Business Finance
Healthcare Organization and Finance Efficiency Chapter 9 to 12 Case Study

Question Description

Can you help me understand this Management question?

The students will complete a Case study assignments that give the opportunity to synthesize and apply the thoughts learned in this and previous coursework to examine a real-world scenario. This scenario will illustrate through example the practical importance and implications of various roles and functions of a Health Care Administrator. The investigative trainings will advance students’ understanding and ability to contemplate critically about the public relations process, and their problem-solving skills. As a result of this assignment, students will be better able to comprehend, scrutinize and assess respectable superiority and performance by all institutional employees.


Students will critically measure the readings from Chapters 9 to 12 in your textbook. This assignment is planned to help you examination, evaluation, and apply the readings and strategies to your Health Care organization, and finance.
You need to read the article (in the additional weekly reading resources localize in the Syllabus and also in the Lectures link) assigned for week 4 and develop a 3-4 page paper reproducing your understanding and capability to apply the readings to your Health Care organization and finance. Each paper must be typewritten with 12-point font and double-spaced with standard margins. Follow APA format when referring to the selected articles and include a reference page.


1. Introduction (25%) Provide a brief synopsis of the meaning (not a description) of each Chapter and articles you read, in your own words that will apply to the case study presented.

2. Your Critique (50%): Case Study

To say hospital and health system operating margins are different today than they were a decade ago may be an understatement. Medicare reimbursement reductions, cuts to state Medicaid programs and rising tides of uncompensated care have created an atmosphere where some hospitals, particularly smaller, community hospitals, are simply happy with a break-even balance sheet.

The environment is unlikely to change in the short term. The super committee was unable to reach a bipartisan agreement to cut $1.2 trillion over 10 years, and it will cause sequestration cuts of 2 percent to Medicare starting in 2018.

While 2012 may appear to be a grim time for hospitals to keep their finances positive, there are several things hospitals can do to go beyond just maintaining solvency. Hospitals and health systems essentially have two options: They can either cut costs or create new revenue streams. Here, several healthcare leaders share their thoughts on how this can be done and offer one recurring theme: Hospital and healthcare leadership needs to evaluate a multitude of planes rather than relying only on across-the-board savings cuts.

1. Focus on the continuum of care. One of the biggest changes occurring in healthcare is the full-scale shift away from fee-for-service and volume-based measures toward accountable care organizations and quality-based measures. Ann Pumpian, CFO of Sharp Healthcare in San Diego, says hospitals will need to look at the entire continuum of care, regardless if they join an ACO, if they plan to stay profitable in 2018 and beyond. She says the continuum of care hospitals need to focus on includes the initial admission, how services are provided within that admission to create the most efficient process for a quick yet appropriate discharge, a discharge to the appropriate post-acute setting and follow-ups with that discharge.

Pearson Talbert, president of Aegis Health Group, says hospitals can take it one step further by fostering stronger, mutually beneficial relationships with physicians — especially primary care physicians. In addition to quality- and value-based principles, healthcare reform is also centered on preventive care, managing chronic illnesses and keeping people healthy before a hospital trip is required. To do that while staying profitable, Mr. Talbert says hospitals must focus on physician alignment and actively engage with the primary care physicians in their communities. "The primary care physician is the air traffic controller for the patient," he says.

Ms. Pumpian also emphasizes the hospital-physician relationship. Although some states prohibit hospitals from employing physicians, she says hospital efficiency and solvency hinges on a hospital's affiliation and collaboration with physicians. Physicians facilitate patients through the continuum of care, and next year, it will be paramount for hospitals to keep and recruit high-quality physicians who increase a hospital's referral base, have high ratings of patient satisfaction and have the highest commitment to quality patient care. "What is key is to make certain that these physicians and institutions are going in the same direction," Ms. Pumpian says. "Both need to be incented to do the same thing, which is what's best for patient care."

2. Design models to reduce readmissions. Hospitals that realign their goals toward the entire continuum of care can then focus on one of the more pertinent aspects: reducing readmissions. Readmissions negatively impact a hospital's bottom line in several ways, such as the high costs associated with them and scrutiny from private health insurers and patients. Now part of President Barack Obama's healthcare reform, hospitals with high levels of preventable readmissions face the potential of losing a portion of their Medicare, Medicaid or other governmental reimbursements. "If [other hospitals] are not gearing up for that now, they are really behind the eight-ball," Ms. Pumpian says. "They should've been doing this years ago."

