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NURSING HOME ADMINISTRATOR LICENSURE EXAM REVIEW C COURSE ◘ MODULE 6 National Exam Form B Financial Speed Reader Examination 1 Examination 2 Examination 3 Stan Mucinic, LNHA ` Financial . Copyright © 2005-2012 by Stan Mucinic. All rights reserved 1 of 34 Legal Notices Students enrolled in the “National Nursing Home Administrator Licensing Course” are purchasing the professional knowledge of the instructor to assist the student to prepare for the national licensure exam administered by the National Association of Boards of Examiners (NAB). This is a 5-week intensive independent study program designed to provide students a unique personalized and structured learning environment where progress is monitored by the instructor through email to help students maintain focus and complete scheduled assignments timely. THE INSTRUCTOR MAKES NO EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION OF ANY KIND THAT COMPLETION OF THIS OR ANY LICENSURE PREPARATION COURSE OFFERED BY INSTRUCTOR WILL GUARANTEE A PASSING SCORE ON ANY LICENSING EXAM. An individual’s ultimate success in passing the licensure exam is dependent on an individual’s professional experience, academic preparation, and the time and energy the individual can commit to exam study and preparation. A student’s work schedule or other commitments may require more time to prepare for an exam than allotted. The student is solely responsible for licensing exam registration/testing and retesting fees. HOW TO USE THE STUDY GUIDES Step 1 – VERY IMPORTANT - The personalized test organizer that comes with the program is the key to your success and sets this program apart from any other. It is critical you follow the instructions and score each exam, and file the completed exams into your binder. Try to keep to the schedule and email your test results to the instructor to stay focused. Step 2. - Speed Reader – Read the speed reader for each module once or twice before taking the module exam(s). Read the speed reader over and over again until you familiarize yourself with its contents. THE MORE TIMES YOU LOOK IT THE MORE LIKELY YOU ARE TO REMEMBER IT. Step 3 – Exam Packet - The exam packet contains questions designed to measure your comprehension and retention of the material you read. Take each exam over and over again until you score 100%. Make sure you score each exam and record the results in your organizer or you will not be able to gauge your progress. The exam questions are cross referenced to the speed reader to allow you to quickly find and review material you missed on the exam as follows: Page Number 2/1.8(13) Section number Thus, the specific material would be found on page 2 of the speed reader, section 1.8, subparagraph 13. Contact Information Email Stan Mucinic at [email protected] with any questions and after you score each practice exam Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 2 of 34 Financial SECTION 1 – CRITICAL FINANCIAL CONCEPTS Section 1.1 - Facts and Myths about the Exam 1. This module is the most difficult for 99% of all students preparing for the national exam 2. Students experience tremendous anxiety in dealing with financial concepts because they have had so little experience in the day to day financial management of a skilled nursing facility and these concepts seem so abstract that they cannot or subconsciously will not master them 3. It is my experience that when encountering a financial question, their brain processes literally freeze up and shutdown. 4. Here are some truths about the exam that will hopefully reduce your anxiety You will actually be given very few math questions on the exam Any questions you will be given will be very basic and easy to solve. You are not allowed to use a calculator so most questions can be solved by just looking at them These financial concepts are as easy as 1-2-3 These concepts are so critical to your success as the CEO of your multi-million dollar company and it is very important that you understand the financial process including the profit and loss statement, calculating labor hours and calculating PPDs (Per Person Per Day Costs) for food and supplies. You also need to understand the concept of a financial control process and communicating to department heads and staff your financial goals and how to track and record expenditures. Section 1.2 Financial Management Systems in a Nursing Home Here are some basic truths about financial management system in a nursing home: 1. The process is pretty much the same in every company 2. Your corporate officers or governing body prepares your budget and income and expense targets 3. Your main job is to know what those financial targets are and to keep your facility on target and monitor your status on a daily basis 4. Your main responsibility is to keep your labor costs and controllable expenses like supplies and capital expenditures within target Section 1.3 The Spend Down Sheet, Profit and Loss Statement, General Ledger 1. The critical tools that you use everyday to track and control expenses is the spend down sheet, profit and loss statement and the general ledger You never actually see or use the balance sheet. 2. A spend down sheet is similar to a check register. You give each department head a set amount of money to put into their checking account and as they spend money or spend down they record those amounts on their spend down sheet and subtract the amounts from their beginning balance which is what they have left. You need to review their spend down sheets with them at least weekly. They always run out of money at the end of the month You must track your PPD or cost Per Person per Day Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 3 of 34 SAMPLE SPEND DOWN SHEET Date 6-1-12 6-2-12 6-5-12 VENDOR RAW FOOD – DIETARY INVOICE AMOUNT Opening Bal. SYSCO SYSCO $2000,00 $1000.00 JUNE 2012 GL CODE ENDING BAL 20098-09 20098-11 $12,000.00 $10,000.00 $ 9,000,00 3. If census drops then you have to adjust your spending accordingly until census increases (cut back 10% or $1200) 4. The most important tool you will use to manage your facility operations is your profit and loss statement. 5. Your profit and loss statement or income statement is essentially your operating budget. An operating budget details your income and expenses. If your spend down sheet is your check register then your profit and loss statement is your monthly checking account statement. 6. Your budget is essentially your business plan and your budget must be checked constantly to compare operating results with planned results. You review you profit and loss statement with your executive managers monthly. 7. The profit and loss statement is produced at the end of each month and is a detail of your financial performance for a given month SAMPLE - Profit and loss statement June 1-30 2012 GL Code Revenues 700 800 900 Category Rehab Med A Med B Medicaid Insurance Totals Expenses 100 200 300 400 Nursing Supplies Payroll Maintenance Supplies Raw Food TOTALS Net Profit/Loss Budget Actual Variance 260,000.00 40,000.00 160,000.00 50,000.00 $510,000.00 280,000.00 46,000.00 156,000.00 52,000.00 $534,000.00 20,000.00 $6,000.00 ( 4,000.00) $2,000.00 $24,000.00 $5,000.00 300,000.00 6,000.00 12,000.00 $323,000.00 $4,975.00 390,700.00 2,900.00 1,1000.00 $399,675.00 $134,325.00 $25.00 (90,700.00) 3100.00 10,900.00 ($76,675) PPD .10 1.20 1.10 .90 1.23 8. The profit and loss statement or income statement only summarizes operating results. There are no vendors or account codes or invoices listed on this document. The only information it gives you is the results of all operations (revenues and expenses) (profit or loss) for the month of June. 9. There is nothing in the P&L concerning assets, liabilities or capital (investor equity or net worth) 10. The only information on the P&L is revenue and expenses. THAT IS IT! It only shows if income earned was sufficient to pay for your bills in June or a specific period of time. 11. Negative numbers on a Profit and Loss statement are shown in parentheses (i.e. ($90,000) shows a loss). 12. The administrator for this facility made $134,325 in profit for the month. If that number was a loss, then the facility would have to find another way to pay its bills for that month. In that case, they would look at another financial statement called the Balance Sheet. Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 4 of 34 13. The balance sheet looks like this: Balance Sheet Jan 1 – Dec 31 2012 Assets Building/Plant Vehicles Cash Stocks and Bonds Accounts Receivables Inventory on Hand Total $1,200,000,00 100,000.00 120,000.00 200,000.00 300,000.00 200,000.00 $2,120,000.00 Accounts Payables Mortgage Bond payments Bad debt Credit line Taxes Total $100,000.00 400,000.00 100,000.00 100,000.00 300,000.00 100,000.00 $1,100,000,00 Liabilities Capital Investor Equity $1,020,000.00 Net Worth $1,120,000.00 16. The balance sheet only summarizes the assets, liabilities and capital. There is no detailed information on the balance sheet. There are no vendor names, or invoices or expenses or revenues. 17. The balance sheet only shows assets (what you own), liabilities (what you owe) and capital (investor equity) and that is all. Again revenues and expenses do not appear on the balance sheet. 18. Going back to the example before, if you had lost money in June , then you would look at the balance sheet to see you could sell to make up the difference (working capital). 20. Most likely you will not see your facility balance sheet. It is updated quarterly but your CFO and accountants handle your cash flow and schedule payment of your bills. You will however see the debt expense and interest expense for the revolving credit line on your Profit and Loss statement because you still need to pay the interest expense. The line of credit keeps your operations going when you do not earn enough money to pay your bills in a given month. Just like you would use your persona credit card if you ran out of money 21. As we discussed before, the profit and loss statement and the balance sheet are financial statements and only summarize the transactions recorded in the journals and the general ledger. 22. One reason why the financial statements contain summarized information is that these documents are provided to your investors. They do not want to see the details of the thousands or millions of individual transactions that are summarized in the financial statements. They just want to see the bottom line. 23. However that does not mean that you do not need to review each and every transaction in your facility. 24. As a matter of fact you need to personally sign and approve every invoice before it will be processed for payment by your accounting department. 25 You will not deal with the journals that much. You have access to the journals through your accounting system and can call up and review every transaction that has been processed by your central accounting office. Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 5 of 34 26. Essentially, this is what the journals look like: Journal January 2012 Date 1-1-12 1-12-12 1-23-12 1-30-12 1-31-12 1-31-12 Vendor Home depot Lowes Sysco Office Depot Acme Supplies Sysco Amount $1,200.00 $23.00.00 $2,300.00 $348.00 $1230.00 $2300.00 27. In the illustration above, the journals are the books of original entry. Financial transactions are simply recorded by date – the date of the invoice or the check if monies were received 28. In reality, there is a separate journal for each type of transaction – payroll journal, cash receipts journals, cash disbursement journal, general journal, accounts receivables journal, etc. 29. As administrators we do not refer to the journals because it is too hard to find anything because the transactions are organized by date. 30 It is the general ledger we use the most. At some point the bookkeepers will post or transfer the transactions in the journals and re-organize them by GL code or by vendor and at this is a much more user friendly document. 