Chp 1 Questions: (pg 23-4) 1. a. What are some of the industries in the healthcare sector? Healthcare services (ex. hospitals), Health insurance (makes most of the payments to the health service providers), Medical equipment and supplies (maker of medical/diagnostic equipment), Pharmaceuticals and biotechnology (develop/market drugs/therapeutics), and "other" (which includes consulting, educational, government, and research agencies) b. What is meant by the term healthcare finance as used in this book? Healthcare Finance consists of both the accounting (which creates and provides useful operations and financial status information to interested internal and external parties for assessing financial and operation performance) and financial management (provides the theory, concepts, and tools necessary to help managers make better financial decisions) for the healthcare sector of the economy. c. What are the two broad areas of healthcare finance? Accounting and financial management (aka Corporate Finance) d. Why is it necessary to have a book on healthcare finance as opposed to a generic finance book? Healthcare services are dominated by both private and governmental not-for-profit corporations, which differ from investor-owned businesses (learned in a generic finance book) due to the majority of payments being made are from third-party payers (e.g., employers, commercial insurance companies, government programs). 2. What is the difference between a business and a pure charity? A pure charity is a budgetary organization in that the amount of contributions fixes its budget for the year to supply charitable (free) services whereas a business sustains itself by selling goods or services in competition with the market for the consumer dollar. 3. a. Briefly discuss the role of finance in the health services industry. It’s mostly bureaucratic due to cost identification, complying with regulations, reporting to third party payers (such as Medicare) to receive reimbursement of costs incurred, and finally billing and collecting. Most critical function was cost identification (instead of trying to control costs). Today healthcare finance is becoming proactive by supporting cost-containment efforts, negotiating third-party payer contracts and joint venture decisions, and integrating a delivery system participation. b. Has this role increased or decreased in importance in recent years? It has increased to become the leading factor for healthcare services into the future.
1.4 a. Briefly describe the following health services settings: • Hospitals: provide diagnostic and therapeutic services to individuals who require more than several hours of care; most engage in ambulatory walk-in service; must be licensed by the state, compliant with state regulations, and accredited by The Joint Commission to participate in Medicare. They can be general acute care hospitals or specialty hospitals; vary in function, length of patient stay, size, ownership,; can be private not-for-profit, investor owned, or governmental. • Ambulatory care (aka outpatient care) encompasses services provided to non-institutionalized patients and are less costly and less often subject to licensure and certificate of need regulations. • Home health care is an alternative to nursing home care that can be provided for an extended time period but Medicare is less inclined to pay. • Long-term care is a hybrid of healthcare services and social services that covers an extended period of time and includes both inpatient and outpatient services, which often focus on mental health, rehabilitation, and nursing home care. • Integrated delivery systems (IDS) objective is to provide all needed services to its member population in the lowest cost setting where the organization of the system has the ability to assume full clinical responsibility for its populations healthcare needs. IDS usually contract with insurers rather then employers and invest in primary care services, especially prevention, early intervention, and wellness programs. b. What are the benefits attributed to integrated delivery systems? • Patients are kept in the corporate network of services (patient capture). • Providers have access to managerial and functional specialists (e.g., reimbursement and marketing professionals). • Information systems that track all aspects of patient care, as well as insurance and other data, can be developed more easily, and the costs to develop them are shared. Linked organizations have better access to capital. • The ability to recruit and retain management and professional staff is enhanced. • Integrated delivery systems are able to offer payers a complete package of services (“one-stop shopping”). • Integrated delivery systems are better able to plan for and deliver a full range of healthcare services to meet the needs of a defined population, including chronic disease management and health improvement programs. Many of these population-based efforts typically are not offered by stand-alone providers. • Incentives can be created that encourage all providers in the system to work together for the common good of the system, which has the potential to improve quality and control costs.
1.5 What role does regulation play in the health services industry? Establish minimum standards that must be met to provide a service in an effort to protect the health, safety, and welfare of the public.
1.6 What is the structure of the finance function within health services organizations? Depend on type of provider and its size: Large providers: Chief financial officer (CFO)/vice president-finance reports to chief executive officer (CEO) and is responsible for all finance activities for organization. CFO usually directs a comptroller (responsible for accounting and reporting activities such as routine budgeting, preparation of financial statements, payables management, and patient accounts management) who has a patient accounts manager that reports to the comptroller, and a treasurer (responsible for the acquisition and management of capital funds) who has a cash manager that reports to the treasurer. Small providers: All finance responsibilities are combined and assigned to a few individuals or managed by one person named the business practice manager.
1.7 What is the primary legal issue facing providers today? Professional liability, specifically malpractice suits/litigation
1.8 What are the major current concerns of healthcare managers? For healthcare CEO's its the reimbursement from Medicaid, Medicare, and bad debt losses due to the inability of government payers to adequately reimburse providers. For healthcare CFO's its balancing improving financial performance without negatively impacting clinical performance; improving the revenue cycle (billing and collecting on a timely basis); and developing new ways of to access more capital.
1.9 Briefly describe the organization of this book and the learning tools embedded in each chapter. It’s a carefully charted path to provide a full introduction to healthcare finance. Starts with part I: the fundamentals of healthcare finance( Part II: the tools used in financial accounting( Part III: tools used for day-to-day managerial accounting (Part IV: basic financial management concepts( Part V: Long term financing for capital acquisitions( Part VI: Capital Investment Decisions on new capital investment opportunities(Part VII: how to assess current financial conditions of the organization and how to monitor and control current operations for future financial conditions.

