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GK > Budget and Finance > Flashcards

Budget and Finance Flashcards

1
Q

What is a forecast budget?

A

budget line items are increased or decreased based on previous years budget.
based on number of tests performed in the laboratory.
based on revenues from past year and anticipated number of tests to be performed in next year

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2
Q

What is an appropriation budget?

A

fixed amount of money is granted for fixed period of time - usually 1-2 years
can cause shortfalls and inapropriate spending
common with government

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3
Q

What is a flexible budget?

A

Fixed (overhead) and variable (reagents and consumables) expenses are itemized
Useful when test volume or level of activity is subject to change

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4
Q

What is an operational budget?

A

Used primarily by lab managers for the continuous operation of an organization.

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5
Q

What is a capital budget?

A

Designed for purchase of equipment, expansion of program/building or remodeling

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6
Q

What is Zero-Base budget?

A

historical budget information is disregarded
each budget cost and revenue item is developed new
involves description and ranking of all activities ongoing and proposed
highest ranked items are funded

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7
Q

What is rolling-quarter budget?

A

prepared quarterly and more accurate than annual

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8
Q

What is a cash budget?

A

Financial tool prepared monthly to anticipate cash flow (rate money is received and spent)
used to predict timing and amount of cash flow

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9
Q

What is Financial Accounting?

A

Uses double entry bookkeeping, standard reporting forms.
follows generally accepted accounting principles.
looks at costs in aggregate.
only useful for external review.

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10
Q

What is cost accounting?

A

uses less-formal rules.
identifies costs on a unit basis.
useful only for internal purposes.
allows assignment of costs to each revenue generating activity in desired detail.

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11
Q

List 11 major components of cost?

A

1) Direct Costs
2) Indirect Costs
3) Variable Costs
4) Fixed Costs
5) Prime Costs
6) Conversion Costs
7) Full Production Costs
8) Ready to Serve Costs
9) Fully Loaded Costs
10) Salary Costs
11) Fringe Benefits

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12
Q

What are direct costs?

A

Costs directly assigned to production of a product (billable test result)
-Consumables and supplies required for test
-technical labor for testing and QC
-Apportioned equipment costs and depreciation

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13
Q

What are indirect costs?

A

Costs not directly involved with production of billable test
-costs to acquire specimens and bill for tests
-Estimated by subtracting identifiable costs from total laboratory costs.
-personnel costs are major component
-Personnel time of those not directly doing tests (supervisor, phlebotomists, secretaries, etc)
-office supplies
-billing costs
-courier services

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14
Q

What are variable costs?

A

Those that change with production volume.
- Variable Direct: reagents and supplies
-Variable Indirect: supervisor time to oversee operations and review QC

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15
Q

What is the difference between variable direct and variable indirect costs?

A

-Variable direct would be supplies and reagents
-Variable indirect includes supervisor time to oversee operations and review QC

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16
Q

What are fixed costs?

A

Costs that don’t change with production volume
-Lease on equipment
-Building costs
technologists needed for coverage regardless of work level
- Administrative overhead
-Management related supplies

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17
Q

What are prime costs? How is it used?

A

Direct labor and direct material costs necessary to produce billable result
Main cost considered when comparing TWO METHODS for measuring same analyze on same analyzer

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18
Q

What are conversion costs? How is it used?

A

Costs necessary to produce billable result WITHOUT considering MATERIALS cost
Used for comparing cost of measuring same analyze using same amount and type of reagent on TWO DIFFERENT ANALYZERS

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19
Q

What are full production costs?

A

-Includes PRIME and CONVERSION
-includes all costs to produce billable result EXCEPT INDIRECT costs and READY TO SERVE costs

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20
Q

What are ready to serve costs?

A

-Costs just to keep lab operational
- Includes section overhead
-Costs of collecting and reporting results
-laboratory administration costs

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21
Q

What are fully loaded costs?

A

Full production and ready to serve costs

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22
Q

List the fully loaded cost components and how each are calculated

A

Prime Costs = Direct Labor + Direct Materials

Conversion Costs = Direct Labor + Section Overhead

Full Production Costs = Direct Labor + Direct Materials + Section Overhead

Ready to Serve Costs = Section Overhead + Collection & Reporting + General Laboratory Overhead

Fully Loaded Costs = Prime Costs + Ready to Serve Costs

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23
Q

How are salary costs different from non-salary expenses? What are additional costs beyond hourly pay or salaried wages?

A

-Fringe benefits associated with salary costs
-Recruitment and selection
-orientation and initial training costs
-ongoing growth and development
-continuing education

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24
Q

What are fringe benefits?

A

20-30% of salary
-Social security tax (FICA) = 7.65% unemployment compensation
- Workers’ compensation
-Health insurance
-life and disability insurance
-retirement plans
- vacation leave
- sick leave
-maternity leave

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25
Q

What proportion of laboratory budget are salary costs?