31. The general ledger looks like this: General Ledger GL Code 100 1-12-12 1-15-12 1-17-12 1-20-12 1-22-12 1-23-12 200 1-1-12 1-3-12 1-5-12 1-12-12 Nursing supplies Acme supplies Acme supplies Acme sup plies Hill Rom Hill Rom Hill Rom Total Raw Food Sysco Sysco Dairy Rite Sunshine Bakery Debit $300 $150 $200 $1200 $2200 $3100 7,150.00 Debit $1000.00 3000.00 150.00 150.00 $4,300.00 Credit ($300) ($150) ($200) (1200) ($2200) ($3100) 7,150.00 Credit (1000.00) (3000.00) (150.00) (150.00) (4,300.00) 32. The general ledger is a document you will use often. 33. The general ledger summarizes the debits and credits in the journals and reflects every invoice processed. 34. With the profit and loss statement and the general ledger you can price together all financial activity in a given month. 34. The general ledger is where you would look to see how an invoice was coded, the amount of the invoice and when it was processed and paid. Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 6 of 34 35 An important tool you have to help you code invoices is the Chart of Accounts which looks like this: Chart of Accounts GL CODE 100 200 300 400 500 600 Expense Nursing Supplies Raw Food Maintenance Supplies Payroll Office supplies Pharmacy 36. It would be very hard to find anything in the General Ledger without the Chart of Accounts 37 Month End Close – A few days before the end of the month the business office switches into hyperdrive as they rush to get all invoices coded and processed and sent to the corporate office. All checks received during the month are deposited into the bank, All rehab billing must be put into the accounting system. The accounts receivables clerk must send out all bills for payment before month end close. 38 The business manager needs to get the General ledger accounts to balance and once that happens, the books are closed. This is a very tension filled and difficult time. That means when the general ledger balances and the books are closed, no more monies received or paid out will be reflected in the current month’s profit and loss. When the books are closed all financial results are final. The accountants will generate a very preliminary profit and loss statement (this reflects your actual results after all the numbers are crunched in the system) which will contain many errors and you will be provided a copy which you need to carefully pore over and make sure all of the information is correct. (This is called scrubbing the financials. The bookkeeping clerks and the accountants make small mistakes and they make big mistakes, and you are ultimately responsible to ensure your financial results are accurate. It could mean your job if you do not understand this simple fact. VERY IMPORTANT!!!! 38. PRO FORMA FINANCIALS - The time just before you get your preliminary financials is a very stressful time for the administrator. Especially if you are struggling with your census. As soon as you get your Prelim P&L you turn to the last page to see whether or not you made a profit. . 39. Whether you made a profit or not, you need to carefully check your pro forma financials. Again, the accountants and bookkeepers make mistakes and you could have missing invoices not reflected on the P&L, There may be invoices from future months on this month’s P&L, A $3.00 invoice may be transposed to $300 or $3000, Expenses are miscoded, or your accountant may make assumptions or projection in the absence of specific information that are just flat out wrong. 40. The bookkeeping clerks enter the information into the journals and the general ledger. You need to have a telephone conference with your accountant and ask lots of questions. I have seen it all and your performance is based on your financial results and you live and die by your P&L. Learn it. Know it. Keep it accurate and keep it clean. 41. You need to compare all of your spend down sheets with the general ledger and check that all invoices for the month were approved and processed for payment. If there are any missing invoices you need to alert your accountant to accrue the expense (accrual log) and put aside money from this month’s revenues to pay for those invoices in future months. That is the accrual system. That is your main job. 42. If after you have done your review and you determine you lost money then you can expect a drill down review with your Chief financial officer, CEO and regional vice president. You will need to explain any variance and prepare a plan of correction to correct the situation and prevent any future losses. 43. It is critical that you know how to handle yourself during these calls. 44. My advice to you is to BE PREPARED. 45. But most of all, if you are asked a question you do not know the answer to, then say that you need to research that question and you will get back to them. And follow up and get them the information. 46. Most importantly, know your budget targets, identify your variances and do your homework. If you are not able to handle yourself during these calls, your career will be short lived. 47. I cannot emphasize that enough. This is not rocket science. The profit and loss statement and general ledger are not complicated financial documents. Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 7 of 34 48. But you need to know how to read them and use them. 49. YOUR ARE THE CHIEF FINANCIAL OFFICER FOR YOUR FACILITY AND RESPONSIBLE FOR MILLIONS OF DOLLARS. YOU NEED TO UNDERSTAND THESE CONCEPTS 50. You will not find this information anywhere else. So please review this section very carefully and ask questions if you do not understand this. 51. Here are some very specific examples of common areas that always go off track: 1. Labor hours over Budget – Your staffing coordinator is not staffing properly and at proper levels and staff is burning through overtime because of frequent call offs or poor planning. Check your labor reports everyday and make sure that the time clock records are correct and staff is taking their lunch breaks and do not use agency if you do not have to. For your financial conference call, you need to identify the problem and have a plan on how you will bring spending in line next month. Identify who is calling off, write them up and terminate them, but control of your budget. Reduce or eliminate agency nurses if possible. 2. Raw Food over budget – Give your dietary manager their budget at the beginning of the month and reduce the allowable budget by 10 percent and hold that amount in reserve to keep them from going over budget. Break up the remaining amount $10,800 into 4 weekly amounts which is approximately $3000 each week. Tell your dietary manager that they must get your written authorization if they need to order more than $3000 a week in food. This ensures that have enough for the last week of the month when they usually run out of money. They can always move things around and dig into the emergency food supply to cut costs. If census drops further, cit another 10 percent. If census holds or increases and then release the $1200 you are holding in reserve or increase the amount above $12000 if census justifies that. For your conference call, you need a plan to control costs and be specific if you go over budget. The same thing for dietary labor hours. You need to adjust labor as census changes. 3. Nursing supplies – briefs, shampoo, over the counter meds - they run through these very quickly. Need to have a process in place to monitor purchasing and staff usage. Identify losses, talk to staff about supply levels and if there are cheaper alternatives or if residents are hoarding supplies then deal with that issue. If the supply manager a budget with a 10 percent reserve and break up the remainder into 4 equal amounts and adjust the purchasing amount towards the end of the month. 4. Pharmacy meds – residents on expensive IV antibiotics can bankrupt you, but using brand name drugs instead of generics can cost you thousands of dollars. Have someone charged with looking at your pharmacy bill each month and identify cost savings. Also, you return meds to the pharmacy that are not used and are entitled to a credit. Make sure those credits are processed and you get them. You should be costing out meds for each referral that you get and know how much their medication will cost and what their individual insurance plan will cover. Work closely with the attending physicians to arrange for standing orders to use certain generics over brand name drugs, 5. Equipment rentals – every time you rent a bed or a wheel chair, these amounts add up and can take thousands of dollars off your bottom line. Make sure you actually have the equipment, if you do and still need it, and look to buy the bed or wheel chair from your capital budget instead of endlessly renting equipment. Much sure equipment is returned after the resident no longer needs it or has been discharged. An expensive hospital bed can cost hundreds of dollars each month these rentals need to be tracked closely each month and accounted for.. This is what you spend on average each month in a 120 bed facility Controllable Expenses Salaries/Payroll $230,000.00 Rehab (outsourced) $40,000 Pharmacy bill $25,000 Food $15,000 (average $5 per resident per day) Maintenance costs $6,000 Nursing Supplies $7,000 Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 8 of 34 Non-controllable expenses Mortgage $30,000 Management fees $35,000 Insurance Premiums $30,000 Taxes $30,0000 (Clearly labor is your single largest controllable expense) 52. In some companies, even if you made money, they may still want to review your P&L for any variances. SECTION 1.3 - OBRA 1987 – Nursing Home Reform Act 1. The key to understanding the national exam and your purpose as a nursing home administrator is to understand the purpose of OBRA 1987 (Nursing Home Reform Act) 2. In the 70’s and 80’s, Congress realized there were thousands of people living in hospitals, at a huge cost to Medicare, because they were too frail or ill to be discharged home but did not require acute care. 3. To solve the problem, Congress gave physical rehabilitation centers a financial incentive to provide these residents custodial care at a fraction of what a hospital bed would cost. 4. These residents were still entitled to Medicare and if they became sick and required hospitalization, or skilled care, they would be covered under Medicare Part A. 5. However, if they did not require skilled care then their long term custodial care was paid for by Title 19 Medicaid. 6. However, In its zeal to create a quick fix and immediately shift the cost of these individuals from Medicare to Medicaid, Congress literally dumped these individuals into the nation’s 17,0000 rehab centers without much thought as to whether these sub-acute care centers could actually provide these individuals any meaningful quality of life. These were essentially sub-acute hospitals 7. Up to this point rehab centers were geared to providing short term therapy to residents who went home after they met their potential. Now most residents entering a nursing home feel anxious about the unknown. 8. Not surprisingly, a study ordered by Congress in 1987 revealed that nation’s 17,000 nursing homes were found to smell of urine and feces, were under-staffed, had high rates of pressure sores, dehydration, falls and fractures, lacked nutritious or adequate meals, and there were no required quality control or improvement programs 9. As a result of the 1987 study, Congress passed OBRA 1987 (the Nursing Home Reform Act) that totally transformed the way nursing homes were paid from the retrospective payment system to the prospective payment system. Reimbursement has significantly decreased since 1987. 