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156 Cards in this Set
- Front
- Back
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Identify key factors in rising healthcare costs.
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1) Payment System
2) Technology 3) Aging Population 4) Rx Drug Costs 5) Chronic Diseases 6) Compliance and Litigation 7) Uninsured |
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What are some payor efforts to control costs?
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1) DRG's in 1984
2) Capitation 3) Global Payments 4) APC's (2000) 5) P4P 6) Cutting Delivery Costs 7) Retail Health 8) Medical Tourism 9) Medical Home |
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What is a DRG and how does it impact cost?
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Diagnosis Related Group:
1) prospective payment classifying inpt's based on diagnosis 2) fixed reimursement to provider based on DRG 3) rates not kept at pace with costs 4) DRG creep 5) 72 hour rule |
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What is capitation and how does it impact cost?
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1) pays providers a specific amt in advance to care for hlth care needs of specific pop.
2) paid on PMPM (per member per month) basis 3) larger populations better (spreads risk) |
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What is global payment and how does it impact cost?
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1) several providers "grouped" as unit and receive one price
2) they have to divy up and share the payments |
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What are APC's and how do they impact cost?
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1) ambulatory payment classifications
2) like DRG but for outpatient services |
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What is pay for performance and how does it impact cost?
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1) withholds payment if performance criteria are not met
2) creates financial incentives for providers to follow care guidelines (infections, wounds) |
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What is cutting delivery costs and how does it impact cost?
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1) provides concerned with controlling costs
2) trends are to: a) shift to outpt. svcs b) improve cost acct. system c) improve IT d) mergers/acquisitions e) reengineering or redesigning f) alt. forms of care |
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What is retail health and how does it impact cost?
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1) Wal-Mart, Walgreens "clinics"
2) attract lower income and immigrants 3) questionable quality of services by critics |
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What is medical tourism and how does it impact cost?
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1) getting medical services, rx's through other countries
2) critics raise question about potential risk due to standard of care enforced (or not enforced) in other countries |
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What is medical home and how does it impact cost?
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1) partnership between PCPs and pts to deliver coord. comprehensive svcs from birth to death
2) PCP takes responsibility for all services birth til death |
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Name some ethical issues with cost control (cc) in hlthcare.
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1) cc v. quality & access
2) cc v. expanded access (rural & inner city) 3) cc v. coverge to those who cannot pay 4) cc v. expensive tx to special populations 5) cc v. under-reimbursed svcs (txp's) 6) cc v. overly restricted specialty care 7) how to ration svcs based on medical effectiveness 8) society benefits v. individ. benefits given limited resources |
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What is a balanced scorecard (BSC)?
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1) mgmt control tech. to balance mult. objectives
2) categories in BSC often financial, community needs (pt and physician satisfaction), operational (clinical processes), and employees (turnover and training) 3) BSC originally dev. for for-profit organ.: financial, customer, internal or internal processes and learning and growth |
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What are the four basic financial statements common to all organizations?
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1) Balance Sheet
2) Income Statement 3) Statement of Changes in Owner's Equity 4) Statement of Cash Flow |
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What are four additional subsets of rules that apply to the financial statements?
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1) governmental entities
2) not-for-profit, business-oriented organizations 3) not-for-profit, non-business-oriented organizations 4) investor owned |
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What is the purpose of a balance sheet?
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1) looks at an organization at a particular point in time
2) reports what the organization's assets, liabilities, and equity are as of a particular point in time (usually the last day of an accounting period - quarter, semi-annually, fiscal year) |
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What are the three sections of a balance sheet?
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1) heading
2) body 3) notes |
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What is a consolidated (combined) balance sheet?
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used when more than one entity is being summarized and the names of the entities being summarized are in the notes
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What is a comparative balance sheet?
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a balance sheet showing two dates (usually successive periods)
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What are the three major sections in the body of the balance sheet?
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Assets, Liabilities, and Net Assets
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What is the basic accounting equation?
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Assets = Liabilities + Net Assets (not for profit)
Shareholders' Equity (corporation for profit) Owner's Equity (sole proprietorship) |
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What are assets and define the types.
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1) resources it owns
2) current assets: will be used/consumed within 1 yr (cash, cash equiv., short-term investments, assets limited to use, pt. accts rec., supplies, pre-pd. expenses) 3)Noncurrent Assets: will be used/consumed over periods longer than 1 yr. (assets limited as to use, long-term investments, property & equip (net), other assets) 3) |
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What is liquidity?
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how quickly an asset can be turned into cash
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What controls should be in place regarding current assets?
