HSM340 Health Services Finance


HSM340 Health Services Finance
What are five elements pertaining to the establishment of a false claim under the False Claims Act?…




HSM340 Health Services Finance

HSM340 Health Services Finance

A+ Entire Course: Assignment Week 1, 5, 6|Quiz Week 2 , 3, 7| Midterm Exam| Discussions Week 1-7| Final Exam

Financial Laws and RegulationsAssignment Week 1 


Complete an APA formatted 2 page paper (not including the title and reference pages) answering the following questions:

What are five elements pertaining to the establishment of a false claim under the False Claims Act?

HIPAA privacy standards were designed to accomplish what three broad objectives? Explain each.

Stark II laws prohibit physician referrals to entities in which the physician has a financial relationship. What are 10 specific designated health services (DHS) for which referrals by physicians who have financial relationships with the entity providing the DHS are prohibited?

Discuss the following:

Qui tam

HIPAA Privacy Rule


Compliance programs


HIPAA, or the Health Insurance Portability and Accountability Act, was passed by Congress in 1996.  The purpose of HIPAA includes ensuring that health care fraud and abuse cases…

A financial relationship between the physician and an entity pertains to “investment or ownership interests and compensation relationships” (Cleverly, Song, Cleverly, 2011, p. 92)…

HSM340 Health Services Finance

Capital Budgeting ProcessAssignment Week 5


Complete an APA-formatted two-page paper (not including the title and reference pages) answering the following questions.

  1. Organizations that decide to issue bonds generally go through a series of steps. Discuss the six steps.
  2. An alternative to traditional equity and debt financing is leasing. Leasing is undertaken primarily for what purposes?
  3. Discuss the two major types of leases.
  4. Discuss the terms short-term borrowing and long-term financing.
  5. What are the primary sources of equity financing for not-for-profit healthcare organizations?
  6. The capital budgeting process occurs in several stages, but generally includes what?
  7. Discuss and list the three discounted cash flow methods.


  1. Organizations that decide to issue bonds generally go through a series of steps. Discuss the six steps.

The bond issuance process may take a year to a year and a half before the recipient receives the cash.  This is because of the long and arduous process it takes to complete the whole decision and funds releasing process.  For healthcare units that are tax-exempt, bonds remain to be the top source for long-term financing requirements.  Following are the steps:

Step 1. “The health care borrower updates its capital plan, measures its debt capacity, and attempts to ‘get its house in order’” (Zelman, McCue, & Glick, 2009).  Prior to the actual bond issuance process, the health care provider…

HSM 340 Health Services Finance

Cash and Working CapitalAssignment Week 6 


Complete an APA-formatted two-page paper (not including the title and reference pages) answering the following questions.

  1. What are four general phases of the working capital cycle?
  2. What are the three primary sources of short-term funds?
  3. An organization’s short-term investment options for idle cash include what four areas? List and provide their characteristics.
  4. Discuss the term float.


The working capital cycle involves decisions that that affects an organization’s cash flow operations.  The main goal of the process is to facilitate and speed up the collection of cash from customers, but to slow down disbursement of payment to suppliers.  This strategy is just part of…

HSM340 Health Services Finance

Quiz Week 2 


(TCO 2) The heading of every financial statement should contain the:

Name, title, and place of business

Name, title, and specific date of statement

Title, name, type of ownership, and unit of measurement

Title of statement, name of entity, and unit of measurement

Name, title, specific date of statement, and unit of measurement

(TCO 2) Two major methods of asset valuation are:

Historical cost and future cost

Historical cost and acquisition cost

Historical cost and replacement cost

Acquisition cost and future cost

(TCO 2) _____ is the most important financial metric to review to determine long-term financial viability.

Return on equity

Total margin

Days cash on hand

Hospital cost index

None of the above

(TCO 2) Which of the following is not one of the four critical questions that must be answered for dashboard reporting?

What is the firm’s strategic vision?

What is most important to the firm’s success?

What are the critical drivers that influence performance attainment?

What are the most relevant measures that reflect critical driver relationships?

(TCO 2) What are the major reasons for accrual accounting?

Some of the major reasons for the accrual basis of accounting are: 1. Matching the expenses and…
 (TCO 2) What is an audit (in the context of financial accounting)?

