1) For each of the five ratios, please indicate whether the trend is favorable or

unfavorable to the business:

a. Current Ratio 2.0 1.9 1.7 1.6 1.2

b. Debt to equity .65 .65 .65 .78 .85

c. Cash on Hand 150 160 149 136 130

d. Inventory Turnover 7.0 6.0 5.0 4.3 4.3

e. Operating Margin .5 1.0 2.0 5.0 4.5 5.0 Weighted Reimbursement Problem (30 points): Your hospital has just opened a new orthopedic joint replacement surgery program and

you have been asked to calculated the net revenue per joint surgery. Here is the relevant

data: Cases:

Medicare

Insurance

Medi-Cal 100

150

50 1)

Total Charges per Case is $35,000

2)

The length of stay for case is 4 days

3)

The Medicare DRG payment for joint replacement surgery (simplified for this

problem) is $15,000. 20% of this amount is paid by the patients are their co-insurance

and the hospital collects 80% of that amount.

4)

Your hospital is subject to a cap on Medi-Cal inpatient reimbursement (MARL)

which is $9,000 per case but they generally pay $2,500 per day.

5)

Your insurance contracts pay off of a fee scheduled for this case at $8,000 but

your contracts also have a stop loss provision that if charges are over $10,000, the

amount over $8,000 is paid at 65% of charges. Step-down Cost Allocation (40 points)

Your medical office practice has two specialties, pediatrics and adult. Assume the

following information given to you by the accountant:

Direct Expenses-pediatrics

Direct Expenses-adult

Building Costs

Billing Depart Costs

Medical Records Costs $100,000

$200,000

$100,000

$ 75,000

$ 25,000 Square Footage:

Medical Records

Billing

Adults

Pediatrics 1,000

500

4,000

3,000 Gross Revenue:

Adults

Pediatrics $425,000

$125,000 Charts:

Adults

Pediatrics 3,000

5,000 What is the profit and/or loss by each department? Breakeven problem (25 points each):

Youre a planning to lease a new PET Scanner. The leasing company will charge you

$800 per scan. Your hospital will need to provide a radiology tech for each scan (the

employee can work elsewhere when the scans are completed) and your estimated is each

scan will take the tech 2 hours at $75.00/hour. Film cost for each scan is $50. Your net

revenue per scan is $1,300. You must pay a radiologist a medical director fee of $2,000

per month to read the scans. How many scans must be done in a month to breakeven? How many scans must be done if your net revenue per scan is $1,800 but the radiologist

wants $5,000 per month? RVU Allocation Problem (30 points): Your DME/O2 Business sells oxygen in small tanks (E tanks) that are refilled from a

larger tank or through a piece of equipment, which utilizes liquid oxygen. You had your

staff complete a time study with the following results:

Labor to re-fill E O2 tanks/deliver them

Labor to re-fill liquid O2 tanks

Oxygen cost/rental for E tanks

Oxygen cost for liquid 1.0 hour

2.0 hours

$20/tank

$5/tank Your staff makes an average of $20/hour; your total O2 department costs are $100,000.

Determine using RVU allocation how much expenses should be allocated to the E Tanks

and how much to the liquid tanks to aid you in negotiating a new contract. Your project

volume is 1000 E tank customer visits and 500 liquid oxygen customers.