HEALTHCARE FINANCE

The healthcare sector is composed of a wide variety of industries, except

a. medical equipment and supplies industries,

b. the health services industry,

c. life insurance industry,

d. managed care industry,

e. all of the above are part of the healthcare sector.

2. Finance activities do not include;

a. making decisions on production activity,

b. inventory management,

c. financial risk management,

d. working capital management,

e. new financing decisions,

3. While all industries have some individual characteristics, the health services industry is truly unique. The two primary sources of uniqueness are:

a. the significant financial losses and the third-party payment system.

b. the large amount of government intervention and the significant financial losses.

c. the large number of not-for-profit organizations and the significant financial losses.

d. the large amount of government intervention and the third-party payment system.

e. the large number of not-for-profit organizations and the third-party payment system.

4. In the health services industry, the role of regulation is to protect all of the following except;

a. the health of the public,

b. the safety of the public,

c. the welfare of the public,

d. providers of health services,

e. regulation protects all of the above.

5. Health services industry regulation include;

a. licensure,

b. rate setting,

c. review programs,

d. certificate of need,

e. all of the above.

6. Which of the following is not a limitation of partnerships?

a. Unlimited liability,

b. Permanence of the business,

c. Difficulty in transferring ownership,

d. Difficulty in attracting substantial amounts of capital,

e. All of the above are limitations.

7. Which of the following is not a limitation of Proprietorships?

a. Limited liability,

b. Impermanence of the business,

c. Difficulty in transferring ownership,

d. Difficulty in attracting substantial amounts of capital,

e. All of the above are limitations.

8. Which of the following is a main advantage of corporation?

a. Lower taxes

b. Limited life

c. Limited liability

d. Difficulty in transferring ownership

e. Separation & specialization of duties

9. Which of the following is not an important tax benefit to not-for-profit corporations:

a. the usable earnings of a not-for-profit corporation are greater than those of a similar for-profit entity,

b. not-for-profit corporations can issue municipal bonds, and hence pay lower interest rates on their debt financing,

c. not-for-profit businesses have access to contribution capital, because contributions to such organizations are tax deductible to the donor,

d. Income earned by investors is taxed at a lower rate,

e. all of the above are advantages.

10. Which of the following is an advantage of PPOs over HMOs?

a. PPOs require beneficiaries to use preselected gatekeeper physicians who serve as the initial contact and authorize all services received.

b. PPOs are more likely than HMOs to provide preventive services.

c. PPOs assume responsibility for quality assurance, because the enrollees are constrained to use only the PPO panel of providers.

d. PPOs do not mandate that beneficiaries use specific providers

e. All of the above are advantages.

11. Tricare is a part of which third party payer category?

a. MedicareMedicaid

b. Medicare

c. Public Insurers

d. Commercial health insurance

e. Blue Cross/Blue Shield organizations

12. Which of the following are not stakeholders in a not-for-profit business;

a. patients,

b. creditors,

c. suppliers,

d. managers,

e. employees,

f. staff physicians,

g. the community at large,

h. all of the above are stakeholders.

13. The incentive to perform procedures that have the highest profit potential describes which reimbursement method?

a. global pricing

b. per diem reimbursement

c. capitation reimbursement

d. cost-based reimbursement

e. per diagnosis reimbursement

f. charge-based reimbursement

g. prospective payment reimbursement

14. The incentive to perform only those procedures that are truly medically necessary describes which reimbursement method?

a. global pricing

b. per diem reimbursement

c. capitation reimbursement

d. cost-based reimbursement

e. per diagnosis reimbursement

f. charge-based reimbursement

g. prospective payment reimbursement

15. The incentive to increase length of hospital stay would occur with which reimbursement method?

a. global pricing

b. per diem reimbursement

c. capitation reimbursement

d. cost-based reimbursement

e. per diagnosis reimbursement

f. charge-based reimbursement

g. prospective payment reimbursement

16. The incentive to have lavish and conveniently located facilities describes which reimbursement method?

a. global pricing

b. per diem reimbursement

c. capitation reimbursement

d. cost-based reimbursement

e. per diagnosis reimbursement

f. charge-based reimbursement

g. prospective payment reimbursement

17. In a Health Services corporation, who would directly be responsible for correct accounting of the firm?s activities:

a. treasurer

b. comptroller

c. chief financial officer

d. vice president?finance

e. none of the above

18. Which of the following is true about Generally accepted accounting principles (GAAP):

a. GAAP can be thought of as a set of government regulations that have evolved through the years to guide the preparation and presentation of financial statements.

b. GAAP were designed to provide the information needed by stockholders, creditors, and other interested parties to make the best-informed decisions, primarily investment decisions.

c. The Securities and Exchange Commission (SEC) creates GAAP standards.

d. The Financial Accounting Standards Board (FASB) reviews businesses? Financial records for compliance to GAAP.

e. All of the above are false.

