SHORT ANSWER
1. What are the primary responsibilities of the financial manager?
A: Financial management functions as either controllership or treasurership.
1. Controllership
(a) Planning for control: Establish budgetary systems
(b) Reporting and interpreting: Prepare financial statements
(c) Evaluating and consulting: Conduct cost analyses
(d) Administrating taxes: Calculating payroll taxes owed
(e) Reporting to government: Submit Medicare bills and cost reports
(f) Protecting assets: Develop internal control procedures(g) Appraising economic health: Analyze financial statements
(2. Treasurership :
(a) Providing capital: Arrange for bond issuance
(b) Maintaining investor relations: Assist in analysis of appropriate dividend payment policy (for-profit firms)
(c) Providing short-term financing: Arrange lines of credit
(d) Providing banking and custody: Manage overnight and short-term funds transfers
(e) Overseeing credits and collections: Establish billing, credit, and collection policies
(f) Choosing investments: Analyze capital investment projects
g) Providing insurance: Managing funds related to self-insurance program
2. What is the difference in ownership between a sole proprietorship, a partnership, and a corporation?
A:*Sole proprietorship is unincorporated businesses owned by a single individual. They are easy and inexpensive to set up, there is no sharing of profits, the sole proprietor has total control, there are few government regulations and no special income taxes, and they are easy and inexpensive to dissolve. Its two main disadvantages are unlimited liability and limited access to capital.*Partnership is an unincorporated business with two or more owners. They are easy to form, are subject to few government regulations, and are not subject to double taxation. On the down side, partnerships have unlimited liability, are difficult to dissolve, and create potential for conflict among the partners.
*A corporation is also called a professional association, is a corporate form for professionals who wanted to have the advantages of incorporation. A professional corporation does not, however, shield its owners from professional liability. Professional corporations and professional associations have been widely used by physicians and other healthcare professionals.
What are the six elements that should be present, at a minimum, in all charge masters?
A: Every charge master usually has the following six common element
• Charge code
• Item description
• Department number
• Charge/price
• Revenue code
• CPT/HCPCS code
What are HCPCS codes?
A: HCPCS codes are used to meet a temporary need for a new code. These codes are also five-digit codes that begin with an alpha character. These codes can exist for a long time, but they may be replaced with a permanent code.
What is the main difference between the fee-for-service and capitation reimbursement?
A:Capitation simply means the provider is not paid on the basis of services performed but rather on the basis of HMO members assigned to its organization. This means the provider may be paid on a PMPM basis. In fee for service, payment related to utilization and no risk for utilization variances.
What are the seven key elements of the Office of Inspector General's Compliance Program Guidance for Hospital?
A:• Adoption of reasonable compliance standards of conduct and procedures. The provider must organize its compliance materials, learn what laws and regulations govern its practices, and put in writing the steps necessary for a high-level compliance officer to be certain that it obeys the law.
• Appointment of a high-level compliance officer. For the plan to be effective, this officer must be someone who can insist on compliance from anyone in the organization, so the compliance officer should be someone at the highest level of management.
• Employee education and systematic compliance training.
• Development of effective lines of communication. There must be easy access to the compliance officer so that problems can be reported and corrected. There must also be the guarantee that employees can report compliance issues without fear of retaliation. In larger organizations experts suggest a 24-hour hotline so employees can report problems anonymously.
• Consistent and continuous enforcement of compliance standards through well-publicized disciplinary standards. OIG suggests that every plan contain disciplinary standards so there are consequences for serious deviations from the organization's standards of conduct.
Disciplinary standards should apply not just for the employee who erred, but also for the supervisor who failed to detect the problem. OIG also suggests that employers use background checks for new employees to ensure they have not been involved in healthcare fraud. OIG maintains a national databank that lists people who have been sanctioned for healthcare fraud.
• Development of auditing and monitoring programs. A monitoring program should include regular reports to the compliance officer and to senior management. For larger organizations this program will probably include compliance audits by internal or outside auditors who are expert in federal billing regulations.
• Development of mechanism for reporting detected violations to the appropriate agency and for correcting the problem prospectivelyWhat are the major reasons for accrual accounting? A: Accrual accounting is a fundamental premise of accounting. It means that transactions of a business enterprise are recognized during the period to which they relate, not necessarily during the periods in which cash is received or paid. Accrual accounting major impact is on the preparation of the statement of revenues and expenses
List and describe the three categories of net assets
A: 1. Unrestricted net assets are a group of items owned by the government with commercial or exchange value that have no external restrictions regarding their use or function.
2. Temporarily restricted net assets are funds that can be used for a specific purpose only, or funds that may be released for a specific purpose only, funds that may be released for general purposes after a passage of time.
