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1 METHODS OF ANALYSIS Methods of Analysis Renita Kirkman ACC 281-Accounting Concepts for Health Care Professionals Instructor: John Istvan Date: 8/31/2015 METHODS OF ANALYSIS 2 Vertical analysis, also known as “common size analysis,” is the method when each expense category is shown as a percentage of sales. Basically, the item in the vertical column of data is figured by relation and the top item of the column is the sales. Vertical analysis compares the different figures of various entities to a specific figure of the entity for a particular time frame. Vertical analysis is very important and significant during the financial standpoint because of the decision making process. Vertical analysis is also beneficial when responding to questions that are primarily related to business liabilities and equity. One way to carry out the vertical financial analysis is by the analysis balance sheet. The items of the balance sheet are compared to the total calculated assets (www.comparebusinessproducts.com). When comparing data from within two or more periods or side by side, it is referred to as horizontal analysis. Horizontal analysis is used to show the difference in the accounts during two separate accounting periods. Horizontal analysis is very beneficial and helpful when pointing out trends of a companies or organization’s income. Business entities during various months and defined periods during the fiscal year are determined by using the horizontal financial analysis (Epstein, & Schneider, 2014). There are two methods used to conduct a horizontal financial analysis, such as, dollar analysis and percentage analysis. The dollar analysis compares the exact dollars of various items for an entity between different periods of time. The dollar analysis is very important when analyzing the spending of the business or organization and outcomes of external factors. The percentage analysis is the change of various items over different periods of time that are calculated by percentage. The dollar analysis and percentage analysis are very useful during the horizontal financial analysis because they both analyze and compare the performance of a small METHODS OF ANALYSIS 3 business with the performance of a large business in the same industry (Compare business Products). Just like vertical analysis, horizontal analysis is also carried out by the balance sheet. Both the vertical and horizontal analysis is used to point out some elements of business, such as, inventory, capital investments, and debt levels. Ratio analysis is the method where the ratios between two or more related variables of a business or organization are compared. Analyzing financial statements consist of many ratios, such as, liquidity analysis ratio, profitability analysis ratio, profit margin ratio, earnings per share, activity analysis ratio, capital structure analysis ratio, and capital market analysis ratio. The many ratios are used to determine and carry out financial analysis businesses and organizations to help with providing growth, profitability, and solvency to them. Ratio analysis is very important just like horizontal and vertical analysis and neither one of the three should be overlooked and not taking seriously. All three analyses are very crucial when determining the financial analysis of any business or organization (Epstein, & Schneider, 2014). A scenario in which the horizontal analysis is used for example is a gift shop. The income statement of the gift shop consist of sales, expense of products sold (5%), gross benefit (15%), working costs (9%), wage before tax (67%), income taxes (22%), and net wage (100%). If the gift shop sales were increased by 11%, but the gross profit was only increased by 15%. The cost of goods sold was only 5%. The cost of the product diminished by 9% but the impact of the gross profit joined with the decrease in operating expenses that caused a rise in income(Epstein, & Schneider, 2014). METHODS OF ANALYSIS 4 Epstein, L. & Schneider, A. (2014). Accounting for Health Care Professionals. San Diego, CA: Bridgepoint Education, Inc. Retrieved from www.comparebusinessproducts.com (2010).What are the different methods of Financial Statement Analysis? Uncollectible Accounts ACC 281-Accounting Concepts for Health Care Professionals Instructor: John Istvan Renita Kirkman [Type text] The cost of healthcare is steadily rising and patients are finding themselves getting more and more in debt financially. In this paper, I will be explaining difference between the uncollectible accounts of charity care and bad debt. Charity Care Charity Care is financial services that are provided to a patient or patients, regardless of the ability to pay. Every healthcare facility requirements for charity care are different, but at the facility in which I work the requirements are as follows: the patient or patients are unable to receive Medicaid or other types of government assistance programs. The patient or patients have to provide mandatory documents which include tax returns, pay stubs, and a credit application has to be completed before