10. For most nursing home administrators, one of the most challenging regulatory requirements written into law by OBRA 1987 was the requirement to maintain the HIGHEST PRACTICABLE PHYSICAL, MENTAL AND PSYCHOSOCIAL WELL BEING of each resident and to provide a HOME-LIKE ENVIRONMENT that deemphasized the institutional appearance of the nursing home. 11. We struggle with this every day because we are organized as a hospital and not as an assisted living facility or a resort hotel, nor do we receive money to provide these services. 12. To improve the overall care of long term residents, OBRA 1987 required implementation of a uniform comprehensive resident assessment system for the first time that assesses the various dimensions of a resident’s physical, mental and psychosocial well being that is known as the Minimum Date Set or MDS. 13. Residents must be assessed within 14 days of admission and then every quarter (every 3 months) and receive a full comprehensive assessment annually. 14. The MDS or minimum data set is the tool used to measure the outcome and effectiveness of the care provided by a nursing home. 15. A resident must have a comprehensive assessment within 14 days of admission and then a care plan must be finalized within 7 days of completion of the MDS. SECTION 1.4 – MEDICARE INSURANCE PRIMER 1. 2. 3. Medicare is Title XVIII or Title 18 of the Social Security Act and is the chief source of revenue for a facility and you need to understand how it works. Medicare was enacted in 1965 to provide health insurance to the elderly who were not able to afford adequate health care as they aged. Anyone 65 and older who has paid into the social security system for 40 quarters or 10 years, is eligible to enroll in Medicare. Beneficiaries pay insurance premiums and co-pays. Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 9 of 34 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. Medicare has two main insurance programs called Medicare Part A and Part B. Medicare Part A covers skilled care or inpatient care such as a hospital or a nursing home. Skilled care includes, IV’s, wound care, tracheotomy care, skilled rehabilitation, ventilator care. Medicare Part B covers outpatient services such doctor’s visits, outpatient procedures, outpatient diagnostic procedures, durable medical equipment such as walking canes, wheelchairs and supplies such as diabetic testing kits. Medicare also pays for home health and hospice Congress recently added a Medicare Part D Drug program that pays for medications while the individual is in the community or in a nursing home and not being skilled. For inpatient nursing home care under Medicare Part A, an individual must have a qualifying 3 day stay in a hospital. Medicare will then pay for 100 days of skilled care for any one spell of illness. The first 20 days are co-pay free, Medicare pays 100% of charges. From day 21 to 100, the resident must pay a 20% co-pay or about $124 a day. That amounts to over $3000 a month or nearly $8,000 if they stay the full 100 days. The average nursing home stay for a Medicare resident is about 30 days. Usually, the Medicare resident will leave on day 21 to avoid paying the 20% daily co-pay. Individuals can purchase a Medicare Supplement policy that pays the 20% Medicare co-pay and these residents are highly prized because they can afford to take full advantage of their 100 days, they stay longer and rehab can provide the services they need and generate more revenues for those services. As previously mentioned, a resident needs a 3-night inpatient stay in a hospital to qualify for a Medicare Part A nursing home stay. The 3 day time period starts from the day the resident is admitted to a bed and do not count observation time” in the emergency room. Important to Know - If you or your admissions staff do not verify the hospital admit date, and the facility accepts the patient, you must take them and you will not be able to bill Medicare Part A if they have exhausted their 100 days. You must check the hospital documentation (resident face sheet, history and physical and medication orders) to confirm the 3-day stay. You must run a MECCA through the Medicare Database to verify insurance status and verify all stays at any nursing home they have been in for the past 60 days.. If you accept a resident who has exhausted all 100 days, you can bill Part B to pay for therapy and the attending physician, but it pays a lower reimbursement then Part A, and the 20% co-pay starts on day one. In the meantime they might qualify for Medicaid if they meet financial requirements to pay for room and board. A patient must be in the bed at midnight of that day to count in the census and to bill the individual for that day. The same is true of the nursing home census. A resident discharged at 11:59 pm to the hospital would not be counted in the nursing census that day. If they left at 12.01 AM then they would be counted on your census and you could bill Medicare, Medicaid or other insurance for that day. Must maintain a written record of admissions and discharges that includes resident name, date of admission and discharge and location discharged. Medicare claims are submitted on a UB 92 and are filed with a fiduciary intermediary which is an insurance company. The intermediary keeps any monies they can deny for payment. You have 20 days to appeal a denial payment and request a formal administrative hearing. A resident who met the 3 day in-patient hospital stay and is discharged from a skilled nursing facility can return to that facility within 30 days with a 3 night in a hospital, if a physician signs an order stating the individual needs additional skilled care. This is important to know because sometimes a resident requests to go home before they are strong enough and they need to know they can come back and get the care they need if they realize they left too early. 60-Day Break In Benefits 25. 26. 27. If a patient were admitted to ABC Nursing Home for skilled therapy December 15th 2008, Medicare would pay for inpatient care up to 100 days or until March 28, 2008 If the resident used up all 100 days, then on day 101, their Part A benefits end. Under the Medicare Insurance Plan, they would need a 60 day break, to be eligible for another 100 days, meaning they will need to stay out of a nursing home for 60 days and not be skilled under Part B for more than 4 days per week. Supplemental Security Income 28. lf an individual has worked 40 quarters and paid into the social security system and would be eligible for Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 10 of 34 Medicare at age 65, they can apply for benefits under the Supplemental Security Income program or SSI. They will be eligible for social security pension payments and also qualify for Medicare that will pay for medical care. If you have a resident who is under 65 and is disabled, you need to assess them to see if they qualify for benefits under SSI. Costing Out Care 29. 30. 31. 32. It is critically important to understand that Medicare pays you a daily rate or a per diem rate based on the RUG Rate and that rate is all-inclusive. Once you accept a patient, then you must pay for all care needs regardless of the cost. When a resident needs IV antibiotics, hyperbaric treatment, etc., these treatments cost hundreds of dollars each day and sometimes thousands of dollars and since you are only getting paid a set amount maybe $500 - $600 a day, you need to cost out what you will need to provide. HMOs also pay you a daily rate based on a level (level 1, level 2 and level 3) and while they will carve out some expensive items, such as IV antibiotics and durable medical equipment, you pay for all other costs and the rate is usually not enough to cover expenses. Again you need to cost out their care and negotiate at the level of payment you need based on acuity and negotiate that rate with the insurance company. Another key way to maximize your Medicare reimbursement is participating in a utilization review meetings where clinical staff discuss the status of each resident, including ther progress and expected discharge date. You need to track the RUG rate for Medicare residents. RUG Rate 33. 34. 35. The RUG rate (Resource Utilization Group) rate is set by the Health Care Financing Administration (HCFA) and is determined by a number of different factors such as the number of minutes of therapy needed and the their ADL score, as well specialized nursing services needed. The RUG rate is not based on the MDS. It is based on the number of minutes of skilled rehab, special nursing needed and assistance with ADLs. The more intense the rehab required or assistance with Activities of Daily Living (ADL’s), the higher the rate. So an Ultra High rehab rate pays considerably more than a medium Rehab Rate. As a patient improves, their RUG rate decreases Section 1.5 - Medicaid Primer 1. 3. 4. 5. 6. Medicaid (Title XIX or Title 19 of the Social Security Act) is a government benefit plan that is paid for by the state and the federal government to provide assistance to poor people in finding suitable housing and health care. Medicaid pays for the majority of long term care in nursing homes. 2. Unlike Medicare, which is available to anyone regardless of income, Medicaid requires that you meet income and asset requirements to qualify. Medicaid does not pay for skilled care. The Medicaid program has community Medicaid and institutional Medicaid. An elderly individual may live in the community and need food stamps or a cash stipend to pay for rent and food. They must meet financial income and asset level to qualify for benefits. Institutional Medicaid is when they reside in a nursing home. The Centers for Medicare and Medicaid Services (CMS) administers the Medicare and Medicaid contracts. 7. An individual cannot make more than $1860 per month in pension or other income. If they go over that amount they not qualify or if they do have Medicaid they will lose their benefits 8. An individual cannot have more than $2000 in assets and still qualify for Medicaid, which is the SSI limit. 9. Therefore you must notify a resident with a trust fund when there account reaches $1800 or $200 less than the SSI limit. 10. If one spouse is in a nursing home and the other is home, the other spouse is allowed to keep the house and one car. 11. The look back period for Medicaid is 5 years (the time period which Medicaid will check bank records and other public records to see if there has been a transfer a assets). 12. Discharge begins on the day of admission because it takes 45 days to get a Medicaid application processed and approved. 13. If you file the application within a couple of days of admission, then it will be approved by the time they convert over to Medicaid if needed. If the resident does not need Medicaid coverage then you have lost nothing. 14. If you wait until the time their insurance coverage ends to submit the Medicaid application, you will be Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 11 of 34 15. 16. 17. 18. waiting 45 to 60 days for payment and carrying that as an accounts receivable which could be $10,000 to $12,000 per Medicaid pending. If you have 10 Medicaid pending that is $120,000 in cash your facility does not have. If the Medicaid office determines that the resident had undisclosed assets that disqualified them, then you may still get paid for the period the resident was pending, up to 3 months, under the presumption of eligibility, which means you provided care in good faith and did not know they would not qualify, and Medicaid will pay for 90 days going back to the date of the application. But after that, Medicaid will not pay anything. A resident who is over assets to qualify for Medicaid must pay down their assets before they can qualify for benefits. This is called “spending down”. Therefore it is critically important that you track and stay on top of your residents who are Medicaid pending and the timely filing of the application. You are required to submit cost reports at the end of the year to Medicaid that detail your actual revenues and expenses for the year. The cost report is due within 90 days from December 31 of the prior year. Your Medicaid reimbursement rate is based on your actual costs. 