organization, Avalon
immediately began a thorough review of the existing problems that led to the risk of closure and bankruptcy. The
first step of the review phase involved reviewing XYZ’s income statement to determine the net earnings or losses of
the organization, cash flow statements to determine where cash is being generated and if there is enough cash on
hand to pay expenses and purchase assets, and the balance sheet to review the liabilities (e.g., debts, outstanding
payments). In this review, Avalon noted there was an imbalance of revenue streams and that a high percentage of
patients are covered by Medicare and Medicaid insurance, which pays less than the cost of care.
Payer Mix and Income Sources
Medicare
Medicaid
Managed Care
Uninsured
Indemnity and other
20X0
27.3%
17.6%
51.3%
1.2%
2.6%
20X1
29.7%
18.4%
48.1%
1.5%
2.3%
20X2
34.6%
21.2%
39.0%
2.4%
2.8%
While the financial statements provide part of the picture, other concerns were noted as well. Those are:
• XYZ had a Joint Commission site visit within the past six months during which XYZ received a report that
indicated there were multiple areas that were noncompliant with the Joint Commission standards leading
to a potential threat for widespread harm (e.g., has caused or is likely to cause serious injury, harm,
impairment, or death to a patient, staff or visitor) (Joint Commission, n.d.). The SAFER Matrix provided in
the Joint Commission report to XYZ indicated 14 areas that are non-compliant and therefore pose areas of
risk and immediate threat to life:
o The Joint Commission’s report of findings indicates the following areas are Requirements for
Improvement:
Nurse to patient ratio is too high, leading to patient safety issues and neglect. Nurses are
expected to provide care to too many patients at one time. (Human Resources HR.01.02.05)
The Joint Commission received concerns about safety and quality of care regarding the
hospital. The whistleblowers have received retaliatory actions from the hospital.
(Accreditation Participation Requirements APR.09.02.01)
Patient environment is unsafe and dirty. Over the past year, 33% of the patients who were
in the hospital for more than three days had a hospital-acquired infection. (Infection
Prevention and Control IC.02.01.01, IC.02.02.01, IC.02.03.01)
Poor pain management in post-surgery patients. (Leadership LD.04.03.13)
Medication errors at greater than 5% (also noted by the Joint Commission). (Medication
Management MM.06.01.01) (National Patient Safety Goals NPSG 01.01.01)
Treatment services for Behavioral Health were inadequate. (Provision of Care, Treatment,
and Services PC.01.03.05)
Chemical (medication) and/or physical restraints were used on patients who have dementia.
(Provision of Care, Treatment, and Services PC.03.05.01, PC.03.05.03, PC.03.05.07,
PC.03.05.15)
The Joint Commission reports citations or incidents of Immediate Jeopardy to the Centers for Medicare and
Medicaid Services (CMS). According to CMS, “Immediate Jeopardy [is] a situation where the facility’s
noncompliance with one or more requirements of participation has caused, or is likely to cause, serious
injury, harm, impairment, or death to a [patient or] resident” (Centers for Medicare and Medicaid Services
[CMS], 2021, para. 5). The organization has 23 days to implement corrections for all issues identified by the
Joint Commission and the CMS survey. If those corrections are not implemented within 23 days, CMS can
terminate the organization as well as fine the organization up to $8,500 per day (Cornell Law School, n.d.).
CMS fined XYZ $2,000 per day for 90 days for noncompliance with the CMS requirements of participation,
for a total of $180,000. Additionally, CMS denied payment for new admissions for that three-month period
and required XYZ to provide in-service training for all care providers responsible for prescribing and
administering medications. XYZ also needed to create a directed plan of correction, which needed to be
submitted to both the Joint Commission and to CMS. XYZ proved its compliance within six months to the
•
•
•
Joint Commission and CMS. With the fines and the three months of loss of both Medicare and Medicaid
payments, XYZ is in serious financial danger.
