Lesson 4: Cost and Behavior
Lesson 5: Pricing and Service Decisions
Lesson 6: Planning and budgeting
Abstract
This document contains responses to questions for three lessons from the unit HA-343 Healthcare Financial Management. They are Lesson 4: Cost and Behavior; Lesson 5: Pricing and Service Decisions and Lesson 6: Planning and budgeting.
Lesson 4: Cost and Behavior
Question 1: Explanation of financial accounting, managerial accounting,
and managerial finance
- Financial accounting relates to preparation of financial statements to be used by decision makers. They include suppliers, stockholders, banks, government agencies, government agencies, owners of industries. There will always be a need for financial accounting because it limits the principal–agent problem through measurement and precise monitoring of agents' performance. It also reports the results to interested parties.
Importantly, financial accountancy is government by local and international standards summarizing the organizations’ financial data. This data is retrieved the organization's accounting records, which is published in the form of annual reports and is made available for public scrutiny (Gapenski, 2009) (See figure 1).
(b) Managerial accounting
Managerial accounting provides managers of an organization with financial information. This information assists them in making appropriate business decisions that will enhance functioning of their organization; unlike financial accounting information, the aim of management accounting data for making projections rather than keeping a history of financial transactions. It is treated as confidential internal financial information and not exposed for public scrutiny. Stakeholders do not have access to this information and is subject to national and international accounting compliance standards (Clinton &Van der Merwe, 2006) (See figure 1)
Figure 1
(Copyright from international Federation of Accountants in Gapenski, 2009)
(c). Managerial finance is an evaluation strategy applied to accounting information presented through financial and managerial accounting. It functions to resolve the meaning of figures and not how money was applied as in technical finance. This accounting system assesses balances asset changes which predisposed to bill collection issues or bad debt. Ultimately, the strategy analyzes working capital in anticipating cash flow irregularities (Clinton &Van der Merwe, 2006).
Question 2: Define direct and Indirect Costs
Indirect costs are not accountable to the cost object whereas direct costs are accountable. The cost object pertains to a particular facility or project management or product. Indirect costs include money paid towards administration of the facility and security infrastructure. Direct costs are salaries, pensions, project management and consultants.
a. Real estate taxes (indirect)
b. Clinic telephone expense (indirect)
c. Oil for the heat for the whole facility (indirect)
d. Emergency room medical supplies (direct)
e. Liability insurance (Indirect)
f. Nursing wages for the operating room (direct)
g. Food for the residents in the medical surgical unit (direct)
h. Diapers for the babies in the nursery (direct)
i. Computer system for the facility (indirect)
j. Marketing expense for the new wing (direct)
Question 3:- Five new trends
- What are the five new trends explained in the Cognizant magazine article?
The five new trends are:--
- Tablets and smartphones are moving from the consumer realm to the enterprise (Cognizant, 2013).
- Cloud is influencing technology companies for making more cash and available for moving towards a cloud management culture (Cognizant, 2013).
- Movement towards social networks to collaboration (Cognizant, 2013).
- Utilizing real-time predictive data (Cognizant, 2013).
- The use of video to show case the business (Cognizant, 2013).
- Do you believe these trends are accurate?
They are accurate to some extent because technology is taking over the world and it is a dynamic science.
- What impact do you think each will have on health care delivery? Don’t repeat the article’s assessment; give your own opinion with supporting thoughts.
Healthcare in third world countries is not a business. It is a social service entity. However, in context of United States of America it would mean adapting new business techniques in healthcare management.
Lesson 5: Pricing and Service Decisions
Question 1: Price Setter and a Price Taker
- A price setter is the entrepreneur who can place a price on an item, service or product and defends its correctness upon competition in terms of market value. The entrepreneur who is a price taker places a price on a product, service or item from a premise of just staying in business using the price set by another competitor (Gapenski, L. (2009). For example, private hospitals can be considered price setters in that they may advertise cosmetic surgeries at a cost which seems relatively lower than a public health care institution. However, while the price at the alternative institution might be lower that cost could reflect the attitude of a price taker institution which might be trying to reduce cost just to keep in completion/on the market.