She says there are several ways hospitals and their physicians can effectively reduce their readmissions, such as ensuring patients attend post-acute office visits routinely after discharge and overall providing resources to people to ensure they are taking the proper post-discharge steps. "This has proven to be a key indicator to keep readmissions from occurring," Ms. Pumpian adds.

Scott Downing, executive vice president and chief sales and marketing officer at VHA, says a hospital's preparation for the readmission risk is "absolutely critical," and much of the responsibility will fall on a hospital's case management and preventive care staff, who will need to be properly trained and managed to ensure overall readmission rates go down. "A hospital's case management [staff] has to engage in conversations with the patients to help them be compliant with that care path," Mr. Downing said. "There's a wealth of effort and resources that hospitals apply, but they're going to have to become even better at that."

3. Have a good relationship with payors, and renegotiate managed care contracts. While hospitals cannot control the underpayments from Medicare, Medicaid and other governmental payors, they have a semblance of control over one major outlet: commercial and employer-based payors. Mr. Talbert says private insurance carriers comprise, on average, 35 percent of a hospital's revenue.

According to Kyle Kobe, principal at healthcare consulting firm Equation, hospitals must take the time to understand existing contracts, benchmark managed care contracts against each other, conduct research to know what percentage of the insurer's business comes from the hospital, routinely update stagnant and evergreen contracts and look for carve-out opportunities. Hospitals and their managed care departments must be prepared when renegotiating contracts, but at the same time, a level of respectful dialogue must exist — otherwise, fallouts will occur, leading to costly periods of no reimbursement and a public relations nightmare. "Often times, people don't think about the fact there is a mutual respect that needs to occur with the payor and institution," Ms. Pumpian says. "That is earned over time in a manner that allows you to help collaborate, design and develop the care delivery models and product designs that those payors will ultimately use."

4. Manage new service lines to increase market share. When it comes to "creating new streams of revenue" for hospitals, this most commonly refers to adding new service lines. Larry Moore, CFO of Cumberland Medical Center in Crossville, Tenn., agrees increasing market share through new services is the most effective way to deal with any reduction in net payments.

Hospitals should not merely add any service line — for example, orthopedics — because it is historically profitable. Mr. Moore says hospitals need to conduct research and look at the demographics of their locale to determine which service lines are needed, what competitors in the area offer and what services stand to gain the most referrals. For example, roughly 10,000 baby boomers are becoming eligible for Medicare every day, and Mr. Moore says Cumberland, which has a high Medicare population, has been focusing on cardiovascular services. Additionally, he says the surrounding population tends to have a higher concentration of obese patients, and therefore Cumberland is also focusing on enhancing its orthopedic service line.

Conversely, if hospitals want to become or remain profitable next year, they will have to monitor their service lines to see if any are hemorrhaging money. Jack Lahidjani, president of Mission Community Hospital in Panorama City, Calif., says this is especially important for community hospitals, as community hospitals can't be the healthcare provider for all. "Most community hospitals don't create a differentiation between themselves and a tertiary facility or a teaching facility," Mr. Lahidjani says. "We can't have the same number of programs as a Cedars-Sinai. They can afford to lose money on 10 to 15 programs because they are making money on the other 80. We need to evaluate every program on a quarterly basis and make adjustments accordingly. Hospitals need to be aware of community needs and cater to those needs."

5. Control labor costs with meticulous data collecting. At most hospitals, more than 50 percent of expenses are related to labor costs or labor-related costs, and Mr. Lahidjani says "if you can't control your labor costs, working on anything else almost becomes immaterial."

Mr. Lahidjani, who also used to be CEO of the physician-owned and Los Angeles-based Miracle Mile Medical Center and CFO of Los Angeles-based Alta Healthcare System, says his hospitals hold daily "labor control meetings" for 10 minutes. Every department shows up, goes over their respective staffing metrics and manages their labor on a dollar-per-patient-day level. "If we are overstaffed by one nurse in surgery and understaffed by one nurse in the emergency room, can we move the surgical nurse to the ER?" Mr. Lahidjani says. "This type of communication where every manager and operator in the hospital gets on the same page also creates awareness of what's going on in the other parts of the hospital."