Avalon leaders found there was a high rate of employee resignations over the past two years, a high rate of
sick days being used by existing employees, and XYZ failed to replace staff members who left, which
increased the workload for remaining staff members and care providers. These staffing issues contributed
to the medication errors noted in the Joint Commission’s citation noted above.
All marketing in the two communities served has been stopped in an effort to conserve money. Patient
services were also cut to conserve money.
As part of the review, Avalon leaders met with the employees of XYZ. Employees reported feeling like the
Chief Officers – the C-Suite leaders – are out of touch with the needs of the staff, the care providers, and
the community as a whole. Staff members working in the financial department noted that the Chief
Financial Officer and Chief Executive Officer do not fully understand utilization management and utilization
review, thus leading to lost income from Medicare, Medicaid, and private insurance companies.
Ultimately, these issues led to a significant drop in the revenues of XYZ Health Care Organization.
Strategic Plan
Avalon’s Board of Directors and Chief Officers moved ahead with the purchase of XYZ Health Care Organization.
Avalon’s leadership created a strategic plan that included a list of goals that are prioritized into short-term and
long-term goals. The initial goals are:
•
•
•
Meet with all employees of the hospital and satellite offices to communicate details of the sale and new
leadership, to convey the new plans, structural changes and expectations, and to gain employee trust in
Avalon’s leaders as well as improve employee morale.
o Update the pain-management policy for post-surgical patients.
o Update the restraint policy for all patients.
o Implement policies and procedures for patient safety, to include medication management, patient
fall risk assessment, and reduction in healthcare acquired infections.
o Implement policies and procedures regarding information management and cyber-security to
reduce the risk of HIPAA violations due to ransomware attacks.
o Create a whistleblower policy and hotline so any concerns expressed are anonymous.
Ensure the issues causing failed Joint Commission inspection which led to the CMS fines and termination in
the CMS programs are addressed in an on-going manner.
o Create a Continuous Quality Improvement (CQI) team to identify existing and address potential
future areas of concern. This team will make recommendations for improvements.
Determine opportunities for increasing the net income.
o Offer new services (e.g., pain clinic, telehealth) and re-establish previous services that were stopped
for financial reasons (e.g., behavioral health care).
$1,600,000 budgeted for creating the pain clinic.
$750,000 budgeted for telehealth implementation for five years.
$240,000 budgeted for creating the behavioral health care services.
o Expand locations to open an additional 10 satellite offices.
$10,000,000 budgeted for satellite offices to lease space, purchase supplies and equipment,
hire appropriate staff, and maintain malpractice insurance for the care providers.
o Build a new birthing center at each hospital location.
$50,000,000 budgeted for purchasing homes from neighboring homeowners in a two
square block radius next to the existing hospitals, raise the homes, and build the new
structures.
o Hire a Gerontologist for one of the satellite doctor’s offices where the patient demographics are
mostly older adults.
$300,000 budgeted for the salary and benefits plus cost of malpractice insurance.
o Hire three Infection Control nurses, one for each hospital and one to oversee the satellite locations.
$450,000 budgeted for the salary and benefits plus cost of malpractice insurance for three
nurses.
o Create a list of new positions across the organization to increase staffing and patient support
services, to include 10 new nurses, four new hospitalists, three respiratory therapists, four case
managers, four social workers, and 20 other support positions (e.g., nursing technicians, janitorial,
pharmacy techs, etc.).
Create a timeframe for when each of the positions will be requisitioned and start dates
(e.g., two nurses, two hospitalists, one respiratory therapist, two case managers, two social
workers, 10 support positions in first hiring, with the remaining positions to occur one year
later).
$1,050,000 budgeted for 10 nurses
$1,500,000 budgeted for four hospitalists
$240,000 budgeted for three respiratory therapists
$600,000 budgeted for four case managers
$360,000 budgeted for four social workers
$2,500,000 budgeted for the 20 support positions
o Implement a new marketing plan.
