Chapter 14 Health Care Providers

Hospital signs a contract to receive $6 mil in capitation fees for 07/01/11 - 06/30/12. In 2011 it provides services for $3.4 mil, and in 2012 it provides services for $2.6 mil. How much should be recognized in revenue in 2011?

$3 million.

NFP hospital pays $150K in interest on bonds. Bonds were issued to finance construction. Should be shown as what kind of outflow in SCF?

Capital financing activities

Classification of Revenues

Revenues are divided into at least two classifications: 1. Patient care revenues: routine services, other nursing services, professional services 2. Other Revenues: contributions, educational services, miscellaneous sources

For a not-for-profit hospital, which of the following financial statements is NOT required? a) Statement of financial position. b) Statement of activities. c) Statement of cash flows. d) Statement of functional expenses.

d

Temporarily restricted funds

1. related to plant and equipment generally account only for resources restricted to the purchase or construction of plant and equipment. They do not usually account for the plant and equipment itself. P&E is reported in general operating fund. 2. an org may opt to establish temporarily restricted funds to account for resources designated by its governing board for specific purposes. for external reporting, board designated resources are not considered restricted and should be reported long with other unrestricted operating resources - may be classified within "assets limited as to use"

What is the primary authoritative source for issues not addressed by the FASB?

AICPA industry guide: Health Care Organizations

An accountant has encountered a perplexing financial reporting issue related to the hospital for which she is preparing financial statements. The issue is not specifically addressed by FASB statements. To which of the following sources would the accountant probably look first for industry-specific guidance? a) GASB Statements. b) AICPA accounting and auditing guide, Not-for-Profit Organizations. c) AICPA accounting and auditing guide, Health Care Organizations. d) Pronouncements of the HFMA or AHA.

C

What do private, NFP hospitals consider when calculating net revenue?

Contractual discounts to third parties. Charity care is never reported, and estimated uncollectibles are reported as expenses

NFP voluntary health and welfare org report contribution for the construction of a building. Should be shown as what in SCF?

Financing Activity

NFP hospital pays $150K in interest on bonds. Bonds were issued to finance construction. Should be shown as what kind of outflow in SCF?

Operating Activities

Community hospital would ordinarily include proceeds from sale of balloons in a gift shop in?

Other revenues

Malpractice claims

Reported per FASB No. 5 Accounting for Contingencies. Follows same rules as other contingencies. should accrued an estimated loss by a charge to operations as soon as both the following conditions are met: 1. Probable that an asset has been impaired or a liability has been incurred. 2. Loss can be reasonably estimated

Accounting for and reporting charity care

Should not be recognized as revenue. explain policies and report total value of care provided in notes to the financial statements

NFP hospital issues $140 mil in term bonds. Bond stipulations require $10 mil to be invested in held to maturity govt securities. The $10 mil will increase what class of net assets?

Temporarily restricted

A consortium of physicians agrees to provide services to the employees of a large County government. The agreement calls for monthly payments from the County to the consortium in the amount of $200,000 per month. County employees are not billed for services rendered by the consortium. All County employees are required to use the consortium under their health care program (any services rendered to County employees by other physicians are not covered under the health plan). During the month the consortium performed services for County employees for which it would have billed $170,000. The consortium referred patients to other health care providers for services they could not perform. The consortium estimates that patients will be billed $10,000 for those services. The amount of revenue that should be recognized for the month by the consortium is a) $200,000. b) $190,000. c) $170,000. d) $160,000.

a

In prior years, a not-for-profit hospital received funds from a donor who restricted the use of those funds to providing nursing scholarships. During the current year $8,000 of scholarships were awarded. These scholarships should be reported a) As expenses in the unrestricted fund. b) As reductions in the revenue section in the unrestricted fund. c) As expenses in the temporarily restricted fund. d) As expenses in the permanently restricted fund.

a

Intermountain Hospital, a not-for-profit health care provider, issued $70 million in term bonds to finance construction of a new wing at its main hospital. Terms of the bond issue require that $5 million of the proceeds of the bond issue be invested in U.S. government securities. The $5 million must be held until maturity of the bonds. The $5 million will increase which class of net assets? a) Unrestricted net assets. b) Temporarily restricted net assets. c) Permanently restricted net assets. d) Either (b) or (c).

