Financial Matters for Health Care Professionals

Course Number Course Name

HCA/270

Financial Matters for Health Care Professionals

Version 3 08/01/2011

Faculty Notes / Page 1

HCA/270 Finance for the Health Care Professional

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Faculty Materials

BOOKS, SOFTWARE, OR OTHER COURSE MATERIALS

Baker, J. J., & Baker, R. W. (2011). Health care finance: Basic tools for nonfinancial managers (3rd ed.). Sudbury, MA: Jones & Bartlett Publishers.

All electronic materials are available on your student website.

associate level MATERIALS

Associate Level Writing Style Handbook, available online at

Course Description

This course is designed as an introduction to the terminology, processes, functions, and financial reports commonly encountered in health care operations. This course introduces the concepts of basic managerial financial functions, such as budgeting, reimbursement methods, and the responsibilities of health care financial management.

Topics and Objectives

Week One: Introduction to Health Care Finance

Define basic finance concepts.
Compare the two types of accounting.
Identify organizational financial reports.

Week Two: Recognizing and Recording Financial Operations

Identify sources of health care revenue.
Classify balance sheet and income statement items.
Compute contractual allowances.

Week Three: Cost Classifications

Describe the difference between direct and indirect costs.
Differentiate between fixed, variable, and semi-variable costs.
Describe classification of costs.

Week Four: Management’s Responsibility for Staffing

Describe the difference between productive and nonproductive time.
Calculate full-time equivalent (FTE) to annualize staff positions.
Explain how costs are tied to staffing.

Week Five: Inventory and Depreciation Concepts

Discuss the interrelationship between the inventory and cost of goods sold.
Differentiate between LIFO and FIFO inventory methods.
Define methods of computing book depreciation.

Week Six: Time Value of Money

Define time value of money.
Identify the use of comparative data.
Calculate financial ratios.

Week Seven: AnalysisofFinancial Statements

Describe the components of financial statements.
Identify the basic concept of cash flows.
Explain the uses and limitations of financial statements.
Describe the importance and use of budgeting.

Week Eight: Financial and Operating Ratios

Define liquid, solvency, and profitability ratio.
Calculate operating ratios.

Week Nine: Financial Implications of Technology

Identify costs and incentives of technology.
Explain the importance of implementing technology in health care.
Identify capital budget expenditures as they relate to technology.

Week One Faculty Notes

Topics and Objectives

Introduction to Health Care Finance

Define basic finance concepts.
Compare the two types of accounting.
Identify organizational financial reports.

Weekly Overview

This week covers the basic concepts of finance in health care,includingidentifying various organizational financial reports. The discussion questions allow students to focus on the four elements of financial management, and the differences between financial and managerial accounting. The assignment focuses on concepts offinancial practice.

Assignment Notes

Discussion Questions are due this week.

Assignment:Financial Concepts and Reports

Resources Required

Ch. 1, 2,and Glossary of Health Care FinanceAssociate LevelMaterial: Financial Concepts and Reports

Answer Key for Financial Concepts and Reports, Due in Week One

Week Two Faculty Notes

Topics and Objectives

Recognizing and Recording Financial Operations

Identify sources of health care revenue.
Classify balance sheet and income statement items.
Compute contractual allowances.

Weekly Overview

This week, students cover sources of health care revenue, including governmental, managed care, commercial, and private pay. The assignment, a multimedia game, covers identifying balance sheet and income statement items, while requiring students to compute contractual allowances and grouping revenue sources by payer and expenses by cost center.

Assignment Notes

Assignment:Balance Sheets and Income Statements Multimedia

Resource Required

Grading Guide

Feedback is provided by the multimedia. The student’s score is delivered to his or her Individual forum.

Assignment:Contractual Allowances, Grouping Revenue, and Grouping Expenses

Purpose of Assignment

Students must have a firm understanding of revenue and costs tied to health care delivery.Financial management in health care requires a working knowledge of computing contractual allowances for services rendered, grouping revenue by payer, and grouping expensesby cost center. This assignment acquaints students with these practices and prepares them for the managerial finance.

