Health Services Resource Management

Paper , Order, or Assignment Requirements

Health Services Resource Management

Assignment 1

 

45 Marks

Important: You must show all calculations and explain how you got all your answers. For example, suppose a question asks what the profit will be in a particular month and you put “$50,000”. Even if this is correct you will receive no marks if you do not show how you got the answer. There is no need for footnotes or references unless you quote directly from a source. But it is essential that the work is your own.

 

Question 1(15 marks)

 

Items from the Prince Harry Hospital’s balance sheet, revenue and expense (income) statement and cashflow statement for the 2013/14 and 2014/15 financial years (ending 30 June) were accidentally listed in alphabetical order as follows (all figures are in $’000):

 

2015 2014

Accounting Fees 59 60

Administrative Expenses 8,593 5,019

Audit Fees 43 42

Bad Debts 3 7

Capital Purpose Income 44,953 28,550

Cash and Cash Equivalents 11,584 15,405

Commonwealth Government Grants 100,489 93,319

Current Payables 6,961 7,734

Current Provisions 16,050 14,371

Current Receivables 3,746 3,410

Depreciation and Amortisation 5,538 5,850

Domestic Services and Supplies 1,408 1,518

Employee Benefits paid 76,920 69,518

Expenditure Using Capital Purpose Income 183 54

Fuel Light Power & Water 1,048 910

Grants from State Department of Health 3,177 2,378

Insurance Costs 2,831 2,156

Interest income 659 588

Interest paid 3 1

Inventories 1,311 1,686

Long term Provisions 1,719 1,616

Maintenance Contracts paid 557 442

Motor Vehicle expense 490 560

Non current Investments 0 215

Non Current Payables 0 356

Non Salary Labour Costs 7,612 7,657

Non-Current Receivables 569 222

Other Current Assets 131 0

Other current Liabilities 451 373

Other Revenue 4,574 1,423

Patient & Resident Fees 3,171 2,619

Patient Transport 1,221 1,201

Property, Plant & Equipment 141,297 98,439

Repairs & Maintenance 1,645 1,580

Revenue from Business Units 3,958 3,894

Short term Borrowings 0 5

Supplies & Consumables 14,292 13,058

Total Equity 133,457 94,922

 

Cash flow information

Capital Donations and Bequests Received 1,337 732

Capital Grants from Government 42,172 26,876

Cash at beginning of period 15,010 8,378

Cash at the end of the period 11,166 15,010

Employee Benefits paid 76,651 68,620

Fee for service Medical Officers 7,612 7,657

GST Received 6,823 4,150

Interest Received 695 489

Operating Grants from Government 102,743 92,484

Other Payments 18,658 12,829

Other Receipts Received 7,492 5,700

Patient Fees Received 3,261 2,677

Payments for Non-Financial Assets 47,783 22,020

Payments for Supplies & Consumables 18,781 16,481

Private Practice Fees Received 217 364

Proceeds from Sale of Non-Financial Assets 901 767

Required:

  1. Prepare balance sheets for these two financial years. Arrange these statements like the balance sheets for the Barwon Health 2011 financial statements that are in the course materials – ie put the two years side by side. Make sure to distinguish between current and non-current assets and liabilities. All figures are in thousands of dollars.
  2. Prepare income (profit and loss) statements for these two years for this organisation with the two statements side by side.
  3. Identify two significant changes that occurred during this period. Do you think that this hospital is in a good position to pay its short term debts? Explain your answer.
  4. Prepare a cashflow statement showing operating, investing and financing cashflows for these two financial years with the two statements side by side.
  5. Did the hospital experience net cash inflows or net cash outflows for these financial years? Did the hospital make a profit or loss during these years? Briefly explain why these figures are different.

 

QUESTION 2 (10 MARKS)

The Glenlee Medical Practice is a bulk-billing medical practice providing GP services to patients. The practice is considering abandoning bulk billing – where it is paid a fee fixed by the government – and becoming a totally fee-for-service practice. You have been asked to prepare some estimates to establish whether this is worthwhile.

There are three doctors in partnership running the practice. In the year to 31 December 2015 the three doctors between them conducted 24,000 consultations (assume all consultations are identical).

