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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
Indirect cost
-not directly traceable -incurred for overall operation -requires assignment Usually: depreciation, administration
26
Allocation of costs
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
Fixed costs
- 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
Variable costs
- 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
Mixed/semi-variable/semi-fixed
- Characteristics of fixed and variable - Base plus volume component (utils, phone) - Step, non-proportional
30
Contribution margin
what can be contributed to cover fixed costs and profit equals revenues minus total variable costs CM = R - VC
31
Breakeven analysis
Breakeven occurs when total CM = fixed cost Break even volume = total fixed costs / per unit price (revenue) - per unit variable costs
32
Cost-Volume-Profit Formula
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
``` 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?
1) CM = 150 - 30, so 120 2) 250000/150-30 = 2084 3) 2084*150 4) 300000/150-30 =
34
Workload
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
The fixed cost dilemma
- 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
budgets
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
operating budgets
deals with short term revenues and expenses to operate
38
capital budgets
deals with large capital expenditures in the future.
39
static budget
defined then does not change
40
flexible budget
adjusted to reflect actual experience more time and effort addresses workloads, control and planning
41
trend analysis
comparing data over time | valuable for managers to see changes in performance, efficacy of interventions
42
variance
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
staffing challenges
mix of providers need 24/7/365 account for non-productive time and shortages
44
Annualizing staffing
- determine productive and non-productive time using FTEs - 1 FTE = 2080 hrs (52*5*8) 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
How to Solve Cost Crisis in HC main points
- 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
The Fixed Cost Dilemma
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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