Resources Required

Ch. 4 & 5 ofHealth Care Financeand Associate Level Material: Contractual Allowances, Grouping Revenue,and GroupingExpenses

Answer Key for Contractual Allowances, Grouping Revenue, and Grouping Expenses

Week Three Faculty Notes

Topics and Objectives

Cost Classifications

Describe the difference between direct and indirect costs.
Differentiate between fixed, variable, and semi-variable costs.
Describe classification of costs.

Weekly Overview

This week, students focus on understanding cost allocations. The discussion questions cover direct and indirect fixed and variable costs, asking students to relate real-world examples, and identify and recommend improvement opportunities to lower costs. The assignment requires students to match cost classification terms with definitions, and match these terms with real-world examples.

Assignment Notes

Discussion Questions are due this week.

Assignment:Costs Classification

Resources Required

Ch.6, 7, & 9 of Health Care Financeand Associate Level Material: Costs Classification

Answer Key for Costs Classification, Due in Week Three

Directions: Consult Chapter 6 & 7 and other sources to complete the form. This checkpoint requires you to match the definitions and examples of types of cost, as well as the types of centers where costs occur.

Part 1: For each of the terms in Column A select the correct definition from Column B on the right. Write the corresponding letter of the definition next to the Term.

Column A
F /

Indirect Costs

A /

Direct Costs

D /

Fixed Costs

I
E
H
B
C
G /

Variable Costs
Step-fixed Costs
Responsibility Centers
Revenue Centers
Cost Centers
Shadow Cost Centers

Column B – Definitions

Costs incurred directly as a result of providing a specific service or good.

Those centers that are charged with controlling costs and generate revenue.

Have no revenue budget and no obligation to earn revenue.

Costs that do not vary as service volume varies.
Fixed over some range of service volume but rise to a new level for a higher range of service volume.
Costs that cannot be tied directly to the patient’s stay in the bed.
Exist as budgets on paper only.
The places where costs occur, and have budgets.
Costs that change as volume changes.

Part II: For each of the real-world examples on the right, select the correct term from the list on the left. Write the corresponding letter of the real-world example next to the term.

Column A
K /

Indirect Costs

N /

Direct Costs

Q /

Fixed Costs

M
R
J
O
L
P /

Variable Costs
Step-fixed Costs
Responsibility Centers
Revenue Centers
Cost Centers
Shadow Cost Centers

Column B – Real World Examples

A subunit of a larger organization that is responsible for some type of budget – payroll department or courier service

Shares of depreciation, Administration division, or Laundry service

Administration, Human Resources, or Housekeeping

Utility Bill, or Supplies, or Maintenance

Nursing care, food consumed, drugs administered

Hospital Cafeteria, Gift Shop, or Parking ramp
Depreciation of hospital equipment
Building Loan Payment, Building Insurance, Cable or Internet Service
Nurse to patient ratio on the Cardiac Unit is 1 to 3 patients. There are 4 nurses scheduled for 12 patients. During second shift, 3 more patients are admitted. Nurse Manager calls in a 5th nurse

Week Four Faculty Notes

Topics and Objectives

Management’s Responsibility for Staffing

Describe the difference between productive and nonproductive time.
Calculate full-time equivalent (FTE) to annualize staff positions.
Explain how costs are tied to staffing.

Weekly Overview

This week, students examine management’s responsibility for staffing, including the differences in productive and nonproductive time.The assignment requires students to calculate staffing using the annualized method for a physician group practice. The assignment requires students to write a paper discussing the purposes of annualizing staff,explaininghow costs are tied to staffing, and explaining the differences in methods.

Assignment Notes

Assignment:Annualizing Staffing

Resource Required

Associate Level Material: Annualizing Staffing

Answer Key for Annualizing Staffing, Due in Week Four

Compute net paid days worked for a full-time employee in the physicians’ group.

CATEGORY OF DAYS / NUMBER OF DAYS: Site 1 / NUMBER OF DAYS: Site 2
Total days: business year / 364 / 364
Less 2 days off per week / 104 / 104
Number of paid days per year / 260 / 260
Less paid days not worked:
Holidays / 8 / 8
Personal holidays / 3 / 2
Sick days / 5 / 5
Education days / 3 / 1
Vacation days / 15 / 7
Total nonproductive days / 34 / 23
Net productive days / 226 / 237

Part II:Convert net paid days worked to a factor to annualize the staffing plan for the physician practice at both sites. Complete the following table by entering the annualizing equation to obtain the factor.