A

60-80%

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26
Q

What are the limitations on laboratory cost reduction?

A

High proportion of fully loaded costs are fixed costs
50% drop in workload = 14% reduction in FTE
2.9% FTE decrease per 10% workload reduction
most labs most be partially or fully staffed regardless of workload

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27
Q

What is the calculation for number of tests to break even?

A

Tests to break even =
Fixed Costs / (Test Price - Variable Costs)

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28
Q

What is the calculation for minimum test charge to break even?

A

Charge to break even = (Fixed Costs / Test Volume) + Variable Costs

29
Q

What is the calculation for how much revenue to break even?

A

Minimum to break even = Fixed Costs / Test PriceUnit - Variable CostUnit

OR

Fixed Costs/Contribution Margin %

30
Q

How do you calculate contribution margin %?

A

Test Price/Unit - Variable CostUnit / Test PriceUnit

31
Q

What is purchase requisition?

A

Request for purchase
Justification may include:
-impact on lab service
-staffing requirements
-direct/indirect costs
-revenue

32
Q

What is a purchase order?

A

order to purchase items at given price or given period of time

33
Q

What is standing purchase order?

A

certain supplies delivered automatically in requested number or frequency

34
Q

What is a blanket purchase order?

A

-informs vendor that certain amount of material or total dollar amount may be ordered within the specified time at a fixed charge per item
-PO specifies how much can be purchased and customer is free to order as needed up to dollar amount

35
Q

How is equipment rental different from lease?

A

Rental is more expensive if equipment is kept for 3 or more years
-Vendor retains ownership, supplies all service
-rental agreements can be cancelled anytime
-payments considered operating expense

Lease are for specified time
- payments may be tax deductible or reimbursable
- builds equity

36
Q

What are the two components of pricing strategies?

A

1) initial price
2) price movement over time

37
Q

What is cost-oriented pricing ?

A

Mark up
set percentage is added to known cost

38
Q

What is demand-oriented pricing?

A

pricing set to what sellers believe the buyer is willing to pay or at different levels for different segments (i.e. STATs)

39
Q

What are 3 competition-oriented pricing strategies?

A

1) Going rate
2) Relative position - raised or lowered according to what others charge
3) Sealed Bid Pricing - price determined by what each bidder thinks its competition may bid
-True costs or desired profit margin are secondary

40
Q

What is a skim pricing strategy?

A

price set to take advantage of short-term situation to maximize profit

41
Q

What is penetration pricing?

A

offensive tactic to undercut competitor’s price to attract away customers

42
Q

What is loss leader pricing?

A

product is offered at little profit to attract customers in hopes they will purchase items of higher profit margin.

43
Q

What is discount pricing?

A

Offering various levels of discounts depending on volume of business

44
Q

What is segmented pricing?

A

changing pricing for different segments despite little differences in costs

45
Q

List 4 illegal pricing strategies

A

1) Price fixing - sellers can’t discuss pricing decisions with competitors
2) Price discrimination - must sell product to all buyers at same price except where some difference can be shown (such as volume)
3) Minimum Price - cannot sell goods below cost for any extended time with intent to destroy competition
4) Deceptive pricing - prohibits sellers from hiding after-sale service charges and raising prices before discounting prices

46
Q

What is revenue?

A

Revenue is the total price of services rendered or products sold.
Should not be confused with reimbursement of cash collected.

47
Q

What is gross patient revenue?

A

total charges at facility’s full-established rates (list price) for provision of inpatient or outpatient care before deductions from revenue are applied

48
Q

What is net patient revenue?

A

gross inpatient and outpatient revenues minus all related deductions

49
Q

What are the deductions from revenue?

A

contractual adjustments, provision for bad debts (lack of payment), charity care, other adjustments and allowances that reduce gross patient revenue

50
Q

What are contractual adjustments?

A

Differences between billings at full-established rates and amounts received or receivable from 3rd party payers under formal contract agreements

51
Q

What is self-pay or out-of-pocket?

A

-fees and services not covered by insurance or government payers
-in US typically reserved for elective testing, infertility testing and procedures, genetic testing
-lab sets fee schedule and patient elects to pay this fee
- labs set pricing to what market will bear

52
Q

What are two main types of private insurance?

A

1) Managed care
2) indemnity plans

53
Q

What is managed care?

A

introduced with health maintenance organization act 1973
-encouraged and funded development of HMOs in an effort to contain health care costs
-payments under managed care contracts are generally by capitation agreements in which laboratory is paid a set amount per member per month (PMPM)
-laboratory assumes risk of spending more than it is paid

54
Q

What are indemnity plans or fee-for-service?

A

Insurance company agrees to pay provider for services
-in US usually coinsurance
- most insurance companies use Medicare Part B fee schedule as baseline to set their reimbursement fees
-Medicare Part B fee schedule is important to all laboratories, even those that don’t provide Medicare patient testing

55
Q

Why is medicare Part B fee schedule important to all laboratories?

