Question
Fargo Memorial Hospital has annual patient service revenues of $14,400,000. It has two major third-party payers, and some of its patients are self-payers. The hospitals
Fargo Memorial Hospital has annual patient service revenues of $14,400,000. It has two major third-party payers, and some of its patients are self-payers. The hospitals patient accounts manager estimates that 10 percent of the hospitals billings are paid (received by the hospital) on Day 30, 60 percent are paid on Day 60, 30 percent are paid on day 90. (Five percent of total billings end up as bad debt losses, but that figure is not relevant to this problem.) a) What is Fargos average collection balance? b) What is the hospitals current receivables balance? c) Wat would be the hospitals new receivables balance if a newly proposed electronic claims system resulted in collecting from third-party payers in 45 and 75 days, instead of in 60 and 90days? d) Suppose the hospitals annual cost in carrying receivables is 10 percent. If the electronic claims system costs $30,000 a year and operate, should it be adopted? (Assume that the entire receivables balance has to be financed).
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