If hospitals do not manage their labor costs or have staff meetings on their labor rolls every day, then he says hospitals should, at the very least, be data-driven on this front on a bi-weekly, monthly, quarterly and annual basis.

6. Reduce supply costs by working with vendors and physicians. After labor costs, supply costs are the second-largest money eater of a hospital's operating budget. Clark Lagemann, vice president of Health Options Worldwide, says hospital leaders can reduce supply costs through two main ways: working with vendors to improve contracts and encouraging physicians to make fiscally responsible supply decisions. "A hospital should not shy away from approaching vendors for discounts," Mr. Lagemann says. "This may help alleviate costs on the purchase product, and in my experience, most vendors are willing to negotiate if the volume of product allows for it." Additionally, approaching physicians and working together to create a more cost-conscious supply plan for every department can help foster a better working relationship with physicians in addition to supply savings.

7. Improve deficiencies in the emergency room and operating room. Many hospitals consider their ERs and ORs to be two of the most important areas of a hospital because they represent a traditional "money loser" and a traditional "money winner."

ERs and trauma areas are vital to any community health system, but hospitals have been facing growing numbers of uninsured patients walking into their ERs. This is leading to high amounts of uncompensated care. However, there are ways hospitals can reduce the large costs and pressures associated with the ER and its high volume of uncompensated care. Phil Lebherz, executive director of the non-profit Foundation for Health Coverage Education, says hospitals must actively use the ER to their advantage, as roughly 80 percent of the uninsured patients who come into the ER are eligible for some type of publically funded program. He says hospitals should make it a priority to help ER patients complete applications for publicly funded health coverage like Medicaid. This could make patients more willing to seek preventive care instead of resorting to last-minute, much-needed and highly expensive ER treatment, and it will also directly reduce a hospital's uncompensated care and bad debt.

A hospital's OR is typically one of the most profitable areas of a hospital due to the type of surgeries performed, and Mr. Lagemann says improvements in the OR can help a hospital maintain its levels of profitability. For example, he says future profits lie in new equipment, such as smart ORs and hybrid ORs. Mr. Lagemann adds that new technology, although an investment at first, can eventually lead to higher market share and patient volume, and it can also lower reoperation rates, which could improve reimbursements.

8. Create population health management programs to gather health data analytics on chronic illnesses. The ACO model, or at least its population-health emphasis, is shifting hospitals' thinking of how to be profitable. Mr. Talbert says hospitals are asking themselves if they are in the "healthcare" business or the "sick-care" business, and more often than not, he says they find they are in the "sick-care" business as they wait for patients to become sick before addressing health issues.

To counter this, Mr. Talbert says hospitals will need to create formal population health management programs through which the hospital can reach out and gather health data analytics on its local patients as a way to address potential health problems before they become costly, chronic issues. "If we are going to control costs of healthcare and start bending the curve downward, we have to start looking at things from the perspective of population health management," he adds. If hospitals are able to see data and cost figures associated with chronic diseases — such as diabetes, cardiovascular disease, asthma, hypertension and others — they can reach out to their communities to start chronic care programs to mitigate costly, long-term health problems.

9. Consider outsourcing some services. Outsourcing services at hospitals is nothing new, but Mr. Lahidjani says eliminating the administrative overheard and farming out functions that are better handled on an independent contractor basis will directly result in bottom line savings. Laundry services, housekeeping, food services, facility maintenance and some biomedical and clinical departments are commonly outsourced services. Mr. Lahidjani says his hospital has also experimented with outsourcing its nurse education. Mission Community Hospital did not want to end its nurse education program, but it also did not know if it could continue to incur the program's operating costs. Currently, the outsourced company has individuals that show up two or three times a month to hold its nursing educational seminars. Mr. Lahidjani says their nurses are still getting quality "know-how," but their expenses have since been lowered.

A hospital must be prudent when it decides to outsource a service, though, and it must have a contingency plan if the proposal does not work out. "Whenever you outsource a service, you need to be prepared to bring it back in case the relationship disintegrates or if the third party is not able to provide the level of service we expected or anticipated," Ms. Pumpian says.

10. Revamp the energy cost strategy. "Going green" could be more than just a strategy that positively impacts the environment and reduces reliance on fossil fuels — it could also save on a hospital's bottom line.

