Questions and Answers of Health Care Finance

Explain who is involved in the capital investment decision process.
You plan to invest $1 million per year for the next 3 years at year-end to meet future professional liability payments. If the fund earns interest at a rate of 10% per annum, how large will the
You have agreed to buy an adjacent medical office building with quarterly payments of $100,000 for the next 5 years. Payments are due at the end of each quarter. If the cost of money to you is 16%
If you issue $100,000 of 10% bonds with interest payable semiannually over the next 5 years, what is the market value of the bonds if the required market rate of interest is 12% annually? Assume that
ABC wants to set aside sufficient funds today to meet the expected construction draws. If the fund can be expected to earn 8% per annum, what amount should be set aside?
ABC Hospital is embarking on a major renovation program. The total cost of construction will be $50,000,000.Payments will be $10,000,000 at the end of year 1, $30,000,000 at the end of year 2, and
General Hospital is evaluating a zero-interest capital financing alternative. General would borrow $100,000,000 and receive $62,100,000 in cash. The $100,000,000 note would carry no interest payment
Jim Hubert, an investment banker with The Ohio Company, is arranging a financing package with Bill Andrews, president of Lebish Hospital. The financing package calls for $20 million in bonds to be
Meany Hospital wishes to provide for the retirement of an obligation of $10,000,000 that becomes due July 1, 2026. The hospital plans to deposit $500,000 in a special fund each July 1 for 8 years,
Jerry Scott has just accepted a position with a state agency that has a retirement pension plan calling for joint contributions by the employee and the employer. Scott is now 10 years from retirement
Findling Hospital is planning a major expansion project. The construction cost of the project is to be paid from the proceeds of serial notes. The notes are of equal amounts and include a provision
Steven Hudson has agreed to settle a debt of $100,000 by paying $14,903 at the end of each year for 10 years.What effective rate of interest is Hudson paying under this agreement?
Calculate the future value of an amount and annuity.
Define the terms future value and present value.
Explain why a dollar today is worth more than a dollar in the future.
You have just taken a position as a financial analyst with the American Health Plan, a partially integrated delivery system, contracting with major employers for healthcare services. The financial
John Jones, CEO at Valley Hospital, is concerned by the rapid increase in cost per case during the last 5 years at his hospital. Five years ago, his average cost per case was $9,295; it is now
The data in TABLE 17-19 were assembled for a laundry department during the period from 2016 to 2017. Break down the total change in cost, which is $7,422 ($86,378 less $78,956) into the variance
You are evaluating the performance of the radiology department manager. The service unit (SU) or output for this department is the number of procedures. A static budget was prepared at the beginning
Departmental costs may be out of control if (1) the variance is outside specified limits, or (2) the number of successive observations, above or below expected costs, is excessive. The binomial
Assume that the budgeted cost for a department is $10,000 per week and the standard deviation is $500. The decision to investigate a variance requires a comparison of expected benefits with expected
Ned Zechman is the dietary manager of a large convalescent center. He is disturbed by variances, all highly unfavorable, in his food budget for the past 3 months. Zechman has been reducing both the
Standard cost accounting systems often separate variance into price and efficiency components. Why?
When is the use of a flexible budget likely to be most effective?
Which would you investigate first—a budget variance that is 1.0 standard deviation away from the expected value or one that is 1.5 standard deviations away from the value? Why?
What is a coefficient of variation, and how can that information be used in budgeting?
Two general types of approaches to internal control are preventive approaches and detection approaches.Preventive approaches stress the elimination of problems, whereas detection approaches stress
Explain and calculate price, efficiency, and volume variances.
Calculate the various types of cost variances.
Define variance analysis and how it is used by management.
Describe the two major theories used for the detection of out-of-control costs.
Describe what is meant by cost control.
In a hospital operation, what key variables are important when projecting volume at departmental levels?
What is the major conceptual difference between zero-base budgeting and conventional budgeting?
How would you calculate the amount of revenue to be realized as cash from patient sources in a fiscal period?
You must establish a pricing schedule for laboratory procedures. From a total hospital perspective, management has decided that the hospital must earn 5% above costs. The hospital has established
You have been asked to prepare a flexible budget for a 40-bed nursing unit. A schedule of staffing requirements by occupancy is presented in TABLE 16-9. Prepare a budget for management that shows
Floyd Farley is the maintenance department head. His department is participating in a wage-incentive program in which he and his staff receive 20% of the department’s income as supplemental income.