- No, because some services can be price setter influenced while others since they might not be as marketable in the environment must be price takers. For example, in United States of American emergency care is not charged to a person who has no insurance. Hence, a price taker institution will take advantage of this price setting opportunity.
2. Three Payer Groups
PennCare, Medicare and Commercial
3. The hospital’s fixed costs are $38 million
a. 41 million
b. Primary capitation rate
c. 36 million
d. 43 million
4. Winterhalter article
The Winterhalter article lists three competitors that have forced hospitals to become more transparent and even reduce their prices. Who are these three competitors? How has their presence impacted hospitals and their pricing strategies?
Winterhalter, S. (2011). Economic factors converge: force hospitals to review pricing strategies. Journal of Health Care Finance. Retrieved from http://ezproxy.sjcme.edu:2102/ps/i.do?id=GALE%7CA257512409&v=2.1&u=sjcme&it=r&p=AONE&sw=w.
I cannot access this link to read the article. It requires log in information. I am not fining the article online.
Lesson 6: Planning and Budgeting
Question: 1.
- Planning process, strategic, operating, and financial plans.
The planning process employs strategies which can be interpreted as its components. It begins by conducting an evaluation of the financial situation by examining assets, resources, indebtedness and functional financial issues. It operates by periodically analyzing goals for alignment with new ideals. Next strategy involves developing alternatives in case decisions have to be reconsidered or modified. Even these alternatives must be re-evaluated overtime in justifying their appropriateness with changing goals in the organization. At this stage the plan could be tested for implementation. Once the pretesting is successful it can be implemented and periodically evaluated (Finkler, 2000). .
- Describe the components of a financial plan.
There are six main components of the financial plan main. First it is determining the present financial situation existing in the organization. This would be reflected in the balance sheet and financial asset management reports. The second step relates to developing the organization’s financial goals for the year ahead or within a specified period of time (Finkler, 2000).
Thirdly, is identifying alternative courses of action should there fluctuations in prices or budget cuts in certain areas. Fourthly, is evaluating alternatives, which encompass considering the organizations’ products and services marked and competition influences on the production targets. Economic factors such as money value, inflation and risks are accurately calculated and strategies designed to deal with fluctuations in the national and international markets. The fifth step is creating the financial and implementing it. After used the plan for a fixed period it is evaluated for efficacy. This is important because change is inevitable and healthcare is a dynamic science (Finkler, 2000).
2. Define the following types of budgets
a. Static budget is one that incorporates anticipated inputs and outputs values beforehand.
b. Flexible budget is one that shows variation in costs and rates
c. Operating budget is a one prepared according to a budget classification
d. Capital budget is an investment appraisal determining long term viability.
e. Cash budget is one that shows the cash inflows and outflows of a business organization
f. Revenue budget shows money allocated to functioning of a business.
g. Expense budget is a spread sheet used to track a company’s expenses
h. Statistics budget is an analysis of budget existing within a company.
3. Contract management system
A benefit of contact management system is that it helps organizations to have a financial stability In cases where employees leave if they are on a contract the organization would not have to worry about replacing that category of staff during that period of time. In the same way when clients/patients are contracted there is a financial basis on which the organization can function for that period.
References
Cognizant (2013). How High-Tech Firms Benefit from Finance & Accounting Outsourcing.
Retrieved on July 7th 2013 from http://www.cognizant.com/insights/perspectives/benefits-
of-finance-accounting-outsourcing
Clinton, B., &Van der Merwe, A. (2006). Management Accounting - Approaches, Techniques,
and Management Processes: Cost Management. New York: Thomas Reuters RIA
Group
Finkler, S. (2000). Financial management for public, health, and not-for-profit organizations.
Upper Saddle River, NJ: Prentice Hall.
Gapenski, L. (2009). Cases in Healthcare Finance (4th edition). Boston: McGraw Hill-Irwin
