HSMP 587 - Health Care Financial Management 3/13/17

HSMP 587 - Health Care Financial Management 3/13/17

Winter 2017 Dr. Neal Wallace

Take Home Final Exam

Generic Directions: The exam is expected to be completed independently by each student. The exams are due by 5:00pm March 20th. There are 5 questions at 20 points each.E-mail it to me using the name FNL-lastname-587. You can submit WORD and EXCEL files as appropriate. Make sure I can print all documents you submit. Questions may have multiple parts. Read each question carefully and be sure that you respond completely to each. For answers to the questions that require calculation, make sure you identify the formula, methods and steps used to obtain your answer.

1) Consider our completed two years of financial modeling for 2017 and 2018 (i.e. budgets, financial statements, etc.).

a) Why is depreciation presented separately in the statement of revenues and expenses,and how would that help someone assess our relative financial performance?

b) Given what you have said in a), are we ever “really” losing money from an accrual perspective?

c) Suppose we took the full annual value of depreciation in the first year ($61,000). Which of our four budgets (exclude statistics) and three parts of the financial statement in 2017 would change (or not), how (generally – up/down, specific parts) and why?

d) Would this change any of these (seven) pieces in 2018-how and why?

2) You are considering acquiring $250,000 in equipment with a useful life of 5 years. If you buy it you would have to take a loan at 5% annual interest.

a) If you received $55,000 a year (at year end) in free cash given the acquisition, would you do it?Why?

b) Suppose you were offered a lease at $50,000 per year (paid at year end). Is there a net advantage of leasing?

c) If you expected to receive the $55,000/yr in free cash, would it be profitable to lease the equipment given the terms in b)?

3) a) Suppose that in the planning stages for our business you are offered either the line of credit or a 10 year bond to provide financing for the business. Use the matching principle to explain which you should choose.

b) Suppose that you could have been a for-profit and obtained the $770,000 you needed in capital from selling stock – and the stock holders expect a 5% return in dividends per year on the value of this equity. How would this effect our financial position (generally) in the first five years compared to what we have done (speak specifically to our four main budgets and financial statements but in general terms – up/down/neutral)? In the next five years (assuming all else goes as currently planned)?

c) Given b) and the value that we place in providing charity care and internal consults, both at a loss, discuss how the pecking order theory of financing applies to our business.

HSMP 587 - Health Care Financial Management 3/13/17

Winter 2017 Dr. Neal Wallace

Take Home Final Exam

4) Consider the RN phone case management that we provide. This could have been identified specifically as either a final or intermediate product.

a) If we made it a fifth final product within our cost allocation model, how would this affect the allocated costs and profitability of the other four existing final products (be specific about the direction of change for each of the existing four and assume that our reimbursement rates for those services stay the same)?

b) If we made it an additional intermediate product within our cost allocation model, would the fully allocated costsfor this “product” be any different then if it was made a final product as in a) above?

c) If we made it an additional intermediate product within our cost allocation model, how would we construct a transfer price that would provide useful information to assess choices to contract out this activity?

5) Consider our business if it was reimbursed through a case rate.

a) How might this affect our business view regarding the provision of RN phone case management as compared to being reimbursed on a fee-for-service basis (for our four existing service types)?

b) Suppose that our payers have decided to base the case rate on successful completion (however defined) of a one year episode of treatment. Their initial proposal is to pay the case rate retrospectively, i.e. after each successful episode is completed and billed. You have the opportunity to present an alternative and argue that it would make more sense to pay the case rate monthly (1/12 of full rate) and then pay back the monthly partial fees if someone fails to complete a full episode. You acknowledge that this maybe more administratively complex but will be more financially beneficial for both parties. Why and how would you make this argument?