1.6 - Private Insurance Plans 1. 2. 3. 4. 5. 6. 7. 8. 9. Many individuals maintain a private insurance plan that may be an HMO (health maintenance organization) or PPO (preferred provider plan) You must be familiar with the terms of your contract with these providers, whether they require a 3 day stay, whether they require pre-authorization before admission to your facility, what level you will be paid which is how much they will pay you per day, what is included in your per diem rate and what medications are not covered. If you do not follow the requirements of your contract, you will not get paid. Know your contracts and renegotiate rates or higher levels if you need to. You need to cost out what services and medications the individual requires and how much you will get paid. The insurance companies will get paid hundreds of dollars per day by Medicare and will only pay you a couple hundred at most and shift the cost onto you. This is managed care. If it costs more to treat the person then you are paid then you eat the difference. You need to make sure you collect your co-pays when required and that the patient is discharged when the insurance company issued a last covered date. Make sure your business office bills promptly and provides complete records needed to substantiate payment Many individuals have served in the armed forces and may be entitled to medical care through the Veterans Administration. This may be especially good to know if you have a resident under 65 who does not have any other insurance but was a veteran and qualifies for benefits SECTION 2 – PRINCPLES OF FINANCIAL MANAGEMENT 2.1 – ADMINISTRATOR’S ROLE IN FINANCIAL MANAGEMENT 1. The administrator is responsible for all financial operations of the facility per OBRA ’87: 2.2 – FINANCIAL MANAGEMENT 1. Knowledge of past performance and problems is critical to planning and budgeting 2. Financial management involves: a) b) c) d) e) f) g) Developing a budget detailing what services to provide Identifying required staffing and resources Identifying cash in-flows and out-flows Identifying capital equipment purchases, replacement and repair Identifying operating and debt expenses Identifying insurance needs Establishing financial controls and security to protect assets h) Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 12 of 34 SECTION 3 - FINANCIAL TERMINOLOGY 3.1 – REVENUES AND EXPENDITURES (EXPENSES) 1. Expenditure – Money paid to suppliers and vendors 1. Revenues – Earnings from operations 2. Deductions from revenues a) Contractual discounts – negotiated through contract with government payor sources which reduce revenues b) Charity care – patient cannot afford to pay bill and it is written off c) Bad debts – resident accounts past due but subject to collection 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Operating revenues – Derived from direct resident services (nursing, rehab, drugs) Non-operating revenue – Derived from beauty salon, gift shop) Revenue is not income Income is derived from subtracting revenue from expenses = income Ancillary Revenues – Posted under operating revenues Net Income – Income after deduction for expenses and taxes Net Loss – The facility lost money after deducting expenses from revenues Net operating revenues – operating revenues less taxes and expenses Gross operating revenues – operating revenues before deductions Gross Income – Income before deductions Uncollectible debt and contractual discounts are deducted from gross operating revenues 3.2 – ASSETS AND LIABILITIES 1. 2. 3. 4. 5. 6. 7. 8. Liabilities – Things owed Assets – Things owned Capital Cost – Interest expense on a capital asset Current asset – An asset that will or can be turned into cash within 12 months Non-current asset – An asset that will not be turned into cash within 12 months Prepaid insurance is an asset Current Liabilities – Must be paid within 12 months Notes Payables – Loans must be repaid within 12 months 9. Non-current liabilities – Liabilities that will not be repaid within the next 12 months 3.3 – CAPITAL 1. Capital – Money invested in a business (owner’s equity, net worth) – The amount on the balance sheet that represents ownership 2. Owners equity – The money invested by owners 3. Shareholder’s equity – The amount invested by shareholders 4. Fund Balance – Funds invested by a charitable organization 5. Working Capital - Current assets – current liabilities 3.4 – DEBT 1. Uncollectible debt – Deduct bad debts from gross operating revenues 3.5 – MISCELLANEOUS 1. 2. 3. 4. Contractual discount – A discount given to HMO’s through a contract (single largest deduction to income) Audited Financials – Books and financial statements that must be audited by a certified public accountant Break even point – Total costs equal total revenues Negative figures - Losses on financial sheets are shown in parenthesis Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 13 of 34 SECTION 4 – ACCOUNTING/BOOKKEEPING PROCESS 4.1 - ACCOUNTING PROCESS AND SYSTEMS 1. Accounting Process – Process of keeping books and preparing financial statements and reports 2. Accounting system – A recognized system of accounting used to keep the “books” and financial records (needs to be consistent per GAAP) 3. Accountant – A professional who prepares financial reports from the books (accountants do not do original entries – only the bookkeeper) 4. The accounting system determines how financial records must be kept 4.2 - BOOKKEEPING PROCESS 1. Bookkeeping – The process of physically recording each and every financial transaction (revenues and expenses) 2. Bookkeeper – The individual responsible to record each financial transaction in the books 3. The “Books” – A set of records that list each monetary transaction of a business (the various journals and the general ledger)(documents cash flow into and out of the facility) 4. Contra Account – Enter bad debts into the contra account 5. Source Documents - Bills, receipts, bank statements and cancelled checks SECTION 5 – JOURNALS 5.1 – JOURNALS 1. Journals are the books of original entry – each transaction is first entered into the journals by date order by the bookkeeper. 2. The journals include billing, cash receipts, accounts receivables, accounts payables. 3. General Journal – This is where the bookkeeper records transactions that do not fit anywhere else, are one time occurring or extend beyond a single month (i.e., depreciation and prepaid expenses) (can locate all payments received on a specific date) 4. The bookkeeper enters each financial transaction into the journals by date order 5. There are six types of journals: a. General journal – Enter all non repeating entries and transactions that occur over several months into this journal including: 1. Transactions that do not properly fit in any other journals are recorded in the general journal 2. Expenses disbursed over many months are entered into the general journal 3. Make adjustments to other journals in the general journal 4. The various journals are closed each month when the debits and credits balance in the general ledger and the profit and loss statement is prepared b. c. d. e. f. Cash receipts journal – Records all cash received for services Billings journal – Records all monies owed to facility by customers for services provided Accounts payable journal – Records all monies owed to suppliers and others Cash disbursements journal – Records monies actually disbursed to supplies and others Payroll journal – Summarizes all payroll checks 5.2 – Double Entry Bookkeeping 2. Every transaction recorded in the journals must have a debit and a credit a) Debit – left side journal b) Credit – right side journal Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 14 of 34 SECTION 6 – GENERAL LEDGER 6.1 - GENERAL LEDGER 1. The transactions in the journals are transferred or posted to the general ledger and organized into accounts in the order they appear in the balance sheet 2. The general ledger does the following: i. Maintains a continuous balance in each account for the month ii. Enables a trial balance 3. Chart of Accounts – Functions like a table of contents and lists all accounts in the general ledger in the order they would appear in the financial statements 4. Posting – The entries in the journals are transferred to the general ledger by the bookkeeper 5. The purpose of the ledger is to add up all of the debits and credits in the journals to ensure they balance or zero out – this is called a trial balance 6. The general ledger summarizes all credits and debits in the journals 6.2 – TRIAL BALANCE 1. When the debits and credits zero out or balance in the ledger, the “books” (or the journals) are closed at the end of the month and the accountant prepares the profit and loss statement 2. When the books balance and the profit and loss statement is prepared, the general ledger is closed and the accountant prepares the financial statements 3. If the ledger does not balance then there was an error in recording the transactions SECTION 7 - FINANCIAL STATEMENTS 7.1 - PURPOSE OF FINANCIAL STATEMENTS 1. The financial statements summarize data from the thousands of transactions in the journals, the general journal and the general ledger 2. The accountants prepare the financial statements each month after the trial balance zeros out and the books balance 3. The accountants summarize the results of operations in a format that allows managers and investors to glance at the reports and determine within seconds whether a company is making or losing money and to compare that data with projected performance and performance from prior years 4. Without this summarized data, investors would have analyze the tens of thousands of transactions in the journals and determine for themselves how well a company is performing and whether or not a company is solvent or near bankruptcy and what an investor’s investment is worth 5. The financial statements must be audited by a certified public accountant 7.2 – THE FINANCIAL STATEMENTS 1. The financial statements consist of four financial documents that must be provided to investors a) b) c) d) Balance Sheet Profit and Loss Statement Statement of changes in financial condition Notes to financial statements 7.3 - BALANCE SHEET 1. The balance sheet details the value of a company’s assets, liabilities and the owners equity (net worth) as of a certain date 2. Assets equal the liabilities plus capital 3. Assets are listed on the left side 4. The balance sheet summarizes the assets, liabilities and capital accounts (financial well being) 5. The accounting equation is assets = liabilities + capital Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 15 of 34 7.4 – PROFIT AND LOSS STATEMENT – (Income statement) 1. Shows whether a company made money and whether revenues were sufficient to cover expenses 2. The profit and loss statement contains revenues and expenses. THERE ARE NO ASSETS, LIABILITES AND CAPITAL ON THE PROFIT AND LOSS STATEMENT 3. Likewise, you will never find revenues and expenses on the balance sheet 7.5 - STATEMENT OF CHANGES IN FINANCIAL CONDITION 3. Explains how working capital was used and any increases or decreases in capital that occurred between two accounting periods or balance sheets 7.6 - NOTES TO FINANCIAL CONDITIONS 1. The accountants who prepared the financial statements explain their interpretations or calculation of figures or variations in the books 7.7 -OTHER FINANCIAL STATEMENTS 1. Statement of revenues and expenses – reports revenues by source and expenses by functional category for a year 2. Statement of Cash Flows – reports the sources and uses of cash for the year 3. Statement of Changes in Fund Balance – Reports increases and decreases in owner’s equity or fund balance during the year. SECTION 8 - GAAP (GENERALLY ACCEPTED ACCOUNTING PRINCIPLES) 8.1 – GAAP – GAAP establishes the rules which public companies, like Microsoft, must follow when disclosing their financial well being to investors. A company’s accountants prepare the balance sheet and profit and loss statement but GAAP requires a certified independent accountant to verify all claims made by the company. 