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Strategic Financial Management in HC > Midterm > Flashcards

Midterm Flashcards

1
Q

Economic decisions

A 
choices among competing alternatives; sacrifices are incurred in expectation of future benefits
(sacrifice characteristics)
-amount
-timing
-risk/uncertainty
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2
Q

Accounting

A

systematic recording, reporting and analysis of financial transactions

  • has to be for a biz entity
  • has to be measured in money
  • historical costs used instead of mkt value
  • record only when transactions happen rather than expected
  • matching - revs and expenses are recorded in same period
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3
Q

cash accounting

A

tracks when cash was received and when it was expanded (problem: management can manipulate by paying bills and billing slowly to shower smaller cash growth; revs and expenses are not matched

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4
Q

accrual accounting

A

attempts to allocate expenses to the same period that they were used to generate revenues (problem: more complicated)

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5
Q

Accounting identity 1

A

Asset = Liabilities + Net Worth or

Assets - Liabilities = Net Worth

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6
Q

assets

A

economic resources that will provide future benefits

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7
Q

liabilities

A

claims against those resources by creditors, vendors, employees, and others

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8
Q

net worth

A

the net value of a company

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9
Q

Limited use assets

A

restricted funds for specific use

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10
Q

example of accrual

A

buy supplies on credit, book supplies as asset, but expense them as used

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11
Q

current assets / liabilities

A 
cash 
short term investments
accts receivable
prepaid expenses
supplies

accts payable
accrued expenses
current portion of LTD
taxes payable

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12
Q

non current assets / liabilities

A

PPE
investments
board designated funds

pensions
insurance
LTD

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13
Q

Types of financial ratios

A

liquidity: how well can organization meet short term obligations?
profitability: how profitable is organization?
capital structure: how are org’s assets financed? Can it take on new debt?

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14
Q

Current ratio

A

current assets / current liabilities

  • measure of short term debt paying ability
    type: liquidity desired direction: up
    median: 2
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15
Q

Days COH

A

Cash - marketable securities / (total operating expenses - depreciation/365)

  • measures cash on hand in relation to daily operating expenses
    type: liquidity desired direction: up
    median: 84
  • board designated should be excluded
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16
Q

Days in Receivable

A

Net patient accounts receivable / (net patient revenues/365)
-represents number of operating revenue days in receivables
type: liquidity desired direction: down
Median: 52

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17
Q

Operating Margin

A

Operating income / total operating expenses
-indicates the proportion of profit earned for each dollar of operating revenue
type: profitability desired direction: up
Median: 3%

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18
Q

Return on Equity (or Net Assets)

A

Net Income (or Excess of Revs over Expenses) / Equity (or Net Assets)
-measures the rate of return for each dollar in net worth
Type: Profitability
Desired direction: Up
Median: 8%

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19
Q

Debt Service Coverage

A

(Net income + interest + depreciation) / interest expense + principal payments
-measure of ability to repay loans; for every dolar of debt service (principal + interest) what is the cash inflow during the period
type: capital structure
desired direction: up
Median: 4.5

20
Q

Debt to Net Assets (or Equity)

A

LT Debt / Net Assets

-Measures the proportion of debt to net assets
Type: capital structure
Desired direction: down (due to leverage concerns)
Median hospital: .38
Debt to capitalization is similar:
LTD/LTD + Equity

21
Q

Leverage

A

Leverage = degree of borrowed capital

  • Return on net equity is magnified by debt financing
  • the more debt, the greater the return on net assets is impacted by profit or loss; More debt can magnify returns when going is good, and magnify losses when things are bad
  • Also true in personal finances!
22
Q

Age of plant ratio

A

Accumulated depreciation / depreciation expense

-measures average age of fixed assets (plant and equipment)
Type: activity ratio
Desired direction: down
Median: 10.4

23
Q

Other operations measures

A

Severity measures

  • Avg length of stay
  • Case mix index

Productivity measures:

  • FTE per adjusted occupied bed
  • paid hour per adjusted discharge

Costs and charges:

  • cost per adjusted discharge
  • cost per discharge, case mix and wage index adjusted
  • cost per visit

Utilization:

  • Avg daily census
  • Occupancy percent
  • Visits per day
24
Q

Direct costs

A

Direct:

  • specifically traceable
  • if the operating unit did not exist, would the cost
  • usually: salaries (within cost object), supplies
25
Q

Indirect cost

A

-not directly traceable
-incurred for overall operation
-requires assignment
Usually: depreciation, administration

