Health Care Finance

HCA 445 Mid-Term Questions

1. List the eight finance activities.

2. List the four c’s

3. True or False The primary role of finance in healthcare organizations, as in all businesses, is to plan for, acquire, and use resources to minimize the efficiency and value of the enterprise.

4. Fill-in-the-Blank The finance department in large provider organizations generally consists of a chief financial officer (CFO), comptroller, and ______________.

5. Fill –in-the-Blank _______________ is a critical part of the costing process because it addresses the issue of how to assign the costs of support activities to the revenue-producing departments.

6. Before-tax (BT) income can be converted to after-tax (AT) income using what equation:

7. Please show the formula for calculating average cost.

8. Please show the formula for calculating total variable costs.

9. Before-tax (B) income can be converted to after-tax (AT) income by using this equation:

10. True or False Direct costs are the unique (exclusive resources used only by one unit of an organization, such as a department, and therefore are fairly easy to measure.

11. Assume that Provident Health System, a for-profit hospital, has $1 million in taxable income for 2008, and its tax rate is 30%.

a) Given this information, what is the firm’s net income? (Net income is what remains after taxes have been paid.)

b) Suppose the hospital pays out $300,000 in dividends. A stockholder, Carl Johnson receives $10,000. If Carl’s tax rate on dividends is 15%, what is his after-tax dividend?

12. Kim Davis is in the 40% personal tax bracket. She is considering investing in HCA (taxable) bonds that carry a 12% interest rate.

a) What is her after-tax yield (interest rate) on the bonds? b) Suppose Twin Cities Memorial Hospital has issued tax-exempt bonds that have an

interest rate of 6%. With all else the same, should Kim buy the HCA or the Twin Cities bonds?

c) With all else the same, what interest rate on the tax-exempt Twin Cities bonds would make Kim indifferent between these bonds and the HCA bonds?

13. Assume that a radiology group practice has the following cost structure:

Fixed cost $500,000 Variable cost per procedure $50

Furthermore, assume that the group expects to perform 10,000 procedures in the coming year.

a) What is the group’s underlying cost structure? b) What are the group’s expected total costs? c) What are the group’s estimated total costs at 5,000 procedures? At 12,500 procedures? d) What is the average cost per procedure at 5,000; 10,000; and 12,500 procedures?

14. Assume that the managers of Fort Winston Hospital are setting the price on a new out-patient

service. Here are the relevant data estimates:

Variable cost per visit $10.00 Annual direct fixed costs $350,000 Annual overhead allocation $75,000 Expected annual utilization 12,500 visits

a) What per visit price must be set for the service to break even? To earn an annual profit of $150,000?

b) Repeat Part a, but assume that the variable cost per visit is $15. c) Return to the data given in the problem. Again repeat Part a, but assume that direct

fixed costs are $850,000 d) Repeat Part a, assuming both a $15 variable cost and $1,000,000 in direct fixed costs.

15. Consider the data in the following table for three independent healthcare organizations:

Total Fixed Total

Revenues Variable Costs Costs Costs Profit a. $2,000 $ 1,400 ? $ 2,000 ? b. ? 1,000 ? $ 1,600 $ 2,400 c. 4,000 ? $ 600 ? 400

Fill in the missing data indicated by a question mark.

16. Fill-in-the-Blank The operating plan, is often called ____________, contains more detailed information than does the strategic plan.

17. Short answer A variance is the difference between:

18. Fill-in-the-Blank ______________ entails the entire process of constructing and using budgets, which are detailed plans for obtaining and using resources during a specified period of time.

19. Consider the following 2012 data for Newark General Hospital (in millions of dollars):

Simple Flexible Actual Budget Budget Results

Revenues $ 4,700,000 $ 4,800,000 $ 4,500,000 Costs $ 4,100,000 $ 4,100,000 $ 4,200,000 Profit $ 600,000 $ 700,000 $ 300,000

a) Calculate and interpret the two profit variances. b) Calculate and interpret the two revenue variances. c) Calculate and interpret the two cost variances. d) How are the variances related?

20. Northeast Medical Group, a family practice, has the following financial data and operational

metrics:

Number of physicians 5 Total revenue $2,748,360 Total operating costs $1,557,615 Total procedures per physician 12,353 Patients per physician 1,941 Visits per physician 5,333

a) What is the group’s revenue per physician? b) What is the group’s operating cost per physician? c) What is the group’s total operating profit? d) What is the group’s profit per physician? e) What is the group’s profit per patient? f) What is the group’s profit per visit? g) What is the group’s profit per procedure?