Dennis Olson, vice president of facilities at Mayo Clinic Health System in Eau Claire, Wis., says the hospital system has been actively revamping its sustainability and energy cost strategies, and it's led to significant results. One of the larger projects involves the use of geothermal energy at a one of the health system's dialysis centers under construction. Various pieces of equipment run through the ground and can extract heat or cooling from the natural ground water, which is typically around 45 to 50 degrees Fahrenheit. This extracted heating or cooling can be diverted to warm up the building in the winter and cool the building in the summer. He says a geothermal energy project is fairly expensive up front, but the benefits are in the long-term. Hospitals can expect a payback on its investment within seven to eight years, all while the hospital provides its own, truly natural energy. "You're not burning any fuel to get heating and cooling sources such as natural gas or oil, and instead, you're letting the Earth's resources handle that," Mr. Olson said.


  • Do you believe a computerized program are better, if so why?
  • Does the concept of revenue less expense equaling an increase in equity or found balance make sense to you? If not, Why?
  • Can you think of good outside source that could be used to obtain ratios for comparative purposes?

3. Conclusion (15%)

Briefly summarize your thoughts & conclusion to your critique of the case study and provide a possible outcome for the Health Care Center.How did these articles and Chapters influence your opinions about Health Care law and Finance?

Evaluation will be based on how clearly you respond to the above, in particular:

a) The clarity with which you critique the case study;

b) The depth, scope, and organization of your paper; and,

c) Your conclusions, including a description of the impact of these Case study on any Health Care Setting, and finance.

