Questions and Answers of Health Care Finance

You have the option of leasing an asset for $100,000 per year, with payments to be made at the end of each year of use. This lease cannot be canceled. Alternatively, you may buy the asset for
Nutty Hospital wishes to advance-refund its existing 15% long-term debt. The present $30,000,000 is not callable until 5 years from today. The payout on the issue over the next 5 years is as
United Hospital has received a leasing proposal from Leasing, Inc. for a cardiac catheterization unit. The terms are as follows:■ Five-year lease■ Annual payments of $200,000 payable 1 year in
In an advance refunding of debt, accounting gains or losses usually occur. Under what conditions could there be an accounting gain?
Under what circumstances might your firm be interested in issuing zero-coupon bonds?
When is a master trust indenture used, and what is its value?
Assuming a normal or typical yield curve (that is, upward sloping), discuss the advantages and disadvantages of borrowing money for a major construction program with 3-year term financing.
Explain the term defeasance. What does it mean?
List some of the pros and cons of retiring debt early
List the major bond-rating agencies and explain their role in the debt market.
Explain what an investment banker does.
Explain the factors that influence the desirability of alternative sources of financing.
Explain the differences between debt and equity financing and the sources of each.
Why is depreciation expense greater in the current cost method than in the constant dollar method?
Why are AMF’s net operating revenues in 2004 identical for the HC, constant dollar, and current cost methods of reporting?
In 2001, AMF showed a minus $24 million value for the increase in specific prices over general prices. What does this mean?
Is the American Medical Firm (AMF) a net debtor or a net creditor?
What method was used to determine current cost values?
What index was used to restate to constant dollars?
Describe the difference between monetary and nonmonetary accounts.
Describe the uses of financial report information.
Define the major financial reporting alternatives.
Describe the alternative units of measurement in financial reporting.
Discuss the major types of asset valuation.
You have been reading the footnotes to your hospital’s financial statements and were surprised to see that the actuarial present value of accumulated pension plan benefits is $4,500,000. A footnote
Your hospital has experienced negative levels of net income for the last 5 years. The total amount of accumulated deficits is $5 million, but you have noticed that unrestricted net assets have
Your HMO is experiencing a critical shortage of funds. Using the statement of cash flows as a framework for discussion, explain how you might attempt to reduce the need for additional funds.
A major medical supplier has donated $45,000 worth of medical supply items to your firm. These items are then used in the treatment of patients. Explain how this transaction would be recorded in your
Describe several items that are treated as expenses in the income statement but do not require any expenditure of cash in the present period.
Shady Rest nursing home has just acquired a home health firm for $850,000 in cash. The balance sheet of the home health firm looked as follows just before the acquisition:Assume that the fair market
What are the titles of the four financial statements that are usually included in an audited financial report?
How could you determine the amount of debt principal that will be retired during the next year through an examination of the financial statements for HCF?
Consider a hospital that is introducing a new service anticipated to have 1,000 patient visits per year at an average cost of $2,200 and average billed charges of $4,500. Determine the amount of
Understand the format and content of the statement of cash flows.
Understand the format and content of the statement of changes in net assets.
Understand the format and content of the statement of operations.
Understand the format and content of the balance sheet.
Explain why it is important to know the scope of business being reviewed when using financial statements.
Describe the primary differences between financial and managerial accounting
Why is consistency in financial reporting critical to fairness in financial representation?
What is the difference between restricted and unrestricted net assets?
A health maintenance organization (HMO) has just been formed. During its first year of operations, the organization reported an accounting loss of $500,000. Cash flow during the same period was a
A home healthcare firm has purchased five automobiles. Each automobile costs $24,000 and has an estimated useful life of 3 years. Each year, the replacement cost of the automobiles is expected to
What is the difference between stockholders’ equity and net assets or unrestricted net assets?
Does the value of total assets represent the economic value of the entity?
ABC Medical Center has undergone a recent corporate reorganization. The structure presented in FIGURE 8-2 resulted. What difficulties might be experienced in preparing financial statements for the
Discuss the accounting conventions that affect the application of accounting principles.
List the three categories of net assets.
Discuss the differences between the accrual- and cash-basis methods of accounting.
Understand core principles of accounting that guide the preparation and dissemination of financial information.
Describe the differences between financial and managerial accounting.
Memorial Hospital is trying to calculate its expected payments from a proposed fee structure with a local health plan. The health plan projects its hospital budget at 465 patient days per 1,000
You represent an integrated delivery system that is in negotiations with a health plan for a capitated rate to cover all hospital and physician services for a defined population. The following
Your multispecialty group has been approached by an HMO that wishes you to contract with them for the provision of all physician services for a fixed capitated rate on a PMPM basis. How would you
You represent a medical group that is considering joining a Physician Hospital Organization (PHO) whose sole objective is to negotiate with health plans and employers for the provision of hospital
You have been hired as a consultant to a major health insurance company to help identify ways to reduce payments for healthcare benefits. Please identify some possible methods that may be useful in
High-deductible health plans with a savings option (HDHP/SO) have begun to gain market share in the last few years. What are the critical differences between these plans and more traditional health
Discuss legal and regulatory issues that affect managed-care organizations.