An audit is an assessment of an individual, process, system, company, organization, institution,….

(TCO 2) For restating financial statements to convert to constant dollars, what index is required by the Financial Accounting Standards Board?

The 3 categories of net assets are: 1. Unrestricted net assets are a group of items owned by the…

HSM340 Health Services Finance

Quiz Week 3 


(TCO 3) The breakeven point occurs where:

Total fixed costs and total revenue intersect

Total costs and total revenue intersect

Total profit margin and total costs intersect

Total variable costs and total revenue intersect

Total revenue outpaces total avoidable fixed costs

(TCO 3) Increasing marginal volume for cost payers makes economic sense if:

Cost payers account for 100 percent of your present volume and fixed costs are high.

Bad debts are low.

Fixed costs are high and present cost payer volume is small.

All of the above.

(TCO 3) 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?

Positive price elasticity

Negative price elasticity

High proportion of fixed price payers

High proportion of cost payers

(TCO 3) Estimate the total variable cost (i.e., including both routine and ancillary) per MSDRG 505 using the departmental cost/charge ratios and variable cost percentages. (Your answer might be slightly different due to rounding. Pick the closest.) 

Your hospital has been approached by a major HMO to perform all their MSDRG 505 cases (foot surgeries). They have offered a flat payment of $8,000 per case. You have reviewed your charges for MSDRG 505 during the last year and found the following profile:

Average Charge: $11,300
Average LOS: 4.5 Days

Cost/Charge   Variable Cost %
Routine Charge$3,2000.7565
Operating Room1,8500.7080
Medical Supplies3,2200.6085
Other Ancillary1,0150.7555
Total Ancillary$8,1000.7075






(TCO 3) David Jones, the new administrator for a surgical clinic, was trying to determine how to allocate his indirect expenses. His staff was complaining that the current method of taking a percentage of revenues was unfair. He decided to try to allocate utilities based on square footage of each department, administration based on direct costs, and laboratory based on tests. Use the information in the chart below to answer the question.

 Square FootageDirect ExpensesLab Tests
Utilities 200,000 
Day-op Suite3,0001,400,0004,000

Based on the scenario above, what are the Day Op Suite’s total expenses?

What are the Day Op Suite’s total expenses?

What are the Cystoscopy Department’s total expenses?

What are the Endoscopy Department’s total expenses?

(TCO 3) Your hospital has been approached by a major HMO to perform all their MS-DRG 470 cases (major joint procedures). They have offered a flat price of $10,000 per case. You have reviewed your charges for MS-DRG 470 during the last year and found the following profile:

Average Charge$15,000 
Average LOS5 Days 
Routine Charge$3,600Cost/Charge 0.80Variable Cost % 60
Operating Room2,6570.8080
Medical Supplies4,5240.5090
Other Ancillary1,3160.8060
Total Ancillary$11,4000.7550

In the above data set, assume that the hospital’s cost to charge ratio is 0.80 for routine services and 0.75 for all other ancillary services. Using this information, what would the average cost of MS-DRG 470 be?  

(TCO 3) Describe and explain the difference between fixed costs and variable costs?

Fixed costs are costs, which do not vary in total but vary…  

HSM340 Health Services Finance

Midterm Exam 


(TCO 4) Budgets normally cover a period of:

5 years

2 years

3 years

1 year

(TCO 4) 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.”





(TCO 4) Efficiency is a relationship between:

Outputs and organizational goals

Inputs and outputs

Inputs and organizational goals

None of the above

(TCO 3) Which of the following is the first step in any budgetary process?

Define standard treatment protocols

Define required departmental volumes

Define standard cost profiles

Define volumes of patients

(TCO 3) 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?

Positive price elasticity

Negative price elasticity

High proportion of fixed price payers

High proportion of cost payers

(TCO 2) A statement that reports inflows and outflows of cash during the accounting period in the categories of operations, investing, and financing, is called a(an):

Income statement

Statement of retained earnings

Balance sheet

Statement of cash flows

Report of management

(TCO 2) Which of the following is the BEST example of a financial metric?

