Questions and Answers of Financial Management For Public Health

Definitions. Define the key terms listed above.
Equity position. What avenues are available for for-profit and not-for-profit health care providers to increase their equity position?
Debt versus equity financing. What are the advantages and disadvantages to a taxpaying entity in issuing debt as opposed to equity?
Debt financing. Does adding debt increase or decrease the flexibility of a health care provider? Why?
Basis points. How much is a basis point? How many basis points are there between 6 5/8 percent and 6 3/4 percent?
Debentures. Explain the difference between subordinated debentures and debentures.
Bonds. Name at least two factors that might cause a facility to call in its bond.
Bonds. What are the advantages and disadvantages of a taxable bond relative to a taxexempt bond? Who is the issuer of tax-exempt bonds?
Bonds. What party acts on behalf of bondholders to ensure that the issuing facility not only is complying with the covenants of the bond but also is making timely principal and interest payments to
Investment bankers. Why would an investment banker syndicate a bond issue with other investment bankers?
Bonds. Compare private placement bond issues with public placement bond issues.
Credit ratings. Identify two ways that a health care provider can strengthen its credit rating. What are some of the ramifications of these options?
Credit ratings. What can cause a health care provider’s credit rating to be downgraded?
Market rates. What impact do required market rate changes have on bonds of longer maturities?
Leasing. What are the potential new names of the asset and liability accounts for a leased asset, and how are leases with terms greater than twelve months treated under the new accounting regulations?
Leasing. Why might an organization enter into a leasing arrangement?
Bond valuation. If a $ 1,000 zero coupon bond with a 30-year maturity has a market price of $412, what is its rate of return? (Hint: see Appendix G.)
Bond valuation. If a $1,000 zero coupon bond with a 10-year maturity has a market price of $508.30, what is its rate of return? (Hint: see Appendix G.)
Bond valuation. A tax-exempt bond was recently issued at an annual 10 percent coupon rate and matures 15 years from today. The par value of the bond is $1,000. (Hint: see Appendix G.)a. If required
Bond valuation. A tax-exempt bond was recently issued at an annual 8 percent coupon rate and matures 20 years from today. The par value of the bond is $5,000. (Hint: see Appendix G.)a. If required
Bond valuation. Assuming that the bond in problem 19 matures in 5 years, what would be the market prices under the various required market interest rate changes? (Hint: see Appendix G.)
Bond valuation. Assuming that the bond in problem 20 matures in 10 years, what would be the market prices under the various required market interest rate changes? (Hint: see Appendix G.)
Bond valuation. Hanover County Hospital plans to issue a tax-exempt bond at an annual coupon rate of 6 percent with a maturity of 20 years. The par value of the bond is $1,000.(Hint: see Appendix
Bond valuation. Assuming that the bond in problem 23 matures in 10 years, what would be the market prices under the various required interest rate changes? (Hint: see Appendix G.)
Bond valuation. A $1,000 par value bond with an annual 8 percent coupon rate will mature in 10 years. Coupon payments are made semiannually. What is its market price if the required annual market
Bond valuation. A $1,000 par value bond with an annual 12 percent coupon rate will mature in 15 years. Coupon payments are made semiannually. What is the market price if the required annual market
Bond valuation. Currently, Sentaria Hospital’s tax–exempt bond issuance is selling for$619.70 per bond and has a remaining maturity of 15 years. If the par value is $1,000 and the coupon rate is
Bond valuation. Harbor Hospital’s tax-exempt bond is currently selling for $803.64 and has a remaining maturity of 20 years. If the par value is $1,000 and the coupon rate is 6 percent, what is the
Loan amortization. The Johns Hopkington Hospital needs to borrow $3 million to purchase an MRI. The interest rate for the loan is 6 percent. Principal and interest payments are equal debt service
Loan amortization. Laurel Regional Hospital needs to borrow $80 million to finance its new facility. The interest rate is 8 percent for the loan. Principal and interest payments are equal debt
Purchase versus lease. Lower Merion Medical Center, a taxpaying entity, has made the decision to purchase a new laser surgical device. The device costs $1,200,000 and will be depreciated on a
Purchase versus lease. Hopewell Health System wants either to borrow money to purchase a hospital or to enter into a lease agreement with the city of Hopewell. The purchase price of the hospital is
Purchase versus lease. Penn Medical Center, a taxpaying entity, is considering the purchase of a 64-slice computed tomography scanner. The cost of the scanner is $4 million.The scanner would be
Purchase versus lease. Maryland General Hospital, a taxpaying entity, is considering a leasing arrangement for its ambulance fleet. The fleet of ambulances costs $375,000 and will be depreciated over
Debt capacity. Northwest Hospital is considering a new replacement hospital and plans to issue long-term bonds to finance the project. Before it meets with its investment bankers, the hospital wants
Debt capacity. Shore Health System is considering developing full-service imaging centers across its service area and plans to issue long-term debt to finance these centers.Before it meets with its
Definitions. Define the previously listed key terms.
