# Financial Management

Chapters 1-3
This week you will complete the following problems from Chapters 1-3 of your textbook, Understanding Healthcare Financial Management. Be sure you are completing the “Problems” and not the “Mini-cases.”

Chapter 1: Problem #5
Chapter 2: Problem #1
Chapter 3: Problem #1

Access the problems at https://www.ache.org/pubs/hap_companion/book.cfm?pc=2283 or from the attached transcript.

Show your calculations used to derive your answers. If the problems require narrative answers as well as calculations, you must format those answers using APA style, as per the CSU-Global Guide to Writing and APA.

Module 1 CT

Chapter 1 Problem 5
Johnson Family Care Inc. is a large ambulatory care center that provides comprehensive 24-hourprimary and specialty care to a large suburban population in Pennsylvania. The center recently purchasednew clinical laboratory equipment for \$1.1 million and spent \$22,000 to renovate a center room toaccommodate the new equipment. The useful life of the equipment is estimated to be ten years, after whichit can be sold for \$75,000. Johnson uses a straight-line method to calculate book depreciation and pays tax ata rate of 40 percent. The equipment falls into the MACRS seven-year class.

a. What annual depreciation expense will be reported on the income statement for the center?
b. What annual depreciation expense will be reported for tax purposes?
c. Suppose Johnson sells the laboratory equipment at the end of Year 4 for \$400,000. What impact would this have on the taxes paid by the center?

Chapter 2 Problem 1
Families First is a managed care plan that has been asked to submit a premium bid to ABC Company, a largemanufacturer in its service area. The premium bid includes the primary care for all of the ABC employees.ABC has provided information about the age and gender of its employees, and Families First has identifiedaverage primary care utilization rates from its own databases. This information is shown below:

ABC Company
Average primary care

Number of
Number of
visits per year
Age band
males
females
Males
Females
20-29
285
325
2.10
3.18
30-39
96
100
2.60
3.52
40-49
53
57
3.28
3.93
50-59
36
36
4.14
4.43
60+
7
5
4.98
5.04

Each primary care physician can handle about 3,000 patient visits per year, for which he or she is paid\$180,000. What primary care rate (PMPM) will Families First propose to ABC Company?

Chapter 3 Problem 1
Sunnyvale Primary Care (SPC) is considering a P4P program to increase preventative care for itsdiabetic patients. HbA1c is a blood test used to determine how well diabetes is being controlled. Thestate medical association recommends that diabetic patients have this test a minimum of two times peryear. In addition, because patients regularly enter and leave primary care practices, the associationconsiders that a level of 90 percent of diabetic patients having a HbA1c test two times per year is areasonable goal for most primary care practices. In the state where SPC is located, currently only 80percent of diabetic patients actually have a HbA1c test two or more times per year.

SPC decided on HbA1c as a process measure for its P4P program and is now considering threemethods of allocating rewards. For each of the measures below, a physician receives a \$5,000 bonus if:

– the percent of their diabetic patients that had at least two HbA1c tests in the past year is greaterthan the state average of 80 percent (relative performance).
– the percent of their diabetic patients that had at least two HbA1c tests in the past year is greaterthan the state goal of 90 percent (benchmark performance).
– the difference in the percent of their diabetic patients that had at least two HbA1c tests in the past yearcompared to the previous year is greater than 10 percent (improvement performance).

The percent of diabetic patients that had at least two HbA1c tests in the past year for each SPC physician is shown below:

Physician
Jan-Jun
Jul-Dec
A
60%
76%
B
70%
81%
C
80%
81%
D
90%
91%

a) For the Jul-Dec period, what would be each physician’s P4P if rewards were allocated based onrelative, benchmark, and improvement performance?
b) Which method(s) of allocating rewards would you recommend?