3. Permanently restricted net assets are often of an endowment nature. Only the income of the fund can be used, and the principal cannot be used to fund any purpose
What are the four basic financial statements?
A: • Balance sheet
• Statement of operations (or income statement or statement of revenues and expenses)
• Statement of cash flows
•Statement of changes in net assets (or statement of changes in net assets)
What three pieces of information are needed to convert nominal dollars to constant dollars?
A: 1. unadjusted value of the account in historical or nominal dollars.
2. price index which reflects the purchasing power at the date the count is to be restated.
3. price index which reflects the purchasing power in which the unadjusted value is currently expressed.
NUMERIC PROBLEMS
For the following problems (as applicable), assume that the Medicare/patient split of payments is as covered in the book. Assume that the participating/non-participating and maximum allowable charge are as covered in the book. Ignore the patient's annual deductible.
Use the following information to solve problems 11, 12 and 13.
Dr. Melissa Rose is trying to decide whether to be a Medicare-participating physician for the upcoming year. (Assume that her entire practice consists of Medicare patients or at least that her practice has slack capacity. Her Medicare patients do not displace non-Medicare patients.) Assume that her average charge is $120 (before Medicare's limiting charge is applied), for which the average Medicare-approved amount is $100. If she decides to be a non-participating physician, she expects to accept assignment 80% of the time. For the unassigned patients assume that she would set her charges at 110 percent of the Medicare-approved fee for a nonparticipating physician. Assume that her Medicare patient volume is not reduced if she chooses not to participate nor if she does not accept assignment. (Ignore bad debt and any other factors not presented here.)
What will be Dr. Rose's average reimbursement per visit if she chooses to be a Medicare-participating physician? (This is the total from both Medicare and the patients.)
What will be Dr. Rose's average reimbursement per visit if she chooses not to be a Medicare-participating physician? (This is the total from both Medicare and the patients.)
Based strictly on the information presented here (ignore bad debt, patient mix differences, and other considerations not presented here), should she choose to be participating or non-participating if she wishes to maximize her total reimbursement for services?
Use the following information to solve problems 14 and 15.
A non-participating physician provides services to a Medicare patient who has total charges of $100 (before Medicare's limiting charge is applied). The physician does not accept assignment, charges the maximum allowable, and submits the claim to Medicare. Assume Medicare's approved schedule for these services is $80.
1. What is the Medicare portion of the physician payment (which Medicare sends to the patient)?
2. What is the patient's portion of the payment to the physician (net of the reimbursement from Medicare in question 15?
Use the following information to solve problems 16 and 17.
As Holy Family Hospital prepares its budget for the upcoming year, it is trying to determine where to set its average inpatient charge per case. Consider the following data on volume, payer mix, and finances.
Volume
Medicare and Medicaid cases 1,000
Charity care and bad-debt cases 200
Commercial-paying cases 1,900
Full-charge-paying cases 100
Financial Data
Budgeted operating expenses $10,000,000
Debt principal payment 400,000
Increases in current assets 500,000
Increases in current liabilities 300,000
Capital expenditures 500,000
Assume that the average payment per case for the Medicare and Medicaid patients is $3,500. Assume that Holy Family realizes no payment on its charity care and bad debt cases. Holy Family's contracts with commercial payers are negotiated based on a percentage discount off of full charges. For the coming year, the average negotiated discount with commercial payers is 15%.
3. What are the hospital's total financial requirements for the coming year?
4. What should be Holy Family's average charge per case in order to meet the total financial requirements (round to the nearest dollar)?
Use the following information to solve problems 18 and 19.
The Medical College of Virginia, located in the urban city of Richmond, Virginia, has a wage index of 1.8579. A student from nearby Virginia Commonwealth University has just been treated for viral meningitis during a 5-day length of stay (LOS) (DRG weight: 1.535).
Rate Table
Hospital Status Labor Non-labor
Urban Areas 2,800 1,250
Rural Areas 2,000 1,0005. Use the information in the rate table below to calculate the DRG operating payment for this treatment.
6. Assuming that the wage index remains the same as in question 19, what would the DRG operating payment be if the same treatment occurred in the rural Pulaski County Hospital in Pulaski, VA?