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1) have different ppl send out bills, open mail, and record payments
2) restrict access to supplies and medications |
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What is a short-term investment?
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1) CD's
2) commercial paper 3) treasury bills |
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What are assets limited as to use?
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other cash, marketable securities set aside for a specific purpose
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What are Patient Accounts Receivable, Net of estimated uncollectibles?
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1) money owed an HCO (full charges minus contractual allowances and charity care discounts)
2) amount of $$ HCO will not be able to collect ("uncollectibles") |
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What are supplies, pre-pd. expenses and other current assets?
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1) day to day supplies used (food, drugs, office and medical supplies); also called inventory
2) prepaid rent, insurance |
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What are assets limited as to use in long-term assets?
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assets set aside for long-term purposes and are not available for general use
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What are long-term investments?
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investments with maturity of more than one year (securities including various types of stocks and bonds)
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What are properties and equipment, net?
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1) represents major capital investments in the facility
2) net means the total amt of depreciation taken up to this point in time has been subtracted from the original cost |
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What is depreciation?
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estmiate of how much the plant or equip. has been "used-up" during the accounting period
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Why are plant and equip. and amount of depreciation kept in separate accounts on the balance sheet?
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so those looking at balance sheet know:
1) original cost of asset 2) how much they have depreciated 3) current book value |
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What is a liability and name/define the types?
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obligations of a HCO to pay its creditors
1) Current: due within 1 year 2) Non-Current (due in more than 1 year) |
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What are the types of current liabilities?
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1) current portion of long-term debt
2) accounts payable and accrued expenses 3) estimated third-party payor settlements 4) other current liabilities |
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What are accounts payable and accrued expenses?
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1) obligations to pay suppliers who have sold HCO good/svcs on credit
2) expenses that arise in normal course of business that have not yet been paid (salaries, wages, interest) |
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What is an estimated third-party payor settlement?
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estimate of how much the hosp. needs to return to the third party due to overpayment
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What are other current liabilities?
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deferred revenues (fees that have been collected in advance - ie capitated payment for services to be performed over the next year)
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What are non-current or long-term liabilities?
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mostly mortgages payable and bonds payable
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What is the equation for net assets?
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Net Assets = Assets - Liabilities
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What are the three categories required on a HCO's balance sheet for net assets?
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1) unrestricted net assets
2) temporarily restricted net assets (donation of land by county with provision that hosp. cannot sell for 5 years) 3) permanently restricted net assets (endowment allowing HCO to spent interest but never the principal) |
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What is contained in the note section of a balance sheet?
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1) accounting policies of HCO
2) how charity care is determined 3) composition of investments 4) which assets are restricted 5) depreciation method used 6) market value and initial cost of investments 7) maturity and interest rates of long-term debt 8) amt. of professional liability ins. for malpractice 9) suits filed against HCO |
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What is a Statement of Operations?
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1) A summary of of the HCO's revenues and expenses over a period of time (usually between statements - quarter, half-year, fiscal year)
2) analogous but different from income statement of for-profit organization |
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What is included in the body of an income statement?
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1) operating income (difference btwn revenue & expenses)
2) non-operating income 3) Income before taxes 4) provision for taxes 5) net income (difference btwn revenues and expenses) |
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What is included in the body of a statement of operations for a HCO?
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1) operating income
2) other income 3) excess of revenues, gains, and other support over expenses 4) other items 5) increase in unrestricted net assets |
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What is the purpose of a statement of operations for a not-for-profit HCO?
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represents how much the HCO earned, gains and other sources of revenue and resources used (not how much cash flow - $$ coming in/out of HCO)
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What is a revenue?
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amt earned by HCO NOT amt of cash it rec'd
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What are net patient service revenues?
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gross pt. svc revenue - contractual allowances
1) gross pt svc revenues (amt HCO would have earned if everyone pd. in full) 2) contractual allowances (amt. payors agree to pay) |
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What are premium revenues?
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earned from capitated contracts - not solely thru delivery of svcs but passage of time and actually delivering svcs as agreed during contract period
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What are other revenues?
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1) appropriations/grants
2) support svcs (parking, gift shop, food svcs) 3) income from investments 4) contributions |
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What are net assets released from restriction?
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example: donor stipulates asset not be released until HCO raises matching funds
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What are types of expenses?
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1) depreciation/amortization
2) interest 3) provision for bad debt 4) other expenses (misc. operating expenses, general and admin expenses, rent, utilities, contracted svcs not reported in other areas) |
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What is operating income?
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income derived from main line of business
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What is other income?