$1,500,000 budgeted for the new marketing plan.
It should be noted that the list of opportunities for increased net income all have an up-front cost. There is a longterm return on investment (ROI) for each opportunity that must be measured.
References
Centers for Medicare and Medicaid Services. (2021). Nursing home enforcement.
https://www.cms.gov/Medicare/Provider-Enrollment-andCertification/SurveyCertificationEnforcement/Nursing-Home-Enforcement
Cornell Law School. (n.d.). 42 CFR § 488.845 – Civil money penalties. https://www.law.cornell.edu/cfr/text/42/488.845
Joint Commission. (n.d.). Sentinel event policy and procedures. https://www.jointcommission.org/resources/patientsafety-topics/sentinel-event/sentinel-event-policy-and-procedures/
XYZ Health Care Organization’s Financial Statements
How to use this document: This Excel spreadsheet document contains the following financial statements: XYZ’s
income statement on sheet 2, XYZ’s balance sheet on sheet 3, and XYZ’s statement of cash flow on sheet 4. This
document also includes Avalon’s strategic plan with opportunities for increasing net income (up-front costs) on
sheet 5. Use the three financial statements (income statement, balance sheet, statement of cash flows), and the
up-front costs of the strategic plan located inside this Case Study Excel document to create a visual element,
such as a chart, table, graph, etc., to support the claims you make in the Avalon Health Care Organization Case
Study paper.
Visual elements are commonly used to convey information to financial and non-financial people, such as
upwards or downwards trends, cash flow, liquidity, expenses, reserves, etc. For support with finding tools with
which to create your visualization, you may wish to visit the Digital Toolbox linked in the assignment directions.
You may use any of the tools listed in the Digital Toolbox to create your visualization or the graph tools in the
INSERT tab here in Excel as long as you can paste it into your Avalon Health Care Organization Case Study paper
XYZ Health Care Organization’s
Income Statement
Total Revenue
Cost of medical services
Gross profit
Operating expenses
Income before tax
Income taxes
Net income or (Loss)
12/31/20X0
$11,275,000
$5,195,000
$6,080,000
12/31/20X1
$9,240,500
$4,500,000
$4,740,500
12/31/20X2
$8,195,000
$3,785,000
$4,410,000
$3,192,000
$2,888,000
$3,185,000
$1,555,500
$2,898,000
$1,512,000
$577,600
$311,100
$302,400
$2,310,400
$1,244,400
$1,209,600
XYZ Health Care Organization’s Balance Sheet
Assets
Cash and cash equivalents
Accounts receivable
Inventory
Land
Building
Equipment
Total Assets
12/31/20X0
$450,000
$3,472,000
$275,000
$1,200,000
$10,850,000
$4,500,000
$20,747,000
12/31/20X1
$336,000
$3,760,000
$275,000
$1,250,000
$10,489,000
$3,600,000
$19,710,000
Liabilities
Accounts payable & accrued expenses
Accrued salaries
CMS Fine
Total Liabilities
Total Equity
12/31/20X0
$8,750,000
$987,400
$0
$9,737,400
$11,009,600
12/31/20X1
$10,432,000
$1,112,000
$0
$11,544,000
$8,166,000
$20,747,000
$19,710,000
Total Liabilities and Equity
12/31/20X2
$264,000
$1,459,000
$275,000
$1,300,000
$10,127,000
$2,700,000
$16,125,000
12/31/20X2
$12,890,000
$1,340,000
$180,000
$14,410,000
$1,715,000
$16,125,000
XYZ Health Care Organization’s
Cash Flow Statement
Cash Received
Services/Sales
Collections
Investments
Payer Mix
Total Cash Received
12/31/20X0
$9,166,000
$102,500
$95,500
$882,000
$10,246,000
12/31/20X1
$7,134,500
$98,000
$75,989
$877,011
$8,185,500
12/31/20X2
$6,320,910
$88,000
$85,890
$690,900
$7,185,700
Cash Paid Out
Staff salaries & benefits
Utilities
Medical supplies
Equipment depreciation
CMS fines
In-service training
Marketing
