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Presentation on theme: "________________________________ Prepared by Joseph S.Samaha (CPA) 1 Hospitals Financial Accounting Basics Presentation prepared by Joseph S.Samaha Member."— Presentation transcript:

1 ________________________________ Prepared by Joseph S.Samaha (CPA) 1 Hospitals Financial Accounting Basics Presentation prepared by Joseph S.Samaha Member of The AICPA-IIA-IMA-LACPA-AOCPA Quality Management Systems – Internal Auditing Sworn by Lebanese Courthouses since 1984 To the LACPA CPE program – April 2007

2 ________________________________ Prepared by Joseph S.Samaha (CPA) 2 المرسوم رقم 4665 تاريخ 26/12/1981 وضع تصميم محاسبي عام المادة 20 – تنظم البيانات المالية طبقا “ للنماذج المدرجة في الملاحق... ما لم ينص على ترتيبات خاصة ببعض القطاعات او النشاطات... اعداد تصاميم محاسبية مهنية وخاصة المادة 22 – يمكن تكييف التصميم المحاسبي العام كي يراعي خصائص مختلف القطاعات والنشاطات... عن طريق اعداد تصاميم محاسبية مهنية وخاصة تصدق بموجب قرارات تصدر عن وزير المالية

3 ________________________________ Prepared by Joseph S.Samaha (CPA) 3 القرار التطبيقي رقم 111/1 تاريخ 22/2/1982 أصول تطبيق التصميم المحاسبي العام ملحق رقم 4 - التصميم المحاسبي العام أحكام تطبيقية القسم الأول - اهداف التصميم المحاسبي العام وقواعد تطبيقية أولا - اهداف التصميم المحاسبي العام 1 - يهدف التصميم المحاسبي العام الى ما يلي : - تطوير المحاسبة في المؤسسات، - تسهيل فهم المحاسبة والرقابة عليها، - التمكين من مقارنة المعلومات المحاسبية ( بين فترة زمنية وأخرى أو بين مؤسسة وأخرى... الخ ) ،

4 ________________________________ Prepared by Joseph S.Samaha (CPA) 4 القرار التطبيقي رقم 111/1 تاريخ 22/2/1982 أصول تطبيق التصميم المحاسبي العام ملحق رقم 4 - التصميم المحاسبي العام أحكام تطبيقية القسم الأول - اهداف التصميم المحاسبي العام وقواعد تطبيقية ثانيا - القواعد المحاسبية 3 - يمكن ان توضع قواعد محاسبية خاصة بغاية تكييف القواعد العامة للتناسب مع هيكليات أو عمليات معينة، مما يؤدي، انطلاقا من القواعد العامة الى وضع ما يلي : - تصاميم محاسبية مهنية تأخذ بعين الاعتبار خصائص مختلف النشاطات الاقتصادية. - تصاميم محاسبية للمؤسسات توضع انطلاقا من التصاميم المحاسبية المهنية. - تصاميم محاسبية خاصة لاستعمال المؤسسات العامة ذات الطابع الصناعي أو التجاري.

5 ________________________________ Prepared by Joseph S.Samaha (CPA) 5 تشكيل مجلس أعلى للمحاسبة مرسوم رقم صادر في 9/11/1984 لم يصدر المجلس أي توصية لبرنامج قطاعي لتاريخه المادة 2 - يتولى المجلس الاعلى المهمات التالية : - الاشراف على وضع القواعد المحاسبية ونماذج البيانات المالية والوضعيات الاحصائية والحسابية المنصوص عنها في مختلف القوانين والانظمة. - اقتراح التعديلات الواجب ادخالها دوريا على التصميم المحاسبي العام والتصاميم المحاسبية القطاعية والمهنية لتتوافق مع التطور القانون والتقني. - اقتراح وضع تصاميم محاسبية فرعية تتناسب مع خصائص بعض النشاطات ضمن الاطار الأساسي للتصميم المحاسبي العام. - تقديم الاقتراحات والتوصيات اللازمة لتنظيم مهنة المحاسبة ورفع كفاءة العمل المحاسبي.