Ann Walker, CPA, is the controller for your hospital. For a long time, Walker has been concerned about management control in the hospital, and she finally has developed a new departmental labor
The first step in the budgeting process is to develop the statistics budget. Why is this true?
Can an organization be efficient but not effective? Discuss the circumstances in which this could be true.
Under what conditions is a flexible budget likely to be more effective than a forecast budget?
Select and implement those options with an acceptable cost-to-risk relationship.
Assess the risks, both qualitative and quantitative, associated with the identified options of Steps 3 and 4.
Determine the cost savings associated with options identified in Steps 3 and 4.
Identify options for producing the services and outputs more efficiently.
Identify options for reducing the cost through changes in outputs or services.
Determine the costs of these services or outputs.
Define the outputs or services provided by the program or departmental area.
Explain how benchmarking is performed at the departmental level.
Describe the concept of zero-base budgeting.
List the major types of budgets and describe how they are used.
Explain the budgeting process.
List sources of differences between budgeted and actual amounts.
Explain the concept of management control and how budgeting is used as part of it.
Define a budget and describe how management uses them.
Do you know if any healthcare company that you have worked for (now or previously)had issued revenue bonds that were purchased by investors? If you do not know, how would you go about finding out?LO,1
Do you know of a healthcare company whose stock is publicly held? If you do not know, how would you go about finding out?LO,1
Do you know if your own monies on deposit are FDIC insured? If you do not know, how would you go about finding out?LO,1
Define the Gross Domestic Product (GDP).LO,1
Understand the difference between privately held companies and public companies.LO,1
Understand the difference between municipal bonds and mortgage bonds.LO,1
Understand what the FDIC does and does not insure.LO,1
Define cash equivalents.LO,1
Have you seen newsletters or other materials describing the e-prescribing incentive program? If so, where and what have you seen? Do you think the materials adequately explain how the incentive
Do you believe any individuals at your place of work are performing professional services that are eligible for the e-prescribing incentive program?If so, do you believe they are reporting the
Have you seen newsletters or other materials announcing ICD-10 training?If so, where and what have you seen? Do you think the materials adequately explain the necessity for the ICD-10 training?LO,1
Do you believe your place of work will be affected by the ICD-10 transition?If so, how will your employer be affected? If not, why not?LO,1
Understand why claim form inputs are required to receive e-prescribing incentive payments.LO,1
Understand the five requirements for a qualified e-prescribing system.LO,1
Understand the three categories of “eligible professionals” within the e-prescribing incentive program.LO,1
Define lost productivity costs.LO,1
Compute ICD-10 training costs.LO,1
Understand why the change to ICD-10 codes is a technology problem.LO,1
Why do you think the federal policymakers decided to make the names public on a government Web site?LO,1
Do you think posting the names of the “meaningful health electronic record users”publicly on the CMS Web site is a good idea? If so, why? If not, why not?LO,1
Do you know of a healthcare organization that is either initially installing or upgrading its electronic health information technology? If so, will you describe how this organization is going about
Do you use electronic health records in your own work? If so, how do you use them?LO,1
Identify the four components of a SWOT analysis.LO,1
Identify three types of ICD-10 adoption costs.LO,1
Identify three compliance requirements that may force information systems change.LO,1
Recognize ARRA incentive opportunities for hospitals and physicians.LO,1
Define health information technology (HIT).LO,1
Define a qualified electronic health record.LO,1
Does your organization use financial benchmarking? Would you use it if you had a chance to do so? Why?LO,1
Does your organization use measurements such as the case mix adjustment over time? If not, do you believe they should? Why?LO,1
Have you, in the course of your work, had to estimate items for reports? If so, what type of items? How did you go about estimating?LO,1
Compute quartiles for measurement purposes.LO,1
Understand the use of the Pareto rule.LO,1
Understand the concept of financial benchmarking.LO,1
Estimate ending inventory.LO,1
Understand four common uses of estimates.LO,1
Have you ever had to compute target operating income? If so, what were the circumstances?LO,1
Are any of the reports you receive in the course of your work ever in a format that includes a contribution margin? If so, what were the circumstances?LO,1
Do you believe variance analysis (or a better variance analysis) would be a good idea at your workplace? If so, why? If not, why not?LO,1
Perform sensitivity analysis.LO,1
Compute a contribution margin.LO,1
Perform budget variance.LO,1
Understand the three types of flexible budget variance.LO,1
If you were assigned to prepare a capital expenditure budget request, what two people would you most want to have on your team? Why? How would you expect to use them?LO,1

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