December 20, 2014

Homework Help: accounting for health care environment

Posted by lisa on Tuesday, July 20, 2010 at 12:41pm.

Assume you are the financial director of a clinic that is a part of an organization named Getwell Clinics Incorporated. Your clinic—named after you—serves a suburban community with a population of about 24,000, of which 25% are expected to become patients of the clinic. Each patient is expected to average five visits per year. Assume one physician, on average, will examine 4 patients per hour for 7.5 hours each day. Also assume that the office is open for patient visits 20 days per month. Assume that visits occur evenly throughout the year. The average physician’s salary is $11,000 per month. The current practice is fee-for-service and includes Medicare and nonMedicare patients. The clinic has been approached by several HMOs to provide services to their enrollees, but the board of directors has decided to defer participation until year 2015.

After adjustments and allowances, average charges are $50 per visit. You believe that patient receivables are too high. You expect to improve collections, resulting in a balance of $220,000 patient receivables at the end of the year.

The flexible budget for operating costs for the clinic is as follows:

Operating Costs
Variable Expenses per Visit Fixed Expenses per Month
Nurses’ salaries 0 $18,000
Administrative and technical salaries 0 $19,000
Medical supplies $6.00 0
Rent 0 $4,000
Service bureau for medical and financial records $1.00 $2,000
Other operating expenses $3.00 $6,000

Planned purchases of medical supplies are $16,000 per month. Supplies are paid in the month following purchase. Service bureau expenses are paid in the month following service. All other expenses are paid in the month of incurrence.

During year 2015, your clinic plans to purchase $80,000 worth of equipment, which will depreciate on the straight-line basis over 5 years. A $75,000 line of credit has been arranged at the bank if needed. Assume a desired minimum cash balance of $10,000. You may assume that interest on any amounts borrowed is already considered in other operating expenses.

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