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example: food sales to public, parking income, interest income
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What is excess of revenue over expenses?
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unrestricted net assets
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What are "below-the-line" items?
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items such as:
1) changes in net unrealized gains/losses on other than trading securities 2) net assets released from restricitons used for purchase of property and equip. 3) contributions to acquire long-lived capital assets 4) extraordinary loss |
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What is unrealized and realized gain?
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1) increase in value of stock but stock is not yet sold
2) increase in value of stock and stock is sold |
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What are some other below the line items?
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1) transfers to parent
2) extraordinary items 3) increase of unrestricted net assets |
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What is a Statement of Changes in Net Assets?
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1) explains why there was a change from one year to the next in the net asset section of the balance sheet (increase/decrease in unrestricted assets or changes in restricted assets not included on statement of operations)
2) goes beyond the Statement of Operations by summarizing all changes in net assets over the year |
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How is the body of the Statement of Change in Net Assets organized?
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changes in:
1) unrestricted assets (summarizes Statement of Operations) 2) temporarily restricted assets 3) permanently restricted assets |
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What is a Statement of Cash Flows?
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1) reports cash inflows and outflows
2) also discloses key noncash transactions such as issuance of stock for debt payment or for acquisition of a company 3) can use direct method or indirect method |
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What is included in the body of a statement of cash flows?
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1) cash flows from operating activities
2) cash flows from investing activities 3) cash flows from financing activities 4) net increase (decrease) in cash and cash equivalents |
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What is cash flows from operating activities?
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identifies cash flow from normal operations of the organization
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What is cash flows from investing activities?
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shows cash inflow/outflow for:
1) purchase of plant, property, and equipment 2) purchase of long-term investments 3) proceeds from sale of plant, property, equipment 4) proceeds from sale of long-term investments |
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What is cash flows from financing activities?
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cash flow resulting from:
1) transfers to parent 2) proceeds from selected contributions 3) proceeds from issuance of long-term debt 4) repayment of long-term debt 5) interest from restricted investments if interest income is also restricted |
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What is a journal?
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a book used to record transactions of a health care organization as they occur; more than likely a computer these days
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What is a ledger?
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a book used to summarize the different accounts (ie Cash, Equipment, Revenues)
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What does a journal and ledger provide an organization?
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a chronological list of transactions and a current balance in each account in order to prepare the four main financial statements
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What is a chart of accounts?
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a fairly standard set of account categories used by all HCO's
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What is cash basis accounting?
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similar to keeping a personal checkbook; revenues are recorded when cash is received, expenses recorded when cash is paid out
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What is the accrual basis of accounting?
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recognizes revenues when they are earned and expenses when resources are used
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What are the rules for recording transactions?
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1) must use at least two accounts
2) after each transaction, the fundamental accounting equation must be in balance |
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What is income?
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Revenue - Expenses = Income
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What are current assets?
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cash, short-term investments, assets limited to use, accounts receivable, supplied, prepaid expenses
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What are non-current assets?
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assets limited as to use, long-term investments, property and equipment
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What are current liabilities?
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debt to be paid within a year, current portion of a long-term debt, accounts payable, accrued expenses, estimated third party payor settlements
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What are non current liabilities?
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those due longer than 1 year, mortgages payable, bonds payable
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What are the three types of net assets?
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unrestricted
temporarily restricted permanently restricted |
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Income statement equation for not for profit
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revenues - expenses = increase in unrestricted net assets
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Income statement equation for corporation (for profit)
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revenues - expenses = income
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What is an income statement flow for a "for profit" organization
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Revenues - expenses = operating income
add other income to = operating income before taxes subtract income taxes to = net income |
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What is accrual basis accounting?
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record what is owed and earned as well as what is received and paid
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What is cash accounting?
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record only what is received and paid
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What is deferred revenue?
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paid in advance and you owe performance/service (it is a liability)
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What is an accrued expense?
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those that are owed but not yet paid (wages.....also a liability)
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What is a revenue?
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amount earned by organization
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What are gains?
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selling an asset for more than it's value on the books (net book value in asset section of balance sheet)
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What are other supports?
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appropriations from government organizations and unrestricted donation
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What is the format for a NFP?
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1) Unrestricted revenues, gains & other support
2) net patient service revenue 3) premium revenue 4) other revenue 5) net assets released from restriction (for operating only) 6) total revenues, gains & other support |
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How do you calculate the Net Patient Service Revenue?
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1) Gross patient svcs revenue
2) minus discount called contractual allowance 3) minus charity care 4) equals net patient service revenue |
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What are premium revenues?
