HCM410 Final Exam

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Explain the key differences between the operating budget and the capital budget

The operating budget which is also commonly called the annual budget combines the annual revenue budget and the annual expenditure budget while the capital budget accounts for the major capital expenditures of the organization and is normally prepared to cover a number of budget years.

Budget Philosophies

Top-Down Budgeting, Bottom-up Budgeting, Incremental budgeting, Zero-base budgeting

Patricia Summers, RN, slips on wet floor at work and twists her knee. She is out of work for two weeks. Which insurance policy covers her medical costs and lost wages?

Worker's Compensation

Statistical Budget

projects patient care revenues based on units of service to be provided and established reimbursement rates

Cash Budget

projects revenues, expenditures, and cash flow on a monthly basis

Workers Compensation

provides protection for employees injured on the job and is required by law in all states

Variable Rate

the interest rate will adjust periodically based on an index

Zero-based Budgeting Advantages

it aims to correct the downside to incremental budgeting

Five Steps to Developing an Effective Budget

1. Prepare a chart of accounts 2. Track historical revenues and costs 3. Benchmark costs 4. Build the annual budget 5. Review the monthly budget

Three Major Principles of Investing Funds

1. The time value of money is based on the concept of interest 2. Prudent investing requires understanding of market and securities 3. Investors are rewarded for the risks they take

A healthcare facility starts an aggressive program to reduce risks. After 2 years, the facility sees a marked reduction in incidents. The facility should see:

A reduction in insurance premiums

Short Term Low Risk Investments

CDs, US Treasury Bills, Treasury Notes, Treasury Bonds, Federal Agency Securities

Which of the following will negatively impact the relationship between a medical facility and a bank?

Deterioration in the financial condition of the medical facility, the bank reporting major losses from nonperforming loans, Disruptions in national and international financial markets (all of the above)

Billing to Insurance Companies and Government Programs

Encounter forms, coding changes, resident coding expert, reviewing charges in advance of submitting claims. billing errors, ensuring accurate reimbursements, negotiating insurance claims

Collection Policies and Procedures

Establish a payment plan before service is provided, collect at time of service, verify patient information at time of service, billing accounts receivable, have flexible payment terms, granting of discounts, use of collection agencies and consider grounds for dismissal

Future Value

FV = PV(1 + r) ^n

Zero-based Budgeting Disadvantages

it is extremely time consuming and it accumulates massive amounts of paperwork and key information can be lost.

Framework of Risk Management

Identification of Risk, Evaluation of Risk, Reduction and Elimination of Risk, Transfer of Risk

Drs. Draper and Keys experience annual periods of negative cash flow and require infusions of cash to meet operating expenses. Their local bank will likely recommend a

Line of credit

Expediting Cash Flow on Patient Accounts Benefits

More cash on hand provides funding to meet operational needs, may avoid the need for bank loans and related interest costs, rate of collection on receivable falls as the age of receivables increases

Present Value

PV = FV / (1 + r) ^n

The finance department of a large hospital negotiates banking services with a 3-year contract. Nearing the end of a contract period, which of the following will be used to determine the award of a new 3-year banking services contract?

Request for proposal

Capital Budget

accounts for the major capital expenditures of the organization and is normally prepared to cover number of budget years

Operating Budget

aka annual budget, combines the annual revenue budget and the annual expenditure budget

Top-Down Budgeting Advantages

budgeting process moves more quickly and smoothly

Fixed Rate

denotes that the interest rate will remain constant or change only on a predetermined schedule

Bottom-Up Budgeting Disadvantages

each unit has a very different set of needs and the managers may request more or even less than they actually need

Occupational Safety and Health Administration (OSHA)

federal agency that works to prevent injuries and protect the safety of the American workplace

Top-Down Budgeting Disadvantages

other managers are not included in the process, less communication

Bonds

securities where the issuer borrows money from an investor and promises to repay the investor a fixed principal and interest at a stated rate on a specific date

Commercial Banks

serve the borrowing needs of most medical facilities single payment loans, line of credit, terms loan

Incremental Budgeting Advantages

simple procedure

Revenue Budget

starts with the projected revenues form patient care, based on the statistical budget, and adds non patient revenues to project total revenues for the budget year

Breakeven Analysis (solve for volume or quantity)

the budget mechanism that allows dot the determination of the number of units of service that need to be provided to cover the organization's costs price x volume = fixed costs + (variable costs per unit x Volume)

Credit Risks

the danger that the value of a security will fall with the declines in the financial strength of the company issuing the security

Medical Facility Average Cost

the total operating costs of the practice divided by the number of patient visits

Incremental Budgeting Disadvantages

there is an assumption that all funds are being used in a prudent and necessary manner even if they are not in actuality

Bottom-Up Budgeting Advantages

this kind if budgeting is that the unit managers are the ones most informed and familiar with the unit and their budget needs and promotes better communication throughout the managerial team

Revenue Losses in the System of Appointments

timing of the appointments, missed appointments,


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