Unformatted Attachment Preview

Chapter 9: Understanding Inventory and Depreciation Concepts Inventory Concept (1 of 2) • “Inventory” includes all the items (goods) that an organization has for sale in the normal course of its business. • Inventory is a current asset on the balance sheet, because items in the inventory are expected to be sold within a twelve-month period. Inventory Concept (2 of 2) • Various healthcare organizations and/or their departments deal with inventory and must account for it, including: – All pharmacies (hospital-based, retail brickand-mortar, or mail order) – The hospital cafeteria – The hospital gift shop Interrelationship Between Inventory and Cost of Goods Sold (1 of 2) • The completed inventory item is sold. • That is how an item moves out of inventory and is recognized as cost. • When it is recognized as cost, it then becomes “cost of goods sold” (or “cost of drugs sold,” in the case of the pharmacy). • So it moves out of inventory on the balance sheet and becomes “cost of goods sold” on the statement of income. Interrelationship Between Inventory and Cost of Goods Sold (2 of 2) • Recording inventory and costs of goods (or drugs) sold is a sequence of events – Record beginning inventory – Record purchases during period • Beginning inventory plus purchases equals “cost of goods (or drugs) available for sale” – Record ending inventory • Cost of goods (or drugs) available for sale less ending inventory equals “cost of goods (or drugs) sold” Figure 9-1 Recording Inventory in the Accounting Cycle. Interrelationship Between Inventory and Cost of Goods Sold • “Gross Margin” equals revenue from sales less the cost of goods (or drugs) sold, as follows: Sales Cost of goods (drugs) sold Gross margin 100% – 65% 35% • An organization’s gross margin can readily be compared to industry standards. Inventory Methods • How is the inventory to be valued? The two most commonly used methods are: – First-In, First-Out (FIFO) inventory method – Last-In, First-Out (LIFO) inventory method Inventory Methods: FIFO • The FIFO inventory costing method recognizes the first costs placed into inventory as the first costs moved out into cost of goods (or drugs) sold when a sale occurs. • So if costs have risen during the year, under FIFO the ending inventory will be higher (because the oldest less costly inventory items moved out first). (Exhibit 9-1 illustrates this effect.) Inventory Methods: LIFO • The LIFO inventory costing method recognizes the latest, or last, costs placed into inventory as the first costs moved out into cost of goods (or drugs) sold when a sale occurs. • So if costs have risen during the year, under LIFO the ending inventory will be lower (because the latest more costly items moved out first, leaving the older less costly items still in inventory). (Exhibit 9-2 illustrates this effect.) Other Inventory Methods (1 of 2) • Two other inventory treatments also deserve mention. They are: – Weighted Average inventory method – No Method Other Inventory Methods (2 of 2) • The weighted average inventory method is based on the weighted average cost of inventory during the period (calculated as cost of goods available for sale divided by number of units available for sale). • If there is no method at all, the inventory is never recognized. In some cases not recognizing inventory can result in misleading financial statements. Inventory Tracking • The two most typical inventory tracking systems are: – The perpetual inventory system – The periodic inventory system • Two types of adjustments to inventory that usually become necessary include – adjustments for shortages and for obsolete items Inventory Distribution Systems • Distribution Using Sign-Off Forms • Distribution Using Robotic Technology – Robotic automation – Cost/benefit of a robot Calculating Inventory Turnover • Inventory turnover is a ratio that shows how fast inventory is sold, or “turns over”: 1. First compute “Average Inventory” (Beginning Inventory plus Ending Inventory divided by two equals Average Inventory.) 2. Next compute “Inventory Turnover” (Cost of Goods Sold divided by Average Inventory equals Inventory Turnover) (Figure 9-2 illustrates the sequence of this computation.) Figure 9-2 Calculating Inventory Turnover. Health Care Finance by Judith J. Baker and R.W. Baker. Copyright © 2011 by Jones and Bartlett Publishers, LLC FIFO Inventory: Solution to Assignment 9-1 Assumptions Sales (Revenue) FIFO Inventory Effect 900 units @$100 = $90,000 Cost of Sales: Beginning inventory 500 units @$50 = $25,000 Plus: Purchases 400 units @$50 = 20,000 100 units @$65 = 6,500 400 units @$85 = 32,000 58,500 SubTotal $83,500 Less: Ending inventory 100 units @$65 = 6,500 400 units @$85 = 32,000 Cost of Sales [aka “Cost of Goods Sold” 38,500 45,000 Gross Profit Cost of Sales % $45,000 (45,000 divided by 90,000) = 50% LIFO Inventory: Solution to Assignment 9-1 Assumptions Sales (Revenue) LIFO Inventory Effect 900 units @$100 = $90,000 Cost of Sales: Beginning inventory 500 units @$50 = Plus: Purchases 400 units @$50 = 20,000 100 units @$65 = 6,500 400 units @$85 = 32,000 SubTotal $25,000 58,500 $83,500 