health care finance assignment week 3

Part II: Record Financial Operations

CHAPTER 5: EXPENSES: (OUTFLOW)

Overview: The Distinction Between Expense and Cost

• Expenses are expired costs that have been used up, or consumed, while carrying on business.

• Expense in the broadest sense includes every expired (used up) cost that is deductible from revenue.

Overview: The Distinction Between Expense and Cost

• “Cost” is the amount of cash expended* in consideration of goods or services received (or to be received).

*(or property transferred, services performed, or liability incurred)

• Costs can either be expired or unexpired.

• Expired costs are used up in the current period and are matched against current revenues.

• Unexpired costs are not yet used up and will be matched against future revenues.

Overview: The Distinction Between Expense and Cost

• Confusion also exists over the term “cost” versus the term “charges”.

• Charges are revenue, or inflow

• Costs are expenses, or outflows

• Charges add; costs take away.

Overview: Confusion Over Other Terminology

Disbursements for Services

• Disbursements for services represent an expense stream (an outflow)

• Disbursements for services can trigger payment either:

– when the expense is incurred; or

– after the expense is incurred.

Disbursements for Services

• Payment when the expense is incurred does not require the expense to enter the Accounts Payable account.

• Payment after the expense is incurred requires the expense to be recorded in the Accounts Payable account.

• It is then cleared from Accounts Payable when payment is made.

Grouping Expenses for Planning and Control

• Grouping by Cost Center

• One form of responsibility center.

• Study examples in Exhibits 5-1 and 5-2.

Exhibit 5–2 General

Services and Support

Services Cost Centers

Grouping by Diagnoses and Procedure

• Beneficial because is matched costs and common classifications of revenues

• Study examples in Exhibits 5-3, 5-4, 5-5 & Table 5-1

Exhibit 5–5 Example of Hospital Departmental Costs Classified by

Diagnoses, MDC, and DRG

Table 5–1 Example of Radiology Department Costs Classified by Procedure Code

• By care settings recognizes different sites where service is delivered

• Care settings were discussed in the previous chapter.

Grouping by Care Settings

• By service lines would be used for grouping costs if revenues were divided by service line.

• Service lines were discussed in the previous chapter.

Grouping by Service Lines

• Distinguishes projects that posses their own objectives, funding, and indicators.

• Study the example in Exhibit 5-6.

Grouping by Programs

Exhibit 5–6 Program Cost Center: Southside Homeless Intake Center

Cost Reports As Influencers Of Expense Formats

• Since the mid-1960s Annual Cost Reports are required by the Medicare Program and the Medicaid Program.

Cost Reports As Influencers Of Expense Formats

• The arrangement of costs into “Cost Centers” (on the cost report) has strongly influenced the arrangement of expense line items in many health care information systems.

Grouping Expenses by Cost Center: Example

• Example: A nursing home may consider the Admitting Department as a cost center.

• In this case, the expenses grouped under the Admitting Department may include: – Administrative and Clerical Salaries – Admitting Supplies – Dues – Periodicals and Books – Employee Education – Purchased Maintenance

Grouping Expenses by Cost Center: Practice Exercise 5-I

• The Metropolis Health System groups expenses for the Intensive Care Unit into its own cost center. Lab and Laundry expenses are likewise grouped into their own cost centers. Required:

1. Setup a worksheet with columns across the top for three cost centers: Intensive Care Unit; Lab; and Laundry.

2. Indicate the appropriate cost center for each of the following expenses: see following slide.

Grouping Expenses by Cost Center: Practice Exercise 5-I

Drugs Requisitioned

Pathology Supplies

Detergents and Bleach

Nursing Salaries

Clerical Salaries

Uniforms (for Laundry Aides)

Repairs (parts for microscopes)

Laundry

X

X

X

Laboratory

X

X

X

Intensive

Care Unit

X

X

X

Grouping Expenses by Cost Center: Assignment 5-1

• The Metropolis Health System’s Rehabilitation and Wellness Center offers outpatient therapy and return-to-work services plus cardiac and pulmonary rehabilitation to get people back to a normal way of living.

• The Rehabilitation and Wellness Center expenses include the following: see following slide.

Grouping Expenses by Cost Center: Assignment 5-1

Nursing Salaries

Physical Therapist Salaries

Occupational Therapist Salaries

Cardiac Rehab Salaries

Pulmonary Rehab Salaries

Patient Education Coordinator Salary

Nursing Supplies

Physical Therapist Supplies

Occupational Therapist Supplies

Cardiac Rehab Supplies

Pulmonary Rehab Supplies

Training Supplies

Clerical Office Supplies

Employee Education

Administrative/Clerical salaries

Administrative

X

X

Training

X

X

X

Cardiac

Pulmonary

X

X

X

X

X

X

X

Physical/Occupational

Therapy Rehab

X

X

X

X

X

X

X