Degree of innovation

Employee empowerment

Accreditation by the Joint Commission on Accreditation of Healthcare Organizations

Total margin

Length of stay

(TCO 4) Based on the below information, what dollar effect did the increased admission rate have on cost?


You have been asked by management to explain the variances in costs under your inpatient capitated contract. The following data is provided. Use the following data to calculate the variances.

Inpatient Costs$12,568,500$16,618,350
Admission Rate0.0700.095
Case Mix Index0.900.85
Cost per Case (CMI = 1.0)$4,750$4,900

HSM340 Health Services Finance

(TCO 4) Based on the information below, what rate must be set to generate the required $80,000 in profit in the preceding example?
You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below:


Budgeted Procedures$10,000
Budgeted Cost$400,000
Desired Profit$80,000

It is estimated that Medicare patients comprise 40 percent of total radiology volume and will pay on average $38.00 per procedure. Approximately 10 percent of the patients are cost payers. The remaining charge payers are summarized below:

Blue Cross204
Unity PPO1510
Self Pay540

What rate must be set to generate the required $80,000 in profit in the preceding example?

Desired revenue = Budgeted Cost + Desired profit = $400,000+…

(TCO 4) What is the amount of variance that is attributed to the difference between the budgeted and actual wage rate per hour


Wage Rate per Hour$16.00$17.00
Fixed Hours320320
Variable Hours per Relative
Value Unit (RVU)
Relative Value Units (RVUs)1,0001,200
Total Labor Hours1,3201,640
Labor Costs$21,120$27,880
Cost per RVU$21.12$23.23

Budgeted costs at actual volume would be $25,344 ($21.12 × 1,200), and the total variance to be explained is $2,536 Unfavorable ($27,880 – $25,344). Be sure to specify whether the variance is favorable or unfavorable.

Budgeted costs at actual volume would be…

(TCO 2) Explain the difference between the accrual basis of accounting and the cash basis of accounting?


Accrual basis of accounting is a system that recognizes…

(TCO 2) What are the double-entry accounting system and the duality concept? How are they related?


The double-entry accounting system has evolved from the duality concept. Every transaction affects at…

(TCO 1) What are social responsibility and ethics as they relate to business-oriented organizations? How should social responsibility and ethics affect the decisions of even for-profit companies?


Social responsibility is the concept that businesses should be partly responsible for, and thus bear the…

(TCO 2) List and describe the three categories of net assets.


The three categories of net assets are:…

Unrestricted net assets would reflect, among other things, unrestricted…

HSM340 Health Services Finance

Quiz Week 7 


(TCO 7) Coordination of benefits refers to:

A penalty assessed for going out of network

Assessing payment responsibility when multiple payers exist

Benefit plan list of covered services

Vertical integration of health plans

(TCO 7) Capitation plans are more common for physician payment because:

They can better control utilization

Physicians want more risk in their payment plans

They are concerned about adverse selection

Physicians have larger reserves and can assume more risk

(TCO 7) Employer premium costs for health care coverage are often lowest in which type of health plan:




High deductible health plans with savings options

(TCO 7) Suppose that AT&T had made an offer to acquire Merck Pharmaceuticals. Ignoring potential antitrust problems, this merger would be classified as a:

Cross-border merger

Horizontal merger

Conglomerate merger

Vertical merger

(TCO 7) A nursing home contracts with an HMO for skilled nursing care at $2.00 PMPM. If costs are expected to average $120 per day, what is the maximum utilization of days per 1,000 members that the nursing home can experience before it begins to lose money?

(TCO 7) A hospital incurs $10 million of cost to treat Medicaid patients and receives $7 million in payment. Actual charges for these Medicaid patients were $20 million. The net community benefit expense that would be reported in Schedule H of IRS Form 990 would be?

(TCO 7) Why is tax-exempt financing cited as a benefit received by not-for-profit healthcare providers?

HSM340 Health Services Finance

Discussions Week 1-7 All Students Posts 502 Pages 


Finance and the Regulatory Components and Reimbursement and Payment Determination Discussions Week 1 All Students Posts 80 Pages 


Finance and the Regulatory Components – 41 Pages 


Are there any other types of information besides financial that may be useful in making financial decisions?  Identify the major components of a corporate compliance plan, including the establishment of internal controls relating to the finances of an organization. How does legal and regulatory issues shape and define good financial management of a health care organization?