A

Most insurance companies use it as baseline to set their reimbursement fees

56
Q

What is Medicare?

A

-Established by XVII of Social Security Act in 1965
Administered by CMS under direction of HHS
-Federal health insurance for individuals 65 years of age and older, those permanently disabled, those with end stage renal disease who have met the waiting period requirements
- Four parts A,B,C,D

57
Q

What are the differences between Medicare Parts A, B, C, D?

A

A: inpatient hospitalization, hospice, skilled nursing, home health care
Coverage is automatic for eligible

B: outpatient laboratory tests, physician professional services, outpatient medical services/devices
-coverage not automatic
-eligible individuals must enroll for Part B

C: medicare advantage plan
-alternative to part B
-HMO-type coverage plan

D: Effective in 2003 with Medicare prescription Drug, Improvement and Modernization Act
-Provides prescription drug benefits

58
Q

What is Medicaid?

A

-Authorized as Federal/State sponsored program in 1965
- It is a federal program BUT administered by individual states
- State determines eligibility, range of health services offered, and how they are reimbursed
-Offers health coverage for select but not all low-income families

59
Q

What are procedure codes?

A

Listing of descriptive terms and identifying codes for reporting medical services performed by physicians
-provides uniform language to accurately describe medical, surgical and diagnostic services to justify billing

60
Q

What are current procedural terminology (CPT) codes?

A

Proprietary product of American Medical Association developed in 1966
-5 digit descriptors to represent services performed
- updated annually
- Have been adopted by Healthcare Common Procedure Coding System
-Recognized by private insurance companies and federal healthcare payment programs
-Referred to as I-CPT codes
-represent services performed by many healthcare professionals in multiple locations

61
Q

What are CPT code modifiers?

A

2 digit numbers attached to specific code prior to billing process
-indicate that service or procedure has been altered but not changed in definition or code
- 26: combination of physician and technical component
-59: distinct procedure of same type on same date of service not reported together
90: lab has referred procedure to reference lab
91: repeat clinical testing

62
Q

List reasons for using code modifiers

A
  • service/procedure has a professional and technical component (electrophoresis, platelet aggregation, peripheral blood smears, body fluid crystals)
    -service/procedure performed by more than 1 physician or location
    -procedure increased or reduced
    -only part of service was performed
    -an adjunctive service was performed
    -bilateral procedure
  • provided more than once
    -unusual events
    -specific information
63
Q

What are Healthcare Common Procedure Coding System (HCPCS)?

A

HCPCS codes II and Codes III are commonly called Category II and Category III CPT Codes
Assigned by CMS and not AMA

64
Q

What are category II CPT codes?

A

HCPCS Codes II referred to as category II CPT codes
-Begin with letter A-V followed by four digits
-Developed to fill gap that CPT (category I) codes don’t fill
-intended for special services or when category I code doesn’t exist
- performance measurement tool

65
Q

What are Category III CPT Codes?

A

Implemented in 2001
Codes designed to be temporary set for procedures that represent emerging technologies not yet meeting requirements for Category I code assignment
updated 2x per year

66
Q

What are ICD-10-PCS codes?

A

International classification of Diseases Version 10, Procedure Coding System
Developed by 3M under contract by CMS
NOT confused with ICD-10-Clinical Modification
Released in 1999 but not used
CPT coding is dominant system used in the US

67
Q

What is LOINC?

A

-Logical Observation Identifier Names and Codes
-Alternative to CPT
-considered a universal laboratory language based on breakdown of components of a service into more specific units
- typically 7 digit code
- maps highly specialized procedures to a code
-publicaly available with no license fee
-Used by some commercial laboratories to track specific procedures

68
Q

What are the International Classification of Disease, Clinical Modification Codes

A

ICD-9-CM and ICD-10-CM codes
-10th edition has replaced 9th
-Diagnostic codes identifying the illness, injury, symptoms or complaint.
-Many insurance companies won’t pay for laboratory charges unless there is an accompanying ICD code justifying the procedure
-ICD is oldest method of tracking diseases and mortality in the world
-Current version used in US was developed by WHO
-ICD-9-CM was mandated in 2003 by HIPA of 1996
-Entities required to use it include health plans and health care providers who transmit any electronic health information in connection with a transaction for which a standard has been adopted by HHS
-ICD-CM composed of numerical list of diagnoses, signs, symptoms, clinical conditions, or reasons for physician encounter
-includes disease condition or signs/symptoms and preventative medical reasons for encounters

69
Q

What is Systematized Nomenclature of Medicine Clinical Terminology?

A

SNOMED-CT
alternative clinical coding system developed by CAP
used by UK national health service and International Health Terminology Standards Development Organization

GK (15 decks)

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