1. 2. 3. 4. Entity Principle – A business is separate from the owner and money withdrawn must be recorded Consistency Principle – Must use the same accounting format (accrual or cash system) from year to year Full Disclosure Principle – Must disclose all income, expenses and debt and losses Time Period Principle – Reporting periods must be the same from year to year (Sept 30) Must choose either a) calendar year – Jan 1 to December 31 or b) fiscal year – Oct 1 to Sept 30 Objective Evidence Principle – Must keep copies of all bills, receipts, cancelled checks (your source documents) since they are the best evidence of your transactions and must be produced to the auditors. If there is no paper trail then it did not happen and the auditors will flag such claims on your financial statements. 6. Materiality principle – All financial data that is relevant to an investor’s decision to invest must be disclosed 7. Realization Principle – Do not recognize revenues until earned (cash basis). One creative accounting methods used by some companies has been to record inventory in their warehouse as income on the theory that it will be sold one day. This is fraudulent and the independent auditors will look for actual electronic receipts of actual sales or other documentation to show actual revenues. 8. Matching Principle – You must match revenues to expenses that generated the revenue (accrual) 9. Conservatism Principle – A company must calculate the value of its assets and inventory and this principle requires the most conservative estimate or lower value be used to minimize an over valuation of a company’s assets or net worth to hide losses 10. Objectivity Principle – Accounting data is based on most the most objective evidence or source documents (a paper trail). Minimizes the chance a company will produce falsified records 11. Continuing Concern Principle – Financials assume a business will continue from year to year 5. SECTION 9 - RATIO ANALYSIS 9.1 - RATIO ANALYSIS 1. Managers express financial information as ratios to simplify the analysis and comparison of financial data 2. A ratio is always a fraction with one number divided into another Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 16 of 34 3. Must compare the ratio (data) over a period of time to identify meaningful trends (increasingly profitable or losing money) 4. Ratios are very handy to tag critical info from financial statements (cash flow, profit or loss, available cash on hand to pay bills, net worth, how quickly bills are paid and money owed is collected. 5. Ratios can be used to compare performance to other facilities and industry averages 6. A ratio of debt to assets over 1.0 is positive (facility can pay bills) - under 1.0 then facility has trouble paying bills 9.2 – FINANCIAL RATIOS – Please read this very carefully a few times. This is finance in a nutshell 1. Ratios are simply tools we use everyday to assess our available financial resources to determine how in the world we are going to pay our bills each month. 2. Typically, a facility has hundreds of thousands of dollars coming in (revenues) and hundreds of thousands of dollars going out (expenses). 3. Remember that money we bill our customers for services we provide them is not money received and in the bank, and available to pay bills. 4. It may take us weeks if not months to actually get paid. 5. Your accountants track every accounts payable (people you owe money to) to make sure they get paid timely or they will cut off any future credit to you. 6. Businesses run on credit. Your food supplier (SYSCO) is on the hook for tens of thousands of dollars in food products it ships to you each month with terms that payment is due within 30 days. 7. Your pharmacy supplies tens of thousands of dollars in drugs to you each month, and your medical supplies vendor provides you tens of thousands of dollars each month in supplies that it acquired through credit from its suppliers. 8. We do not pay for these items in advance. We purchase them on credit. 9. Our vendors purchase the items they provide you on credit and they need to get paid by their customers timely so they can pay their suppliers and stay in business. 10. Working Capital is current assets – current liabilities. We are subtracting and not dividing). Therefore 11. this is not a ratio but it is an important tool to calculate the actual dollar amount you have available to pay bills or fund critical capital projects. 12. Quick Ratio or Acid test ratio - (most liquid assets) (cash + accounts receivables + market securities) divided by current liabilities. Note: we are dividing here so this is a ratio. We are dividing our most liquid money resources by our current liabilities. This formula identifies assets that can be turned into cash within a few days. 13. Current Ratio – (current assets divided by current liabilities). This tool is a ratio or a number that represents a company’s financial power to pay its debts. Unlike the formula for working capital, here we divide instead of subtract our current assets by our current liabilities. The preferred ratio is 2:1. Which means that a company will ideally have 2 dollars of equity for every dollar of debt. So a company with $1 million in liabilities would ideally have $2 million in assets. However, a company with a lower ratio (i.e. 1:1 or 1.2:1 may also be acceptable). Below 1.0, a company may have problems paying its liabilities. 14. Debt to Asset Ratio – Total liabilities divided by total assets. This is an important ratio because this time we are looking at total debt (current and long term debt) and total assets (current and long term assets) and identifying what percentage of our operations is financed by debt. The ideal ratio of total debt to total assets is less than .50 (50 percent) or less of our total debt. This means that a company with $2 million is total assets would have no more than $1 million in debt. 15. Percentage of Gross Profit Ratio – This ratio is used to calculate what percent of your earnings is profit after you deduct operating expenses and this yields your gross profit. For instance: calculate your gross profit on revenues of $40,000 with fixed expenses of $17,000 and variable expenses of $13,000 You solve this equation by add $17,000 + $13,000 = $30,000 then divide $30,000 by $40,000 = 25% Your gross profit is 25% ($10,000 x 4 = $40,000) This ratio measures your efficiency since it takes you $1 to produce $4 Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 17 of 34 16. Common Interest Formula – We do not use this formula very often but it is easy to solve. We need to calculate the first month’s interest payment given a set of facts. If we had an $80,000 loan at 9% interest for 10 years and paid only interest in the first year, what would be the interest payment for the first month Amount of loan x interest rate / 12 months For example, $80,000/10 years = $8000 in principal a year. The first year interest would then be $80,000 x 9% = $7200. Again we need to know what the first month’s interest payment so we would write the check for $600 ($7200 annual interest /12 months = $600 interest per month) 17. Average Percentage of Occupancy 1. You must know how to calculate your percentage of occupancy, which is easy. DIVIDE THE NUMBER OF OCCUPIED BEDS BY THE NUMBER OF TOTAL BEDS AND MULTIPLY BY 100 PERCENT 2. Daily occupancy rate - You report your vacancy and occupancy rate as a percentage. If you have a 100 beds and 80 beds are filled, your occupancy rate is 80% (80/100). Your vacancy rate would obviously be 20 empty beds or 20%. Average Monthly occupancy rate - We track numbers on a monthly basis and your census goals are set on a 30 day basis. If you wanted to calculate your average daily occupancy rate for June, you would just need to know the number of available beds and the total resident days (how many beds were filled) for the month. For instance a facility with 150 beds has total of 4500 available resident days (150 x30). If you actually had 3500 resident days in that month then you averaged 118 residents a day. (3500/30 = 118). Now you know how many residents you had on average each day that month. You still need to know what percentage of your available beds (150) were filled each day. The simplest way to do these calculations is by the 10% rule. You can solve this in seconds. Take the total number of beds and write down these percentages on your dry erase board during the exam. Write out the percentages first and then solve the problem: 10% of 150 = 15 5% of 150 = 7.5 (15/2=7,5) 2.5% of 150 = 3.7 (7.5/2=3.7) 1.5% of 150 = 1.8 This will take 5 seconds and avoids complicated division and multiplication Next, calculate the vacancy rate: 150 - 118 = 32 vacant beds. You had approximately 32 empty beds. Since your vacancy rate is a smaller number we will calculate that first. Looking at the numbers above we know 10% = 15 beds 10% = 15 beds So 20% equals 30 beds but I need to get to 32 vacant beds total. I can see that 2.5% is roughly 3.7 so 22.5% gets me to 33.5. I can approximate that my vacancy rate is Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 18 of 34 approximately 21% to 22%. Therefore my occupancy rate would be 100% - 22% (vacant beds) = 78% occupied beds I can check the answer by 150 x .78 = 117 so it is between 78 and 79% Let’s say you have a total of 100 beds. That is not only the total number of available beds, it is also your total potential income as well. For instance, if you earn an average of $300 for each bed per day, then your income potential would be $300 x 100 beds = $30,000 a day x 30 days = $900,000 a month in potential income. Every empty bed costs you money. 