6 ________________________________ Prepared by Joseph S.Samaha (CPA) 6 تشكيل مجلس أعلى للمحاسبة مرسوم رقم صادر في 9/11/ فقط من أصل 9 ينتمون الى مهنة المحاسبة وليس للنقابة أي دور في تعيينهم المادة 1 - يشكل مجلس أعلى للمحاسبة في وزارة المالية يتألف من : - مدير المالية العامرئيسا - رئيس مصلحة الوارداتعضوا - رئيس دائرة ضريبة الدخلعضوا - رئيس لجنة الرقابة على المصارف في مصرف لبنانعضوا - ممثل عن غرفة التجارة والصناعةعضوا - ممثل عن جمعية المصارفعضوا - ثلاثة محاسبين متفرغين للمهنة يختارهم وزير الماليةعضوا

7 ________________________________ Prepared by Joseph S.Samaha (CPA) 7 لائحة المراسيم والقرارات المتعلقة بتصميم الحسابات

8 ________________________________ Prepared by Joseph S.Samaha (CPA) 8 تعديل المرسوم رقم تاريخ 23/6/ وضع تصميم محاسبي عام مرسوم رقم صادر في 21/5/1999 مثال كيف انه لم يعطى للمجلس الاعلى للمحاسبة أي دور ! ؟ إن رئيس الجمهورية، بناء على الدستور، بناء على القانون رقم 27/80 تاريخ 19/7/1980 ( تعديل بعض أحكام قانون ضريبة الدخل وقانون ضريبة الأملاك المبنية وقانون تحصيل الضرائب المباشرة والرسوم المماثلة لها ) ، ولاسيما المادة الثامنة منه، بناء على المرسوم رقم 4665 تاريخ 26/12/1981 ( وضع تصميم محاسبي عام ) ، ولا سيما المواد 2 و 19 و 20 منه، بناء على المرسوم رقم تاريخ 23/6/1998 ( تعديل المرسوم رقم 4665 تاريخ 26/12/1981 ) ، بناء على اقتراح وزير المالية، وبعد استطلاع رأي مجلس شورى الدولة ( رأي رقم 82/ تاريخ 3/3/1999 ) ، وبعد موافقة مجلس الوزراء في جلسته المنعقدة بتاريخ 28/4/1999 ، يرسم ما يأتي :

9 ________________________________ Prepared by Joseph S.Samaha (CPA) 9 اقتراحات 1 - تعديل مرسوم انشاء المجلس الاعلى للمحاسبة ليصبح عدد خبراء المحاسبة نصف عدد أعضاء المجلس، يعينهم مجلس النقابة بالكامل بصفتهم ممثلين للنقابة 2 - انشاء لجنة خاصة في النقابة لغرض الاقتراح على المجلس الاعلى مشاريع قرارات خاصة بالمهنة. 3 - توزع هذه الاقتراحات أولا “ على أعضاء النقابة قبل 6 أشهر على الاقل لغرض اعطاء توصيات تدرسها اللجنة المذكورة قبل اقتراحها على المجلس الاعلى. 4 - عند اقتراحها على المجلس الاعلى من قبل النقابة، تكتسب هذه الاقتراحات قوة تنفيذية لتطبيقها من قبل خبراء المحاسبة ومفوضي المراقبة. 5 - يكون من مهام هذه اللجنة الخاصة اعداد ” بيانات تقنية ” لمحاسبة مختلف القطاعات ، حتى ولم يصدر لها برامج محاسبة مخصصة لها. 6 - تقيم هذه اللجنة دورات تدريبية مفصلة على تقنيات المحاسبة القطاعية للاعضاء الممارسين وغير الممارسين على السواء. 7 - ادخال هذه البيانات الى برامج التعليم الجامعية. 8 - ادخال هذه البيانات الى امتحانات القبول للنقابة

