List several efforts that have been enacted by payors to control costs.
Several efforts by payers exist to control healthcare costs. They date back to the 1960s through the Medicare and Medicaid programs. These programs enable employees to move the cost of healthcare to employees and state or federal funded healthcare programs. As such, employees are not required to incur high costs for their healthcare coverage. Furthermore, hospitals now have a greater say about medical supplies as compared to the past, where supplies were solely decided by physicians leading to high medical costs.
Explain the ramifications of allowing/disallowing an individual to be able to sue his or her HMO.
Patient’s freedom to sue their HMOs will result in insurers coming up with strategies that will cut costs. These include limiting channels for insurance to reduce chances of litigation as well as costs for defending themselves against legal suits brought against the organizations. Furthermore, if HMOs could be included as malpractice suits, healthcare delivery costs will increase to cover such unprecedented events. The chances that more people will sure healthcare deliverers for malpractice and include HMOs will increase.
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What are each of the financial statements commonly called in for-profit health care organizations and in not for-profit care organizations?
Both for-profit health care organizations and in not-for-profit care organizations have financial statements that document the critical financial information. For both healthcare organizations, the statements include the balance sheet and statement of cash flows. Statements called in for-profit organizations are statements of income as well as the comprehensive income statements and comprehensive changes in stakeholder’s equity. Statements called utilised not-for-profit healthcare organizations are statements of operations as well as statement of changes in net assets (Finkler et al. 2018).
Statement of Operations of not For-Profit Health Care Organizations
What is the analogous for-profit statement called? What are the main sections of the statement of operations?
Typically, the equivalent for-profit statement is the income statement in business organizations. It is, however, called the statement of operations in healthcare organizations. Notably, the statement of operations does not reveal the cash flow but rather shows revenues and expenses over a specific period. The primary sections of the statement of operations are the heading, which provides the organization’s name and the specific period. The statement’s body includes revenues and expenses.
What are revenues, gains, and other support?
Revenues represent income received from the provision of services and the sale of goods. Usually, they are recorded in the financial period in which they are received (Investopedia, 2019). Gains, on the other hand, are profits or upward growth in value through secondary sources like sale of assets, won lawsuits, or investments in other financial channels. Usually, the income comes in through capital gains. Other support includes fundraising that benefits the organization, grants, and membership dues.
What are expenses and losses?
Expenses represent costs incurred by the healthcare organization in providing services. Expenses are usually incurred in two stages, programs function and supporting functions. Program functions are the main expenses incurred in providing services. Supporting functions include managerial and development expenses. Usually, expenses are reported to match the revenues for the financial period. Losses are realized if the organization loses money through secondary activity. For instance, the sale of an asset below the book value leads to losses. Additionally, losses are incurred if the healthcare organization is ordered to pay for a lawsuit or fails to gain form a financial investment.
Funds released from restricted net assets to unrestricted net assets are presented in what section of the statement of revenue, expenses and other activities?
Restricted funds are recorded as restricted revenues in the statement of operations. These cause the amount of net restricted assets to increase. When released from restrictions, the funds are recorded as unrestricted revenues in the statement of operations (Investopedia, 2019). In the statement of activities, the released funds are recorded under the revenues sections. For instance, if a donor withdraws restrictions on donations for a specific activity.
Statement of Changes in Net Assets
What is the traditional name for this statement?
The analogous for the statement of changes in net assets is the net profit in income statements (Cass & Fraser, 2020). Usually, changes in net assets resulting from positive or negative movements in organization revenues, expenses, and lifting of restrictions on assets. The organization usually has three classes, and the changes in net assets are calculated in the three classes. For instance, a donor can remove restrictions on funds hence resulting in changes in the net assets. Changes in revenues and assets either through reduction or increases are also computed in the statement of changes in net assets.
What is the purpose of this statement?
The purpose of the statement of changes in net assets is to account for the changes in net assets over two financial reporting periods. They reveal causes of changes in net assets hence the trends in the health care organization relating to the utilization of resources. A positive change in the statement of changes in net assets discloses that the healthcare organization positively utilized its resources.