What about compliance and internal control? What are they important? Why does financial management need to be conscious of various legal issues? What defines a well-written compliance plan? nternal control is a key focus of financial management. Things will be out of control and chaotic if there are no compliance rules and information to the staff . Also, healthcare is a very delicate industry and the welfare of employees is at stake here.

The government is also the biggest insurer and it must look after the welfare of its citizens. Does the government have too many rules which make it harder on providers to meet all the requirements and stay in business?…

Reimbursement and Payment Determination – 39 Pages 


Discuss the major reimbursement methods used in health care. Discuss the major aspects of Medicare benefits. List some of the important considerations when negotiating a health plan contract. We know in healthcare there are various reimbursement methods. One major payer is Medicare which is a government entity that is a major player in the reimbursement field. What about commercial plans and how do they negotiate with providers? Fee for Service.  This method has pros and cons, but we see that fewer reimbursement methods use this type of payment.  Why do you see that happening? Reimbursement is a major financial task as it determines the revenue coming in to keep the doors open.  Looking at other financial aspects, management needs to establish internal control principles and abide by them to protect the assets and ensure the firm is running efficiently. All these rules and regulations must be established and followed by managers and employees. But who is in charge of ensuring that these rules are being followed? Does management really have to do that? As we see now, bundled payment is becoming popular.  What does that mean and how is is going to help, the provider or the insurer?…

HSM340 Health Services Finance

Accounting Conventions and Methods and Financial Performance Discussions Week 2 All Students Posts 73 Pages 


Accounting Conventions and Methods – 42 Pages 


Discuss the accounting conventions that affect the application of accounting principles. Materiality allows treatment in accordance to GAAP (Generally Accepted Accounting Principles). More than that, it has a certain significance because it makes it necessary for material expenses   to be booked in the appropriate time period. What happens if it is not and why not? Historical cost convention is one important factor.

If an asset is purchased 5 years ago and recorded at cost, it must be kept recorded at cost in the books. The reason why costs are not updated and changed to market value is the fact that assets fluctuate in value. Do you agree with the cost concept or are there suggestions to treat it differently? A dollar today is worth more than a dollar in a year, mainly due to inflation, but are there any other reasons?

If the firm is not consistent on how to book its transactions, it can create a problem and make the financial statements not comparable or even useable. Outside auditors have to check and certify. What other roles does the audit firm play here? What about internal audits versus external?…

Financial Performance – 31 Pages 


Explain why it is important to know the scope of business being reviewed when using financial statements. I look forward to reading your responses and to discuss Health Services Finance. Reviewing financial statements is important and we need to keep our focus on the healthcare area . Being aware of the scope of business puts things more in perspective. Different scopes have different measures of performance.  A clear understanding leads to more success and that is why we say that we need to continuously develop the analysis and make it relevant.

Managers who do not have this understanding cannot perform as desired. Who is in charge of ensuring that managers have the understanding of the scope of business? It is important to understand the business to manage the finances. We try to stress that to our managers. It is not only important to stay within budget but it is also important to understand why you go over budget. Let’s take a look at the Study Tools section in the lecture. What ratio is the most useful to express or discuss this concept?…

HSM340 Health Services Finance

Cost Categories and Cost Information Discussions Week 3 All Students Posts 74 Pages 


Cost Categories – 38 Pages 


Discuss the role of direct and indirect cost in the overall costing process.  How does each type affect the decisions made in expense control and analysis.  Healthcare entities classify their cost as direct and indirect.  What is the meaning and significance of these cost categories.  How do they influence the costing and also the decisions made based on these classification.

Focus on our TCO, lesson and text to try to understand these concepts and come-up with your answer. Indirect costs are administrative costs and they can also be the cost of services provided to the entity at large.  Take IT services, they cannot be directly linked to a patient, but we know that no patient care can be completed without IT support.

What other major areas do you feel can be classified as overhead? What about fixed and variable costs? Housekeeping is one cost that comes to mind.  Why is it called indirect even if workers clean and maintain patient treatment rooms?…

Cost Information – 36 Pages 


Describe how cost information relates to the three key activities of management: planning, budgeting, and control. Cost information is useful in the three categories mentioned in this question. We know that all the activities need cost information and especially in this current healthcare environment where many decisions are based on cost data.