18. Average Percentage of Weight Loss 1. The formula is usual weight – actual weight / usual weight x 100 2. Residents are regularly weighed by the nursing staff to identify nutritional problems. We compare their current or actual weight to the last weight recorded (Usual weight) A significant weight loss is more than 5% in one month, 7.5% in 3 months and 10% in 6 months. Here is a typical case Weight checks for Resident Sally Jones: Date Jan 1, 2008 Jan 9, 2008 Jan 17, 2008 Jan 28, 2008 Weight 160 Lbs 159 Lbs 156 Lbs 153 Lbs +/Baseline weight -1 -4 -7 In January this resident loss a total of 7lbs 160-7 = 153 lbs using 10% rule 10% of 160 = 16 5% of 160 = 8 This resident lost 7 pounds in 1 month. A significant weight loss for 1 month is 8 lbs. Missed triggering a significant loss by 1 pound 19. Nursing Staffing hours Per Person Per Day 1. This is one of the most critical formulas you need to know. It is also very simple. It is just that most people use staffing sheets that do the math for them. However, as the administrator, you must check your staffing several times a day to ensure that you meet min staffing requirements. You cannot trust that your charge nurses are on top it. Almost every state sets the minimum hours of nursing and nurse aide time they must be provided each day. On average, it looks like this: Licensed nursing: 1 hr per day per resident Nurse Aide: 3 hours per day per resident. The number of residents in the facility x hours needed per resident Hours of direct care provided per nurse or nursing aide For the purposes of our practice questions we will use 8 hours per employee per shift. So if we have 110 residents physically in the facility then we would need the following number of nurses and nursing aides that day. Nurses: 110 x 1 hr per resident = 110 hours/8 hours per nurse = 13.7 nurses or approx 14 nurses Nursing aides: 110 residents x 3 hours per resident = 330 hours/8 hours per nurse aide = 41.25 or 42 aides Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 19 of 34 20. Cost per Person Per Day for Food The formula is Total Food Cost Expenses = Cost per Person Per Day Total Resident Days You must track your food costs on a daily basis. You are given a total budgeted food cost per person per day that is usually $5 per day. Food is a controllable cost and you and your dietary manager need to know how to track that cost and adjust accordingly if census falls. Corporate tracks that cost very carefully The formula to calculate person per day for food is Total Food Expense = PPD Total resident days If you spent $15,000 in June for food and had 3000 total resident days then you spend $4 per person per per day 15,000 = 5 3000 You would check the answer by multiplying $5 by 3000 = $15,000 21. Cost per Person Per Day for Operating Expenses (Total expenses) 1. The formula for food cost per day is the same for all PPD calculations. You are simply dividing your total cost by the total resident days. The formula is Total Expenses Total Resident Days 2. For instance if you spent $20,000 on nursing supplies in a given month and had 3000 resident days, you spent an average of $6.66 per person. (20,000/3000=6.66) You can check the answer by multiplying 6.66 by 3000 = 20,000. (I would round up to 7 and do 7 x 3000 = 21000. it is close enough. We deal mostly with approximations 3. 22. Medication Error Rate – The equation is: number of medications not administered plus the number improperly administered opportunities for error (total medications administered) A facility is allowed a medication error rate of 5% You may be asked to identify the correct formula or solve an equation If 100 doses where administered and 5 were given to the wrong person and 5 were not administered at all. What is the medication error rate? 5 +5 = 100 10 or 10% 100 23. Employee Absentee Rate Lost work days Total number of employee worked days s Where you have 220 full time employee who worked a 30 period and had 90 lost work days, what is the absentee rate? First, find total days worked = 220 x 30 days = 6600 days Total lost work days = 90 days Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 20 of 34 6600 90 You can solve this problem quickly using the 10% rule 10% of 6600 = 660 5% of 6600 = 330 2.5% of 6600 = 165 (still too high) 1.5% of 6600 is approximately half of 165 or 85 which is closer to 90. The absentee rate is approximately 1.5% We deal in approximations 24. Straight Line Depreciation – A $20,000 car with a $2,000 salvage value would be depreciate at $300 per month $20,0000 -$2000 = 18,000 = 3600 per year /12 = $300 a month in depreciation 5 years 5 25. Overtime Rate – An employee works 52 hours in a one week work period at a rate of $8.00 per hour. What would be total gross salary including overtime pay? 40 hours x straight pay = 40 x $8.00 = $320 12 hours x time and a half = 12 x $12 = $144 Total pay = $464 26. Payback Period The payback period for an investment of $60,000 with an annual savings of $3000? Amount of investment = Pay Back Period Annual savings 60,000/3000 per year = 20 years 20 x $3000 = $60,000 It will take 20 years for this investment to pay back the original investment cost 27. Employee Turnover Rate Number of Employees Terminated d Number of Employees Employed Throughout the Year A facility employed 150 employees throughout the year and 15 employees had been discharged and 5 Resigned by year end. What was the approximate annual turnover rate? 20 = ,13 or 13% 150 28. Fixed salary Cost – To check the answer 150 x .13 = 19.50 or approx. 20 workers A nursing home with 100 beds pays the administrator $90,000 a year. The current occupancy rate is 80%? What is the administrator’s approximate fixed salary cost per resident day? Since this is an average computation, we can run the numbers for one month even though it asks for annual cost. 100 beds x 80% = 80 residents per day average occupancy. Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 21 of 34 The total expense is $90,000. We need to reduce this to a monthly basis. 90,000/12 months = $7500 a month $7500/30 = $250 a day. We are spending $250 a day on 80 residents Our cost per day is 250/80 = $3.12 per resident per day If we check the answer we spent $3.12 x 80 = $24.96 This is an approximate answer 29. The average number of days to collect money is 58 days – more than that is not good SECTION 10 - ACCOUNTING SYSTEMS 10.1 - ACCOUNTING SYSTEMS 1. There are two types of accounting systems: 2. Cash Basis Accounting a. Transactions are recorded only when cash actually changes hands (i.e., an expense is only recorded when paid and revenues are recorded when payment is received) b. Only 1% of nursing homes use this system because Medicare requires books to be kept on an accrual basis; or 3. Accrual Basis Accounting a. Transactions are recorded when revenues are earned (not actually paid but when services are rendered and expenses recorded when incurred and not when paid b. Main purpose of accrual system is so Medicare can match revenues and expenses when they are incurred to determine actual expenses for services provided. c. Under the cash accounting system, actual payment for services is received from customers months after the service is provided and bills may not be paid by a facility for months after an expense is incurred d. Accrual system accounts for depreciation, accounts payable and receivables SECTION 11 - DEPRECIATION 11.1 - DEPRECIATION 1) Assets lose value over time (use, wear and tear) and a business must adjust its books to account for diminishing value (depreciation) of its assets to more accurately calculate the value or net worth of a business 2) The IRS mandates that each asset have a depreciation schedule and that the asset be gradually devalued during its useful life (i.e. vehicles must be depreciated over five years0 3) A capital asset is an asset that is worth more than $500 and has a useful life of more than one year and will not be converted to cash within 12 months of purchase 4) Capital assets include land, buildings, equipment, goodwill, trademarks 5) A for-profit business can deduct depreciation expenses which include the cost of purchase, shipping, installation (one time costs) (interest is not depreciable) 6) Businesses receive a tax deduction for depreciation to encourage them to set aside money each year to eventually replace the asset at the end of its useful life 7) Only 10% of facilities actually fund capital costs by setting aside monies each month to fund replacement/repair costs 8) Most firms use the tax deduction for depreciation to pay for other expenses and not for capital asset replacement 9) Renovating an asset is a depreciable expense 10) Repairing damage to or regular maintenance of an asset is not depreciable 11) Depreciation is an expense associated with the use of an asset Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 22 of 34 11.2 - DETERMINING DEPRECIATION EXPENSE 1) 2) 3) 4) 5) 6) 7) 8) 9) Historical Cost – The cost to acquire an asset depreciated over several years Historical costs includes purchase price, taxes, shipping, delivery, installation Useful life – Number of years an asset can be expected to be used Salvage Value – Value of an asset at the end of its useful life Straight-line depreciation – The historical cost of an asset is spread evenly over its life (i.e., a $20,000 truck has a useful life of 5 years would be depreciated at $4,000 annually. The truck can then be sold for salvage value or kept on the books at it salvage value at the end of 5 years but depreciation can no longer be deducted Book value - of an asset is the cost of an asset minus depreciation (i.e., the book value of a $20,000 truck after 1 year is $16,000 Accelerated Depreciation – Most of the depreciation expense is written off in the first years of an asset’s life. This allows a business to buy newer equipment faster Sum-of-the-years-digits and double-declining-balance are types of accelerated depreciation Purpose of Depreciation – Recognizes assets lose value and reflects true value on books and allows business to fund capital asset replacement over time 11.3 -DEPRECIATION SCHEDULES 1) Must maintain a depreciation schedule for each asset 2) You can use more than one depreciation schedule for an asset 3) The IRS and manufacturers publish depreciation schedules 11.4 - ACCOUNTING FOR DEPRECIATION 1. 2. 3. Depreciation is entered each month into the general journal The monthly depreciation expense on a $20,000 truck is $333 ($20,000/5 years= $4000 annually/12) Fixed assets – land buildings, major and minor movable equipment SECTION 12 - COST FINDING 12.1 - COST FINDING 1. 2. 3. 4. 5. 6. Cost finding is the process of allocating costs to traceable sources ad identifying true costs Cost finding is used to determine whether to continue a particular service Costs are one of the few components of operating a facility that the administrator has control over Of all costs, labor costs are the largest costs and one under control by the administrator Costs are a component of input Efficiency – Amount of input (money, supplies, labor) used to attain or produce a certain level of output 12.2 – Fixed Costs 1. Fixed cost – Does not fluctuate due to resident census (mortgage, administrator salary) 2. Total fixed costs – A fixed cost that changes per volume – a fixed cost decreases in cost as volume increases 12.3 – Variable Costs 1. Variable cost – Fluctuates directly with resident census (number of meals, nursing staffing that night) 2. Total variable cost – Unit cost does not change as patient volume increases – a $1.00 band aid is the same cost no matter how many patients 12.4 – Semi Variable Costs 1. Semi-variable cost – Has both a fixed cost and variable cost component (electric bill – set cost per wattage but total wattage cost fluctuates with use Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 23 of 34 12.5 - Allocating Indirect costs – 1. Step down method – systematic allocation of all cost centers (i.e., nursing, administration, maintenance use laundry services and the laundry costs are allocated to these other cost centers) 2. Reciprocal Method SECTION 13 - REVENUE/COST CENTERS 13.1 – REVENUE CENTERS 1. 2. 3. 4. 5. Revenues are a component of output/outcomes Revenues are subject to competition and regulation Units or departments that generate revenue are revenue centers Nursing usually generates most revenues (nursing, rehab, drugs) Substantial earned interest can be considered revenue 13.2 - COST CENTERS 1. Cost centers are units identified with certain costs 2. Revenue centers are also cost centers 3. Administration, maintenance, housekeeping and dietary are cost centers – they do not generate much revenues that can be billed directly to customers since the per diem rate includes those services 4. Telephone, insurance and interest expense are cost centers 13.3 - DIRECT COSTS 1. Direct costs are directly attributable to a revenue center 2. Direct costs are also called resident/patient care costs 3. Direct costs includes salaries, payroll taxes, benefits 13.4 -INDIRECT COSTS 1. Indirect costs are not directly attributable to a revenue center 2. Indirect costs are also known as support service costs (laundry, admin) 3. Indirect costs includes maintenance, dietary and laundry services 13.5 - SUPPORT SERVICE COSTS 1. 2. 3. 4. 