If the practice bulk bills it receives $37 per consultation from the government and this is expected to be fixed until 31 December 2016. If the practice continues to bulk bill it is expected that consultations will increase to 26,000 for the year to 31 December 2016.

Other Information

  • The receptionist’s salary is $60,000. If the practice continues to bulk bill, the receptionist will be required to work six hours a week overtime @ $15/hr. Overtime is treated as a variable expense.
  • Electricity is $5,000 per year plus 50 cents per consultation for each consultation in excess of 400 per week. Assume the practice operates 52 weeks per year and patient consultations are equally distributed during the year.
  • If the practice does not bulk bill it will charge $50 per consultation. Because of the higher consultation fee it is expected that consultations will fall to 21,060 for the 12 months to 30 December 2016.
  • Direct materials are $2 per consultation.
  • Telephone expense is $2,000 plus 10 cents per consultation.
  • Other variable costs are $3 per consultation.
  • Depreciation was $15,000 in 2015 and will be the same in 2016.
  • Rent is $1,000 per week
  • Other fixed overheads are $40,000 per year.

There is no need to take tax into consideration in this question.

 

Required:

  1. a) What is the projected net profit under both alternatives – i.e. bulk-billing (at $37 per consultation) and non bulk billing (ie charging $50 per consultation) for the year to 31 December 2016?
  2. b) If the government’s bulk billing rate changes to $40 per consultation, how does this influence your answer to (a)?
  3. c) Assuming that the practice decides to charge the bulk billing rate of $37 per consultation, by how much does the Glenlee Medical Practice’s profit go down if variable costs increase by 50%? By how much does profit decrease if fixed costs increase by 50% and variable costs are at their original level? What does this tell you about the relative importance of fixed and variable costs? What was the impact of a change in the bulk billing rate from $37 to $40?
  4. d) Write a report to the doctors giving recommendations about whether the practice should stop bulk billing.

 

Question 3 (5 marks)

 

You are considering setting up a solo GP practice. Your financial projections for the first year of operations are as follows:

Revenues (10,000 consultations) $400,000

Wages $220,000

Rent $12,000

Depreciation $23,000

Phone and electricity $2,500

Medical supplies $45,000

Office supplies $15,000.

 

Assume all costs are fixed except medical and office supplies that are variable and are the same for each of the 10,000 consultations. Also assume that the practice must pay tax of 30% on its profits.

  1. Construct the practice’s expected profit and loss for the first year.
  2. What number of consultations do you need to break-even?
  3. What number of consultations would you need to give the practice an after-tax profit of $100,000?

 

Question 4 (5 marks)

In its first year of operations which ended on 30 June 2015, Eastern General Practice Ltd provided $145,000 in patient consultations, $43,000 of which had not been received from Medicare at year end. The remaining $102,000 was received before 30 June 2015 in cash from patients and Medicare. The practice incurred operating expenses of $54,000 during the year. Of these expenses, $5,000 was depreciation of equipment, $39,500 had been paid in cash; $9,500 was still owing to numerous creditors at year-end. In addition, on 26 June 2015, Eastern General Practice Ltd paid $13,500 in cash in advance for rent on the surgery for the months of July, August and September 2015. On 30 June 2015, the practice bought new computers for $10,000 cash.

 

  1. Calculate the first year’s profit under the cash basis of accounting. (1 marks)

 

  1. Calculate the first year’s profit under the accrual basis of accounting. (1 marks)

 

  1. Which basis of accounting do you think is more useful for decision making? Explain your answer. (3 marks)

 

 

Question 5 (10 marks)

 

Choose appropriate account names and demonstrate how one transaction affects two ‘accounts’ in the accounting system. For example, if the owners of the business contributed $6,000 in cash to start the business it would increase Cash by $6,000 and increase owners’ equity by $6,000.

 

  1. Borrowed $10,000 from the bank.
  2. Received $2,000 income for patient services delivered last month.
  3. Paid telephone account of $451.
  4. Hospital sells vacant land for $15 million.
  5. Purchased drugs on credit $68,000.
  6. Provide services to patients for $250 and paid immediately.
  7. Pay monthly salaries of $15,000
  8. Bought office equipment for $8,000
  9. Hospital receives government grant of $10 million.
  10. Hospital chief executive buys flowers for wife for Valentine’s Day on his personal credit card.