Let’s discuss how cost is related to these categories and how they are used in management decision-making? How are planning and control related?  Our TCO this week focuses on cost control.  Also, in the course objectives it asks to explain what is meant by cost behavior, and differentiate between the five general types of cost behavior.

How is cost behavior determined to be fixed or variable.  Which type of cost is easier to control in the short-run or the long-run?  What is the break-even in patient days for this nursing home, assuming no profit is required?  How is that information needed for planning and control?….

Financial Sources and Variance Analysis Discussions Week 4 All Students Posts 68 Pages 


Financial Sources – 34 Pages 


List the major nonhospital and nonphysician sectors of the healthcare industry.

We know that hospitals and physicians are dominant sectors in the industry. What are some other sectors and what is their role ? How do they compare to the main sectors. Does the fact that healthcare entities buy services on behalf of patients make the cost containment harder sometimes? As we see, the new healthcare system encourages preventive care.  It will reduce cost in the long run. But, why are you covering non-physician sectors?  Which do qualify as that?…

HSM340 Health Services Finance

Variance Analysis – 34 Pages 


Variance analysis is crucial to understand why the actual is different from the budget . The concepts of financial analysis are the same, but we should understand that within the overall health care industry, operating and financial indicators vary by health sector, e.g. hospitals, nursing homes, medical groups, health plans. It’s important to use the appropriate benchmark to evaluate performance.”

I look forward to our discussion of this important topic.  Variance analysis is part of the investigation process.  Management should look to this analysis to make decisions and take corrective action. We need to know why there are differences between the budget and prior year.  Which one do you see as more important? When you produce a flexed budget, does that make the static budget less relevant?…

Capital Investments and Future and Present Value Discussions Week 5 All Students Posts 77 Pages 


Capital Investments – 34 Pages 


List some of the kinds of information that is needed to evaluate a capital investment project. As you know, healthcare requires a lot of equipment.  This week, let’s talk about capital budgets. Since this is usually a big investment, a lot of information is needed for the analysis. Let’s talk about the data and information needed to make the proper decision. What would be needed to do this job most appropriately? I look forward to a lively discussion about this important topic. How is cash flow estimated?  However, from a financial point of view, cash is scarce and the returns are not as high. We focus on high returns and our mission. If the project is not consistent with our mission, we do not accept it because cash is not always available. What other considerations do you see?…

Future and Present Value – 33 Pages 


List some of the pros and cons of retiring debt early. Some firms decide to retire debt early. Generally, it seems like a good idea. Let’s discuss how and when it is done. What do we need to consider when the decision is made? Interest rates, the availability of excess cash play a major role. When does it make sense to retire debt early? Retiring debt early needs to be always evaluated. For businesses it has to be supported by calculations and math. When the debt is paid off, how can they buy assets? To finance the purchases, there has to be some debt incurred. So, retiring the debt means there is no prospective investment and in this case, there is no need or no point to invest. Do you agree?…

HSM340 Health Services Finance

Cash and Assets and Cash Resources Discussions Week 6 All Students Posts 65 Pages 


Cash and Assets – 39 Pages 


List and describe where cash is generated by an organization and where an organization uses its cash. We always say that operating cash flow is the most important source of cash, why is that? Is it possible for a firm not to have positive operating cash flow? How can a healthcare firm try to reduce the utilization of lines of credit?

How can cash flow be managed to generate cash from operation? How can that be done? We said that many banks give their commercial customers lines of credit to meet situations like that.  How does this help firms meet their cash needs?  Are short-term loans better?…

Cash Resources – 26 Pages 


List and explain the criteria that should be used when investing an organization’s cash in the short term. We know that cash needs to be managed and handled properly to ensure there is enough liquidity but to also earn some fair return. We need to understand  the criteria that a healthcare entity should consider when cash is invested and managed.

There has to be a balance between risk and safety/liquidity. We try not to take risk when we invest for the short-term. When we talk about marketability, what do we really mean and consider here?  Cash management is an essential task that can affect performance and survival.

