Weatherfield Limited Trades as the Private Clinic (Tpc)
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Weatherfield Limited trades as The Private Clinic (TPC), one of the longest established private hospitals in the city.TPC has 220 beds in addition to a well established Daycare and Outpatient clinic, generating annual revenues in excess of €60 million per annum.TPC primarily bills the main health insurer in the country, as well as three smaller other healthcare insurers who represent just 5% of the total billings to the insurers. TPC also has a small number of private uninsured patients, many of them people from outside the country. TPC bill their insurer customers as soon as the bills are ready to submit, with all medical details and doctor sign offs in place, and the insurers pay twice a month, with a very detailed remittance advice specifying which claims have been paid (and to what extent, and which claims have been cut in part, rejected in full or deferred seeking further information or details). Approximately 90% of claims by number (but slightly less by value) are paid on time by the insurers (many of them at an agreed fixed price for the more typical procedures), but once a claim has been queried or rejected it can take up to nine months or more to be resolved and paid.
The insurers will pend, query or reject claims for a variety of reasons, quite typically because the person is no longer a valid insured member but also because the insurers believe the treatment that the member has received was excessive or unjustified and thus unduly expensive for the insurer.
TPC is subject to a 20% corporate tax rate.
It is now early 2010 and you, James Curtis, ACA with Consult & Co., Chartered Accountants, have just left a meeting with your partner, Abigail Smith, in relation to TPC. Abigail told you she wants a briefing memo dealing with a number of issues she has raised with you.
Abigail is particularly focussed on the TPC audit this year because TPC are spending €260 million on the development of a new 300 bed private hospital building on a greenfield site on the new orbital motorway. TPC management believe that the new location, combined with world-class facilities and their existing medical faculty will strengthen the pre-eminent position of TPC in the local private healthcare market, and are determined to proceed with the project despite the reticence of their long-standing bankers to finance the project. Abigail, who knows two members of the credit committee of the bank personally, has been told that the bank are very worried about the additional borrowings of €260 million that TPC plan to take on, but the bank feel if they do not provide the funds they will totally lose TPC as a client.
The bank have delayed giving final clearance to TPC on their application for a €260 million loan but have provided €40 million in bridging finance to allow TPC to purchase the site on the orbital ring road and finance the first phase of the development of the building. The plans show the building costing €180 million on top of the site cost of €20 million, with equipping costing a further €40 million, and TPC have contracted for the building with the chosen builders, and ordered about half of the equipment, much of which will be built into the fabric of the building . Her two friends on the credit committee of the bank have warned Abigail ‘we will be placing a lot of reliance on the TPC accounts for 2009’.
Abigail has provided you with a draft pro-forma Income Statement and Balance Sheet for 2009, attached as appendix 1 and details of the control system over billings and receivables in appendix 2 and over potential claims in appendix 3.
Requirement:
a) Outline briefly the specific procedures that Consult & Co. need to incorporate into their 2009 audit plan to deal with going concern (10 marks)
b) Outline the specific audit risks (other than going concern) appropriate to the 2009 audit of TPC, and the procedures to be applied to deal with these risks (8 marks)
c) Identify the key controls you would expect to see in the billing and receivable collection process in TPC (10 marks)
d) Assuming that the main insurer customer of TPC will not provide a receivables confirmation, as they have similarly refused to do in the past, set out in detail the specific alternative procedures that Consult & Co. will need to implement in relation to the end 2009 insurer balance (8 marks)
e) Assuming that the 2009 TPC financial statements will have to be completed before the bank provides the balance of the loan sought, prepare a draft of the disclosure note in this respect to be included in the 2009 TPC financial statements (9 marks)
f) From the controls procedures set out in relation to potential claims identify THREE weaknesses in the claim identification process and outline briefly the implications of those weaknesses (9 marks)
g) Set out any ethical concerns you see in relation to the friendship between Abigail Smith and the two members of the bank credit committee (6 marks)
Total 60 marks
Time allowed : 2 hours and 10 minutes
Appendix 1 –Pro Forma Income Statement and Balance Sheet for calendar 2009
When a patient is admitted they are giving a PIN or Patient Identification Number which is used to track them throughout the hospital, and which is put on their chart ( a vanilla folder that contains details of x-rays, drugs and medical observations and physically follows the patient around the hospital) and is used to record all treatments such as x-rays and drugs. This PIN recorded in a manual Patient Register (called the Golden Book because of its importance but it actually has a yellow cover) and is matched to the unique insurance number that all insured patients have and also to the unique social security number that all patients have. On admission the Admissions Office will ask the patient for evidence that they have valid insurance such as a renewal notice or membership card. If these are not available the Admissions Office will phone the insurer and look for confirmation that the patient is insured but there can be problems with this process as people will temporarily suspend membership or be behind in their patients but very often, especially if they have been long standing members, the insurer will still say they are covered but may at a later date refuse the claim.
Each morning the Nursing Administration Office prepares a list of discharges the previous day by patient name and passes it to the Accounts Department who will locate the chart for that patient from the ward or Patient Records and draw up an invoice based on the information on the chart that identifies the treatments that the patient had in the Hospital. These can be difficult to follow so sometimes the Accounts Office will have to go back to the Ward Sister or Radiology or any other department to check these details. The chart may also be incomplete in terms of drugs or treatments due to processing delays and this means that the invoice has to be credited and replaced with an updated version. A copy of this invoice is then sent to the medical consultant who is asked to check the invoice and include their own bill, and the amended consolidated invoice including the consultants bill is then submitted to the insurer, or direct to the patient if they are not insured.
Some medical consultants are much more efficient than others in terms of returning the invoices, either suggesting changes or submitting their own invoice, or simply approving the invoice for issue, however some consultants seem to deliberately delay approval of the invoices at certain times of the year as crude tax planning to delay receipts.
When the insurers pay the aggregate amount TPC immediately pay the portion due to the relevant medical consultants (which is highlighted on the remittance advice from the insurers) over to the medical consultants.
The Accounts Department are responsible for following up outstanding invoices with the insurers or private uninsured patients.
Appendix 3 – Controls over potential claims against TPC
TPC have a generally understood rule that if a mistake actually happens in relation to a patient (‘near misses’ do not count), irrespective of whether the patient is injured or suffers or not, then the doctor most immediately responsible must discuss the issue with another doctor of equal or higher rank within the hospital within 24 hours, and the record of their discussion must be noted on the patients chart. If either doctor believes the matter is serious enough they will complete a written report for the Medical Board, which will consider the matter at their next scheduled fortnightly meeting, or the Board may in exceptional circumstances convene a special meeting.
At that stage the written report prepared initially by the doctor will be destroyed and the Minutes of the Medical Board are deliberately kept brief and non committal to avoid and Freedom of Information requests. The Medical Board comprises the Head of Surgery, the Head Physician and their deputies.
For matters considered sufficiently serious the Medical Board will recommend to the Board of Directors of TPC that the matter warrants the attention of the full Board and at that stage it is typically referred to the legal advisors to the Hospital.
