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									Refer to Megatropolis Hospital’s financial statements below for calculating the ratios requested in
questions 1-5.

             Megatropolis Hospital                                    Megatropolis Hospital

           Statement of Operations                                     Balance Sheet
    For the Year Ended December 31, 2009                    As of December 31, 2009 (2008 omitted)

Revenues, Gains, Other Support                          Assets
Net patient service revenue $  1,500,000                Current Assets
Other revenue                    200,000                Cash and cash equivalents       $      50,000
                                                        Net patient receivables               350,000
   Total Revenue                   1,700,000
                                                            Total Current Assets              400,000

Nursing Services                   1,200,000            Properties and Equipment
                                                        Gross properties and equipment $ 900,000
Administrative Services              200,000            Less accumulated depreciation    475,000
                                                           Net Properties and Equipment 425,000
Depreciation                         100,000
Other Expenses                        50,000                Total Assets                $     825,000
   Total Expenses                  1,550,000            Liabilities and Net Assets
                                                        Current Liabilities
                                                        Accounts Payable                      200,000
Operating Income                     150,000
                                                        Salaries Payable                       50,000
Investment Income                     50,000                Total Current Liabilities         250,000

Excess of revenues over expenses     200,000            Notes Payable                         200,000

Increase in Unrestricted Net Assets$ 200,000
                                                        Unrestricted Net Assets               375,000

                                                          Total Liabilities and Net Assets$ 825,000
   1. What is Megatropolis Hospital’s operating margin?

   2. What is Megatropolis Hospital’s days in accounts receivable?

   3. What is Megatropolis Hospital’s long-term debt to net assets ratio?

   4. What is Megatropolis Hospital’s age of plant?

   5. What is Megatropolis Hospital’s days of cash on hand?

   6. The following information summarizes charge and cost data for Dr. Jones during the last
             Number of Cases           100
             Charges              $700,000
             Nursing Charges      $350,000
             Lab Charges          $200,000
             Pharmacy Charges      $50,000
             Radiology Charges $100,000

   Assume that Dr. Jones’ patients pay an average 80 percent of charges. Also assume cost to
   charge ratios of 0.90 in Nursing, 0.80 in Lab, 0.50 in Pharmacy, and 0.70 in Radiology. What
   is the total profit earned on Dr. Jones’ patients?

   7. A dermatology clinic expects to contract with an HMO for an estimated 80,000 enrollees.
      The HMO expects 1 in 4 of its enrolled members to use the dermatology services per

At the end of the year, the dermatology clinic’s business manager looked at her monthly figures
and saw that the number of enrolled members had increased by 5% over the budgeted amount,
and that 1 in 3 of the total HMO members had used the dermatology services per month.

Net monthly revenues of the dermatology clinic were budgeted at $260,000 but were actually
$450,000. Monthly expenses for the clinic were budgeted at $200,000 but were actually

Prepare a monthly revenue, expense and net income variance budget for the clinic.
8. One use of financial information is to assess the efficiency of operations. In that context,
   efficiency refers to:

A.   the degree of financial viability achieved by the organization
B.   the degree to which the organization is in compliance with directives
C.   the extent to which malfeasance is minimized in the organization
D.   the ratio of the organization’s outputs to its inputs

9. If the total book value of the assets of the accounting entity is $4,350,000, and the total
   liabilities of the accounting entity are $1,235,000, the stockholder's equity in the
   accounting entity is:

     A.   $5,585,000
     B.   $3,115,000
     C.   $2,470,000
     D.   none of the above

10. Which of the following reflects the fundamental accounting equation (or balance sheet
    equation) in a not-for-profit, business-oriented healthcare organization?

     A.   Equity = Liabilities + Assets
     B.   Assets = Long-term Debt + Equity
     C.   Assets = Liabilities + Net Assets
     D.   Net Assets = Liabilities + Assets

11. What is/(are) the primary determinant(s) of firm value?

     A.   Profit
     B.   Investment
     C.   Cost of capital
     D.   All of above

12. You increased rates by 10 percent across all services and profits decreased by 5 percent.
    Cost per unit remained constant. What could account for this change?

     A.   Positive price elasticity
     B.   Negative price elasticity
     C.   High proportion of fixed price payers
     D.   High proportion of cost payers
13. Budgets normally cover a period of:

     A.   5 years
     B.   2 years
     C.   3 years
     D.   1 year

14. Which of the following is part of a statistics budget?

     A.   Output expectations
     B.   Responsibility for estimation
     C.   Estimation methodology
     D.   All of the above

15. The following is an example of a _____________ budget:
“The budget for the radiology department is different at 90 percent occupancy than at 80
percent occupancy.”

     A.   rolling
     B.   flexible
     C.   forecast
     D.   fixed

16. Using the information in the table below, calculate the amount of the unfavorable rate

                                           Budgeted             Actual
                   Volume                  200,000             190,000
                Revenue per unit              $40                 $37
                   Revenue                $8,000,000          $7,030,000

A.   $400,000
B.   $570,000
C.   $970,000
D.   $600,000
   17. Using the information in the table below, determine how much of the supplies variance is
       due to a change in volume.

                     Budgeted         Actual        Variance

Volume              1,000             1,100              100
Supplies          $10,000           $12,750            $2,750
Fixed labor       $20,000           $22,250            $2,250

   A.   $ 900
   B.   $1,000
   C.   $1,050
   D.   $1,250
   E.   $1,500

18. Which of the following is an element of budgeted financial requirements that is not included
   in budgeted expenses?

        A. Interest expense

        B. Increases in working capital

        C. Labor expense

        D. A and B

        E. None of the above

19. Which of the following tends to insulate management somewhat from the financial results of
    poor financial planning? (Pick the best answer.)

        A. Capitated rates

        B. Cost reimbursement

        C. Bundled services

        D. Charge payment
20. Which of the following is a health care provider permitted to vary across its payer mix?

       A. charges (prices)

       B. discounts

       C. quality of care

       D. access to emergency services

21. It is often difficult to compare treatment costs in managed care and fee-for-service settings

       A. selection bias means that one group may get a disproportionately healthy or unhealthy
          group of patients.

       B. fee-for-service does not charge competitive prices.

       C. managed care may price monopolistically.

       D. answers B and C are correct.

22. Even though managed care _______ hospital utilization, its growth rate in spending is
    _______ than/to most FFS plans.

       A. increases; lower.

       B. increases; higher.

       C. reduces; higher.

       D. reduces; similar.

23. Why should providers seek whenever possible to minimize health plan rate differentials?
    (Choose the best answer, not simply a plausible one.)

       A. So that health plans perceive fairness in negotiations

       B. To encourage consolidation in the health plan market

       C. So that plans with smaller discounts are not forced out of the market/business

       D. To punish the larger health plans

24. Member disenrollment may cause HMOs to:

       A. reduce the quality of care, by not offering the latest high-tech treatments.

       B. increase the quality of care, due to the positive externalities.
C. increase price discrimination.

D. decrease price discrimination.

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