Why would firms invest short-term? How is yield considered and evaluated when making an investment? We know that short-term investments have a lower yield. Why do we even consider that option?…

HSM340 Health Services Finance

HMO, MCO and Health Plans and Financial Policy Discussions Week 7 All Students Posts 65 Pages 


HMO, MCO and Health Plans – 38 Pages 


Discuss legal and regulatory issues that affect MCOs. Negotiations with HMO’s are important but they can also be challenging. It is all about proper business and clinical management working together. There are also a lot of legal and regulatory aspects that need to be watched and monitored. Doctors and hospitals need to work together more than ever before.

Will the new healthcare system change things?  It is all about negotiations and competition. Sometimes are satisfied and sometimes they are not very happy. It is all about negotiations. Do you see the new healthcare system changing things in this area? How is that going to take shape? We know that there is an impact on reimbursement, especially after the Affordable Care Act was passed.

Do we see the MCO role changing as a result? Comprehensive net work organization and proper alignment is very crucial here. Quality is gaining more visibility and importance. What do you see as the challenges for MCO’s and their organization?…

Financial Policy – 27 Pages 


Describe the relationship between financial planning and strategic planning. We all heard of financial and strategic planning. How are these two similar and how they are different? How do healthcare entities engage in these types of planning aspects and how are they affected over the short and long-run?

If there is no ability to raise capital, should financial plans be scrapped? Are there other alternatives? What type of correction plan do you see a healthcare entity adopting to improve performance? What methods do you see healthcare firms adopt to raise capital?…

HSM340 Health Services Finance

Final Exam


(TCO 2) Define and describe the purpose of fund accounting (now called net assets). (Points : 30)


Fund accounting is a system in which an entity’s assets and liabilities are segregated in the accounting…

(TCO 1) What are primary uses of financial information? (Points : 30)


Financial information is important in the decision making process. In some areas….

(TCO 1) What are the six stages of the revenue cycle? (Points : 30)  


Healthcare firms are for the most part business-oriented organizations. Their ultimate…

(TCO 1) How does the Stark Law impact physicians? (Points : 30)


Stark Law prohibits them from referring patients to any place that they have a “financial…

HSM340 Health Services Finance

(TCO 4) You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below:


Budgeted Procedures 10,000

Budgeted Cost$400,000

Desired Profit $80,000

It is estimated that Medicare patients comprise 40 percent of total radiology volume and will pay on average $38.00 per procedure. Approximately 10 percent of the patients are cost payers. The remaining charge payers are summarized below:

PayerVolume %Discount %
Blue Cross204
Unity PPO1510
Self Pay540

 What rate must be set to generate the required $80,000 in profit in the preceding example? (Points : 5)

Weighted Discount = (0.4 x 0.04) + (0.30 x 0.10) +….

(TCO 3) Assume that a certain nursing home has two categories of payers. Medicaid pays $60.00 per day and private pay patients pay the established per diem, but approximately 10 percent of private-pay charges are not collected. If 50 percent of the patients are Medicaid and 50 percent are private pay, what rate must be set to generate $150,000 in profit? Variable costs are $45.00 per day and fixed costs are expected to be $1,000,000. Expected volume is 50,000 patient days. (Points : 5)


Medicaid = $60 X 50,000 = $3,000,000/ 0.50 = $1,500,000

Break even =….

(TCO 5) What are the disadvantages to a tax-paying entity in issuing debt as opposed to equity?


Some of the disadvantages:

  1. Debt has fixed obligation. It is to be repaid at some point of time.
  2. Companies with…

(TCO 6) What is an unsecured loan? (Points : 15)


An unsecured loan is a loan that is issued and…

(TCO 6) Compare and contrast the advantages and disadvantages of short- and long-term borrowing to meet working capital needs. (Points : 10)


Working capital is a major element in computing total future asset needs. In computing…

(TCO 7) Why is tax-exempt financing cited as a benefit received by not-for-profit healthcare providers? (Points : 10)


Not-for-profit providers are able to issue tax-exempt bonds and…

(TCO 1) What are the three factors that influence pricing? (Points : 10)


The three factors influencing pricing are:

  1. Desired net…

(TCO 5) Why is a dollar today worth more than a dollar received in the future? (Points : 10)


Because dollar today can be…

HSM340 Health Services Finance