Chapter 12: Financial Management Flashcards
is the supply, labor, and overhead money spent on a
product or service
Cost or Expense
are expenses that can easily be traced directly to an end
product. In the laboratory setting, the end product is a billable test.
Examples are reagents, consumables, and hands-on technologist time. In contrast
Direct cost
are not directly related to a billable test but are necessary
for its production. it was often referred to as overhead.
Examples are proficiency testing and utility expenses.
Indirect costs
do not change with the volume of tests performed.
Fixed costs
Fixed costs that change with increments of volume
Step costs
also associated with the recruitment, interview, and selection process
Salary costs
are the expenses incurred to produce a product or
service.
Operating costs
the item must meet three criteria: time, price, and purpose.
Capital item
The annual loss of a capital item’s value
Depreciation
determines the total direct labor and supply costs of producing a test, and it is the starting point for determining the fully loaded cost and ultimately the price for a test.
Microcosting
distributes the total direct costs of a run over the patient “reportable” results for that run. Testing efficiency is defined as the total reportable patient results/total test results.
Cost per reputable result
the cost of producing one additional test that, typically, does not require an additional salary or capital
Incremental cost
for a test is the sum of direct and indirect costs
Fully loaded cost
should be based on the fully loaded cost to produce the test compared with the price offered by a commercial or reference laboratory.
Make-versus-buy decisions
is the balance remaining after the fully loaded costs are deducted from the price charged for a test.
Contribution margin
a laboratory is the life cycle cost of its capital assets. It focuses attention on the sum of all costs of owning
and maintaining all assets for a specific service or product, as opposed to the initial capital or operating costs.
total cost of ownership (TCO)
the total price of services rendered or products sold
It is the money a business is entitled to receive for the services and products it produces.
Revenue
consists of the total charges at a facility’s full-established rates (list price) for provision of inpatient and outpatient care before deductions from revenue are applied.
Gross patient revenue
is the gross inpatient and outpatient revenue minus all related deductions.
Net patient revenue
from revenue includes contractual adjustments, provision for bad debts, charity care, and other adjustments and allowances that reduce gross patient revenue.
Deductions
account for the difference between billings at full established rates and amounts received or receivable from third-party payers under formal contract agreements.
Contractual
adjustments
provided federal money to the states to plan and construct new facilities.
the passage of the Hill-Burton Hospital Construction Act of 1946 or Hill-Burton Act
is also known as fee-for-service, are traditional insurance plans that give patients absolute freedom to choose their physicians and medical facilities.
Indemnity plans
was introduced in 1973 with the passage of the Health Maintenance Organization
Act.
Managed care
is federal health insurance for individuals age 65 and older, individuals who are permanently disabled, and those with end-stage renal disease who have met the specified waiting period
Medicare
A nonhospital independent laboratory is not subject to
72 hour rule
are not reimbursed if performed in the admitting hospital’s laboratory but are reimbursed if done in an independent laboratory.
preadmission tests performed 3 days before hospitalization
What testing may also be bundled into the DRG if the test/
service is ordered by the patient’s physician less than 14 days following the date of the patient’s discharge from the hospital
Postdischarge testing
the process of planning, forecasting, controlling, and monitoring the financial resources of an organization
Budgeting
provides a target of day-to-day revenues and expenditures that are to be achieved in the forthcoming year
Operational Budget
It provides in a pro forma or “predetermined set form” the
expected annual revenue and expense based on various projections and assumptions, including test volume
pro forma budget or “predetermined set form”
requires management to annually evaluate all services
and products to determine which should be funded or eliminated.
zero-based budget
used to fund large capital projects such as acquiring
an instrument or information system or remodeling the laboratory
Capital budget
used to prepare and monitor budgets
Managerial accounting
a system used to report business information to external entities such as the Internal Revenue Service or stockholders.
Financial accounting
is the statement of an organization’s financial position
at a specific point in time
balance sheet
also known as the statement of profit and loss, summarizes the organization’s revenues and expenses over an accounting period, usually quarterly or annually.
income statement
is realized when expenses exceed net revenues.
net loss
shows the amount of cash generated by an
organization over a period of time, usually a calendar or fiscal year
statement of cash flows
It does no good
to collect productivity data if they are not compared with a standard or
evaluated for trends over time.
Benchmarking and productivity measures
is the measurement of
an organization’s products or services against specific standards for comparison and improvement
can be internal or external.
Benchmarking
an organization’s productivity over time.
Internal Benchmarking
compares a laboratory’s productivity with that
of other laboratories. Its purpose is to identify top performers in a particular
field.
External Benchmarking
is commonly used to evaluate a capital project.
Payback period
a capital project is reached when the volume of sales is such that total revenue equals total costs (fixed and variable), and therefore profit is zero.
breakeven point
the standard for evaluating how wisely management uses its capital dollars, whether from its own cash reserves or from borrowing
activities.
rate of return on investment (ROI)
is the discount rate at which the present value of a capital project’s expected cash inflows equals the present value of its costs, or in other words, when the NPV equals zero.
internal rate of return (IRR)
the method for acquiring the equipment
is also an important consideration.
Capital Acquisition Methods
(also known as a “true” lease) allows an organization
(lessee) full use of the equipment for a predetermined time.
operating lease
(also known as a capital lease or lease-purchase), the lessee eventually gains ownership of the equipment. The lease period corresponds to the economic life of the equipment.
financial lease
is a lease payment to cover the cost
of the capital. Whether or not the equipment will be owned at the end of the reagent rental agreement will determine if the agreement was a financial
lease.
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