a

Jordan an auditor, is performing a routine review of a not-for-profit hospital and noted the following account balances in the statement of operations for the fiscal year ending Sept. 30, 2011: Gross patient service revenue from all $ 4,450,000 services at the hospital's established billing rate Bad debt expense $ 90,000 Contractual adjustments $ 420,000 Calculate the amount the hospital would report as net patient service revenue in its statement of operations for the fiscal year ending Sept. 30, 2011. a) $4,080,000 b) $4,140,000 c) $4,230,000 d) $4,410,000

a

The Gulf Coast bank is holding $750,000 donation in an independent permanent trust with the investment income dedicated for use by the Coastal hospital for operating purposes. The $750,000 principal should be: a) Disclosed in notes to the financial statements of the hospital b) Reported as a permanently restricted net asset of the hospital c) Reported as non-operating revenue of the hospital d) Reported as an asset limited as to use by the hospital

a

The LRF Healthcare foundation donated 1,800,000 as a permanent endowment to a Senior Citizen health and welfare organization during the year. The foundation stipulated that the income and investment appreciation be used to maintain its preventive care center for the elderly. The endowment principal had an investment appreciation of $120,000 and investment income of $160,000. The organization spent $140,000 to maintain its preventive care center during the year. What is the amount of change in temporarily restricted net assets that the organization should report? a) $140,000 b) $160,000 c) $280,000 d) $1,940,000

a

A hospital carried a 2-year malpractice insurance policy that allows for retroactive premium adjustments based on experience (claims actually incurred). The basic premium is $300,000, payable in advance. At the end of the first year the hospital estimates that it will have to pay an additional $80,000 in premiums as a result of claims filed in the current year and it estimates that it will incur additional premiums in the second year of $100,000 as a result of claims filed in the second year. The amount of insurance expense that should appear on the financial statements at the end of the first year should be a) $150,000. b) $230,000. c) $300,000. d) $480,000.

b

A not-for-profit hospital signs a contract with an insurance company in which the company agrees to pay it $9 million in capitation fees for the year July 1, 2011, through June 30, 2012. Between July 1, 2011 and December 31, 2011, the hospital provides services that, at its standard rates, would bill at $5.1 million. Between January 1, 2011, and June 30, 2012, it provides services that it would bill at $4.2 million. For the year ending December 31, 2011, the hospital should recognize capitation revenue of a) $0 b) $4.5 million c) $5.1 million d) $9 million

b

During a particular year, a not-for-profit hospital provides services that at standard rates would be billed at $400 million. This amount includes $20 million of charity care. Of the remaining $380 million, it estimates that $240 million will be billed to third-party providers which, per contractual agreements, will pay only 75 percent of the standards rate (i.e., $180 million). Of the $140 million to be billed to individuals, the hospital estimates that $80 million will have to be written off as bad debts. The hospital should recognized net patient care revenue of e) $240 f) $320 g) $380 h) $400

b

During the current year, St. Mary's Hospital (a not-for-profit entity) earned, based on its normal billing rate, $1 million in patient service revenues. Many of these patients belong to a health plan that has an established pay schedule. Based on the specific services rendered to members of the plan, the hospital estimates that $.05 million will not be collectible from the plan or the patient. Some of the patients are Hospital employees. These employees are given a 50% discount on the services rendered. Employee discounts for the current year total $.01 million. Some of the patients are uninsured and the hospital estimates that, of the amount billed to the uninsured patients, $.2 million will not be collectible (bad debts). The amount of net patient service revenues for St. Mary's Hospital for the current year is a) $1 million. b) $.94 million. c) $.87 million. d) $.74 million.

b

In 2010 St. Joe's Hospital received a $50,000 cash gift to be used to buy supplies and other items for the pediatric department of the hospital. In 2011, St. Joe's purchased puppets and other items to be used in explaining medical procedures to young children. The acquisition of the items causes a NET decrease in which class(es) of net assets? a) Unrestricted net assets only. b) Temporarily restricted net assets. c) Both unrestricted and temporarily net assets. d) Neither unrestricted nor temporarily restricted net assets.

b

In the process of general purpose external financial reporting, a health care organization is required to present a) A separate statement of changes in equity, net assets, or fund balance b) A statement of operations c) A performance indicator only by for-profit entities d) Fund group information by a not-for-profit organization

b

Kale Hospital, a not-for-profit entity, received a pledge from a donor in support of a fund raising effort by the Hospital to finance construction of a new facility for cancer treatment. The donor promised to pay $2 million in equal annual installments of $200,000 over the next 10 years. The present value of the gift at the risk-free interest rate is $1,472,000. The amount of restricted revenue that should be recognized by Kale in the year of the gift is a) $2 million. b) $1,472,000. c) $200,000. d) $0.

