Reference no: EM133342228

Case: In September of 20X1, Mr. Joseph Blanchard became the controller of Canadian Home Health Agency (CHHA). After 10 years in the accounting department of a customer product firm, Mr. Blanchard decided to move into not-for-profit field where he felt his expertise would be needed. CHHA, a small social service agency in London, Ontario offered him that opportunity.

Before Mr. Blanchard accepted the position of controller, Ms. Louise Tucker, the director of the agency, briefed him on the financial position of CHHA. Like other home health agencies, CHHA was reimbursed for its patient visits by Ministry of Health on an average-cost-per-visit basis.

At the end of each fiscal year, the agency will total their operating costs, adjusting them according to the Ministry of Health regulations. They then divided the total costs by the number of visits to arrive at an average cost per visit. This had become the reimbursement rate by the Ministry of Health. The average for 20X1 is given in Exhibit 1.

In October of 20X1, the ministry had notified CHHA that the average cost per visit exceeded the "reasonable cost guideline" established by the Ministry. A copy - Exhibit 2 - was also given to Mr. Blanchard.

Ms. Tucker was concerned because, on an average, the 20X1 rate had been $ 57.89 per visit. According to her, at $ 52.50 per visit set by the Ministry of Health, the agency could not meet its expenses for the coming year 20X2. One of the reasons for Ms. Tucker hiring Mr. Blanchard is that he could resolve this problem.

BACKGROUND

CHHA opened in 2010 to provide nursing visits to elderly and disabled residents of London and neighbouring localities. In 2014, the agency expanded to offer physical therapy and medical social service visits. Because of another similar agency in a nearby town that provided home health aide care, CHHA did not offer this health aide service.

In 20X1, CHHA had a staff of 13. Two registered nurses, two physiotherapists, two social service workers and one psychologist were responsible for home health visits. The administration consisted of one director, an assistant director, the newly appointed controller, and a support staff of three.

The two registered nurses handled the skilled nursing visits. The two physiotherapists worked exclusively on patient-visits, and the two social workers, with the help of the psychologist, provided all the social service visits. The two registered nurses who handled all nursing visits could provide as many as seven visits each day. However, because visits varied significantly in time, effort and location for 20X1, the nurses averaged only 5.54 visits per day. The physiotherapists averaged 3.3 visits per day.

MANAGEMENT THINKING

Ms. Tucker felt their capacity could be increased by at least one-third if they had the demand.

CHHA's medical and social service visits were the most complicated. With the help of the psychologist, the social workers averaged 4.46 visits per day in 20X1. Again, Ms. Tucker thought these visits could be increased to about 5.5 visits per day. The CHHA staff worked an average of 240 days a year.

DATA

In his first few weeks, Mr. Blanchard reviewed CHHA's financial statements, employee service sheets and other working papers to become familiar with the agency's financial status and planning needs. He realized that the agency had been operating without any cost objectives before Ministry of Health imposed a guideline. After a cursory review of past records, Mr. Blanchard decided that his first priority was to ensure that their current business model worked. According to him, the agency needed to know the capacity at which their revenue would balance the costs.

Examining CHHA's Expense Records, shown in Exhibit 1, Mr. Blanchard determined that the agency had two types of costs: those that changed according to the number of visits provided and those that were unchanged regardless of volume. Mr. Blanchard reasoned that at their break-even point, CHHA's revenue of $52.50 per visit would equal their total cost of the expenses generated by each visit plus the fixed expenses.

PLANNING FORWARD

Mr. Blanchard reviewed each item on the Expense Record to determine which type of cost it was. He thought the medically related salaries and the medical and nursing supplies were items that varied directly with the number of visits. When he discussed with his analysis with Ms. Tucker, she suggested that the staff automobile allowance varied with the number of visits because it referred to mileage incurred by the medical staff in making home visits.

"Terrific" thought Mr. Blanchard. "Now I can calculate variable cost per visit and in no time, I'll know the break-even point. I can make them a graph showing their costs and revenues and where we will have to operate to keep this agency in business".

"By the way, Joseph, said Ms. Tucker, "I would appreciate a report from you discussing your proposed plan and a recommended course of action. We are a not-for-profit organization, but I want us to be known for our quality service and genuine care for the community. We need to think of providing a comprehensive health maintenance program and may even need to think of expansion. Please develop a strategy along these lines and come up with an implementation plan. I also keep hearing about the current best practice in the industry - Balanced Scorecard. Let us look into it and plan to implement this year.

"I do plan to communicate this to all our staff in our next meeting and perhaps initiate a change agenda as to how best we can deploy our resources. This is also the good time to develop the budget for 20X2.

Please prepare executive draft for us to review and finalize by next week. Thanks Joseph".

Required:

Assume the role of Mr. Blanchard and make a report covering the issues raised and a performance evaluation system along with other considerations you may deem necessary.