What are the main sections of this statement?
The primary sections of the statement of changes in net assets are thechanges in the net assets invested capital assets, restricted net assets, endowments, unrestricted net assets and total assets (Cass & Fraser, 2020). Changes in net invested capital assets are the changes over two reporting periods of capital assets invested by the organization. Changes in endowments are donations, either through finances or other forms of assets. It also shows changes in restricted and unrestricted assets over the two years.
Discuss the difference between permanently restricted and temporarily restricted net assets.
Permanently restricted assets only utilize the interest gained from the assets for health organization activities. The organization thus lacks the freedom to use the asset as a whole for its activities. Temporarily restricted assets are either time-restricted or purpose restricted. Time-restricted assets are used for a specific period over a given period according to the instructions of the donor. Purpose restricted assets must be used for a specific activity according to the provided instructions.
Statement of Cash Flows
What are its main sections?
The statement of cash flows consists of three main parts; the financing, investing, and operating activities (Lumen, n.d). The main activities underfinancing are borrowing, repaying, and raising money to support the organization's activities. Investing activities on the other relate to buying and selling of company assets. Cash flows from organizational investments also feature under the investing section. Operating cash flows are recorded according to the main activities of the business organization, which mainly involves the provision of services.
What is the purpose of this statement?
The cash flow statement details the liquidity within the organization as well as the amount available for utilization in existing opportunities. It also provides additional information about changes and trends in organizational assets and liabilities. It also allows the management to compare the operating performance of the organization with others. Information on cash flows is also critical in predicting future performance and amounts that will be available.
Where in the financial statements would there be important explanatory information?
Explanatory information in cash flow statements can be found in situations where there is a bank draft that is payable upon demand by the bank. When the overdraft is overdrawn, it is recorded as negative. Furthermore, there are explanations on the type of accounting, such as accrual or cash basis. Non-cash obligations such as buying back assets also need explanations in the statements. Explanatory information may also feature changes in leases that are part of operating activities.
In what financial statement would one identify the purchase of long-term investments?
Long-term investments feature under the investing activities of the cash flow statement. These are usually assets that the healthcare organization intends to hold for long periods of time. These are usually property, plant, or equipment that help to keep operations in place. Donors and analysts usually rely on the investing section of the financial statement to determine how much the organization spends these items.
How does the accrual basis of accounting differ from the cash basis of accounting?
The accrual basis of accounting records revenues and expenses the moment the organization bills them. Unlike the cash basis, which recognizes revenues and expenses only at the moment the cash moves. The accrual basis of accounting provides for long-term planning since it gives a clear picture of the organization activities. The cash basis is only suited for smaller healthcare organizations since it ignores accounts payable and receivable. The cash basis is simpler but ignores future occurrences in cash flow.
References
BIBLIOGRAPHY Cass & Fraser. (2020). Statement of Changes in Net Assets. Retrieved June 11, 2020, from https://www.cassfraser.ca/gaap-non-profits/general-reporting-matters/statement-changes-net-assets/: https://www.cassfraser.ca/gaap-non-profits/general-reporting-matters/statement-changes-net-assets/
Finkler, S. A., Smith, D. L., & Calabrese, T. D. (2018). Financial management for public, health, and not-for-profit organizations . CQ Press.
Investopedia. (2019). Gains and Losses vs. Revenue and Expenses: What's the Difference? Investopedia. Retrieved June 11, 2020, from https://www.investopedia.com/ask/answers/101314/what-are-differences-between-gains-losses-and-revenue-expenses.asp
Lumen. (n.d). The Statement of Cash Flows . Lumen Boundless. Accounting. Retrieved June 11, 2020, from https://courses.lumenlearning.com/boundless-accounting/chapter/the-statement-of-cash-flows/#:~:text=The%20cash%20flow%20statement%20has%203%20parts%3A%20operating%2C%20investing%2C,disclosure%20of%20non%2Dcash%20activities.
