Questions and Answers of Health Care Finance

Develop an estimate of fixed and variable costs for labor expenses, based on the data presented in TABLE 14-12.Develop your estimates by using the high–low and semiaverages methods, and simple
Your hospital’s board of trustees has just determined that the maximum revenue increase it will permit next year is 5%. It also has specified maximum and minimum rate increases by department. Data
You are attempting to develop a break-even for a capitation contract with a major HMO. Your hospital has agreed to provide all inpatient hospital services for 10,000 covered lives. You will receive
A free-standing ambulatory care center averages $60 in charges per patient. Variable costs are approximately $10 per patient, and fixed costs are about $1.2 million per year. Using these data, how
A hospital is considering using a vacant wing to set up a skilled nursing facility. What is the cost of the space?
Is it true that indirect costs should never be included in the determination of controllable costs?
Define the terms variable costs and fixed costs. Give some examples of each.
What does it mean to state that a cost is direct?
What are the two major categories of decisions that use cost information?
Calculate break-even and the volume necessary to achieve a desired net income.
Calculate estimated fixed and variable costs using one of the described methods.
Establish the importance of the semivariable cost function.
Describe the three methods of cost allocation.
Explain the role of direct and indirect costs in the costing process.
Discuss the four types of costs that might be relevant when considering alternative projects.
Explain the difference between controllable and noncontrollable costs.
Explain what is meant by cost behavior, and differentiate between the five general types of cost behavior.
Discuss the four major categories of costs.
Discuss some of the ways to classify costs.
Using the data presented for OHF in this chapter, revise the existing financial plan. Assume that salaries and wages will increase 2% per year, not the original 1% used in the forecast. Prepare a
You are assessing the financial plan developed for you by a prestigious accounting firm. You are especially interested in the attainability of the projected GRIE. You know that if that growth rate is
Beginning equity is $50 million and equity in 5 years is projected to be $100 million. What is the annual rate of growth implied by these values?
If current assets are expected to increase by $4 million over the next 5 years and you wish to increase your current ratio from 1.5 to 2.0, what additional amount of new equity must be generated to
You are in the process of developing your firm’s financial plan for the next 5 years. As an initial step you are analyzing financial ratios for the last 5 years. You notice that over the 5-year
Your controller has just provided you with ROI figures for your firm’s major product lines. You have noticed that obstetrics has a very low ROI. What factors should be considered before you
Your hospital has a current funded depreciation to accumulated depreciation ratio of 0.20. What are the implications of this indicator for your hospital’s financial planning?
Your director of marketing is urging you to develop a new drug abuse treatment program. She has argued that there is no capital investment involved in the development of the new service. Do you
What problems result from the present responsibility center or departmental orientation of most accounting systems in providing data for financial planning?
A financial plan may be thought of as a bridge between two balance sheets. What are the major categories of assumptions that must be specified to project a future balance sheet, given a current
Explain how management control is used in conjunction with the financial plan.
Explain the four steps involved in the development of a financial plan.
List and describe the 10 requirements for effective financial planning and policymaking.
List and describe the key financial policy targets for which the board is responsible.
Describe the relationship between financial planning and strategic planning.
Using the information in TABLE 12-16 for Kindred Healthcare, a major nursing home firm, discuss some of the primary observations that you would conclude regarding the financial performance of the
Using the information provided in TABLE 12-15 for United Healthcare Group, a major HMO, discuss some of the primary observations that you would conclude regarding the financial performance of the
Describe alternative HMO organizational arrangements.
List and describe the major organizational types of physician groups.
Discuss the major sources of revenue and expenses of medical groups.
Discuss the sources of revenue for the nursing home industry.
List some of the major nonhospital and nonphysician sectors of the healthcare industry.
Charles S. Lewis has just been named the CEO of Community Hospital, a 230-bed hospital located in an agricultural community of approximately 150,000. There is one other similar-size hospital in the
Your present length of stay on Medicare patients is 6.3 days for 2,000 Medicare admissions. This value is unadjusted for case-mix effects. You have discovered that a normal length of stay should have
Your firm’s investment portfolio was valued at $100,000,000 at the beginning of the year. Approximately 60%of the portfolio was invested in fixed-income securities, primarily U.S. government bonds.
You have been reviewing documentation in your medical records department for the last week and have discovered a potential issue with respect to documentation for MS-DRG 193 (Simple Pneumonia &
Determine the amount of incremental profit that would be realized with a 10% across-the-board rate increase at Thunderbird Hospital. Thunderbird’s present payment composition is 80% fixed fee and
Your firm reported net income of $5,000,000, but the change in equity was only $3,000,000. What could account for this difference?