the request for Charity Care can be granted. Hospitals are required to allow patients at least 120 days for them to decide if they will like to apply for charity care. Efforts to collect unpaid debts in hospitals are prohibited but the hospitals can engage in a 3rd party debt collection effort. Other medical providers are not prohibited from engaging in collections efforts for debt from their patient or patients before making any reasonable efforts to determine if the patient or patients are eligible for charity care. The efforts of collecting the debt are: lawsuits, liens, arrests, foreclosures, and wage garnishments (Chazin, Friedenzohn, Martinez-Vidal, and Somers, 2010). The charity care programs seek out to be as comprehensive as possible, but funding sometimes may limit their offerings amounts for patients. Charity Care programs are provided for primary services, some specialty care services, prescriptions, laboratory tests, inpatient care, emergency room use as well as links to social services. The financing side of charity care varies from across and within charity care programs. The funds that are provided by charity care [Type text] services are provided by member fees, co-pays; employer contributions; individual/ corporate/philanthropic donors; federal, state and county sources; provider subsidies; a sales tax levy; tobacco settlement funds; and partnering health plans and health systems, which often underwrite charity care programs to fulfill the requirements of their nonprofit status (Chazin, Friedenzohn, Martinez-Vidal, and Somers, 2010). In some healthcare facilities, payment incentives may be used sometimes to encourage providers to provide lower-cost services and treatment options. Charity Care programs are hoping to lead this idea to a lot of healthcare facilities in order to help patients with high accruing medical debts. Bad Debt The rising cost of healthcare has been happening for two decades. Some of the primary causes to the rise in bad debt in healthcare are job loss (which in terms leads to no insurance), high insurance premiums, high co pays, and high deductibles. For example, I have been working for urology for 6 years, and in those years I have witnessed insurance co pays, premiums, and deductibles increasing each year. Depending on the insurance, the co pay can be as much as $81. Some individuals cannot pay these types of co pays, so sometimes they ask if they can pay it at a later time. Sometimes we say yes but it depends on if the patient already have an outstanding balance or not. Also some of the bad debts come from self pay patients who do not want to seek assistance, apply for Medicaid or Obama care. Individuals are quick to bash Obama care without giving it a try. It is better to have some insurance instead of none at all. Some people I feel want to receive services for nothing and take advantage of the healthcare environment. Bad debt is coming on the rise and it is getting worse [Type text] and worse and the years go by. When patients do not pay their co pay, or balance after filed with insurance, it continues to accrue and accrue. Then when the patient have not made a payment in 90 days then their account goes to collection and then they will have to set up some type of payment arrangement before making another appointment. Usually this payment arrangement will have to pay before services are rendered. Then there are other patients who feel as though all they have to pay is their co pay and that they should not be held liable for a balance if it is not all being covered by their insurance. But bad debt includes bills people chose not to pay for whatever reason, rather than only those people who are not able to pay. Every type of business including healthcare has bad debt, but doesn't get to claim it as a “charity write-off.” But now under the new law, nonprofit hospitals are permitted to add bad debt in their tax filings but they will have to calculate it in a different line item (Chazin, Friedenzohn, Martinez-Vidal, and Somers, 2010). In conclusion, charity care and bad debt have no comparison. Charity Care is a program that is offered to patients to help with their medical finances with certain requirements. Bad debt is unpaid money that is accrued by patients who cannot pay or chose not to pay after services are rendered. [Type text] Chazin, Stacey; Friedenzohn, Isabel; Martinez-Vidal, Enrique; and Somers, Stephen. The Future of U.S. Charity Care Programs: Implications of Health Reform. Center for Health Care Strategies, Inc. August, 2010. Epstein, L. & Schneider, A. (2014). Accounting for Health Care Professionals. San Diego, CA: Bridgepoint Education, Inc. Uncollectible Accounts ACC 281-Accounting Concepts for Health Care Professionals Instructor: John Istvan Renita Kirkman [Type text] The cost of healthcare is steadily rising and patients are finding themselves getting more and more in debt financially. In this paper, I will be explaining difference between the uncollectible accounts of charity care and bad debt. Charity Care Charity Care is financial services that are provided to a patient or patients, regardless