b

The Medical Arts Clinic, a well-established health care organization, received a $1,500,000 pledge in fiscal year 2012 that was restricted to cover operating expenses. The gift was received over two years; $600,000 in the first year and $900,000 in the second year. The following table reflects the funds received as well as the amount spent on operating the clinic. June 30, 2012 June 30, 2013 Gifts received $600,000 $ 900,000 Clinic operating expenses $ 40,000 $1,020,000 What should the clinic report as Net Assets Released from Restrictions on the statement of activities for the fiscal year ended a) $900,000 b) $960,000 c) $1,020,000 d) $1,500,000

b

The community hospital of Briarwood normally includes proceeds from sales of meals in their cafeteria as a) Ancillary service revenues b) Other revenues c) Deductions from dietary meal service expenses d) Patient service revenues

b

A hospital estimates that, based on past experience, it will incur $5 million in malpractice claims as a result of services rendered in the current period. The hospital carries a malpractice insurance policy with a yearly $2 million deductible clause. The amount that should appear on its year-end financial statement as Claims Expense (Loss) should be a) $0. b) $2 million. c) $3 million. d) $5 million.

c

Based upon Saint Thomas Hospital's established billing rate structure, the hospital would have earned patient service revenue of $5,100,000 for the year. However, Saint Thomas does not expect to collect this amount because of charity care provided in the amount of $600,000 and contractual allowances to third-party payers of $450,000. How much should Saint Thomas record as patient service revenue for the year? a) $5,100,000 b) $4,650,000 c) $4,500,000 d) $4,050,000

c

Hospital revenue usually includes which of the following? Revenue from Educational Programs Unrestricted Gifts a) Yes Yes b) No No c) Yes No d) No Yes

c

Which of the following would normally be considered ongoing or central transactions for a not-for-profit hospital? a) Recovery room fees for surgical patients b) Room and board fees from patients c) Both of the above d) Neither of the above

c

A specialized health care facility normally purchases their medicine. However, this month a wealthy philanthropist donates the medicine. This medicine should be recorded at fair market value and should be credited directly to: a) Deferred Revenue b) Unrestricted Net Assets c) Non-operating Gains d) Other Revenues

d

During the current year, a voluntary health and welfare organization receives $800,000 in unrestricted pledges. Of this amount, $300,000 has been designated by donors for use next year to support operations in the pharmacy. If 20 percent of the unrestricted pledges are expected to be uncollectible, what amount of unrestricted support should the organizations recognize in its current-year financial statements? a) $800,000 b) $700,000 c) $500,000 d) $400,000

d

In accounting for health care organizations, restricted net assets are: a) Not available for current operating use; however, the income generated is available for current operating use. b) Not available unless the directors remove the restrictions. c) Restricted as to use only for board-designated purposes. d) Restricted as to use by the donor, grantor, or other source of the resources.

d

Kale Hospital, a not-for-profit entity, received a pledge from a donor in support of a fund raising effort by the Hospital to finance construction of a new facility for cancer treatment. The donor promised to pay $2 million in equal annual installments of $200,000 over the next 10 years. The present value of the gift at the risk-free interest rate is $1,472,000. The amount of unrestricted revenue that should be recognized by Kale in the year of the gift is a) $2 million. b) $1,472,000. c) $200,000. d) $0.

d

Sponsors of not-for-profit health care organizations generally include: a) Universities b) Community Organizations c) Religious Organizations d) Any of the above

d

contractual adjustments

difference between established rates and the amount collectible recognized on an accrual basis and deducted from gross revenue to determine net service revenue.

capitation fees

generally based on number of persons covered and expected costs to be incurred rather than actual services provided.

Preferred provider organizations - PPOs

groups of doctors, hospitals, and other health care providers that contract with employers or insurance companies to provide medical services to a specified group of potential patients. services are neither prepaid nor fixed.

Recognizing capitation fee revenues

is earned as a result of agreeing to provide services to qualified beneficiaries (recognized over the period covered) and not as a result of actually providing the care.

NFP health care entities

must provide information on the three categories of net asset donor restrictiveness whereas governments do not.

Health Maintenance Organizations - HMOs

provide services to members in return for fixed, periodic payments. may subcontract with hospitals, physicians associations or other medical groups to provide specialized services in exchange for capitation fees

Recognizing Revenues from health care services? How should bad debts be reported?

recorded when coverage is provided to an enrollee or the service is provided to a patient or resident recorded at net realizable value. bad debts should be reported as a deduction from revenues not as an expense

Classification of Expenses

reported exclusively within the unrestricted category except if expenses are classified by object, then the functional classification must be presented in the notes

Basic financial statements of NFP health care orgs

similar to those of a museum and the private college and university. Include statement of financial position: should distinguish among unrestricted, temporarily restricted and permanently restricted net assets statement of activities: should classify revenues as unrestricted, temp restricted and permanently restricted but should report expenses only as decreases in unrestricted resources statement of cash flows statement of changes in net assets.