Operating margins in your hospital have been consistently below national norms for the past 3 years. Discuss the factors that might have created this situation and the ways in which you might
Introduce the hospital cost-index measure.
Discuss the importance of and types of performance measures.
Describe the critical drivers of financial performance.
Explain what a healthcare firm’s primary financial objective should be.
Explain what is most important in long-term financial success.
Describe the four key elements of dashboard reporting.
Describe the balanced scorecard and dashboard reporting.
Did the current year result in an excess of revenue over expense? Is it as much as that of the prior year? LO.1
Are there unusual nonoperating gains or losses? LO.1
Did income from operations increase, decrease, or stay about the same? LO.1
Did total operating expenses increase, decrease, or stay about the same? Is any particular line item unusually large or small? LO.1
Did total operating revenue increase over the prior year? LO.1
Are there large discrepancies in balances between the prior year operations and the current year operations? LO.1
Is it one year or a shorter period? If it is a shorter period, why is that? LO.1
What is the period reported on the statement of revenue and expense? LO.1
Did long-term debt increase or decrease significantly over the prior year? LO.1
Did land, plant, and equipment increase or decrease significantly over the prior year? LO.1
Did current liabilities increase, decrease, or stay about the same? LO.1
Did current assets increase, decrease, or stay about the same? LO.1
Did total assets increase over the prior year? LO.1
Are there large discrepancies in balances between the prior year and the current year? LO.1
What is the date on the balance sheet? LO.1
Will this budget accomplish the appropriate managerial objectives for the organization? LO.1
Will additional resources be available? LO.1
What will the appropriate dollar cost be?(Note: this question requires a series of assumptions about the nature of the operation for the new budget period.)3a. Forecast service-related workload.3b.
What is the appropriate inflow (revenues) and outflow (cost of services delivered)relationship? LO.1
What is the proposed volume for the new budget period? LO.1
Test one line-item calculation. Is the math for the dollar difference computed correctly?Is the percentage properly computed based on a percentage of the budget figure? LO.1
Are the figures annualized? LO.1
Are actual and budget for the same period? LO.1
Is the format of the budget comparable with that of previous periods so that several reports over time can be compared if so desired? LO.1
Are the line items within the budget all expenses (and revenues, if applicable) that are controllable by the manager? LO.1
Is the budget for a defined unit of authority? LO.1
Are the figures designated as fixed or variable? LO.1
Is this budget static (not adjusted for volume) or flexible (adjusted for volume during the year)? LO.1
Financing the Future MHS has established a corporate depreciation fund. The fund’s purpose is to ease the financial burden of replacing fixed assets. Presently, it has almost $2 million for needed
Planning the Future for MHS The MHS has identified five areas of desired service and programmatic enhancement in its five-year strategic plan:I. Ambulatory Services II. Physical Medicine and
MHS Volunteer Auxiliary There are 500 volunteers who provide over 60,000 hours of service to MHS each year. These men and women assist in virtually every part of the system’s operations.They also
MHS Foundation Metropolis Health Foundation is presently being created to serve as the philanthropic arm of MHS. It will operate in a separate corporation governed by a board of 12 community leaders
MHS Physicians The MHS medical staff is a key part of MHS’s ability to provide excellence in health care. Over 75 physicians cover more than 30 medical specialties. The high quality of their
MHS Employees All 500 team members employed by MHS are integral to achieving the high standards for which the system strives. The quality improvement program, reviewed and re-established in 2005, is
MHS Management A chief executive officer manages MHS. Seven senior vice presidents report to the CEO. MHS is organized into 23 major responsibility centers. LO.1
MHS Board of Trustees Eight local community leaders who bring diverse skills to the board govern MHS.The trustees generously volunteer their time to plan the strategic direction of MHS, thus ensuring
MHS’s Plant The central building for the hospital is in the center of a two square block area. A physicians’ office building is to the west. Two administrative offices, converted from former
MHS Services MHS has taken significant steps to reduce hospital stays. It has developed a comprehensive array of services that are accessible, cost-effective, and responsive to the community’s
The Area MHS is located in the town of Metropolis, which has a population of 50,000. The town has a small college and a modest number of environmentally clean industries. LO.1
The Hospital System Metropolis Health System (MHS) offers comprehensive healthcare services. It is a midsize taxing district hospital. Although MHS has the power to raise revenues through taxes, it
Was the plan that was presented similar to what we have described in this chapter?What would you have changed in the presentation? Why? LO.1
Have you ever attended the formal presentation of a business plan? If so, was it successful in obtaining the desired funding? LO.1
If so, did the plan include all three segments (organizational, marketing, and finance)?If not, why do you think one or more of the segments was missing? LO.1
Have you ever been involved in the creation of a business plan? LO.1
Describe the financial segment of a business plan. LO.1

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