Technology Updates
Insurance
Total Cash Paid Out
12/31/20X0
$887,800
$536,000
$714,500
$65,800
$0
$6,500
$950,000
$750,000
$412,000
$4,322,600
12/31/20X1
$912,500
$525,000
$612,000
$75,200
$0
$12,500
$835,000
$800,000
$414,000
$280,450
12/31/20X2
$1,025,000
$524,000
$819,500
$75,200
$180,000
$55,000
$0
$225,000
$514,500
$3,418,200
$5,923,400
$7,905,050
$3,767,500
Net Cash Flow
Avalon HCO’s Stategic Plan – Opportunites for Increasing Net Income (Up-front
Costs)
Instructions: To determine opportunities for increasing the net income for Avalon HCO review the following upfront costs. New and re-establishing services (cells A3 through B6), expanding locations (cells A8 through B9),
new birthing centers (cells A11 through B12), hiring one gerontologist (cells A14 through B15), hiring three
infection control nurses (cells A17 through B18), hiring other new positions to increase staff and patient support
services (cells A20 through B26), and new marketing plan (cells A28 through B29). Lastly, use cells A31 through
B31 to determine Avalon HCO total up-front costs.
Offer New and Re-establish Services
Pain Clinic
Telehealth
Behavioral Health Care
Expanding Locations
Budget for (10) Satellite Offices (lease, supplies/equipment, hiring, and malpractice insurance)
New Birthing Centers (each hospital location)
Purchase/build new structures
Hire (1) Gerontologist
Salary/benefits and malpractice insurance
Hire (3) Infection Control Nurses
Salary/benefits and malpractice insurance
Hire New Positions (Increase staffing and patient support services)
Budget for (10) Nurses
Budget for (4) Hospitalists
Budget for (3) Respiratory Therapists
Budget for (4) Case Managers
Budget for (4) Social Workers
Budget for (20) Other Support Positions
Marketing Plan
Budget for New Marketing Plan
Total Up-front Costs
Budget
$1,600,000
$750,000
$240,000
$10,000,000
$50,000,000
$300,000
$450,000
$1,050,000
$1,500,000
$240,000
$600,000
$360,000
$2,500,000
$1,500,000
$71,090,000
Avalon Health Care Organization Case Study
Background Information
Avalon Health Care Organization (HCO) is looking to acquire another organization, XYZ Health Care Organization.
The purchase includes two hospitals – one with 100 beds, the other is a 150-bed hospital, which are located in
neighboring cities to each other. XYZ Health Care Organization also has multiple satellite doctors’ offices, and the
doctors, nurses, and other support staff are all employees of the health care organization. Avalon HCO is
considering the purchase of XYZ Health Care Organization because they (XYZ) are in danger of closing and filing
bankruptcy. More than 300 employees would be laid off, and two communities would be completely without
health care access if that happens. Avalon HCO leadership and board members believe this purchase is a good
opportunity to expand their operations in a new market.
The Discovery Phase
When Avalon HCO initially determined they wanted to pursue purchasing XYZ Health Care Organization, Avalon
immediately began a thorough review of the existing problems that led to the risk of closure and bankruptcy. The
first step of the review phase involved reviewing XYZ’s income statement to determine the net earnings or losses of
the organization, cash flow statements to determine where cash is being generated and if there is enough cash on
hand to pay expenses and purchase assets, and the balance sheet to review the liabilities (e.g., debts, outstanding
payments). In this review, Avalon noted there was an imbalance of revenue streams and that a high percentage of
patients are covered by Medicare and Medicaid insurance, which pays less than the cost of care.
