Health Care Financial Management Assignment

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Health Care Financial Management Assignment

Answer your questions in an MS word and/or MS Excel document and upload in the Assignment Folder--Midterm Exam in Blackboard.

If you answer in an Excel spreadsheet, please make sure you format properly so it prints in a presentable way. If you print your spreadsheet before you turn it in to me, you can see if your answers are printed in a presentable format. Write your names on all pages of your document (if you write your name in the header of the page, it will appear on all pages). Save your documents using the following convention: yourlastname _midterm

Questions:

1. (10 points) What are the primary differences between investor-owned and not-for-profit corporations?

2. (15 points) Discuss, in general terms, three reimbursement methods used by third-party payers and the incentives and risks that they create for providers.

3. (10 points) NewAge Hospital generated net patient revenues of $145M for 2012, and its cash collections were $125M. The revenue cycle management costs to collect these revenues were $5M.

a. Compute NewAge Hospital’s cost to collect for the year and provide an assessment of how it compares with the industry benchmark of 3%.

b. Compute NewAge Hospital’s cost to collect for the year if 25% of the cash collections during the year required human intervention and its EDI costs were $500,000. Provide an assessment of how it compares with the industry benchmark of 4%.

4. (10 points) Use ratio analysis to identify Riverview Community Hospital’s (Case Study) specific financial strengths and weaknesses. Focus on key findings and one or two ratios per category.

5. (15 points) Answer the following questions:

a. What is the agency problem?

b. What are the generally accepted accounting principles (GAAP?

c. What are the purposes of a journal and a ledger?

d. What is the difference between operating income and net income?

e. What is the difference between liabilities and equity?

6. (15 points) Given the information in the following table, compute the days in accounts receivable, aging schedule, and accounts receivables a percentage of net patient revenues for Quarter 3 and Quarter 4 of 2012. Compare the two quarters to determine if the organization’s collection procedure is improving. Assume each month is 30 days. (Dollar figures are in thousands).

Quarter 3, 2012

Quarter

September

August

July

Days outstanding

Total

1-30

31-60

61-90

Net accounts receivable

$5,000

$400

$1,000

$3,600

Net patient revenue

$15,000

$1,000

$5,000

$9,000

Quarter 4, 2012

Quarter

December

November

October

Days outstanding

Total

1-30

31-60

61-90

Net accounts receivable

$5,000

$3,600

$1,000

$400

Net patient revenue

$15,000

$4,000

$5,000

$6,000

7. (25 points) Given the balance sheets and statement of operations for 270-bed Rocky Hill Hospital for 2011 and 2012, compute liquidity, profitability, activity and capital structure ratios and compare them with the industry benchmarks. The debt principal payments for each year are $5.5 million. Adjusted discharges for 2011 and 2012 are 19,000 and 20,000 respectively.

3

Rocky Hill Community Hospital

Statement of Operations (in '000)

For the Years Ended December 31, 2011 and 2012

20122011

Revenues

Net Patient Revenues197,000.00$ 184,000.00$

Other Operating Revenues 6,400.00$ 5,700.00$

Total Operating Revenues 203,400.00$ 189,700.00$

Operating Expenses

Salaries and benefits 101,600.00$ 93,500.00$

Supplies and other expenses 70,100.00$ 61,000.00$

Depreciation 12,000.00$ 11,300.00$

Provision for Bad Debt 9,173.00$ 9,167.00$

Interest 1,413.00$ 1,433.00$

Total Operating Expenses 194,286.00$ 176,400.00$

Income from Operations 9,114.00$ 13,300.00$

Non-Operating Income:

Investment Income + Contributions 9,500.00$ 8,500.00$

Excess of revenues over expenses18,614.00$ 21,800.00$

Net Income18,614.00$ 21,800.00$

Sheet1

Williamson Academic Medical Center
Balance Sheet (in '000)
For the Years Ended December 31, 20X0 and 20X1
20X1 20X0
Current Assets
Cash & Cash Equivalents $ 26,300.00 $ 23,500.00
Patient Accounts Receivables, Net $ 165,000.00 $ 145,000.00
Inventories $ 9,500.00 $ 12,000.00
Other Current Assets $ 3,000.00 $ 2,400.00
Total Current Assets $ 203,800.00 $ 182,900.00
Plant, Property, & Equipment
Gross Plant, Property, & Equipment $ 640,000.00 $ 576,000.00
(less Accumulated Depreciation) $ (254,000.00) $ (226,000.00)
Net Property, Plant and Equipment $ 386,000.00 $ 350,000.00
Long-Term Investments $ 195,000.00 $ 175,000.00
Total Assets $ 784,800.00 $ 707,900.00
Current Liabilities
Accounts Payable $ 87,200.00 $ 85,000.00
Salaries Payable $ 23,000.00 $ 20,000.00
Notes payable $ 3,200.00 $ 3,000.00
Other Current Liabilities $ 2,100.00 $ 2,000.00
Total Current Liabilities $ 115,500.00 $ 110,000.00
Non-Current Liabilities
Bonds Payable $ 136,500.00 $ 141,000.00
Total Non-Current Liabilities $ 136,500.00 $ 141,000.00
Owners' Equity $ 532,800.00 $ 456,900.00
Total Liabilities and Equity $ 784,800.00 $ 707,900.00
Williamson Academic Medical Center
Income Statement
For the Years Ended December 31, 20X0 and 20X1
Revenues
Net Patient Revenues $ 745,300.00 $ 735,200.00
Other Operating Revenues $ 37,000.00 $ 35,600.00
Total Operating Revenues $ 782,300.00 $ 770,800.00
Expenses
Salaries and benefits $ 315,000.00 $ 325,000.00
Supplies expenses $ 112,400.00 $ 105,000.00
Depreciation $ 33,000.00 $ 32,800.00
Purchased services $ 88,000.00 $ 84,000.00
Provision for Bad Debt $ 55,000.00 $ 45,000.00
Other Expenses $ 24,500.00 $ 32,000.00
Interest $ 12,700.00 $ 12,500.00
Total Operating Expenses $ 640,600.00 $ 636,300.00
Income from Operations $ 141,700.00 $ 134,500.00
Non-Operating Income:
Investment Income + Contributions $ 21,000.00 $ 19,000.00
Total Income Before Taxes $ 162,700.00 $ 153,500.00
(less Income Taxes) $ (65,080.00) $ (61,400.00)
Net Income (Loss) $ 97,620.00 $ 92,100.00
Liquidity Ratios
Current ratio 1.76 1.66 1.88
Quick Ratio 1.66 1.53 1.58
Acid Test Ratio 0.23 0.21 0.29
Days in Accounts Receivables 80.81 71.99 50
Days cash on Hand 132.94 120.05 103

Sheet2

Rocky Hill Community Hospital
Balance Sheet (in '000)
For the Years Ended December 31, 2011 and 2012
2012 2011
Current Assets
Cash & Cash Equivalents $ 40,500.00 $ 15,500.00
Patient Accounts Receivables, Net $ 29,500.00 $ 26,400.00
Inventories $ 3,800.00 $ 4,000.00
Other Current Assets $ 10,500.00 $ 5,200.00
Total Current Assets $ 84,300.00 $ 51,100.00
Plant, Property, & Equipment
Gross Plant, Property, & Equipment $ 115,000.00 $ 200,500.00
(less Accumulated Depreciation) $ (65,000.00) $ (107,000.00)
Net Property, Plant and Equipment $ 50,000.00 $ 93,500.00
Funded Depreciation/board designated funds
Cash and short term investments $ 185,000.00 $ 110,000.00
Total Assets $ 319,300.00 $ 254,600.00
Current Liabilities
Accounts Payable $ 9,500.00 $ 8,500.00
Salaries Payable $ 4,500.00 $ 3,500.00
Notes payable $ 4,300.00 $ 4,500.00
Total Current Liabilities $ 18,300.00 $ 16,500.00
Non-Current Liabilities
Bonds Payable $ 54,000.00 $ 27,500.00
Total Non-Current Liabilities $ 54,000.00 $ 27,500.00
Net Assets $ 247,000.00 $ 210,600.00
Total Liabilities and Net Assets $ 319,300.00 $ 254,600.00
Rocky Hill Community Hospital
Statement of Operations (in '000)
For the Years Ended December 31, 2011 and 2012
2012 2011
Revenues
Net Patient Revenues $ 197,000.00 $ 184,000.00
Other Operating Revenues $ 6,400.00 $ 5,700.00
Total Operating Revenues $ 203,400.00 $ 189,700.00
Operating Expenses
Salaries and benefits $ 101,600.00 $ 93,500.00
Supplies and other expenses $ 70,100.00 $ 61,000.00
Depreciation $ 12,000.00 $ 11,300.00
Provision for Bad Debt $ 9,173.00 $ 9,167.00
Interest $ 1,413.00 $ 1,433.00
Total Operating Expenses $ 194,286.00 $ 176,400.00
Income from Operations $ 9,114.00 $ 13,300.00
Non-Operating Income:
Investment Income + Contributions $ 9,500.00 $ 8,500.00
Excess of revenues over expenses $ 18,614.00 $ 21,800.00
Net Income $ 18,614.00 $ 21,800.00

