Exam #1 Flashcards
What are the industries in the healthcare sector?
- Health Services
- Insurance
- Medical Equipment and Supplies
- Pharmaceuticals and Biotech
- Others
What are the two areas of healthcare finance?
- Accounting- Recording economic events
2. Financial Management- Provides tools to make decisions.
What is the difference between a business and a pure charity?
A business sustains itself financially by selling goods and services, and competing in the market. A pure charity gets its funds through contributions and provides free services.
What are the benefits of Integrated Delivery Systems?
- Patient capture
- Provider access to managerial and functional specialists
- More efficient
- Better access to capital
- More ability to recruit and retain management and professional staff
- One stop shopping
- More customized services
- Incentives for providers increases productivity
What is the structure of the finance function within health service organizations?
CEO
CFO
Treasurer & Comptroller
What is the primary legal issue facing providers today?
Professional Liability (Malpractice)
What are the major current concerns of healthcare managers?
- CMS reimbursement
- Bad Debt losses
- Balancing Clinical and Financial Issues
What are the three forms of business organizations, and pros and cons of each?
- Proprietorship
- easy to start, low taxes, less regulation
- limited resources, limited life, difficult to sell, liability
- Partnership
- same as proprietorship
- Corporation
- unlimited life, easy ownership transfer, limited liability
- double taxation, time and money to start
What are the differences between investor owned and NFP organizations?
- Stockholders (have claim on residual earnings)
- Taxation
- Stakeholders
- Tax Deductible Contributions
- Issue Tax Exempt Debt
What is the primary goal of investor owned corporations?
Shareholder wealth maximization (stock price)
What is the primary goal of NFP organizations?
Stick to their mission statement and visions that have been set forth to help the community.
Who are the major third-party payers?
- Private Insurers
- Blue Cross/Blue Shield
- Commercial Insurers
- Self-Insure
- Public Insurers
- Medicare
- Medicaid
What are the primary characteristics of managed care plans?
- Negotiate lower rates with providers by using selective contracting
- By controlling patient flow they have bargaining power
Describe different types of manages care plans
- Health Maintenance Organization (HMO)
- Preferred Provider Organization (PPO)
What is the difference between fee-for-service and capitation?
- Fee for service is per service provided and is payed after service is provided.
- Capitation is a set amount payed per person before care is given
What is a stakeholder?
Anybody that has a financial interest in the organization. It could be anything from community members to employees.
Who is most interested in the financial condition of a provider?
Investors
What is the goal of financial accounting?
Provide information to outside parties, managers of the organization, and the board of trustees.
What are generally accepted accounting principles?
A set of objectives or principles that guide how to prepare and present financial statements.
What is the purpose of GAAP?
Sets the rules for financial statement preparation.
What organizations establish GAAP?
- Securities and Exchange Commission (SEC)
- Financial Accounting Standards Board (FASB)
- American Institute of Certified Public Accountants (AIC-PA)
What is the difference between cash and accrual accounting?
- Cash is recorded when money changes hands.
- Accrual is recorded when the service is provided. This ensures that revenues are recognized and matched with expenses and time periods.
What is the format of the income statement?
Operating Income
-Expenses
+Nonoperating Income
=Net Income/Profit
What is the difference between gross and net revenue?
Gross Revenue- Everything Billed
Net Revenue- Everything Collected (to be collected)
What is the difference between patient service revenue and other revenue?
Patient service is anything directly provided to the patient. Other revenue is services linked with patient services such as parking, food, etc.
What is the difference between charity care and bad debt losses?
Charity- Those who would pay, but can’t.
Bad Debt- Those who can pay, but don’t.
What is depreciation expense, and what is it’s purpose?
It is a non cash expense used to show the wear and tear of fixed assets over many years.
What is the difference between operating income and net income?
Operating income is from core business revenues, while net income incorporates all revenues including contributions, interest income, etc.
Why is net income called the bottom line?
Because of it’s location on the income statement, as well as it’s importance.
What is the difference between an income statement and cash flows statement?
Income shows profitability over a period of time, and cash flows shows how much money changed hands, and where it went over that period.
What is the purpose the statement of changes in equity?
Provides and indication of how much net income will be retained, and increases equity on the balance sheet.
What is the basic format of the statement of changes in equity?
Net Income
-Dividends
+Beginning Equity
=Ending Equity
What is the difference between the income statement and balance sheet in regards to timing?
Balance sheet is a “snapshot in time”
Income statement is a summary of a period of time
What is the accounting identity?
Assets = Liabilities + Equity
What are assets? What are the three categories of assets?
- Resources owned by an organization that can be used to create future revenues.
- Current assets, Long-term investments, Net property and equipment
What makes an asset a current asset?
If it can be liquidated within one accounting period
- Cash
- Short Term Investments
- Accounts Receivable
- Inventory
What is Net Working Capital, and how is it measured?
Current Assets - Current Liabilities
Shows if you can cover short-term debts.
What is the difference between equity section of a NFP vs. Investor Owned organization?
- Amount of claims owned by shareholders of the company.
- Net Assets
What is Equity?
The amount of total assets financed by non liability capital.
What is fund accounting and why is it important?
Used by NFP organizations, it helps them classify donations provided based on how they can use them.
- Unrestricted
- Temporarily Restricted
- Permanently Restricted
What are the three major sections of a cash flow statement?
- Cash flows from operating activities
- Cash flows from financing activities
- Cash flows from investing activities