10 ________________________________ Prepared by Joseph S.Samaha (CPA) 10 مقدمة جدول تصنيف المستشفيات في لبنان كتبها مدير عام وزارة الصحة العامة ان اعتماد المستشفيات Accreditation هو واحد من المشاريع المعتمدة في الدول المتقدمة لضمان جودة الخدمات الاستشفائية. فضمان الجودة يشكل الغاية الوحيدة لمشروع الاعتماد. ومن المعروف دولياً ان المؤسسات المعنية أكانت مستشفيات، أم مختبرات أم مراكز تصوير طبي أم غيرها هي التي تقوم بعملية الإعتماد كونها المستفيد الأول منه. إلاَّ ان المؤسسات الخاصة التي تشكل معظم القطاع الإستشفائي في لبنان لم تبادر الى القيام بهذا المشروع. وبما ان ضمان الجودة ينعكس مباشرة على صحة المواطنين، اخذت وزارة الصحة العامة على عاتقها في المرحلة الراهنة هذه المسؤولية. وذلك بعد ان تبين لنا بأن القطاع الإستشفائي يملك قدرات مادية وبشرية هائلة وبأن نوعية الخدمات لا تتناسب أبداً مع هذه القدرات. وهذا ما برهنته تجربة الاعتماد، بحيث يفيد الخبراء بأن الخدمات الإستشفائية حققت قفزة نوعية هائلة بفترة وجيزة لا تتعدى خمس سنوات، وان هذا التطور السريع ما كان ممكناً لو لم تكن هذه المؤسسات تمتلك من الأساس المقومات اللازمة لذلك. وهذا يؤكد حقيقة عدم الاستعمال الرشيد لموارد المستشفيات والتراخي الذي كانت تعانيه هذه المؤسسات في السابق. واذا كانت الوزارة قد اخذت زمام المبادرة فذلك لا يعني بأنها ستستمر الى أجل غير مسمى بالقيام بعملية الاعتماد وتحمل تكاليفها، بل انها هدفت الى اعطاء دفعة قوية بهذا الاتجاه بانتظار ان تقوم المؤسسات المعنية بالمتابعة. وعندما ترى هذه المؤسسات نفسها قادرة على استكمال هذا المشروع سوف ترحب الوزارة بذلك وتكتفي بمراقبة حسن التنفيذ.

11 ________________________________ Prepared by Joseph S.Samaha (CPA) 11 Lebanese Hospitals Accreditations

12 ________________________________ Prepared by Joseph S.Samaha (CPA) 12 Accreditations Standards used as cost centers

13 ________________________________ Prepared by Joseph S.Samaha (CPA) 13 فقرات من التعميم رقم 56 الصادر عن مدير عام وزارة الصحة بتاريخ 10/5/2005 أولاً : إن السهر على إحترام السقف المالي المحدد بالعقد مع المستشفى يعتبر أولوية في عمل الطبيب المراقب. إلاّ أن ذلك يوجب أولاً عدم الموافقة على إدخال حالات يمكن معالجتها خارج المستشفى، وثانياً عدم السماح بإبقاء المرضى داخل المستشفى أكثر من الفترة الضرورية التي يستدعيها وضعهم الصحي. إن هذه التدابير من شأنها الحد من الإنفاق غير المجدي وتوفير الإعتماد المخصص لمعالجة الحالات الضرورية وخاصة الطارئ منها. ثانياً : يتوجب على الطبيب المراقب التأكد من هوية المريض ووضعه الصحي ودقة التشخيص والعمل الطبي المناسب. كما عليه عدم توقيع الجداول قبل التثبت من حقيقة تلقي العلاجات الملحوظة في الملف الطبي والواردة بالفواتير.

14 ________________________________ Prepared by Joseph S.Samaha (CPA) 14 اقتراحات بعد اصدار برنامج محاسبة خاص بالمستشفيات 1 - اخضاع المستشفيات التابعة للجمعيات والمنظمات الخيرية وتلك الحكومية الى وجوب تعيين مفوضي مراقبة. 2 - تقديم اقتراح الى وزارة الصحة والهيئات الرسمية الضامنة الاخرى بالتعاقد مع خبراء محاسبة لتدقيق صحة حسابات هذه الهيئات لدى المستشفيات. Special Assignment/Attestation Function 3 - ضرورة انشاء رقابة داخلية على المستشفيات من الفئة الاولى. Internal Audit Dept.