Sheet3

Rocky Hill Community Hospital

Balance Sheet (in '000)

For the Years Ended December 31, 2011 and 2012

20122011

Current Assets

Cash & Cash Equivalents40,500.00$ 15,500.00$

Patient Accounts Receivables, Net 29,500.00$ 26,400.00$

Inventories 3,800.00$ 4,000.00$

Other Current Assets 10,500.00$ 5,200.00$

Total Current Assets 84,300.00$ 51,100.00$

Plant, Property, & Equipment

Gross Plant, Property, & Equipment 115,000.00$ 200,500.00$

(less Accumulated Depreciation) (65,000.00)$ (107,000.00)$

Net Property, Plant and Equipment 50,000.00$ 93,500.00$

Funded Depreciation/board designated funds

Cash and short term investments185,000.00$ 110,000.00$

Total Assets 319,300.00$ 254,600.00$

Current Liabilities

Accounts Payable 9,500.00$ 8,500.00$

Salaries Payable 4,500.00$ 3,500.00$

Notes payable 4,300.00$ 4,500.00$

Total Current Liabilities 18,300.00$ 16,500.00$

Non-Current Liabilities

Bonds Payable54,000.00$ 27,500.00$

Total Non-Current Liabilities 54,000.00$ 27,500.00$

Net Assets247,000.00$ 210,600.00$

Total Liabilities and Net Assets319,300.00$ 254,600.00$

Sheet1

Williamson Academic Medical Center
Balance Sheet (in '000)
For the Years Ended December 31, 20X0 and 20X1
20X1 20X0
Current Assets
Cash & Cash Equivalents $ 26,300.00 $ 23,500.00
Patient Accounts Receivables, Net $ 165,000.00 $ 145,000.00
Inventories $ 9,500.00 $ 12,000.00
Other Current Assets $ 3,000.00 $ 2,400.00
Total Current Assets $ 203,800.00 $ 182,900.00
Plant, Property, & Equipment
Gross Plant, Property, & Equipment $ 640,000.00 $ 576,000.00
(less Accumulated Depreciation) $ (254,000.00) $ (226,000.00)
Net Property, Plant and Equipment $ 386,000.00 $ 350,000.00
Long-Term Investments $ 195,000.00 $ 175,000.00
Total Assets $ 784,800.00 $ 707,900.00
Current Liabilities
Accounts Payable $ 87,200.00 $ 85,000.00
Salaries Payable $ 23,000.00 $ 20,000.00
Notes payable $ 3,200.00 $ 3,000.00
Other Current Liabilities $ 2,100.00 $ 2,000.00
Total Current Liabilities $ 115,500.00 $ 110,000.00
Non-Current Liabilities
Bonds Payable $ 136,500.00 $ 141,000.00
Total Non-Current Liabilities $ 136,500.00 $ 141,000.00
Owners' Equity $ 532,800.00 $ 456,900.00
Total Liabilities and Equity $ 784,800.00 $ 707,900.00
Williamson Academic Medical Center
Income Statement
For the Years Ended December 31, 20X0 and 20X1
Revenues
Net Patient Revenues $ 745,300.00 $ 735,200.00
Other Operating Revenues $ 37,000.00 $ 35,600.00
Total Operating Revenues $ 782,300.00 $ 770,800.00
Expenses
Salaries and benefits $ 315,000.00 $ 325,000.00
Supplies expenses $ 112,400.00 $ 105,000.00
Depreciation $ 33,000.00 $ 32,800.00
Purchased services $ 88,000.00 $ 84,000.00
Provision for Bad Debt $ 55,000.00 $ 45,000.00
Other Expenses $ 24,500.00 $ 32,000.00
Interest $ 12,700.00 $ 12,500.00
Total Operating Expenses $ 640,600.00 $ 636,300.00
Income from Operations $ 141,700.00 $ 134,500.00
Non-Operating Income:
Investment Income + Contributions $ 21,000.00 $ 19,000.00
Total Income Before Taxes $ 162,700.00 $ 153,500.00
(less Income Taxes) $ (65,080.00) $ (61,400.00)
Net Income (Loss) $ 97,620.00 $ 92,100.00
Liquidity Ratios
Current ratio 1.76 1.66 1.88
Quick Ratio 1.66 1.53 1.58
Acid Test Ratio 0.23 0.21 0.29
Days in Accounts Receivables 80.81 71.99 50
Days cash on Hand 132.94 120.05 103

