Reference no: EM132890325

Questions -

Q1. Fargo Memorial Hospital has annual patient service revenues of $14,400,000. It has two major third-party payers, and some of its patients are self-payers. The hospital's patient accounts manager estimates that 10 percent of the hospital's billings are paid (received by the hospital) on Day 30, 60 percent are paid on Day 60, and 30 percent are paid on Day 90. (Five percent of total billings end up as bad debt losses, but that figure is not relevant to this problem.)

a. What is Fargo's average collection period? (Assume 360 days per year throughout this problem.)

b. What is the hospital's current receivables balance?

c. What would be the hospital's new receivables balance if a newly proposed electronic claims system resulted in collecting from third-party payers in 45 and 75 days, instead of in 60 and 90 days?

d. Suppose the hospital's annual cost of carrying receivables is 10 percent. If the electronic claims system costs $30,000 a year to lease and operate, should it be adopted? (Assume that the entire receivables balance has to be financed.)

Q2. Northeast Medical Group, a family practice, has the following financial data and operational metrics:

Total revenue $2,748,360

Total operating costs $1,557,615

Total procedures per physician 12,353

Patients per physician 1,941

Visits per physician 5,333

a. What is the group's revenue per physician?

b. What is the group's operating cost per physician?

c. What is the group's total operating profit?

d. What is the group's profit per physician? Per patient? Per visit? Per procedure?

e. Assume that the group plans to reinvest $50,000 of its profits in the practice. (It plans to buy a new EKG [electrocardiogram] machine.) Also, assume that the remainder of profits will be distributed equally to the group's physicians as salary. What compensation will each physician receive?