Boston Health Care For The Homeless Program Harvard Case Solution & Analysis

BHCHP Medicaid Payer Mix & National FQHC:

National FQHC Medicaid payment mix is different from other Medicaid payment mix provider because national FQHC used Prospective Payment System (PPS) that is established by federal law during fiscal year 1999 and 2000. PPS defined the system to pay grants and donations on the basis of number of visits in health care program for medical treatment. It states that government grants and payment should be paid on the basis of number of patient’s visited in health care center. Base rate for per visit was collected of the allowable capital cost per visit and the lessor of the allowable operating cost per visit(MAC PAC, 2017).

BHCHP Medicaid payer mix records its revenues over the services that are provided in a fiscal year and record the cost of these services in same period in order to follow consistency in accounting policies. Government and different donors provide grants and donations of two types which are restricted grants and contribution, and unrestricted grants and contributions. BHCHP records unrestricted grants and contributions on immediate basis when it receives the receipts of it while unrestricted grants and donations are recorded over the period as its restrictions are fulfilled or a portion of these restrictions are achieved.

Biggest Cash Use Area:

BHCHP’s biggest use of cash is its investment and re-investment of investment returns which is almost 22 million dollars purchase of investment and 21 million dollars sale of investment. That means biggest inflow and outflow of cash comes in and out in investment activities of BHCHP which is more than 10 times inflow and outflow of any other activity in BHCHP.

BHCHP held these securities for the purpose of financial returns. In short, these securities are held for short term purpose and its return will be recorded directly in profit and loss statement of BHCHP’s financial statement. BHCHP records realized gain and losses on average cost method while it records unrealized gain and losses on the basis of any change in market value of these investments. BHCHP’s investment in marketable securities are reflected in BHCHP’s financial position in unrestricted investment net assets account.

Vulnerability of BHCHP:

After the detailed financial analyzation of BHCHP, it has been found that BHCHP is not in a position to pay its total debt from its cash flows. BHCHP’s cash flow to total debt ratio is 0.41 in 2015 and 0.28 in 2016 which shows the decreasing trend in 2016 from 2015. The downward cash flow to total debt ratio shows that BHCHP’s cash flow position is not stable and decreasing in decreasing way which might create a big liquidity problem for BHCHP in upcoming years.

Apart from this downward trend in operating cash flows to total debt ratio, its revenue recognition policy is also questionable. Like if the Government declares 100 million dollars grants and announces that next grant will be declared after 5 years than on the basis of BHCHP’s existing revenue recognition policy, it will recognize whole grant as revenue for current fiscal year which will boost up the revenues, ultimately resulting in profits for current fiscal year while remaining 4 years suffers from high operating costs ultimately low profits,which reflects the inconsistency in revenues and profits for BHCHP.

Concerns for Functional Expenses:

As an advisor of Chief Executive Officer or Chief Operating Officer of BHCHP, it has been recommended that depreciation and amortization and other operating expenses are increasing more than revenues increased. By horizontal analysis, revenues are increased 12.03% while depreciation and amortization and other operating expenses are increased by 50.98% and 26.88% respectively. By vertical analysis, depreciation and amortization and other operating expenses are increased by 0.57% and 3.95% respectively but relatively these expenses are increased more times than revenue increased. In short, CEO or COO should focus on reducing depreciation and amortization and other operating expenses as they are playing a leading role to increase operating expenses ultimately a decrease in profits or an increase in losses for BHCHP..........


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