Management of Health Care Facilities

1. The health care system in most countries has undergone changes over the past 10 to 15 years. Many of these changes have impacted on the financial management of health sector organisations. Identify one such change that has occurred in a country of your choice and discuss the impact on a specific health sector organisation such as a hospital or a clinic (max word count 250 words). [6 marks]

2. Critically comment on the following statement (max word count is 250 words):

“Health care is a business, whether public or private”. [3 marks]

3. Discuss how working capital affects both the liquidity and profitability of a business. (Max word count 150 words)  [3marks]

4. The Swan Valley Hospital provides a range of health care services and its payment terms are net 30 days, meaning payment from patients is due 30 days after their discharge from hospital. Suppose the following transactions take place:

• March 5 – Patients receive health care services of $60,000 on terms of net 30 days.
• March 10 – Patients receive health care services of $250,000 on terms of net 30 days.
• March 15 – Patients pay $60,000 for health care services received on March 5.
• March 30 – Hospital pays $50,000 for salaries for work done in March
• April 1 -The hospital purchases drugs for $160,000 on terms of net 30 days. In April the hospital uses $35,000 worth of drugs. In May $65,000 of drugs are used and in June $60,000 of drugs are used.
• April 6 – Patients receive health care services of $250,000 on terms of net 30 days.
• April 7 – phone bill received for $1,000 for telephone services in March.
• April 10 – Patients pay $250,000 for services received in March.
• April 30 – Hospital pays $55,000 for salaries for work done in April
• May 1 – Hospital pays phone bill for $1,000 received on April 7.
• May 5 – The hospital pays $160,000 for drugs received in April.
• May 6 – Patients pay $250,000 for services received in April.
• May 15 – Patients receive health services of $200,000 on terms of net 30 days.
• May 30 – Hospital pays $45,000 for salaries for work done in May.
• June 5 – Patients receive $55,000 in services and pay for them on the same day.
• June 29 – Patients pay $200,000 for services received in May.
• June 30 – Hospital pays $40,000 for salaries for work done in June.

Calculate this hospital’s profit or loss for each of the months of March, April and May on both a cash accounting (i.e. as in preparing a cash flow budget) and accrual accounting (i.e. as in preparing an operating budget) basis. Make sure you show your calculations. You need to do a separate profit and loss statement for each month. [6 marks]

5. Bentley Company purchased a medical devices machine at a cost of $91,000. It was estimated that the machine would have a residual value of $7,000 at the end of its service life.

Calculate the depreciation charge on the new machine for each of the seven years, using the straight line and the reducing balance method of depreciation (40% rate). [2 marks]

6. Royal Perth Hospital Doctors (RPH) runs a program that operates stand-alone health clinics throughout the Perth metropolitan area to provide services specifically to people with mental illness. It has a staff of three people located centrally at the hospital who administer these clinic programs. RPH’s central operation buys and distributes supplies such as medicines used in the various clinics. RPH employs a single director to manage all of the clinics, with the director assisted in this task by a deputy director. Both the director and deputy director are salaried staff. At the clinic level, clinical psychologists and mental health nurses hired under two-year fixed contracts deliver services free of charge to patients using supplies provided to them by RPH’s central staff.

From the perspective of the director managing the clinics for people with mental illness, which of the program’s expenses are:

1. direct
2. indirect
3. overhead
4. fixed
5. variable

Provide brief reasons for your answers.   [3 marks]

7. Discuss the following statement (max word count 150 words):

‘Budgets are only half-used if they serve only as a planning device’.

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8. The ambulance service expected to spend $10,000,000 in direct costs on its services in a particular budgetary period. Actually, it spent $11,954,800. The service thought it would pay each member of its team of ambulance officers $25 per hour. However, it paid them $26 per hour on average. The department expected that the ambulance officers would work a total of 4,000 hours and provide 100 services. The actual results were 4,180 hours worked by the team of ambulance officers and 110 services were undertaken. What was the total variance? What were the rate (or price) variance, quantity variance and volume variances?
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