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1) earned from capitated contracted
2) earned as time passes and svcs are delivered during contract period |
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What are other revenues?
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earned from appropriations, grants, support services, income from investments and revenues from contributions
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What are net assets released from restriction?
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funds transferred from temp. restricted net assets to unrestricted net assets
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What are expenses?
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salaries, benefits, medical supplies, drugs, ins., interest, provision for bad debts, depreciation and amortization, other expenses
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What are income categories?
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1) operating income
2) other income (investment income) 3) excess of revenues over expenses (change in net unrealized gains & losses on other than trading securities....net assets released from restrictions used for purchase of property and equipment - nonoperating types........contributions to acquire long-lived capital assets......transfer to parent......extraordinary loss |
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What are rules for recording transactions?
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1) at least 2 accts must be used
2) Acct. equation must balance after each transaction |
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Where is an unrestricted donation recognized?
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one that can be used for operating purposes should be recorded in Other Revenue bc it is not earned like other revenues
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When are revenues recognized in accrual accounting?
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when they are earned.....so services provided would be listed under Revenues
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Where are capitated payments recorded?
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under cash and Deferred Revenues (Liability)
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When is a course of action clear in decision making?
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when it meets or fails to meet both financial and nonfinancial criteria
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What is the Break-Even Analysis (cost-volume-profit)?
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a technique to analyze the relationship among revenues, costs, and volume.
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What is the formula to determine total revenue when price and quantity are knows?
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Total revenue = price x quantity
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What is the restatement of the break-even formula
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price x quantity = total cost
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What is relevant range?
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range of activity over which total fixed costs or per unit variable cost (or both) do not vary
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What are fixed costs?
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costs that stay the same in total over the relevant range but change inversely on a per unit basis as activity changes
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What are step-fixed costs?
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costs that increase in total over wide,discrete steps
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What are two major errors that must be avoided when using fixed cost information?
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1) assuming that cost per unit does not change when volume changes
2) using fixed cost per unit derived at one level to forecast total fixed costs at another level |
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What are variable costs?
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costs that stay the same per unit but change directly in total with a change in activity over the relevant range.
Total Variable Cost = Var. Cost per unit x # of units of activity |
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What are direct costs?
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costs that an organization can measure or trace to a particular patient or service (nursing time spent with patient)
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What are indirect costs?
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those that the organization is not able to associate with a particular patient or service (cost of billing clerk, computer system)
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What is target costing?
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controlling costs, decreasing profit margins, or both to meet or beat a predetermined price or reimbursement rate
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What is the break-even point?
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the point where total revenues equal total costs
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What is the contribution margin per unit?
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per unit revenue minus per unit variable costs
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What are incremental costs?
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add'l costs incurred solely as a result of an action or activity or a particular set of actions or activities
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What is total contribution margin?
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total revenues minus total variable costs
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What is the contribution margin rule?
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if contribution margin per unit is + and no other add'l costs will be incurred, then it is in the best financial interest of the organ. to continue to provide add'l units of that service, even if organ is not fully covering all of its other costs. But if the contribution margin is - it is not in the best interest of the organ. to continue to provide add'l units of svc, ceteris parabis.
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What is the break even formula?
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Break even volume = fixed costs / contribution margin per unit
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What is a subcapitation arrangement?
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when an organ. has an arrangement with a MCO and then negotiates a capitated contract with a multispecialty group practice to provide a major portion of the medical services that organ is obligated to provide
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What are avoidable fixed costs?
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fixed costs that are avoided if a service is not provided (full-time nursing costs saved if a service were closed)
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What are nonavoidable fixed costs?
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fixed costs that will remain even if a particular service is discontinued (full-time nursing costs in an organ. that will continue, even though one of several services is dropped)
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What are common costs (joint costs)?
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costs that benefit a number of services shared by all (rent, utilities, billing)
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What is a product margin?
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Total Contribution Margin - Avoidable Fixed Costs:
amt. a svc contributes toward covering all other costs after it has covered the costs that are there soley bc the svc is offered (total variable cost and avoidable fixed costs) and would not be there if the svc. were dropped |
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What is product margin decision rule?
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if svc's product margin is +, organ. will be better off financially if it continued with the svc, ceteris paribus. If svs's product margin is - organ. will be better off financially if it discontinues the service, ceteris paribus.
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What are the categories in the product margin paradigm?
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1) make or buy
2) add or drop 3) expand or reduce |
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What is the make or buy decision rule?
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after comparing product margins btwn the make and buy alt., the alt. with higher product margin should be chosen
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What is the add or drop decision rule?