26
Q

Allocation of costs

A

Sometimes you might use a ratio like sq. footage of a unit within the whole; sometimes you might try to allocate a percentage equally between all departments. Kind of a hairy thing…

27
Q

Fixed costs

A
  • Costs that do not change in relation to volume. whether you sell 1 unit or 1,000, the cost of incurring the fixed costs are the same.
  • However, increasing volume allows one to spread the fixed cost along more people/units/patients

If one looked total costs in terms of fixed costs: total costs would be flat

If one looked at fixed costs per unit in terms of volume: curve sharply decreases (reflecting decreased per unit costs)

28
Q

Variable costs

A
  • Costs that DO change in relation to volume
  • change in relation to output in constant, proportional manner

If one looked at graph of total costs in terms of variable: it would be an increasing line

If one looked at costs per unit in terms of volume: it would would be flat (reflecting that no matter how many widgets you sell, it still costs the same to produce an additional one)

29
Q

Mixed/semi-variable/semi-fixed

A
  • Characteristics of fixed and variable
  • Base plus volume component (utils, phone)
  • Step, non-proportional
30
Q

Contribution margin

A

what can be contributed to cover fixed costs and profit

equals revenues minus total variable costs

CM = R - VC

31
Q

Breakeven analysis

A

Breakeven occurs when total CM = fixed cost

Break even volume = total fixed costs / per unit price (revenue) - per unit variable costs

32
Q

Cost-Volume-Profit Formula

A

revenue - [variable costs + fixed costs] = profit
(# units * price per unit) - [(# units * variable cost per unit) + fixed costs] = profit

revenue = # units * price per unit
variable cost = # units * variable cost per unit
fixed cost = total fixed costs

33
Q 
CT scan exercise where:
scan supplies per scan: 10
scan labor per scan: 20
total deprec for scanner: 250,000
price/unit: 150

contrib margin per unit?
breakeven volume?
breakeven revenue
what if we wanted to make profit of 50k?

A

1) CM = 150 - 30, so 120
2) 250000/150-30 = 2084
3) 2084*150
4) 300000/150-30 =

34
Q

Workload

A

Volume doesn’t equal workload; diff activities require different amts of work or resources

Need to adjust for case mix (complexity)

Cost efficiency and labor productivity are point of metrics

35
Q

The fixed cost dilemma

A
  • assuming we eliminate unwarranted variation, cutting volume in half only means that we have taken revenues away from hospitals but not any fixed costs
  • so savings may not be great for hospital
36
Q

budgets

A

organizational instrument that conveys org objectives, assembly of ops, levels of org, basis for performance eval (variance)
-objectives: to provide a written, quantative expression of the policies/plans of the entity

37
Q

operating budgets

A

deals with short term revenues and expenses to operate

38
Q

capital budgets

A

deals with large capital expenditures in the future.

39
Q

static budget

A

defined then does not change

40
Q

flexible budget

A

adjusted to reflect actual experience
more time and effort
addresses workloads, control and planning

41
Q

trend analysis

A

comparing data over time

valuable for managers to see changes in performance, efficacy of interventions

42
Q

variance

A

difference between anticipated and actuals

sometimes you are wrong… (variance)

  • due to volume: thought there would be more total knees/more workload
  • due to intensity (quantity of resources): caused by difference between expected and actual quantity of input needed per unit of output
  • due to prices: thought price of gas would be X instead of Y
43
Q

staffing challenges

A

mix of providers
need 24/7/365
account for non-productive time and shortages

44
Q

Annualizing staffing

A
  • determine productive and non-productive time using FTEs
  • 1 FTE = 2080 hrs (5258)

So 1 FTE could hypo work 260 days in a year (52*5=260)

  • but 10 fed holidays, 24 sick/vacation days, means we are down to 226 (260-34=226)
  • open 365 days/year
  • Number of FTEs to hire for 1 shift for 365 = 365/226 = 1.62
  • Number of FTEs needed to hire for 250 = 250/226 = 1.11
45
Q

How to Solve Cost Crisis in HC main points

A
  • charges are not good surrogates for provider costs
  • hospital overhead costs are not too complex to allocate them accurately
  • most health care costs are not fixed
46
Q

The Fixed Cost Dilemma

A

fixed costs dilemma leaves most costs insensitive to changes in volume, so clinical QI creates add’l capacity rather than bottom line savings

Strategic Financial Management in HC (1 decks)

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