Less: Ending inventory 500 units @$50 = Cost of Sales [aka “Cost of Goods Sold”] 25,000 58,500 Gross Profit Cost of Sales % $31,500 (58,500 divided by 90,000) = 65% LIFO Inventory Turnover: Solution to Assignment 9-2.1 • Average Inventory: $25,000 • Inventory Turnover: 2.34 FIFO Inventory Turnover: Solution to Assignment 9-2.2 • Average Inventory: $31,750 • Inventory Turnover: 1.41 Depreciation Concept (1 of 2) • Depreciation expense spreads, or allocates, the cost of a fixed asset over the useful life of that asset. • Fixed assets are placed on the balance sheet as long-term assets. • Their cost is recognized each year through depreciation expense. • So the cost is spread, or allocated, over a period of years. Depreciation Concept (2 of 2) • The useful life of the asset determines the period over which the fixed asset’s cost will be spread. • Salvage value (aka residual value or scrap 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 expected to be recovered. Interrelationship Between Depreciation Expense and the Reserve for Depreciation • Depreciation expense over the years is accumulated into the Reserve for Depreciation. So the two are interrelated: – Depreciation expense for the year is recorded in the Income Statement. – The same amount is also added to the cumulative amount accumulating on the Balance Sheet in the Reserve for Depreciation • The two amounts should balance each other (The interrelationship is illustrated in Figure 9-3.) Figure 9-3 Interrelationship of Depreciation Expense and Reserve for Depreciation in the Accounting Cycle. Net Book Value (1 of 2) • The net book value (aka book value) of a fixed asset: – Is a balance sheet figure that represents the remaining undepreciated portion of the fixed asset cost • The term derives from value recorded on the books—thus “book value” Net Book Value (2 of 2) • The net book value of a fixed asset is computed as follows: – Determine original cost of fixed asset on the balance sheet – Subtract the reserve for depreciation • The result equals net book value at that point in time (The computation sequence is illustrated in Figure 9-3.) Figure 9-4 Net Book Value Computation. Five Methods of Computing Book Depreciation • Book Depreciation can be computed in any one of five methods: – Straight-line Depreciation Method – Accelerated Book Depreciation Methods: o Sum-of-the-Year’s Digits (SYD) Method o Double-Declining-Balance (DDB) Method o 150% Declining Balance (150% DB) Method – Units of Service or Units of Production (UOP) Method Depreciation Methods (1 of 2) • Straight-line depreciation assigns an equal or even amount of depreciation expense over each year or period of the asset’s useful life. • Accelerated depreciation writes off more depreciation expense in the first part of the asset’s useful life. • 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.) Depreciation Methods (2 of 2) • Straight-line depreciation is illustrated in the following Table 9-1 (with no salvage value) and Table 9-2 (with salvage value). Further details appear in the chapter. • Further details about computations of other methods of book depreciation appear in Appendix 9-A at the end of the chapter. Computing Tax Depreciation • Tax depreciation is beyond the scope of this book. We merely recognize that it is computed for tax purposes and at this time includes the following methods: – Modified Accelerated Cost Recovery System (MACRS) – General Depreciation System (GDS) – Alternative Depreciation System (ADS) Depreciation Concepts: Example 9A Straight Line: • Step 1: Compute the cost net of salvage or trade-in value: 200,000 less 10 percent (S or T value) = $180,000 • Step 2: Divide by expected life years (aka estimated useful life) = $18,000 depreciation per year for 10 years Depreciation Concepts: Example 9A: Accelerated (1 of 2) Step 1: Compute the straight-line rate: 1 divided by 10 equals 10 percent. Step 2: Double the rate (as in double declining method): 10 percent times 2 equals 20 percent. Step 3: Compute the first year’s depreciation expense: $200,000 × 20% = $40,000. Step 4: Compute the carry-forward book value at the beginning of year two: $200,000 – 40,000 = $160,000. Depreciation Concepts: Example 9A: Accelerated (2 of 2) Compute the second year’s depreciation expense: $160,000 × 20% = $32,000. Step 6: Compute the carry-forward book value at the beginning of year three: $160,000 – 32,000 = $128,000. •Continue until the asset’s salvage or trade-in value has been reached. Step 5: Depreciation Concepts: Practice Exercise 9-1.1 • Straight-line depreciation would amount to $18,000 per year for 10 years. 