Break-even formulas. What are the formulas fora. The basic break-even equation?b. The basic break-even equation expanded to include indirect costs and desired profit?
Understanding fixed and variable cost. Briefly describe what happens to each of the following as volume increases. Assume all values stay within their relevant range.a. Total fixed cost?b. Total
Step-fixed cost and the relevant range. Explain the relationship between step-fixed costs and the relevant range.
Product margin. Based on the product margin, when is it in the best interests of an organization to continue or drop a service?
Make-or-buy decision and related analyses.a. What is a make-or-buy decision?b. What other analyses are relevant to the types of decisions discussed in this chapter?
Break-even equation. Fill in the blank. The following table contains selected data concerning several outpatient clinics in the new Ambulatory Care Center at Hope University Hospital. Fill in the
Break-even equation. Fill in the blank. Instead of the information in problem 7, assume Ambulatory Care Center’s data looked like this: A B C D E F Price per Variable Cost Number Contribution Fixed
Expand-or-reduce decision. Laurie Vaden is a physician with her own practice. She has developed contracts with several large employers to perform routine exams, fitness-forduty exams, and initial
Expand-or-reduce decision. Janet Gilbert is director of a lab. She has some extra capacity and has contracted with some small neighboring hospitals to run some of their lab tests. She has recently
Calculating break-even volume. Jasmine Gonzales, administrative director of Small Imaging Center, has been asked by the practice members to see if it is feasible to add more staff to support the
Calculating break-even volume. Monica Lee, administrative director of Digital Imaging Center, has been asked by the practice members to see if it is feasible to add more staff to support the
Calculating break-even point and graphing. San Juan Health Department’s dental clinic projects the following costs and rates for the year 20XX.a. Using this information, determine the break-even
Calculating break-even point and graphing. The North Kingstown Cancer infusion therapy division expects tremendous growth over the next year and is projecting the following cost and rate structure
Determining break-even price in a reduce-or-expand decision. QuickCare is a health care franchise that functions as a primary family health clinic, seeing unscheduled patients twenty-four hours a
Expand-or-reduce. The administrator of ABC Hospital, Mr. Stevens, has just received the latest financial report, and the news is not good. The hospital has been losing money for over a year, and if
Add-or-drop decision. The Ancome County Health Department is considering using 300 square feet of excess office space to provide a clinic for Healthchek visits. These visits are reimbursed at $75
Add-or-drop decision. The Midtown Women’s Center offers bone densitometry scans in the office as a convenience to its patients. The clinic volume is expanding, and Sam Loch, the center’s
Breakeven. Sure Care Health Maintenance Organization is seeking a managed care contract with a local manufacturing plant. Sure Care estimates that the cost of providing preventive and curative care
Breakeven. Zack Millman Clinic is seeking to provide sports-related health care services to high schools in the area. Zack Millman estimates that the cost to provide care would be $2,500 plus $15 per
Profit, charges, and breakeven without and with overhead. A number of years ago, at the request of its employees, Jake Winslow and Company converted one of its small rooms to house a small pharmacy
Determining charges for private pay residents. Shady Rest Nursing Home has 140 residents. The administrator is concerned about balancing the ratio of its private pay to non-private pay patients.
Determining charges for private pay residents. Shady Grove Nursing Home has 250 residents. The administrator is concerned about balancing the ratio of its private pay to non-private pay patients.
Add-or-drop with net present value analysis (builds on material in Chapters Six and Seven). Franklin County Hospital, a nonprofit hospital, bought and installed a new computer system last year for
Add-or-drop with net present value analysis (builds on material in Chapters Six and Seven). Franklin County Hospital, a nonprofit hospital, bought and installed a new computer system last year for
Income statement and add-or-drop. Lakespring Retirement Village is home to senior citizens who are fairly independent but need assistance with basic health care and occasional meals. Jill Thompson, a
Practice valuation. Coffee Healthcare Associates (CHA) wants to expand its network of providers in the northwest section of the city to build its referral base for its new ambulatory surgery center.
Definitions. Define the key terms above.