Describe how managed-care organizations establish their prices.
Describe some of the methods by which providers are paid by health plans.
Describe the forces that influenced the development of integrated delivery systems.
List the five types of health plans and their characteristics.
Describe the four main activities of health plans.
Define a health maintenance organization (HMO).
Using the data of Table 6-2, assume that a new health plan has approached you with an opportunity to sign a contract with them that would pay on a fixed-fee schedule. The rate of payment would be $95
Modifying the example in Assignment 7, assume that all fixed payers will raise their payment levels 5%: Medicare will pay $99.75, Medicaid will pay $78.75, and Managed-Care Plan 1 will pay $115.50.
Using the example of Table 6-2, assume that the average cost has jumped from $100 to $105. All other factors in the example will remain the same. What will be the new required price?
Your hospital has a contract with a large national health insurer that barely covers cost but does provide a small overall profit. Under the terms of this contract, the insurer may extend its
In negotiating a health plan contract, why is it important to spell out precisely what constitutes a clean claim?
Consumer-driven health plans often rely on large deductibles that are often funded via a health savings account framework. How might the presence of a large deductible affect price elasticity for
Quality is usually described as a key factor in pricing. How can a healthcare firm with perceived higher levels of quality of care benefit from higher quality if 75% of its business is derived from
You are trying to determine the average discount rate on charge payers to be used in the formula described in Figure 6-3. You have the following three payers with different discount rates: 200
You have been asked to comment on the reasonableness of a healthcare firm’s prices using the ROI methodology described in this chapter. Your review has determined that the firm’s costs are in
List some of the important considerations when negotiating a health plan contract.
Describe methods that are used to assess price defensibility prices in a real setting.
Determine if prices are defensible.
Define the basic healthcare pricing formula.
Understand the general factors that influence pricing.
Define basic methods of payment for healthcare firms.
Assume that as of January 2, 20X2, Mountview Healthcare sold at $48.75 per share with 175,215,000 outstanding shares. This creates a market value of Mountview Healthcare shares of $8,541,731,000
You have been asked to provide an estimate of the value for a nursing home that your client is interested in buying. Financial data and projections are presented in TABLE 20-9.Use an assumed discount
In the preceding laundry merger problem, assume that Hospital B expects to replace its present equipment with new equipment in 2 years at a cost of $64,000. The equipment would have an 8-year life.
Two hospitals are considering merging their laundry departments and constructing a new facility to take care of their future laundry requirements. Relevant cost data are presented in TABLE 20-8.The
Apply analytical methods and tools to value potential acquisitions.
Understand common methods for valuation of a potential target firm.
Explain some of the possible reasons why consolidations, mergers, and acquisitions occur.
Understand the terminology used in the field of consolidations, mergers, and acquisitions.
In problem 7, assume that costs are reimbursed 30%. Further assume that Scioto Valley is a tax-paying entity with a marginal tax rate of 40%. What is the profitability index for this project now?
Scioto Valley Convalescent Center is considering buying a $25,000 computer to improve its medical record and accounting functions. It is estimated that, with the computer, operating costs will be
Mr. Dobbs, administrator at Innovative Hospital, is considering opening a new health screening department in the hospital. However, he is concerned about the financial consequences of this action,
Frances Gebauer, president of Lucas Valley Hospital System, is investigating the purchase of 36 computer game systems for rental purposes. The sets have an expected life of 2 years and cost $500
Santa Cruz Community Hospital is considering investing $90,000 in new laundry equipment to replace its present equipment, which is completely depreciated and outmoded. An alternative to this
Few firms ever track the actual results achieved from a specific capital investment against projected results. What are the likely effects of such a management policy?
A hospital has just experienced a breakdown of one of its boilers. The boiler must be replaced quickly if the hospital is to continue operations. Should this investment be subjected to any analysis?
A healthcare firm’s investment of $1,000 in a piece of equipment will reduce labor costs by $400 per year for the next 5 years. Thirty percent of all patients seen by the firm have a third-party
Explain the concept of a discount rate and what the weighted average cost of capital is.
Calculate a project’s net present value, profitability index, and equivalent annual cost.
List some of the kinds of information that is needed to evaluate a capital investment project.
Explain the four stages of the capital decision-making process.
Describe the kinds of decisions that are made in capital investment decision analysis.

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