1. Compute cost net of salvage value or trade-in (S or T): ($600,000 less $60,000 equals $540,000) 2. Divide result by expected life: ($540,000 divided by 10 equals $54,000 depreciation/year for 10 years) Depreciation Concepts: Assignment Exercise 9-3 Double declining depreciation for the laboratory equipment Year 1 2 3 4 5 Book Value at Beginning of Year 300,000 180,000 108,000 64,800 38,880 Depreciation Expense 300,000 × 40% = 120,000 180,000 × 40% = 72,000 108,000 × 40% = 43,200 64,800 × 40% = 25,920 38,880 – 15,000 = 23,880 Book Value at End of Year 300,000 – 120,000 = 180,000 180,000 – 72,000 = 108,000 108,000 – 43,200 = 64,800 64,800 – 25,920 = 38,880 38,880 – 23,880 = 15,000 Double declining depreciation for the radiology equipment Year Book Value at Beginning of Year Depreciation Expense Book Value at End of Year 1 2 3 4 5 6 7 800,000 571,440 408,180 291,563 208,263 148,763 106,262 800,000 × 28.57% = 228,560 571,440 × 28.57% = 163,260 408,180 × 28.57% = 116,617 291,563 × 28.57% = 83.300 208,263 × 28.57% = 59,500 148,763 × 28.57% = 42,501 106,262 × 28.57% = 26,262 800,000 – 228,560 = 571,440 571,440 – 163,260 = 408,180 408,180 – 116,617 = 291,563 291,563 – 83,300 = 208,263 208,263 – 59,500 = 148,763 148,763 – 42,501 = 106,262 106,252 – 26,262 = 80,000 Units-of-Service Depreciation: Assignment 9-5(a) Depreciation Compensation Cost (to be Depreciated) Units-of-Service per Year × Depreciation per Unit = Accumulated Depreciation (Reserve for Depreciation) Net Remaining Undepreciated Cost (Net Book Value) $11,000 $11,000 $39,000 Annual Depreciation Expense $50,000 Year 1 2,200 $5.00* Year 2 2,100 5.00 10,500 21,500 28,500 Year 3 2,300 5.00 11,500 33,000 17,000 Year 4 2,200 5.00 11,000 44,000 6,000 Year 5 1,200 5.00 6,000 50,000 -0- Total Units 10,000 Units-of-Service Depreciation: Assignment 9-5(b) Solution Cost (to be Depreciated) Units-of-Service per Year × Depreciatio n per Unit = Annual Depreciation Expense Accumulated Depreciation (Reserve for Depreciation) Net Remaining Undepreciated Cost (Net Book Value) $50,000 less $5,000 Year 1 2,200 $4.50* $9,900 $ 9,900 $40,100 Year 2 2,100 4.50 9,450 19,350 30,650 Year 3 2,300 4.50 10,350 29,700 20,300 Year 4 2,200 4.50 9,900 39,600 10,400 Year 5 1,200 4.50 5,400 45,000 5,000 Total Units 10,000 Chapter 10: Staffing: Methods, Operations, and Regulations Staffing Requirements • In Health Care, many positions must be filled, or covered, 7 days a week, 24 hours a day. Productive and Non-Productive Time (1 of 3) Why annualize? • Employees are paid for more hours than the hours they are on duty (vacation days, etc.) • Annualizing allows the full cost of the position to be computed through a “burden” approach. Productive and Non-Productive Time (2 of 3) • Productive Time: Represents the employee’s net hours on duty when performing the functions in his/her job description. • Non-Productive Time: Represents the paid-for time when the employee is not on duty and not performing his/her job description functions. – Includes paid-for vacation days, holidays, personal leave days, and/or sick days Productive and Non-Productive Time (3 of 3) Exhibit 10-1 illustrates: •Productive Time—net days when on duty •Non-Productive Time—additional days paid for but not worked FTEs for Annualizing Staff Positions (1 of 2) FTE Definition for purposes of understanding annualizing positions: • The equivalent of one full-time employee paid for one year, including both productive and non-productive time • Two employees working half-time for one year would be the same as one FTE FTEs for Annualizing Staff Positions (2 of 2) • The calculations to annualize staff positions is a two-step process: 1. Compute the net days worked. 2. Convert the net paid days worked to a factor. (See Exhibit 10-2 as an example.) Number of Employees Required to Fill a Position (1 of 3) • Why calculate by position? – Computing by position is used in controlling, planning, and decision-making. • The scheduled position method is often used when forecasting new programs and services. • You will also find scheduling software using this method. Number of Employees Required to Fill a Position (2 of 3) FTE definition for purposes of filling a scheduled position: • A factor expressing the number of employees required measured against, or the equivalent of, one full-time employee’s standard work week. Number of Employees Required to Fill a Position (3 of 3) The calculation to fill scheduled positions is as follows: • Compute the number of hours for a full-time position filled for one year. This measure is the baseline. • Compute a factor representing the position to be filled for the required number of days (a required seven-day week to cover, for example, versus a five-day work week equals a factor of 1.4). (See the cast room example in the text.) Tying Cost to Staffing (1 of 6) • In the case of the annualizing method, the cost of nonproductive days is already in the formula. So… • Multiply the factor times the base hourly rate to compute cost. (Study the example in the chapter.) Tying Cost to Staffing (2 of 6) • In the case of the scheduled position method, the base rate must be increased, or burdened, by the nonproductive time. • First, increase the hourly base rate by a percent or factor that represents the nonproductive time. Then multiply the burdened based rate by the factor to compute the cost. • Then, multiply the factor times the base hourly rate to compute the cost. (Examine the examples in the chapter.) Tying Cost to Staffing (3 of 6) • The actual cost is attached to staffing in the books and records • Using… – a subsidiary journal and – a basic transaction record (Both of which are