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if proposed new svc is expected to have a + product margin, it should be added......if expected to have - product margin, it should be dropped
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What is the decision rule in expanding or reducing a service?
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if only one alt. will or must be chosen, then ant. product margin of both alt. should be compared and the higher should be chosen
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What is the break-even equation?
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(price x volume)=fixed costs+(variable cost per unit x volume)
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What is the short-cut formula to the break-even if the contribution margin is known?
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break-even volume = total fixed costs / contribution margin per unit
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What is the product margin equation?
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total revenues - total variable costs - avoidable fixed costs
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What is the contribution margin per unit equation?
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revenue per unit - variable cost per unit
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What is the total contribution margin equation?
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total revenue - total variable cost
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What is the short-cut to determine break even volume?
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fixed costs / contribution margin per unit
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What is the break even equation modified to include desired profit?
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price x volume = fixed costs + (variable cost per unit x volume) + desired profit
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What is the break-even equation modified to include indirect cost and desired profit?
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price x volume = direct cost + indirect costs + desired profit where direct costs = direct fixed costs + (direct variable cost per unit x volume)
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What is the break-even equation for capitation?
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PMPM x enrollees = (enrollees x utilization rate x variable cost/unit) + monthly fixed cost
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What is the product margin equation?
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total contribution margin - avoidable fixed costs
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What is budgeting?
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putting plan into numbers
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What is included in strategic planning?
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1) identifies organ.'s vision, mission, goals & strategy in order to position itself for future
2) have a vision statement: how we want others to view us in next 3-10 years 3) mission statement; how we will achieve vision 4) assesses internal/external environ. 5) yields goals/objectives |
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What is budgeting?
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central pieceo of planning/control cycle including:
1) strategic planning 2) planning 3) implementing 4) controlling |
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What is included in planning?
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1) identifying goals, objectives, tasks, activities and resources to carry out the strategic plan for the next year
2) strategic planning: long term, general 3) planning: short term, details 4) planning gives inputs to budget |
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What is included in control?
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1) asses whether or not organ. is on the path to achieve its strategies
2) assess whether plans/budgets being followed 3) starts with the budget 4) monitor what's going on 5) evaluate how actual compares to budget 6) feedback |
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What are four types of interrelated budgets?
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1) statistics budget
2) operating budget 3) cash budget 4) capital budget |
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What is a statistics budget?
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identifies amt of svc that will be provided, usually listed by payor type
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What are the four types of payor types for statistics budget?
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1) charge based: pay what is charged or some % of charges (think price)
2) cost based payors: pay based on an estimate of what it cost to deliver the svc 3) flat fee payors: pay a predetermined fee per unit of svc regardless of costs or charges (like DRG) 4) capitated payors: pay a fixed amt per enrollee for a fixed period of time, regardless of utilization, costs or charges (PMPM) |
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What is the operating budget?
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combination of two budgets:
1) revenue budget 2) expense budget |
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What is a revenue budget?
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1) forecast of operating revenues that will be earned during the budget period
2) net patient revenues 3) non-patient revenues |
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What is an expense budget?
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1) all operating expenses that are expected to be incurred during the budget period
2) classification of operating versus non-operating items is not standardized in healthcare |
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What is the purpose of a cash budget?
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1) shows cash inflows/outflows
2) plans for cash shortages and borrowing 3) plans for excess cash and investments |
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What is the purpose of a capital budget?
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summarized the anticipated purchases for the year
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What are the key budgeting dimensions and their approaches?
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1) participation--authoritarian to pseudo participation to participatory
2) budget model--incremental/decremental to zero-based 3) budget detail--line item(program) performance 4) budget forecast--annual to multiyear and static to flexible 5) budget modifications--controlled to latitude |
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What are pro forma statements?
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1) pro forma (as if, budgeted, forecasted)
2) financial statements prepared using the budget info. 3) pro forma statements can be analyzed to make sure the budget meets its targets |
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What are two steps in a statistics budget?
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1) develop volume projections
2) convert volume projections into weighted visits --commonly start with last year's actual results and make adjustments for any anticipated changes |
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What is the difference between a static and flexible budget forecast?
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static sets budget based on one anticiapted volume
flexible budget makes several budgets based on several anticipated volumes |
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What are advantages to participatory budgeting?
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1) shared understanding (local knowledge)
2) cooperation and competition 3) clarified roles/responsibilites 4) motivation 5) cost awareness |
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What are some disadvantages to participatory budgeting?
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1) loss of control
2) time consuming 3) high resource use 4) disappointment |