5. Support service costs are costs not directly reimbursed by Medicare and Medicaid Administrative costs are not reimbursed. Social services are not directly reimbursed and must be paid for from other reimbursable services Revenue centers are also cost centers Administration, maintenance, housekeeping and dietary are support service costs and cannot be billed directly to customers since the per diem rate includes those services 13.6 - RECIPROCAL METHOD 1. The reciprocal method of cost finding is used to identify reciprocal services between cost centers 13.7 - RATE SETTING 1. Rate setting establishes the basis to set rates for services 2. Once the costs for the revenue centers are identified, service rates can be developed to recover those costs and provide a profit margin SECTION 14 – BUDGETS 14.1 - OVERVIIEW 1. 2. 3. 4. 5. Financial Budgets require examination of internal and external factors (environment) affecting facility Budgets reflect the administrator’s long term and short term goals Budgets should be reviewed monthly and used throughout the year Budgets are revised as conditions require Budgets provide a comparison between projected and actual results Copyright © 2005-2012 by Stan Mucinic. All rights reserved 24 of 34 6. 7. 8. 9. Budgets are prepared by top management Organizational goals are the basis for budget preparation Budgets are the facility’s strategic plans Budgets are used to plan and control facility operations 14.2 -BUDGETING APPROACH 1. Top Down – Budget prepared by administrator/corporate with no input from dept heads 2. Participatory – Budget developed by dept heads and fine tuned by administrator a) Dept heads more likely to budget if they have input 14.3 – FIVE STEP BUDGET PROCESS 1. Assess internal and external environment a) Increased/decreased competition b) New competition c) Available labor pool 2. Programming a) A contingency plan prepared by the administrator that anticipates internal and external forces (extra money in budget for salary increases – inflation) 3. Operating budget a) Operating budget includes both an expense budget and a revenue budget: 1. Expense Budget – lists expenses and capital needs for coming year a. Projects expenses by: 1. 2. 3. 4. Increase all expenses by 10% Identify specific trends Analyze prior expenses and Identify all costs Use checklists to identify costs 2. Revenue Budget – a. Projects revenue from the coming year 3. Variance Analysis a. b. c. Compare actual to projected results Any significant variance must be investigated and corrected Main reason for over spending is use of agency personnel 4. Cash budget a) b) c) d) Estimate of inflows and outflows of cash for next 12 months Cash budget is prepared from expense and revenue budgets Need cash budget to ensure adequate cash flow to pay bills Outflows easier to predict then when customers will pay bills 5. Capital budget a) Summarizes all anticipated capital expenditures b) Capital asset has a useful life of more than 1 year and costs more than $500 14.4 - TYPES OF BUDGETS 1. Operating Budget- sets revenue targets and limits on expenses 2. Cash Budget- tracks cash flows 3. Capital Budget – lists specific capital purchases and repairs Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 25 of 34 14.5 - PRO FORMA FINANCIALS 1. The budget concludes with the pro forma financials 2. Pro forma financials are preliminary financial statements based on budgeted amounts derived from operating budget SECTION 15 – PAYROLL 15.1 - OVERVIEW 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Payroll is a bookkeeping function Should distribute paychecks to employees in person Should issue stop payment on checks not cashed in reasonable time All paychecks should have 2 signatures The person preparing payroll checks should not issue their own check Payroll is the largest source of cash outflow Payroll is the single largest expense Payroll accounts for 50% of total costs Payroll is a controllable cost The payroll journal lists all paychecks distributed to employees At the end of each month payroll expenses are transferred from the payroll journal to the general ledger Must document hours worked by each department for reimbursement Must maintain separate bank account for payroll 15.2 - PAY RATES 1. 2. 3. 4. Gross Pay – Multiply hourly rate by hours worked Net Pay – Gross pay minus all deductions Overtime Pay – Multiply regular rate by 1 ½ Payroll taxes withheld from paychecks (i.e., FICA, Medicare, income taxes) are deposited quarterly into a bank account in the name of the federal government SECTION 16- RESIDENT TRUST FUND 16.1 - RESIDENT TRUST FUND 1. 2. 3. 4. 5. The facility must have a signed contract whenever a facility takes possession of resident property The contract creates a trust relationship between the facility and a resident Should manage cash and place other property in care of family Funds held in trust should be recorded in a separate book from other accounts A signed receipt issued to a resident for any property held in trust is kept in resident funds book SECTION 17 - CASH HANDLING 17.1 - CASH HANDLING 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Resident funds should be kept in an account separate from facility funds Do not maintain more than $500 in the facility petty cash All cash should be handled by 2 employees who are bonded Stamp all checks “deposit only” Make daily list of all cash and checks received One copy of the list is given to the person who makes the deposit The person who makes up the deposit slip should not also make the deposit A person who makes a cash payment must be given a receipt Cash receipts are recorded in the cash receipts journal and the patient’s Accounts Receivable account At the end of the month the cash receipts journal is posted to the general ledger SECTION 18 - ACCOUNTS PAYABLE 18.1 - ACCOUNTS PAYABLE 1. Accounts payable are monies owed by the facility to creditors and vendors 2. Make a separate file for each vendor Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 26 of 34 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. File a copy of any purchase order in each vendor file Staff must check goods received against invoices to ensure everything was delivered The receiving slip is then filed in vendor file The vendor then sends an invoice that demands payment for goods delivered Check the final invoice against the purchase order and receiving slip Invoices customarily are paid within 30 days Checks should be signed by 2 people Payments are recorded in the cash disbursements journal Invoices are stamped paid and placed in the vendor file Keep purchase orders, receiving slips and invoices for 1 year Claims for reimbursement may be rejected for the following reasons: a) b) c) d) Medicare claims must be submitted to a fiscal intermediary Ancillary charges must be itemized Incomplete claims are rejected and returned Late claims may be rejected entirely SECTION 19 - PATIENT CENSUS REPORT 19.1 - PATIENT CENSUS REPORT 1. Patient Census Report – The billing office prepares the patient census report from the patient census form (midnight report) that is filled out by nursing staff after 12 AM to certify which patients are officially in the facility 2. The Census report is used to determine routine resident charges (per diem charges) 3. Routine charges are then transferred to the patient accounts 4. Payor sources demand timely and accurate billing 19.2 – MEDICARE/MEDICAID BIILLING 1. Medicare requires a separate bill for each Medicare patient to be submitted to a fiscal intermediary who processes the claim 2. Medicaid requires one composite monthly bill for all Medicaid patients 19.3 – RESIDENT CENSUS FORM 1. The nursing department takes a census each night at midnight to verify who is residing in the facility and notes the number of admissions, discharges, transfers and bedhold. The forms is used by the business office to prepare the resident census report SECTION 20 - FINANCIAL CONTROL SYSTEMS 20.1 - FINANCIAL CONTROL SYSTEMS 1. 2. 3. 4. 5. 6. 7. Financial controls refer to systems that identify problems when they occur Must establish policies for all business office functions No one person should have complete responsibility for any one financial function One person should start a task and another finish it Make employees take periodic vacations Financial controls are designed to discourage and detect employee theft No one should sign their own paycheck SECTION 21 - ACCOUNTS RECEIVABLE 21.1 - ACCOUNTS RECEIVABLE 1. 2. 3. 4. Must bill patients to collect money A delay in billing equals lost money (i.e., interest) Admissions based partially on financial considerations If a patient is not paying with their own funds, then have the responsible party paying the bills sign an agreement agreeing to pay the bills from the resident’s assets Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 27 of 34 5. Screen all potential patients for payor source and financial resources 6. Anticipate when patient eligible for Medicaid and ensure timely filing of application to ensure continued care 7. Collect charge slips for services daily 8. Room, board, housekeeping included in per diem or routine charge 9. Beauty salon, therapy and phone charges are ancillary charges and are no included in the per diem rate 10. Maintain a patient ledger card for each patient listing room number, daily rate 11. Charity Care - Services provided to individuals who cannot afford to pay must be written off as charity care SECTION 22 - DEBT COLLECTION 22.1 - DEBT COLLECTION 1. 2. 3. 4. 5. Use diplomacy when collecting a debt Make special accommodations when valid reason for missing payment Write off uncollectible debts by documenting and reporting on financial statements Difficult to put patient out on street for failure to pay bills “Bad debts’ – resident accounts past due and subject to collection SECTION 23 - INVENTORY CONTROL 23.1 – PURPOSE OF INVENTORY CONTROL 1. 2. 3. 4. 5. 6. 7. Inventory comprises 30-40% of facility budget Cycle counting is performing a daily inventory Inventory control is needed to measure the amount and type of supplies Inventory control discourages pilfering Inventory control allows keeping supplies at optimal levels and avoid overstocking Overstocking may result in opportunity costs (money unnecessarily tied up in inventory) Maintains balance in supplies 23.2 – TERMINOLOGY 1. Just-in-time inventory keeps inventory in vendor warehouse and vendor delivers supplies just before they are needed to avoid costly stocking 2. Economic Order Quantity – Optimum amount of materials needed to be ordered on a regular basis 3. Materials Requirements Planning – reduce the need for excessive inventories of supplies by analysis of product/supplies needs and lead ordering time 23.3 – INVENTORY METHODS 1. Two types of inventory methods: 1) perpetual and 2) periodic 23.4 – PERPETUAL INVENTORY 1. 2. 3. 4. 