Budget development. What is the purpose of the budget? Why are requests for budget revisions necessary? When should a formal request for a budget revision be submitted?
Planning-and-control cycle. What are the major components of the planning-and-control cycle?
Strategic planning. Discuss the role of strategic planning in the budgeting process. How does it differ from short-term planning?
Participatory approach. What are the advantages and disadvantages of the participatory approach to budgeting?
Budget types. What are the four major budgets of a health care organization? Briefly discuss each.
Budget detail. What are the differences among a line-item, a program, and a performance budget?
Budget detail. Using Exhibit 10.6 as an example, construct line-item, program, and performance budgets for a service or program in a health care organization.
Statistics budget: forecasting encounters. Instead of its current forecast, ZMG Hospitalist Practice now estimates that it will not obtain a major HMO contract, and its encounters for July through
Statistics budget: forecasting encounters. Instead of its current forecast, ZMG Hospitalist Practice now estimates that its Medicare encounters will increase by 4% a month from January through June.
Statistics budget: RVU-weighted encounters. What are RVU-weighted encounters?Why is it necessary to weight encounters by their intensity level?
Statistics budget: changing intensity. How would the estimate of Medicaid/Self-Pay encounters change if ZMG Hospitalist Practice estimated that its Medicaid/Self-Pay admissions made up 3% of the
Statistics budget: changing RVU weight. How would the estimate of commercial weighted encounters (Exhibit I.1e) change if ZMG Hospitalist Practice estimated that its admissions had a relative value
Statistics budget: changing RVU weight. How would the estimate of Medicare weighted encounters (Exhibit I.1e) change if ZMG Hospitalist Practice estimated that its admissions had a relative value
Revenue budget: calculating gross revenues. Calculate ZMG Hospitalist Practice’s January, February, and March Medicare gross revenues if the fee for an admission is $200 and the fee for a follow-up
Revenue budget: calculating gross revenues. Calculate ZMG Hospitalist Practice’s January, February, and March commercial payor gross revenues if the fee for an admission is $250 and the fee for a
Revenue budget: gross charges and net revenues. What is the difference between gross charges and net revenues?
Revenue budget: calculating net revenues. Calculate ZMG Hospitalist Practice’s January, February, and March Medicare net revenues if the fee for an admission is $200 and the fee for a follow-up
Revenue budget: calculating net revenues. Calculate ZMG Hospitalist Practice’s January, February, and March Medicaid/Self-Pay net revenues if the fee for an admission is $200 and the fee for a
Labor budget: fixed and variable labor. What is the difference between a fixed and a variable labor budget?
Labor budget: calculating the fixed labor budget. Instead of the raises stated in Exhibit I.4e, assume that all benefits are 18% and all raises are 4%, and calculate the fixed labor budget for
Labor budget: calculating the fixed labor budget. Instead of the benefits stated in Exhibit I.4e, assume that all benefits are 21% and all raises are 3.5% and calculate the fixed labor budget for
Labor budget: variable labor. In the variable labor budget, why is it necessary to determine how many RVUs can be handled by full-time employees?
Variable labor budget: direct and indirect time. In the variable labor budget (see Exhibit I.5b.), why is it necessary to consider efficiency?
Variable labor budget: efficiency. If the assumed efficiency of the providers changed to 85% (see Exhibit I.5c.), what would be the productive capacity for January?
Variable labor budget: efficiency. If the assumed efficiency of the providers changed to 92% (see Exhibit I.5c.), what would be the productive capacity for January?
Group purchasing organizations: pricing. Given the data in Exhibit 10.14 and retaining the same items and volumes, if Vendors A and B vowed to match Vendor C’s prices, which vendor would be least
Group purchasing organizations: volumes. At the beginning of the new year, Mumford Regional’s chief competitor is planning to open a brand-new Women’s & Children’s Hospital nearby. As a result,
Definitions. Define the key terms listed above.
Advantages of decentralization. List and discuss the advantages associated with decentralization.
Disadvantages of decentralization. List and discuss the disadvantages of decentralization.
Types of responsibility centers. What are the four types of responsibility centers?Describe the characteristics of each of them.
Responsibility centers.a. What is the most common type of responsibility center?b. What is the most basic type of responsibility center?
Identifying responsibility centers. Identify each responsibility center in the list below as either a service center, cost center (clinical or administrative), profit center (capitated or
Relationship among accountability, responsibility, and authority. What is the relationship among accountability, responsibility, and authority with respect to a responsibility center?
Transfer prices. What are transfer prices? Discuss their major disadvantages.
Performance measures. What is the most commonly used financial performance measure?

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