15 ________________________________ Prepared by Joseph S.Samaha (CPA) 15 Hospital Main Functions 1/2 Hospitals generally have three main functions: patient care, teaching, and research. The most important of these is patient care. Patient care comprises all activities involving the provision of care to patients who arrive at the hospital or are treated elsewhere by the hospital staff. Patient care itself has three main components – outpatient, day care and inpatient care. Further subdivisions can be made according to clinical area

16 ________________________________ Prepared by Joseph S.Samaha (CPA) 16 Hospital Main Functions 2/2 Patient care services are supported by several important intermediary medical functions (notably pharmaceutics and diagnostic facilities). And patient care, research, and training all need the back-up of administrative and logistical support. Services such as laundry, catering, maintenance, transport, and personnel management are essential to the smooth running of the hospital. Some activities do not fit neatly into these categories and some (such as the emergency department services) cut across all the subclasses.

17 ________________________________ Prepared by Joseph S.Samaha (CPA) 17 Measures of Service Output Many different kinds of indicators can be used to measure the output or volume of services provided. They can be broad and general (e.g., number of patients admitted to hospital) or quite precise (e.g., the number of brain surgeries performed). The general indicators have the advantage that they can be used to measure the output from a number of different centers. The more precise indicators can be tailored to particular centers, much depends on how detailed the costing exercise and management analysis is and whether comparisons between different centers are required.

18 ________________________________ Prepared by Joseph S.Samaha (CPA) 18 Examples of Services Output Indicators

19 ________________________________ Prepared by Joseph S.Samaha (CPA) 19 A Cost Center A cost center is a unit that creates one product or a range of similar services or products using common mixes of resources and production methods. The operating room is one example. The outpatient clinic, blood bank, clinical laboratory, and inpatient care department are others.

20 ________________________________ Prepared by Joseph S.Samaha (CPA) 20 Principles for identifying Cost Centers 1/3 There are no hard and fast rules about defining cost centers but there are some useful principles to bear in mind. A single classification system will require some compromise, because not all these principles can be addressed simultaneously. The exercise should be useful to managers and evaluators. For this to be the case, cost centers should group together activities that have some kind of management autonomy and common inputs including designated staff and space.

21 ________________________________ Prepared by Joseph S.Samaha (CPA) 21 Principles for identifying Cost Centers 2/3 Cost centers should be defined in such a way as to capitalize on an existing sense of identify among hospital workers. This makes it easier to generate a collaborative response to a cost-related problem and any proposed improvement plan. Similarly, taking account of the way the hospital is defined or identified by patients, the community, and payers, and the kind of services likely to attract the attention of any of these groups makes the management accounting system more responsive to issues that might arise. Cost centers should be associated with a single product or service. This principle allows for an average cost per unit of service to be calculated in a given clinical department by dividing the full departmental costs by the total number of output units.

22 ________________________________ Prepared by Joseph S.Samaha (CPA) 22 Principles for identifying Cost Centers 3/3 Cost centers should usually match an entity on the hospital organizational chart. But if the hospital organizational structure integrates broad functions it may be necessary to split one department into several cost centers. Increasing the number of cost centers in an individual hospital allows for more accurate accounting of services and costs. But it also requires additional time and effort. How detailed the breakdown into cost centers should be is a judgement that needs to be made based on how valuable additional detail might be and how costly.

23 ________________________________ Prepared by Joseph S.Samaha (CPA) 23 Classification of Cost Centers 1/3 Cost centers should be classified broadly into either final or intermediate cost centers. The Finals are those cost centers directly involved in the production of services for which the hospital is budgeted or reimbursed. They are sometimes called revenue-earning cost centers. The Intermediates provide support services for the final cost centers but are not, by definition, revenue-earning centers.

24 ________________________________ Prepared by Joseph S.Samaha (CPA) 24 Classification of Cost Centers 2/3 This distinction is important because costs are handled differently. Final cost centers are reimbursed directly for their services. Intermediate cost centers have to cover their costs by allocating or mapping them appropriately among revenue-earning (or final) cost centers. Centers which offer support services and would normally be considered intermediate should be classified as final cost centers if their costs are reimbursed by paying customers or third-party payers.