Payer Mix and Income Sources
Medicare
Medicaid
Managed Care
Uninsured
Indemnity and other
20X0
27.3%
17.6%
51.3%
1.2%
2.6%
20X1
29.7%
18.4%
48.1%
1.5%
2.3%
20X2
34.6%
21.2%
39.0%
2.4%
2.8%
While the financial statements provide part of the picture, other concerns were noted as well. Those are:
• XYZ had a Joint Commission site visit within the past six months during which XYZ received a report that
indicated there were multiple areas that were noncompliant with the Joint Commission standards leading
to a potential threat for widespread harm (e.g., has caused or is likely to cause serious injury, harm,
impairment, or death to a patient, staff or visitor) (Joint Commission, n.d.). The SAFER Matrix provided in
the Joint Commission report to XYZ indicated 14 areas that are non-compliant and therefore pose areas of
risk and immediate threat to life:
o The Joint Commission’s report of findings indicates the following areas are Requirements for
Improvement:
Nurse to patient ratio is too high, leading to patient safety issues and neglect. Nurses are
expected to provide care to too many patients at one time. (Human Resources HR.01.02.05)
The Joint Commission received concerns about safety and quality of care regarding the
hospital. The whistleblowers have received retaliatory actions from the hospital.
(Accreditation Participation Requirements APR.09.02.01)
Patient environment is unsafe and dirty. Over the past year, 33% of the patients who were
in the hospital for more than three days had a hospital-acquired infection. (Infection
Prevention and Control IC.02.01.01, IC.02.02.01, IC.02.03.01)
Poor pain management in post-surgery patients. (Leadership LD.04.03.13)
Medication errors at greater than 5% (also noted by the Joint Commission). (Medication
Management MM.06.01.01) (National Patient Safety Goals NPSG 01.01.01)
Treatment services for Behavioral Health were inadequate. (Provision of Care, Treatment,
and Services PC.01.03.05)
Chemical (medication) and/or physical restraints were used on patients who have dementia.
(Provision of Care, Treatment, and Services PC.03.05.01, PC.03.05.03, PC.03.05.07,
PC.03.05.15)
The Joint Commission reports citations or incidents of Immediate Jeopardy to the Centers for Medicare and
Medicaid Services (CMS). According to CMS, “Immediate Jeopardy [is] a situation where the facility’s
noncompliance with one or more requirements of participation has caused, or is likely to cause, serious
injury, harm, impairment, or death to a [patient or] resident” (Centers for Medicare and Medicaid Services
[CMS], 2021, para. 5). The organization has 23 days to implement corrections for all issues identified by the
Joint Commission and the CMS survey. If those corrections are not implemented within 23 days, CMS can
terminate the organization as well as fine the organization up to $8,500 per day (Cornell Law School, n.d.).
CMS fined XYZ $2,000 per day for 90 days for noncompliance with the CMS requirements of participation,
for a total of $180,000. Additionally, CMS denied payment for new admissions for that three-month period
and required XYZ to provide in-service training for all care providers responsible for prescribing and
administering medications. XYZ also needed to create a directed plan of correction, which needed to be
submitted to both the Joint Commission and to CMS. XYZ proved its compliance within six months to the
•
•
•
Joint Commission and CMS. With the fines and the three months of loss of both Medicare and Medicaid
payments, XYZ is in serious financial danger.
Avalon leaders found there was a high rate of employee resignations over the past two years, a high rate of
sick days being used by existing employees, and XYZ failed to replace staff members who left, which
increased the workload for remaining staff members and care providers. These staffing issues contributed
to the medication errors noted in the Joint Commission’s citation noted above.
All marketing in the two communities served has been stopped in an effort to conserve money. Patient
services were also cut to conserve money.
As part of the review, Avalon leaders met with the employees of XYZ. Employees reported feeling like the
Chief Officers – the C-Suite leaders – are out of touch with the needs of the staff, the care providers, and
the community as a whole. Staff members working in the financial department noted that the Chief
Financial Officer and Chief Executive Officer do not fully understand utilization management and utilization
review, thus leading to lost income from Medicare, Medicaid, and private insurance companies.