SITE / EQUATION / FACTOR
1 / 364/226 / 1.61061
2 / 364/237 / 1.53586

Assignment:Managing Staff

Purpose of Assignment

Health care managers are responsible for determining staffing needs throughout the year. Annualizing allows the manager to identifycosts for full- and part-time positions. For managers to determine and evaluate staffing needs, a thorough knowledge of how to annualize using various methods and understanding the differences between productive and nonproductive time is essential.This assignment prepares students to determine the importance of annualizing staffing for a health care practice.

Resources Required

Ch.9of Health Care Finance andAssociate LevelMaterial: ManagingStaff

Written Assignment Grading Form for Managing Staff, Due in Week Four

Content and Development
70 Points / Points Earned
XX/70
Additional Comments:
All key elements of the assignment are covered in a substantive way.

The paper discusses the following:

Discusses major purposes annualizing staffing
Identifies and explains how operational costs are tied to staffing
Explains differences between the annualized and scheduled-position methods
Differentiates the meanings of productive versus nonproductive time
Discusses the benefits of recording productive and nonproductive time

The paper is 750to 1,050words in length.

The content is comprehensive, accurate, and persuasive.
The paper develops a central theme or idea directed toward the appropriate audience.
The paper links theory to relevant examples and uses the vocabulary of the theory correctly.
Major points are stated clearly; are supported by specific details, examples, or analysis; and are organized logically.

Cites at least two sources other than the textbook

The introduction provides sufficient background on the topic and previews major points.
The conclusion is logical, flows from the body of the paper, and reviews the major points.
Readability and Style
15 Points / Points Earned
XX/15
Additional Comments:
Paragraph transitions are present, logical, and maintain the flow throughout the paper.
The tone is appropriate to the content and assignment.
Sentences are complete, clear, and concise.
Sentences are well constructed, strong, and varied.
Sentence transitions are present and maintain the flow of thought.
Mechanics
15 Points / Points Earned
XX/15
Additional Comments:
The paper—including the title page, reference page, tables, and appendixes—follows APA formatting guidelines.
Citations of original works within the body of the paper follow APA guidelines.
The paper is laid out with effective use of headings, font styles, and white space.
Rules of grammar, usage, and punctuation are followed.
Spelling is correct.
Total
100 Points / Points Earned
XX/100
Overall Comments:

Week Five Faculty Notes

Topics and Objectives

Inventory and Depreciation Concepts

Discuss the interrelationship between the inventory and cost of goods sold.
Differentiate between LIFO and FIFO inventory methods.
Define methods of computing book depreciation.

Weekly Overview

This week coversinventory control and depreciation of assets. The discussion questions require the student to describe the interrelationship between inventory and costs of goods sold, and to differentiate between last-in, first-out and first-in, first-out by relating real-world examples. The assignmentrequires students to define the methods used to compute book depreciation.

Assignment Notes

Discussion Questions are due this week.

Assignment:Computing Book Depreciation

ResourcesRequired

Ch. 8 of Health Care FinanceandAssociate Level Material: Assignment Form

Answer Key for Computing Book Depreciation, Due in Week Five

QUESTION / ANSWER – Do not forget to list references at the bottom of the paper.Write a minimum of 30 words for each area listed.
Straight Line Depreciation:
-No salvage
-Salvage / Straight-line depreciation (no salvage) assigns an equal or even amount of depreciation expense over each year or period of the asset’s useful life until the net book value is zero.
Straight-line depreciation (salvage) assigns an amount of depreciation expense over each year or period of the asset’s useful life allowing for a scrap or salvage value. Salvage value represents any expected cash value of the asset at the end of its useful life. The remaining salvage value is not depreciated because it is most likely going to be recovered.
Accelerated Book Depreciation:
-Sum of Years’ Digits Method / Accelerated depreciation writes off more depreciation expense in the first part of the asset’s useful life. The SYD accelerated depreciation method computes depreciation by multiplying the depreciable cost of the asset by a fraction.
Accelerated Book Depreciation:
-Double Declining Balance Method / The DDB accelerated depreciation method computes depreciation by multiplying the asset’s net book value at the beginning of each year by a constant percentage, this being twice the straight-line rate.
Accelerated Book Depreciation:
-150% Declining Balance Method / The 150% DB accelerated depreciation method also computes depreciation by multiplying the asset’s net book value at the beginning of each year by a constant percentage; this being 150% of the straight-line rate.
Accelerated Book Depreciation:
-Units of Production Method / Units-of-Service depreciation assigns a fixed amount of depreciation to each unit of service or output that is produced. Thus, a fixed total “Units of service” over the life of the asset is used instead of number of years of useful life. In the case of a hospital, the Units of Service actually describes the medical equipment helping to provide services, such as an MRI machine.
Why is it important for a hospital to pay attention to depreciation more than a computer software company? / A hospital is an asset-intensive organization. This means that the organization owns many assets such as buildings, equipment, etc in order to generate revenue. With this in mind, it is important for the financial officers to pay close attention to the depreciated value of these assets, since depreciation can affect the bottom line of the business. On the other side, a software company’s operation would not require as many tangible assets; thus less to depreciate.