25 ________________________________ Prepared by Joseph S.Samaha (CPA) 25 Classification of Cost Centers 3/3 –Final cost centers are all medical in nature (reflecting the primary purpose of hospitals). –Intermediate cost centers can be usefully divided into intermediate medical and intermediate non-medical cost centers. Intermediate medical cost centers provide medical support services. They may serve patients directly (e.g., radiology, operating room) or indirectly (e.g., blood bank). Diagnostic services are usually intermediate cost centers. Intermediate non-medical cost centers, sometimes called administrative and logistical cost centers, are those centers providing overhead services to the entire hospital or large areas within the hospital. Examples include general administration, housekeeping and maintenance services.

26 ________________________________ Prepared by Joseph S.Samaha (CPA) 26 Sample List of Clinical Specialties to Identify Final Medical Cost Centers

27 ________________________________ Prepared by Joseph S.Samaha (CPA) 27 Sample List of Intermediate Medical Cost Centers

28 ________________________________ Prepared by Joseph S.Samaha (CPA) 28 Sample List of Intermediate Non- medical Cost Centers

29 ________________________________ Prepared by Joseph S.Samaha (CPA) 29 Nature of Costs Hospital resources are central to cost accounting. Resources used in the production of hospital services – as in any production effort – include labor (human resources), material and supplies, equipment, and other assets, including buildings and land. Knowing the quantity of resources is often an important first step in costing. Quantities of resources can also serve as proxy variables for allocating shared costs. Because costs are usually estimated over a defined one-year period, an important distinction needs to be made between those resources which are consumed within the year (recurrent) and those which are longer- lived (capital goods or fixed assets).

30 ________________________________ Prepared by Joseph S.Samaha (CPA) 30 Recurrent Costs Recurrent costs include costs of labor, pharmaceuticals and medical supplies, meals, linen and clothing, utilities (water, gas, heat, electricity), maintenance and repair of buildings and equipment, laundry, cleaning, business travel, office supplies, communication, and transportation services. Annual accounting of recurrent costs is conceptually straightforward.

31 ________________________________ Prepared by Joseph S.Samaha (CPA) 31 Capital Costs Capital costs include the costs of larger office equipment and medical equipment and vehicles that are usually incurred through a one-time payment even though the items are used over a considerably longer period. Annual accounting requires the transformation of these capital cost into a regular stream of equivalent annual or recurrent costs over the life of the asset. This is done by a process called “depreciation” that estimates how much of an asset is used up each year. An organization that annually puts aside the sum calculated through depreciation should have enough funds by the end of the asset’s useful life to be able to replace the worn out asset with a new one.

32 ________________________________ Prepared by Joseph S.Samaha (CPA) 32 Categories of Costs Direct Costs: Costs that can be easily attributed to a particular cost center are termed “direct costs.” Indirect Costs :Some resources are shared between cost centers in a way that cannot be easily teased out. They can only be allocated (i.e., shared out) to a particular cost center indirectly, using some kind of proxy variable (or cost driver). Costs calculated in this way are termed “indirect costs.” The cost driver might be a measure of resources (e.g., number of staff, area covered) or of outputs (e.g., number of patients treated) or even of other costs (indirect costs are sometimes allocated in proportion to direct costs). The crucial feature of the cost driver is that it should mirror as closely as possible the amount of activity being costed indirectly.

33 ________________________________ Prepared by Joseph S.Samaha (CPA) 33 Categories of Costs Direct Costs: Costs that can be easily attributed to a particular cost center are termed “direct costs.” Indirect Costs :Some resources are shared between cost centers in a way that cannot be easily teased out. They can only be allocated (i.e., shared out) to a particular cost center indirectly, using some kind of proxy variable (or cost driver). Costs calculated in this way are termed “indirect costs.” The cost driver might be a measure of resources (e.g., number of staff, area covered) or of outputs (e.g., number of patients treated) or even of other costs (indirect costs are sometimes allocated in proportion to direct costs). The crucial feature of the cost driver is that it should mirror as closely as possible the amount of activity being costed indirectly.