more fully described in another chapter.) Tying Cost to Staffing (4 of 6) • An example of a subsidiary journal is the Payroll Register illustrated in Exhibit 10-5. Tying Cost to Staffing (5 of 6) • An example of a basic transaction record is the time card illustrated in Exhibit 10-6. (Of course this time card format will probably be computerized.) Tying Cost to Staffing (6 of 6) • In summary, hours worked and pay rates are essential ingredients of staffing plans, budgets, and forecasts • Appropriate staffing is the responsibility of the manager. Staffing Regulatory Requirements • The IMPACT Act’s Staffing Report Requirements: – Regulatory specifics about staffing reports – Additional reporting requirements – Funds provided for report implementation Staffing Regulatory Requirements • State Certificate-of-Need (CON) Laws and Requirements: – Health planning background – Certificate-of-need programs – How CON-related regulations affect staffing Courtesy of J.J. Baker and R.W. Baker, Dallas, Texas Calculation for Annualizing Master Staffing Plan Example Step 1: Compute Net Paid Days Worked Total Days in Business Year Less two days off per Week Number of Paid Days per Year Less Paid Days Not Worked: Holidays Sick Days Vacation Days Education Days Net Paid Days Worked RN 364 104 260 9 7 15 3 226 LPN 364 104 260 9 7 15 2 227 NA 364 104 260 9 7 15 1 226 Calculation for Annualizing Master Staffing Plan: Example Step 2: Converting Net Paid Days Worked to a Factor RN 364 226 = 1.6106192 LPN 364 227 = 1.6035242 NA 364 228 = 1.5964912 FTEs to Annualize Staffing: Assignment Exercise 10-1 Compute Net Paid Days Worked Total Days in Business Year Less Two Days off Per Week Number of Paid Days Per Year Laboratory Medical Records _________ 364 _________ 104 _________ 260 ________ 364 ________ 104 ________ 260 _________ 9 _________ 7 _________ 3 _________ 15 _________ 0 ________ 9 ________ 0 ________ 0 ________ 0 ________ 21 Less Paid days Not Worked Holidays Sick Days Education Days Vacation Days Personal Leave Days Net Paid Days Worked ________ 34 ________ 226 _______ 30 _______ 230 Covert Net Paid Days Worked to a Factor: For the Lab. Total days in business year divided by net paid days worked = factor 364/226 _______________ = 1.610619 For Medical Records Total days in business year divided by net paid days worked = factor 364/230 _______________ = 1.582609 FTEs to Fill Position Example (Exhibit 10-4): 8-Hour Emergency Department Scheduling for Eight-Hour Shifts: Shift One Day Shift Two Evening Shift Three Night = 24-Hour Scheduling Total Position: Emergency Room Intake 1 1 1 = Three Eight-Hour Shifts Staff needed to cover position 7/24 1.4 1.4 1.4 = 4.2 FTEs One full-time employee works 40 hours per week. One eight-hour shift per day times seven days per week equals 56 hours on duty. Therefore, to cover seven days or 56 hours requires 1.4 times a 40-hour employee. FTEs to Fill a Position: Practice Exercise 10-2: 8-Hour Scheduling for Eight-Hour Shifts: Shift One Day Position: Admissions Officer FTEs to cover position equals Position Clerical FTEs to cover position equals Shift Two Evening Shift Three Night = 24-Hour Scheduling Total 2 1 1 = Four Eight Hour Shifts 2.8 1.4 1.4 = 5.6 1 0 0 = One Eight Hour Shift 1.4 0 0 = 1.4 FTEs to Fill a Position: Assignment Exercise 10-2: 8-Hour Scheduling for Eight-Hour Shifts: Position: Nursing Supervisor Technician Nurses Clerical Aides Shift One Day Shift Two Evening Shift Three Night 2.8 2.8 4.2 1.4 1.4 1.4 2.8 2.8 0 0 1.4 1.4 2.8 0 0 = = Total FTEs needed to cover ...
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Healthcare Organization and Finance
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Healthcare Organization and Finance
Chapters 9, 10, 11 and 12 are equally crucial as they provide an overview of financial and
operational concepts which are fundamental in assessing the effectiveness and viability of each
financial and operational strategy proposed by the case study. In particular, chapter 9 generates
insights on inventory and depreciation, which are important aspects in analyzing the costefficiency in healthcare as far as supplies and machinery, are concerned. Chapter 10, on the other
hand, brings about the concepts of staffing, which entail methods, operations, and regulations
which are essential in examining the operational efficiency of healthcare institutions. Chapter 11
outlines various reporting tools which encompass financial statements. The tools will be vital in
evaluating the viability and effectiveness of the proposed financial strategies outlined by the case
study. Finally, chapter 12 details financial and operating ratios as performance measures which
are crucial in examining to what extent the proposed strategies would affect the financial health
of the healthcare institutions. Essentially, the case study recommendations are largely consistent
with affective approaches to achieving quality healthcare in line with efficient finance and
operations as outlined in the chapters because the recommendations subject every approach to
assessment financial, o...

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