Ultimately, these issues led to a significant drop in the revenues of XYZ Health Care Organization.
Strategic Plan
Avalon’s Board of Directors and Chief Officers moved ahead with the purchase of XYZ Health Care Organization.
Avalon’s leadership created a strategic plan that included a list of goals that are prioritized into short-term and
long-term goals. The initial goals are:
•
•
•
Meet with all employees of the hospital and satellite offices to communicate details of the sale and new
leadership, to convey the new plans, structural changes and expectations, and to gain employee trust in
Avalon’s leaders as well as improve employee morale.
o Update the pain-management policy for post-surgical patients.
o Update the restraint policy for all patients.
o Implement policies and procedures for patient safety, to include medication management, patient
fall risk assessment, and reduction in healthcare acquired infections.
o Implement policies and procedures regarding information management and cyber-security to
reduce the risk of HIPAA violations due to ransomware attacks.
o Create a whistleblower policy and hotline so any concerns expressed are anonymous.
Ensure the issues causing failed Joint Commission inspection which led to the CMS fines and termination in
the CMS programs are addressed in an on-going manner.
o Create a Continuous Quality Improvement (CQI) team to identify existing and address potential
future areas of concern. This team will make recommendations for improvements.
Determine opportunities for increasing the net income.
o Offer new services (e.g., pain clinic, telehealth) and re-establish previous services that were stopped
for financial reasons (e.g., behavioral health care).
$1,600,000 budgeted for creating the pain clinic.
$750,000 budgeted for telehealth implementation for five years.
$240,000 budgeted for creating the behavioral health care services.
o Expand locations to open an additional 10 satellite offices.
$10,000,000 budgeted for satellite offices to lease space, purchase supplies and equipment,
hire appropriate staff, and maintain malpractice insurance for the care providers.
o Build a new birthing center at each hospital location.
$50,000,000 budgeted for purchasing homes from neighboring homeowners in a two
square block radius next to the existing hospitals, raise the homes, and build the new
structures.
o Hire a Gerontologist for one of the satellite doctor’s offices where the patient demographics are
mostly older adults.
$300,000 budgeted for the salary and benefits plus cost of malpractice insurance.
o Hire three Infection Control nurses, one for each hospital and one to oversee the satellite locations.
$450,000 budgeted for the salary and benefits plus cost of malpractice insurance for three
nurses.
o Create a list of new positions across the organization to increase staffing and patient support
services, to include 10 new nurses, four new hospitalists, three respiratory therapists, four case
managers, four social workers, and 20 other support positions (e.g., nursing technicians, janitorial,
pharmacy techs, etc.).
Create a timeframe for when each of the positions will be requisitioned and start dates
(e.g., two nurses, two hospitalists, one respiratory therapist, two case managers, two social
workers, 10 support positions in first hiring, with the remaining positions to occur one year
later).
$1,050,000 budgeted for 10 nurses
$1,500,000 budgeted for four hospitalists
$240,000 budgeted for three respiratory therapists
$600,000 budgeted for four case managers
$360,000 budgeted for four social workers
$2,500,000 budgeted for the 20 support positions
o Implement a new marketing plan.
$1,500,000 budgeted for the new marketing plan.
It should be noted that the list of opportunities for increased net income all have an up-front cost. There is a longterm return on investment (ROI) for each opportunity that must be measured.
References
Centers for Medicare and Medicaid Services. (2021). Nursing home enforcement.
https://www.cms.gov/Medicare/Provider-Enrollment-andCertification/SurveyCertificationEnforcement/Nursing-Home-Enforcement
Cornell Law School. (n.d.). 42 CFR § 488.845 – Civil money penalties. https://www.law.cornell.edu/cfr/text/42/488.845
Joint Commission. (n.d.). Sentinel event policy and procedures. https://www.jointcommission.org/resources/patientsafety-topics/sentinel-event/sentinel-event-policy-and-procedures/
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