34 ________________________________ Prepared by Joseph S.Samaha (CPA) 34 Principles for Calculation of Costs 1/3 Costs are a function of the number of resources and their unit value. There are many different ways to calculate costs. For example, you might have access to expenditure records that have exactly the costs you are looking for. Or you may need to combine data on quantities of resources and their prices. You may have access to an average (or typical) cost and have to employ it to estimate the costs of more units. The resource may have a simple, single cost or a variety of different elements (e.g., labor costs include allowances of various sorts). The way you perform the calculations will depend on how the available data is organized and the extent to which you have the capacity to collect additional primary data yourself. Whatever procedure is used to calculate costs, there are some important principles that must be followed :

35 ________________________________ Prepared by Joseph S.Samaha (CPA) 35 Principles for Calculation of Costs 2/2 1-Costing Should Be Comprehensive: All costs incurred should be accurately accounted for, All costs should be included even if money doesn’t change hands. 2-Costs Should Be Attributed as Precisely as Possible to Specific Cost Centers: Where possible, costs should be traced directly to a specific cost center. 3-Allocation of Indirect Costs Should Be Done in a Way that Reflects as Closely as Possible the True Incidence of Those Costs 4-Costs Incurred by One Service Should Never Be Attributed to Another Service

36 ________________________________ Prepared by Joseph S.Samaha (CPA) 36 Sample List of Costs and Matching Allocation Statistics

37 ________________________________ Prepared by Joseph S.Samaha (CPA) 37 Procedures for Measuring the Costs of Each Cost Center In measuring costs it is useful to start by consulting expenditure records. Usually this will not be enough either because data are insufficiently disaggregated or because expenditure is not equivalent to annual costs (e.g., with equipment and buildings) and it will be necessary also to collect information on the quantity and cost per unit of resources. Sometimes the cost per unit is a relatively straight forward measure (e.g., for pharmaceuticals), and sometimes it is a complex set of different elements (e.g., in the case of labor where allowances, bonuses, and compensations of different kinds complicate the picture). It is important to collect data on the quantity of resources, not only because it can be used (together with unit prices) to calculate costs but also because they can function as cost drivers. Human resources (e.g., numbers of staff) and physical plant (e.g., square meters of space) both serve as important cost drivers for indirect costing and for step-down allocation of costs to revenue-earning cost centers.

38 ________________________________ Prepared by Joseph S.Samaha (CPA) 38 Procedures for Measuring the Costs of Each Cost Center Example : Labor Cost 1/3 1. Identify all the staff employed in the hospital. Include: clinical staff such as physicians, pharmacologists, nurses, midwives, or pharmacists; and non-clinical staff such as engineers and technicians, administrative personnel, office/clerical and other administrative personnel, or ancillary medical and technical staff. 2. Classify these staff into full-time and part-time workers. For those who work part time estimate annual work hours or workdays. These estimates can be later translated into fulltime equivalent (FTE) labor. 3. Consider classifying hospital staff by qualification and other categories to provide additional information for hospital resource management and analyses. 4. For each staff member or group of staff whose labor is being costed, track down all the different elements that contribute to the cost of that person or group of persons. These

39 ________________________________ Prepared by Joseph S.Samaha (CPA) 39 Procedures for Measuring the Costs of Each Cost Center Example :Labor Cost 2/3 1. Identify all the staff employed in the hospital. Include: clinical staff such as physicians, pharmacologists, nurses, midwives, or pharmacists; and non-clinical staff such as engineers and technicians, administrative personnel, office/clerical and other administrative personnel, or ancillary medical and technical staff. 2. Classify these staff into full-time and part-time workers. For those who work part time estimate annual work hours or workdays. These estimates can be later translated into fulltime equivalent (FTE) labor. 3. Consider classifying hospital staff by qualification and other categories to provide additional information for hospital resource management and analyses. 4. For each staff member or group of staff whose labor is being costed, track down all the different elements that contribute to the cost of that person or group of persons. These

40 ________________________________ Prepared by Joseph S.Samaha (CPA) 40 Procedures for Measuring the Costs of Each Cost Center Example : Labor Cost 3/3 These elements, whose records are often kept somewhat separately, include: –Standard wages and salaries –Additional compensation for such things as extra-hours and night shifts; work in,… –Work-related allowances (e.g., commuter subsidies, car allowances) –Cash and in-kind income supplementation (e.g., housing and utility allowances,…) –Vacations, sick leave, and other off-time payments –Educational stipends –Performance bonuses and miscellaneous rewards –Workers’ compensations –Severance packages –Labor surcharges, such as NSSF charges or payroll taxes.

