Calculating Business Costs

what must upper level managers be able to grasp?

-financial statements

-basic accounting and finance principles

-cost accounting

-capital and operating budgeting

-reporting and control

-reimbursement and capitation

-databases

-information systems' relationship to financial and strategic planning

-basic economics (supply and demand)

-contracts

what is included in a financial statement?

assets, liabilities, and net worth

what are assets for an organization?

goods, equipment, buildings, installations, land, investments, retained earnings

what are assets for an individual?

-above list + personal cash savings

-interests on savings and investments

-other valuable items owned outright

what are liabilities?

any debts

what does net worth equal?

assets - liabilities

what should be considered regarding real property assets when starting a businesss?

-decision to lease vs buy/mortgage

-need to consider realistic space needed to meet your goal

what should be considered regarding location when starting a business?

-implications on property value and value of practice to customers

-consider transportation, traffic, parking, safety, access to MD offices, what other businesses are in the area, accessibility for people with disabilities

what should be considered regarding equipment assets when starting a business?

capital equipment, which is all tangible, non-expendable, movable assets having useful life of more than one year and a value over a certain price

what does classifying equipment as capital/not capital require?

a tax consultant due to financial and legal implications of depreciation of any asset

what is depreciation?

an income tax deduction that allows taxpayer to recover costs of owned property or assets placed in service over time that has a determinable useful life

what is the purpose of depreciation?

-preserves revenue and increases profits by reducing tax payments

-because expenses are deducted from revenue when they occur, converting as much property and equipment as possible into assets defers these losses to taxes

what questions should be asked when deciding whether to buy or lease equipment?

-will there be frequent updates

-is technology rapidly changing

-are there classic or traditional pieces of equipment that must be included

-minimal set of equipment required to meet external licensing requirements

-what furniture needs? any ergonomic needs?

how is cost for doing business usually expressed?

cost/patient visit

how are costs classified?

-direct vs indirect

-fixed vs variable vs semifixed

what is a direct cost?

-expenses for delivering services

-includes salaries, equipment, supplies

what is an indirect cost?

-overhead costs

-rent/mortgage, utilities, janitorial, maintenance, office supplies, etc.

what is a fixed cost?

-same cost regardless of number of patients treated

-ex: rent, janitorial

what is a variable cost?

-cost increases as number of patients increases

-ex: laundry, supplies

what is a semifixed cost?

fixed cost such as wages and salary that may vary when OT is needed or when work hours are decreased due to low census

how can scheduling be related to billing?

-cancellations and no-shows increase the cost per treatment

-double booking or overlapping appointments is one option to reduce non-billable time

-on the other hand, this can lead to reduced reimbursement

why can this lead to reduced reimbursement?

-medicare defines skilled services as one-on-one time

-rushed and hurried care may hurt reputation in long run

what is revenue?

-total of all monies received for services provided or goods sold during a given period

-payer mix will impact revenue

what models do insurance companies prefer?

models that reduce amount of reimbursement they are likely to pay per patient they insure

what models do providers prefer?

models that give flexibility in number of sessions and payment per session they receive to meet needs of individual patient