5. Perpetual Inventory begins with initial inventory and then monitor monthly Most precise system or inventory method Beginning inventory – complete physical count start of year Inventory received – keeps running count of supplies Total available inventory – available supplies from initial inventory and subsequent inventories 23.5 – PERIODIC INVENTORY 1. Involves an annual physical inventory 23.6 – INVENTORY MANAGEMENT PROCEDURES 1. Should store supplies in locked storeroom with controlled access 2. Inventory should be delivered to store rooms as soon as it arrives 3. Supplies should be distributed throughout facility to allow ready access 4. Make one person on each shift responsible to control access to supplies 5. Smaller facilities may use small store rooms instead of large central room 6. Source documents include receiving slips and requisition slips for perpetual inventory Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 28 of 34 7. If a physical count does not match inventory then there may be pilferage 8. The facility should standardize the type of supplies used throughout facility to lower costs SECTION 24 – INVENTORY COSTINIG 24.1 – FIFO 1. FIFO – First in/First Out 2. FIFO assumes the supplies most recently purchased are more expensive than the supplies purchased earlier 24.2 – LIFO 1. LIFO – Last In/First Out 2. LIFO assumes last supplies purchased (most recent) are used first lowering the value of remaining supplies since most recent supplies would be most expensive and consumed first 24.3 – ADJUSTING FOR INFLATION 1. In times of high inflation, the lower priced inventory is used first 2. In times of low inflation, the higher priced supplies are used up first and less costly supplies remain in inventory 3. Facility must choose either LIFO or FIFO method and use it consistently 4. Inventory costing method must be noted in notes to financial statements 5. inventory is valued at latest cost 24.4 –BUSINESS INSURANCE PROTECTION General Liability Insurance – Insurance damage to property and injuries to visitors in facility Malpractice Insurance – insures against injuries to others due to professional malpractice Burglary Insurance – insures losses due to burglary and theft Officers and directors Insurance - insures officers and directors who are sued for actions taken in their position as a officer or director of the company – pays legal fees and any money judgments 5. Business Interruption Insurance – pays for lost revenues each day a business cannot operate due to a disaster other reason beyond the owners control 1. 2. 3. 4. 6. Automobile Insurance – insures autos for property damage or bodily injury 7. Property insurance – covers damage from storms and fire to building 25,1 – MISCELLANEOUS TERMS Term Definition Accounts Receivables Over 90 days Accounts receivables over 90 days need to be written off Agency One person acts on behalf of another and can bind the person being represented Affidavit A written statement signed and notarized Appeal An appeal is where a decision by a court is reviewed by an appellate court or higher court to determine if the judge made the correct legal decision Articles of Incorporation This is a document that is filed with the state and forms a corporation Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 29 of 34 Arbitrator An alternative way to resolve disputes by having a third party impose a resolution to a problem that is binding on both parties and cannot be appealed. The arbitrator's decision is final Arraignment A proceeding where the accused is formally charged with a crime and required to either enter a guilty or not guilty plea Attachment A court order to seize a debtor’s assets to pay a debt Bankruptcy The inability to pay one’s debts Beneficiary A person named in insured policy to receive policy proceeds Bond Brand mark Corporations raise money by issuing bonds that guarantee an investor a specified amount on a specified date. Usually the investor purchases a bond at discounted rate and For instance an investor may purchase a 5 year $100 bond for $80 that will mature in 5 years and pays 5% interest per year. In five years the company must redeem the bond and pay $100 face value and also the interest each year as required, A bond is a debt of the company Logo or symbol that identifies a business Brand name Name that identifies a business Bylaws A document that specifies how a corporation is to be governed and sets forth the officers and directors, place of business, outstanding share of stock Capital Amount on the balance sheet that represents ownership in a business Cash equivalents Any asset can be easily converted to cash is a cash equivalent Centralization Involves micro-managing a business with decision making power held at the top levels Chapter 7 Bankruptcy The debtor’s assets are liquidated or sold to pay creditors and remaining debts are discharged Chapter 11 Bankruptcy The debtor ‘s business is placed under protection of a bankruptcy court and continues in business as they pay back their debts The debtor’s business is run by a trustee Chapter 13 Bankruptcy The debtor is allowed to setup a payment schedule where a set amount of money is deducted from their income on a regular basis until the debts are paid off Codes Codes are where regulations are published Commercial paper commercial paper is an unsecured promissory note with a fixed maturity of 1 to 270 days. Commercial Paper is a money-market security issued (sold) by large banks and corporations to raise money Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 30 of 34 Common Stock Common stock shareholders are essentially the last to get paid in the event a company is liquidated. Complaint and Summons A civil case is started by filing a complaint with the court clerk and serving a summons on the defendant giving them notice that they have been sued Convertible securities A convertible security is a security that can be converted into another security, for example, a bond that under certain terms can be converted into equity or stock Corporation A corporation is an entity created by law that has perpetual existence, limited liability for officers and shareholders C Corporation A C corporation is double taxed Copyright Right to use intellectual property owned by a business Debenture A debenture is a certificate issued by a company acknowledging that it has borrowed money on which interest is being paid. It is an unsecured corporate bond or a corporate bond that does not have a certain line of income or piece of property or equipment to guarantee payment to the investor. Decentralization Delegating decision making to front line managers and increasing efficiency Default A failure to perform an obligation – (fail to make payment on a note or loan and you default Deposition Testimony taken under oath Directed Verdict A verdict directed from a judge Felony A felony is violation of federal criminal law Garnishment Money is taken out of a debtor’s paycheck by the employer and turned over to a creditor There are several types of insurance policies 1. Professional/malpractice for claims where patients are injured because of negligence of staff, 2) general liability that covers a facility for injury or damage to visitors and third parties, 3) business interruption insurance that covers lost income due to some event that closed the business, 4) boiler insurance that covers for damage done by a boiler that explodes 5) Property insurance that covers for wind or water damage to a facility 6) auto insurance that covers for damage to vehicles Insurance policies Interrogatories These are written questions that must be answered under oath Judgment A judgment is the final decree of a court Letter of Credit or Line of Credit A letter of credit is a revolving line of credit that a company can draw down and repay. A letter of credit is critical Libel To write or publish something that is untruthful and hurts another person's reputation Lien A lien is recorded in the public records and is notice to other creditors that they have a priority in being paid a debt owed to them over other creditors in the event the company is bankrupt and is liquidated Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 31 of 34 Liquidity Assets exceed debts Magistrate A local judge as opposed to a judge in the state or federal court system Mediator An alternative way to resolve disputes by having a third party (mediator) help the parties to a dispute to find a solution without imposing any resolution on the parties. The parties must mutually agree to the outcome Medicaid rule A Medicaid resident to be eligible for coverage in a nursing home cannot have more than $1860 in monthly income from all sources, cannot have more than $2000 in assets, must be advised when their trust fund reaches $1800 or $200 within the SSI limit of $2000 Misdemeanor A violation of state criminal law Mission Statement Describes the purpose of a corporation Mortgage A mortgage is the transfer of an interest in property to a lender as a security for a debt - usually a loan of money. While a mortgage in itself is not a debt, it is the lender's security for a debt. It is a lien recorded in the public records and gives the lender a priority interest in the mortgaged property and the lender collects before anyone else if the property is sold. Motion A document filed with a judge that requests the judge to take a particular action in a pending case Municipal bonds These are bonds issued by a municipality Ordinance A law passed by a municipality Original jurisdiction Trial courts have original jurisdiction because they hear a case first before it can be appealed. Appellate courts do not have original jurisdiction. Appellate courts can only review an issue of law and not any factual issues. Partnership A partnership is an arrangement where individuals own a business and where the partners can bind each other partner and there is unlimited liability for each partner Pleading A formal statement filed with the court Preferred Stock The preferred share holders have a priority claim to be compensated in the event the company is liquidated Privately held corporation A company that is owned by a small number of individuals who own all of the outstanding shares of stock of the company Promissory Note A promissory note is a promise to repay a loan at a set interest rate. Public Corporation A corporation that is formed by a governmental entity Qualified Opinion An opinion where an accountant that qualifies or explains some limitation or problem in doing a full audit – (i.e., missing important documents Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 32 of 34 Que Time The time to turnaround a bed for the next incoming patient Regulation A rule passed by an administrative agency. An administrative agency is established to implement a law. For example the Department of Motor Vehicles was established to implement the laws regarding the operation of a car. Reverse Stock Split At times a company's stock value may slide and they may reissue stock to decrease the number of outstanding shares and increase the value of each share. So if you have 1000 shares issued and the value has slipped from $50 to $10, the company can reverse the stock split to reduce outstanding shares and for every 2 shares worth $10, the each investor now holds one share at $20 per share S Corporation “S” corporation is a corporation that chooses to pay taxes as a partnership Search warrant A court order that authorizes law enforcement to search a residence or business for specific evidence Shall Means mandatory or must Slander To say something to that is untruthful about another person that results in damage to their reputation SSI SSI benefits are benefits under social security for people under 65 who are disabled and have worked 40 quarters (one quarter is 3 months) or 10 years and would be eligible for Medicare if they reached 65. SSI is critically important because it entitles under aged individuals who are disabled insurance coverage for skilled medical care. You need to understand this payor source and screen underage residents for SSI eligibility Otherwise they may not have any other coverage Stare Decisis Means let the decision stand or let this case be precedent for all future similar cases Statute A law passed by a state legislature or the Congress Statute of limitations Limits the time you can bring a lawsuit Stock Split When a company's stock reaches a certain dollar amount (i.e. Microsoft at $200 a share, the company will split each shares in 2, and revalue each share at $100 each. That makes the stock more affordable and attractive to investors) Sole Proprietor An individual who owns a business that ends if he or she dies and has no limited liability like a corporation Subpoena A subpoena is a court order for records or for an individual to appear to testify at a court proceeding US Constitution The law of the land Verdict The final decision of a judge or jury in a case Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 33 of 34 Financial Copyright © 2005-2012 by Stan Mucinic. All rights reserved 34 of 34