41 ________________________________ Prepared by Joseph S.Samaha (CPA) 41 Procedures for Measuring the Costs of Each Cost Center Illustration of Step-down Cost Allocation

42 ________________________________ Prepared by Joseph S.Samaha (CPA) 42 Break-Even Break-even analysis determines the service output at which total revenue will equal the total costs of an organization. Assuming that the output of services is “x” and the price is “p,” then total revenue is “xp.” If fixed costs are “‘a,” and “b” is the variable cost per unit of service then the total costs are “a + bx.” The algebraic expression of the break-even condition (total costs equal total revenues) will then be: xp = a +bx (1) And the break-even point, i.e., the service output at which costs and revenues are equal, can be determined as: x =a/(p-b) (2) Equations (1) and (2) hold true within the service output range for which the fixed costs and unit variable costs remain constant.

43 ________________________________ Prepared by Joseph S.Samaha (CPA) 43 Break-Even Diagram

44 ________________________________ Prepared by Joseph S.Samaha (CPA) 44 Salaries & Wages Basic Sick Pay Overtime Public Holiday Allowances Workcover Departure Expenditure Other Salaries and Wages Fee for Service External contract staff Annual Leave Accrued Days Off Expense Long Service Leave accrued expense

45 ________________________________ Prepared by Joseph S.Samaha (CPA) 45 Patient Expenses Aids and Appliances Purchases Dialysis Consumables Medical And Surgical Supplies Patient Expenses - General Patient Transport Pathology Supplies Specialised blood and blood products External Contracted Services - Pathology Other Pathology Costs Prosthesis Radiology Supplies External Contracted Services - Radiology Other Radiology Drug Supplies Food Supplies

46 ________________________________ Prepared by Joseph S.Samaha (CPA) 46 Other Expenses Hotel services Electricity Domestic Supplies Equipment Replacement and Additions Operating Leases Repairs And Maintenance Administartion expenses Interest Expenses Audit Fees Bad and Doubtful Expenses Insurances Other Expenses Depreciation Amortisation Asset Additions Written down value of assets disposed

47 ________________________________ Prepared by Joseph S.Samaha (CPA) 47 Revenues Admitted Patient Fees Dialysis Medical And Surgical Accomodation Patient Transport Pathology Specialised blood and blood products Prosthesis Radiology Drug Supplies

48 ________________________________ Prepared by Joseph S.Samaha (CPA) 48 Other Revenues Donations Assets Received Free of Charge (including Assets Donated) Investment Income Other Operating Income Research Revenue Proceeds from Sale of Fixed Assets Specific Revenue (ex Abnormal)

49 ________________________________ Prepared by Joseph S.Samaha (CPA) 49 Leverage Leverage indicates the importance of debt in financing the hospital, and the ability to incur additional debt. These ratios are usually closely monitored by creditors and may ultimately determine the amount of borrowing available for future capital projects. Two statistics are to be considered: Debt to Capitalization, and Debt Service Coverage.

50 ________________________________ Prepared by Joseph S.Samaha (CPA) 50 Debt to Capitalization measures the importance of debt in the hospital’s permanent capital structure. Lower values are preferred because they indicate less financial leverage (i.e., less reliance on borrowing) and because these expenses are ‘fixed’ in that they are long lived and do not vary with volume.

51 ________________________________ Prepared by Joseph S.Samaha (CPA) 51 Debt Service Coverage Debt Service Coverage is a key leverage ratio, equating the available cash flow to the principal and interest obligation on the debt. Lenders & Banks use this ratio to examine the security of the debt, because it examines both a source and a use of revenue. Higher values both over time and in relation to the benchmarks are preferred.