For the following four problems (20-23), start with the price-setting example from the text. The initial assumptions are provided in the table below.
|
Total cost
|
$100,000
|
|
Total volume
|
1,000
|
|
Average cost
|
$100
|
|
Payer volumes
|
|
|
Medicare (payment rate = $95)
|
400
|
|
Medicaid (payment rate = $75)
|
100
|
|
Managed Care # 1 (payment rate = $110)
|
300
|
|
Managed Care # 2 (pay 80% of charges)
|
100
|
|
Uninsured (pay 10% of charges)
|
100
|
|
Total all payers
|
1,000
|
7. Medicare and Medicaid presently account for 50% of the volume. The hospital wishes to reduce its dependence on government payers. Assume that Medicare volume is reduced to 380 patients and Medicaid volume is reduced to 90 patients. The volume from managed-care plan #1 rises to 320 patients from 300. The volume from managed-care plan #2 increases to 110 patients. Thus, total volume is unchanged at 1,000 visits. What is the new price necessary assuming all other factors are unchanged?
8. Start with the original assumptions. The hospital is facing pressure from public-interest groups to control the prices it charges to the uninsured. Assume that the hospital is able through various efficiencies to cut its per-visit cost by 5%. It also negotiates a 7% increase with managed-care plan #1. Assuming all other factors are unchanged, what is the new required price?
9. Start with the original assumptions. Notice that managed care plan #1 receives a much lower price in return for sending a larger volume of patients. Managed care plan #2 (MC#2) wants to pay a lower cost per case and is willing to send 250 more patients (350 total from MC#2) to the clinic in return for a rate of $110 per case. Assume that the average cost per case drops to $90 due to the economies of scale. All other assumptions are unchanged. What is the new required price?
10. Start with the assumptions in problem 21. But now assume that the additional volume does not enable enough economies-of-scale to reduce the average cost per case as much as originally anticipated. Assume now that the average cost per case drops only to $95. What is the new required price? Compare the answer to problem 18 to this answer. What does this tell you about the sensitivity of the price to the assumption of the average cost per case?
11. Compare the answer to problem 18 with the answer to problem 19. What does this tell you about the sensitivity of the price to the assumption of the average cost per case? If you were the clinic manager, what would you do before agreeing to the renegotiated contract with managed care plan #2?
12. An HMO has a Point of Service (POS) option for its members, but will pay only 80 percent of approved charges. If a member goes out of network for a medical procedure with a charge of $2,000, of which $1,200 is approved, how much must the member pay?
13. You have been asked to develop a capitation rate for a primary care group based on the following projections:
Service Annual Frequency/1,000 Cost per Service
inpatient Visits 100 $7,000.00
Office Visits 3,000 $45.00
Lab/X-ray 500 $25.00
What per-member per-month (PMPM) rate would be required to break even, ignoring any copayments?
14. A hospital has contracted with an HMO to provide acute care inpatient services for $1,000 per day, subject to a 10 percent withhold. The proposed budget for inpatient services is based upon expected utilization of 600 days per 1,000 members at $1,000 per day, or $600,000 per 1,000 members. The hospital risk pool will be split equally between the hospital and a primary care physician group. If only 450 days per 1,000
28-30. Refer to the table below for problems 28 to 30. A hospital and a health plan are negotiating a contract for inpatient medical-surgical care. Calculate the amounts that would complete the table below.
Table: PMPM Rate
Annual Copay
Frequency Unit Frequency Copay Copay Net
Category per 1,000 Cost PMPM per 1,000 Amount PMPM PMPM
Hospital inpatient
Medical surgical 400 $1,000 (P18) 100 $150 (P19) (P20)
31. Given below is a list of account balances for Currie Hospital as of December 31, 2008. Prepare a balance sheet as of December 31, 2008, in proper form. (Hint: You will need to compute the net assets account. Assume that all net assets at the beginning of the year are unrestricted.)
|
Account
|
|
Balance
|
|
Gross plant & equipment
|
|
$6,000,000
|
|
Accounts payable
|
|
130,000
|
|
Inventories
|
|
100,000
|
|
Other current liabilities
|
|
70,000
|
|
Net accounts receivable
|
|
650,000
|
|
Accrued expenses
|
|
100,000
|
|
Accumulated depreciation
|
|
200,000
|
|
Long-term debt
|
|
5,000,000
|
|
Cash
|
|
210,000
|
32. Below is a list of accounts for Currie Hospital for December 2008 (annual amounts). Prepare a statement of operations for 2008 in good form.
|
Account
|
|
Amount
|
|
Administrative expenses
|
|
$80,000
|
|
Net assets released from temporarily restricted accounts for operations
|
|
120,000
|
|
Labor expense
|
|
260,000
|
|
Interest expense
|
|
12,000
|
|
Net patient service revenue
|
|
840,000
|
|
Supply expense
|
|
88,000
|
|
Transfer to parent corporation
|
|
10,000
|
|
Bad debt expense
|
|
40,000
|
|
Depreciation expense
|
|
50,000
|