Sheet2

Rocky Hill Community Hospital
Balance Sheet (in '000)
For the Years Ended December 31, 2011 and 2012
2012 2011
Current Assets
Cash & Cash Equivalents $ 40,500.00 $ 15,500.00
Patient Accounts Receivables, Net $ 29,500.00 $ 26,400.00
Inventories $ 3,800.00 $ 4,000.00
Other Current Assets $ 10,500.00 $ 5,200.00
Total Current Assets $ 84,300.00 $ 51,100.00
Plant, Property, & Equipment
Gross Plant, Property, & Equipment $ 115,000.00 $ 200,500.00
(less Accumulated Depreciation) $ (65,000.00) $ (107,000.00)
Net Property, Plant and Equipment $ 50,000.00 $ 93,500.00
Funded Depreciation/board designated funds
Cash and short term investments $ 185,000.00 $ 110,000.00
Total Assets $ 319,300.00 $ 254,600.00
Current Liabilities
Accounts Payable $ 9,500.00 $ 8,500.00
Salaries Payable $ 4,500.00 $ 3,500.00
Notes payable $ 4,300.00 $ 4,500.00
Total Current Liabilities $ 18,300.00 $ 16,500.00
Non-Current Liabilities
Bonds Payable $ 54,000.00 $ 27,500.00
Total Non-Current Liabilities $ 54,000.00 $ 27,500.00
Net Assets $ 247,000.00 $ 210,600.00
Total Liabilities and Net Assets $ 319,300.00 $ 254,600.00
Williamson Academic Medical Center
Income Statement
For the Years Ended December 31, 20X0 and 20X1
Revenues
Net Patient Revenues $ 745,300.00 $ 735,200.00
Other Operating Revenues $ 37,000.00 $ 35,600.00
Total Operating Revenues $ 782,300.00 $ 770,800.00
Expenses
Salaries and benefits $ 315,000.00 $ 325,000.00
Supplies expenses $ 112,400.00 $ 105,000.00
Depreciation $ 33,000.00 $ 32,800.00
Purchased services $ 88,000.00 $ 84,000.00
Provision for Bad Debt $ 55,000.00 $ 45,000.00
Other Expenses $ 24,500.00 $ 32,000.00
Interest $ 12,700.00 $ 12,500.00
Total Operating Expenses $ 640,600.00 $ 636,300.00
Income from Operations $ 141,700.00 $ 134,500.00
Non-Operating Income:
Investment Income + Contributions $ 21,000.00 $ 19,000.00
Total Income Before Taxes $ 162,700.00 $ 153,500.00
(less Income Taxes) $ (65,080.00) $ (61,400.00)
Net Income (Loss) $ 97,620.00 $ 92,100.00

Sheet3