Chapter 2 Questions: (pg 62) 2 A firm that owns the stock of another corporation does not have to pay taxes on the entire amount of dividends received. In general, only 30 percent of the dividends received by one corporation from another are taxable. The reason for this tax law feature is to mitigate the effect of triple taxation, which occurs when earnings are first taxed at one firm, then its dividends paid to a second firm are taxed again, and finally the dividends paid to stockholders by the second firm are taxed yet again. Assume that a firm with a 35 percent tax rate receives $100,000 in dividends from another corporation. What taxes must be paid on this dividend, and what is the after-tax amount of the dividend?

2 Jane Smith currently holds tax-exempt bonds of Good Samaritan Health-care that pay 7 percent interest. She is in the 40 percent tax bracket. Her broker wants her to buy some Beverly Enterprises taxable bonds that will be issued next week. With all else the same, what rate must be set on the Beverly bonds to make Jane interested in making a switch?

Chapter 2 Review Questions: (pg 61) 1. What are the three primary forms of business organization? Describe their advantages and disadvantages. (sole) proprietorship - owned by one individual -no corporate income taxes -few governmental regulations -only taxed once as personal income PARTNERSHIP- owned by 2 or more but aren't incorporated -low cost and ease of formation -taxed as personal income partnership & proprietorship disadvantages: -difficult for owners to sell their interest in business -owners have unlimited personal liability for debts of the busines -life of business is limited to life of owners -most important dis. is attracting substantial amout of capital to take advantage of market opportunities Corporation: legal entity that is separate and distint from its owners and managers Advantages: unlimited life (continues on when owners and managers have moved on) -easy to transfer ownership due to to stock shares -owners have limited liability Disadvantages: -earnings are double taxed: once at corporate level and then again at personal level -setting up a corporation is costly and time consuming 2. What are the primary differences between investor-owned and not-for-profit corporations? Investor-owned: the owners (stock-holders) of the corporation are well defined and exercise control of the business by voting for directors. Second, the residual earnings of the business belong to the owners, so management is responsible only to the stockholders for the profitability of the firm. Finally, investor-owned corporations are subject to various forms of taxation at the local, state, and federal levels. Not-for-profit corporations have a board of trustees, not constrained by outside oversight, instead of shareholders. They are tax exempt, can accept tax-deductible contributions and issue tax-exempt debt 3. a. What is the primary goal of investor-owned corporations? Shareholder wealth maximization b. What is the primary goal of most not-for-profit healthcare corpora-tions? To fulfill its mission and to main financial viability c. Are there substantial differences between the finance goals of investor-owned and not-for-profit corporations? Explain. Not terribly, investor owned focus on shareholder wealth maximization while not-for-profit focus on all its stakeholders and keeping up with staying financially viable d. What is the agency problem? Is a conflict of interest that can arise between principals and agents…like shareholder maximization and management
2.4 a. Why are tax laws important to healthcare finance? They have important consequences, so they most be followed stringently to continue to either stay not-for-profit or if for profit, it affects usable earnings of invester-owned business b. What three major advantages do tax laws give to not-for-profit corporations? -not subject to income or property tax -able to issue issue debt having interest payments that are exempt from lenders' personal taxes -contributions made to not-for-profit corporations are tax deductible to the donor c. What is Form 990?
2.5 Briefly describe the major third-party payers.
2.6 a. What are the primary characteristics of managed care plans? b. Describe different types of managed care plans.
2.7 What is the difference between fee-for-service reimbursement and capi-tation?
2.8 Describe provider incentives and risks under each of the following re-imbursement methods: a. Cost-based b. Charge-based (including discounted charges) c. Per procedure d. Per diagnosis e. Per diem f. Bundled payment g. Capitation
2.9 What medical coding systems are used to support fee-for-service pay-ment methodologies?
2.10 Briefly describe the main provisions of healthcare reform and its impli-cations for the practice of healthcare finance.
2.11 Describe the primary features of accountable care organizations (ACOs) and medical homes. What benefits are attributed to them?