19. In the healthcare finance framework agency problems can exist between all of the following except:

a. managers and staff,

b. suppliers and customers,

c. stockholders and managers,

d. debtholders and stockholders,

e. all of the above.

20. Which accounting concept deals with the expense of a Doctor?s commute to the hospital?

a. accounting period

b. accounting entity

c. going concern

d. objectivity

e. full disclosure

f. conservatism

g. consistency

h. materiality

21. Which accounting concept allows a business to make a one time change in how they expense an item.

a. accounting period

b. accounting entity

c. going concern

d. objectivity

e. full disclosure

f. conservatism

g. consistency

h. materiality

22. Which accounting concept requires preparers to base their data on event documentation such as invoices and contracts?

a. accounting period

b. accounting entity

c. going concern

d. objectivity

e. full disclosure

f. conservatism

g. consistency

h. materiality

23. Which accounting concept allows the purchase of small tools, which may be used for several years, to be expensed in one year instead of depreciated over several?

a. accounting period

b. accounting entity

c. going concern

d. objectivity

e. full disclosure

f. conservatism

g. consistency

h. materiality

24. Which accounting concept would allow organizations to write-off patient accounts that are not likely to be collected

a. accounting period

b. accounting entity

c. going concern

d. objectivity

e. full disclosure

f. conservatism

g. consistency

h. materiality

25. Which of the following is not a main purpose of Depreciation Expense?

a. Lower net income to save taxes,

b. Recoup the cost of large assets that were purchased,

c. To lower the value of the asset to its true market value,

d. To match the expense of the assets over the periods it was paid for.

e. None of the above are the main purpose of depreciation.

26. Which of the following is part of Accrual Accounting?

a. Net income and cash flow will always be equal,

b. Revenues are recognized when paid,

c. Expenses are recognized when paid

d. Revenue is recognized when a service is rendered, rather than when the payment is actually received,

e. All of the above are part of Accrual Accounting.

27. Which of the following would be accounted for at the same amount on the Income Statement and the Statement of Cash Flows?

a. The cash purchase of supplies,

b. The cash purchase of inventory,

c. The purchase of large equipment,

d. The issuance of bonds for a major expansion,

e. Medical services performed that are billed to a third party payer.

28. What is a unique feature of many not-for-profit healthcare balance sheets?

a. The balance sheet is influenced each year by the amount of net income reported on the income statement,

b. The three major categories of assets are current assets, long-term investments, and property and equipment (fixed assets),

c. They classify certain asset and equity accounts as being restricted,

d. Assets may be tangible, such as plant and equipment, or they may be intangible, such as patents or the value of a brand name,

e. All of the above are unique features.

29. Which of the following is true about the Balance Sheet?

a. The balance sheet balances Revenues and expenses,

b. It expresses the accounting identity: Assets = Liabilities + Equity,

c. The balance sheet shows the current value of the organization,

d. The balance sheet reports assets, liabilities and income of the business as of a single point in time,

e. All of the above are true

30. Which of the following Stakeholders would be most concerned with the Balance Sheet?

a. Donors

b. Patients

c. Creditors

d. Third party payers

e. Government regulators

Problems ? Solve the following. Show your work!

1. (10 Points) Eiffel Payne Hospital, a for-profit hospital, wants to issue bonds for a major expansion. An investor, Terry Noirs, is in the 25% tax bracket and would be interested in the bonds. Tax Exempt hospital bonds of the same risk pay 3.75% interest.

a. What is the minimum rate Eiffel Payne can set for Terry to invest in the bonds?

b. If the Eiffel Payne Hospital bonds are issued at 6%, what after-tax rate will Terry earn?

2. (30 Points) Intensive Care Urology Practice (ICUP), a not-for-profit business, had revenues in 2015 of $60,000. Expenses other than depreciation (considered as cash expenses) were 75% of revenues. Depreciation was $8,000. All revenues were collected in cash, and all expenses, excluding depreciation, were paid in cash during the year. No other assets were purchased, and no money was borrowed.

A. Construct ICUP?s Income Statement.

B. What was ICUP?s Cash Flow for the year?

C. If (under GAAP) PU changed its depreciation method so that the Depreciation Expense doubled, what would be the new Net Income?

D. Again, if (under GAAP) ICUP changed its depreciation method so that the Depreciation Expense tripled, what would be the Cash Flow?

E. Comment on the results.

3. (20 Points) The following are account balances (alphabetical order) on December 31, 2015 for Intensive Care Urology Practice (ICUP), (in alphabetical order):

Accounts Payable $ 22,000x

Accounts Receivable, Net $ 30,000x

Cash $ 12,000x

Equity (January 1, 2015) $ 88,000

Expenses (includes taxes) $ 41,000

Inventory $ 45,000x

Long-term Debt $ 52,000x

Long-term Investments $ 15,000x

Net Property & Equipment $ 67,000x

Revenues $ 48,000

Create I.C. Optometry?s Balance Sheet (Hint: Not all of the accounts above are balance sheet accounts - you may need to calculate I.C.?s income (review Net Assets)!).