of the ability to pay. Every healthcare facility requirements for charity care are different, but at the facility in which I work the requirements are as follows: the patient or patients are unable to receive Medicaid or other types of government assistance programs. The patient or patients have to provide mandatory documents which include tax returns, pay stubs, and a credit application has to be completed before the request for Charity Care can be granted. Hospitals are required to allow patients at least 120 days for them to decide if they will like to apply for charity care. Efforts to collect unpaid debts in hospitals are prohibited but the hospitals can engage in a 3rd party debt collection effort. Other medical providers are not prohibited from engaging in collections efforts for debt from their patient or patients before making any reasonable efforts to determine if the patient or patients are eligible for charity care. The efforts of collecting the debt are: lawsuits, liens, arrests, foreclosures, and wage garnishments (Chazin, Friedenzohn, Martinez-Vidal, and Somers, 2010). The charity care programs seek out to be as comprehensive as possible, but funding sometimes may limit their offerings amounts for patients. Charity Care programs are provided for primary services, some specialty care services, prescriptions, laboratory tests, inpatient care, emergency room use as well as links to social services. The financing side of charity care varies from across and within charity care programs. The funds that are provided by charity care [Type text] services are provided by member fees, co-pays; employer contributions; individual/ corporate/philanthropic donors; federal, state and county sources; provider subsidies; a sales tax levy; tobacco settlement funds; and partnering health plans and health systems, which often underwrite charity care programs to fulfill the requirements of their nonprofit status (Chazin, Friedenzohn, Martinez-Vidal, and Somers, 2010). In some healthcare facilities, payment incentives may be used sometimes to encourage providers to provide lower-cost services and treatment options. Charity Care programs are hoping to lead this idea to a lot of healthcare facilities in order to help patients with high accruing medical debts. Bad Debt The rising cost of healthcare has been happening for two decades. Some of the primary causes to the rise in bad debt in healthcare are job loss (which in terms leads to no insurance), high insurance premiums, high co pays, and high deductibles. For example, I have been working for urology for 6 years, and in those years I have witnessed insurance co pays, premiums, and deductibles increasing each year. Depending on the insurance, the co pay can be as much as $81. Some individuals cannot pay these types of co pays, so sometimes they ask if they can pay it at a later time. Sometimes we say yes but it depends on if the patient already have an outstanding balance or not. Also some of the bad debts come from self pay patients who do not want to seek assistance, apply for Medicaid or Obama care. Individuals are quick to bash Obama care without giving it a try. It is better to have some insurance instead of none at all. Some people I feel want to receive services for nothing and take advantage of the healthcare environment. Bad debt is coming on the rise and it is getting worse [Type text] and worse and the years go by. When patients do not pay their co pay, or balance after filed with insurance, it continues to accrue and accrue. Then when the patient have not made a payment in 90 days then their account goes to collection and then they will have to set up some type of payment arrangement before making another appointment. Usually this payment arrangement will have to pay before services are rendered. Then there are other patients who feel as though all they have to pay is their co pay and that they should not be held liable for a balance if it is not all being covered by their insurance. But bad debt includes bills people chose not to pay for whatever reason, rather than only those people who are not able to pay. Every type of business including healthcare has bad debt, but doesn't get to claim it as a “charity write-off.” But now under the new law, nonprofit hospitals are permitted to add bad debt in their tax filings but they will have to calculate it in a different line item (Chazin, Friedenzohn, Martinez-Vidal, and Somers, 2010). In conclusion, charity care and bad debt have no comparison. Charity Care is a program that is offered to patients to help with their medical finances with certain requirements. Bad debt is unpaid money that is accrued by patients who cannot pay or chose not to pay after services are rendered. [Type text] Chazin, Stacey; Friedenzohn, Isabel; Martinez-Vidal, Enrique; and Somers, Stephen. The Future of U.S. Charity Care Programs: Implications of Health Reform. Center for Health Care Strategies, Inc. August, 2010. Epstein, L. & Schneider, A. (2014). Accounting for Health Care Professionals. San Diego, CA: Bridgepoint Education, Inc.
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