52 ________________________________ Prepared by Joseph S.Samaha (CPA) 52 Profitability Profitability measures examine the generation of net income, and the creation of wealth. Profitability is key to a hospital’s long-term survival because excessive reliance on philanthropy is risky. Hospitals that are consistently unprofitable will have insufficient funds to meet current requirements, to replace aging plants or to invest in new technologies. Two profitability statistics are presented: Profit Margin, and Equity Growth Rates

53 ________________________________ Prepared by Joseph S.Samaha (CPA) 53 Profit Margin Profit Margins are the bottom-line profits from hospital operations and non-operations alike. It reflects all realized gains and losses for the year. All organizations need to operate profitably in order to remain viable, so higher values are always preferred. Traditionally, lower comparative Profit Margins usually indicate poor expense management. However, the other variable often overlooked in the profitability equation is revenue, primarily patient reimbursement.

54 ________________________________ Prepared by Joseph S.Samaha (CPA) 54 Equity Growth Rate measures what is happening to the net worth of a hospital, or the percentage by which it is growing or shrinking. Ideally, healthy organizations are expected to increase in value over time. Any combination of three factors may affect a hospital’s Equity Growth Rate: profitability, fundraising, and market returns. Any loss in equity is undesirable so higher values are always preferred. Technically, an organization is considered insolvent when its net worth becomes negative.

55 ________________________________ Prepared by Joseph S.Samaha (CPA) 55 Liquidity Liquidity measures examine the ability of a hospital to meet its short-term obligations (i.e., to pay its bills), and the timing of cash into the facility. Most organizations experience a financial problem because of a liquidity crisis, and deterioration in these measures may presage future insolvency. Two liquiditystatistics are examined: Current Ratio and Days in Patients’ Accounts Receivable.

56 ________________________________ Prepared by Joseph S.Samaha (CPA) 56 Current Ratio The Current Ratio evaluates the amount of current assets available to pay off each dollar in obligations coming due within the year. It is a fairly stringent measure of liquidity as it includes only assets that are, or readily convertible to cash, in the numerator. This metric is one in which higher values are preferred, but those values shouldn’t be ‘excessive’. Hospitals must strike a balance between maintaining enough liquid assets for operations, but not so much as to affect profitability (i.e., Profit Margin). The return on short-term investments is generally less than that of monies invested longer, so there is an opportunity cost in maintaining liquidity.

57 ________________________________ Prepared by Joseph S.Samaha (CPA) 57 Days in Patients’Accounts Receivables measures the average time receivables are outstanding. Lower values on this measure are favored. Patient care is the primary source of operating revenue, so prompt collection of these bills is critical. Increases in this measure can create cash-flow problems that usually cause a hospital to extend its own payables.

58 ________________________________ Prepared by Joseph S.Samaha (CPA) 58 Activity Activity refers to how productively a hospital uses its assets to generate revenue. Hospital revenue consists mostly of patient reimbursement and some other minor sources (e.g., endowment transfers, other operating revenue, etc.). Therefore, the numerator in these ratios is a proxy for output (i.e., services provided) and the denominator is a measure of input (i.e., the investment is some category of assets). Two efficiency measures are examined: Total Asset Turnover and Fixed Asset Turnover.

59 ________________________________ Prepared by Joseph S.Samaha (CPA) 59 Total Asset Turnover The Total Asset Turnover is a comprehensive asset efficiency measure. It analyzes the productivity of the entire asset base. Higher ratio values are preferred and may reflect any combination of superior reimbursement, greater utilization, or a more favorable mix of assets.

60 ________________________________ Prepared by Joseph S.Samaha (CPA) 60 Fixed Asset Turnover The Fixed Asset Turnover is another activity ratio, measuring the number of dollars generated from each dollar invested in property, plant and equipment. Again, higher values are preferred. The importance in maintaining a high Fixed Asset Turnover is that these investments are fixed (independent of patient volume), longlived (useful lives in years), and for most part, illiquid (not easily sold or converted to other uses). The Fixed Asset Turnover, and to some extent the previous measure, favor older facilities because of understated historical book values of the property, plant and equipment.

61 ________________________________ Prepared by Joseph S.Samaha (CPA) 61 Hospital Ranking To determine overall financial performance for the hospitals, the indices in the four ratio categories were weighted 40% for profitability, 25% for leverage, 20% for liquidity, and 15% for activity. Those weighted averages were then standardized to arrive at a single overall performance index for each hospital. Again, higher index values are preferred.

62 ________________________________ Prepared by Joseph S.Samaha (CPA) 62 End Slide For any inquiries and feedback Please send an to :


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