Week Six Faculty Notes

Topics and Objectives

Time Value of Money

Define time value of money.
Identify the use of comparative data.
Calculate financial ratios.

Weekly Overview

This week, students focus on present value, internal rate of return, and payback period ratios. The assignment requires students to define comparative data uses and relate the principles to a real-world example. The assignment requires the student to define the time value of money,calculate financial ratios, and analyze the result’s meaning.

Assignment Notes

Assignment:Comparative Data

Resources Required

Ch. 14 of Health Care FinanceandUniversity of Phoenix Material: Comparative Data

Answer Key for Comparative Data, Due in Week Six

Complete the following table by writing responses to the questions. Cite the sources in the text and list them at the bottom of the table.

What criterion must be met for true comparability? / Consistency, Verification, and Unit Measurement
What elements of consistency should be considered? Provide an example. / Time periods – the same time period of 12 months needs to be compared to another 12 month period. For example, you would want to use the fiscal year July 2009 to June 2010 compared to July 2010 to June 2011.
Consistent Methodology – the same methods should be used for the time periods. For example, if you were to compare inventory from one year to the next, you would use the same inventory method such as FIFO for both years.
Inflation factors – inflation factors need to be computed when several years are being compared. This needs to be calculated using a cumulative effect over time. For example: Year 1 with a base of $500,000 uses the IF of 1.100 =$ 550,000; Year 2 with a base of $500,000 uses the IF of 1.210 = $605,000; Year 3 with a base of $500,000 uses the IF 1.331 =$ 665,000
What is the manager’s responsibility in comparing data? / A manager’s responsibility is to use consistent methods across time periods because the results will be used in decision making. If the results are not comparable, financial consequences will occur in the future.
What are the four common uses of comparative data? / Compare current expenses to current budget - managers are responsible for comparing current expenses of a practice to the budget. Variances can be determined with this commonly used practice. Action plans can then be implemented to eliminate budget variances.
Compare current actual expenses to prior periods – trending is an important tool when developing a budget. This allows for a comparison of current expenses to expenses incurred in prior periods.
Compare to other organizations – this is called common sizing. When using comparative data, it needs to be based on percentages. For example, if you were comparing three physician practices, two having a patient base of 400 and the third having a patient base of 250, you would not want to use actual revenue dollars for the comparison. You would want to use a ratio, resulting in a percentage. Patient base divided by revenue dollars = percentage.
Compare industry standards – Using an industry standard for comparison is useful for decision making because it positions the organization within a large grouping of facilities that provide similar services. First, a manager needs to find industry standards in percentages in order to compare accurately. Health care has an advantage in this comparison because federal and state governments release statistics to the public.
What is meant by standardized data? / Hospitals and physicians are compared using standard measures. Standardizing measures assists in accurate comparability and in performance measurement. Performance measures illustrate what has occurred, which influences what will occur. This provides for informative decision-making and effective use of resources. Standard measures provide information about performance characteristics, usually in the form of operating ratios, illustrating where the organization has been, where it is now and how it compares to the industry. Consistent use of standardized measures enables organization to monitor any changes, identify potential problems, and take corrective action now. When an organization uses performance measures for comparability, it is almost certain to improve.

Assignment:Time Value of Money