Discussion Questions and Practice Problems

Code Blue

Instructors Edition—

Discussion Questions and Practice Problems

without Answers

Third Edition

Discussion questions and practice problems are organized by chapter. Due to the textbook/novel nature of Code Blue, not all chapters have questions or problems.

Chapter One

1. Hap Castleton and Del Cluff have different management styles, and this has caused some friction in their relationship. As assistant controller, what might Del have done to improve his credibility with Castleton?
2. What message is conveyed when employees refer to accountants as “bean counters”? Why do you think accountants have such an unfavorable image with some managers? What might they do to change this?

Chapter Two

1. What is the role of the Finance Committee in a hospital?
2. What is the role of the president of the medical staff in a hospital?

Chapter Three—Including Supplement One

1. Wycoff firmly believes in the diversification of management teams. Do you agree with him? If so, what factors would you look for in diversification?
2. How is it possible that hospitals didn’t know the costs of their products? Without accurate procedure costs, how did they determine prices?
3. What is a prospective payment system, and how did it change the need for cost accounting?
4. Evaluate the incentives for cost control under cost reimbursement and prospective reimbursement.
5. Do you believe there are any down sides to incentive reimbursement in healthcare?
6. What is the difference between a financial accounting system and a cost accounting system?
7. A cost objective is defined as a function, organizational subdivision, contract, or other work unit for which cost data are desired, and for which provision is made to accumulate and measure the costs of contracts, products, etc. A final cost objective is a cost objective that has allocated to it both direct and indirect costs and is one of the final accumulation points. What were the final cost objectives under cost reimbursement? What would you speculate they might be under prospective reimbursement?
8. What problems was the lack of a cost accounting system causing for PeterBrannanHospital?
9. What is the difference between DRG and Capitation Payment reimbursement systems?
10. How a manager does something is often as important as what he or she does. Assuming Selman needed to be terminated, do you agree with the manner in which it was done?
11. Is there anything that Wycoff might have done to make Douglas’s transition into his new position less difficult?

Chapter Four

1. Why didn’t Douglas agree to meet with Ulman personally? Do you agree with his decision?
2. Is it appropriate for a board member to assume line responsibility in an organization?
3. The employees’ initial impression of Wes Douglas is not favorable. Why? Is his image that important given the hospital’s current situation? If you were the new administrator, would you do anything at this point to change the situation? What?

4.Wes refused Wycoff’s offer of help? Evaluate the strengths and weaknesses of this approach. What would you do in this situation?

1. Prioritize the employees’ complaints in order of importance. Which would you work on first?

Chapter Five

1. How important is the credibility a CEO has with the bank? As CEO of Peter Brannan Hospital, what would you do to build credibility?
2. What do you think about the bank’s requirements for a line of credit?
3. What are the advantages and disadvantages of having a board member guarantee the hospital’s line of credit? In this situation, did they have any choice?

Chapter Six

1. What is the danger of asking a supervisor to prepare a budget and then cutting it without the supervisor’s input? Is there a better way for management to reduce an unacceptable budget?
2. The supervisors’ complain that the Controller’s Office doesn’t have a service orientation. List the Controller’s Office customers. Why are some accountants not more service oriented? How important is it for the employees of the Controller’s Office to interact with employees outside of their own department?
3. Many accountants erroneously assume that the users of their statements have the ability to read and analyze these reports without additional explanation or training. What role must the Controller’s Office play in educating the people who use management reports?

Chapter Eight

1. Karisa Holyoak thinks Wes Douglas is in over his head. What is your opinion? Given Wes Douglas’s professional situation, do you think he should have accepted the interim appointment?
2. Assume you are the new interim administrator with the same background as Wes Douglas. What would you do to educate yourself?

Chapter Nine

1. What conditions must exist for a free market? Which of these were lacking in the traditional healthcare industry? Why?
2. Do consumers shop on the basis of price in most industries? Why didn’t they shop on the basis of price for healthcare?
3. What factors mitigate against unnecessary capacity in most industries? Why didn’t these same factors prevent the duplication of expensive facilities and equipment in the traditional healthcare industry?
4. What might regulators, insurance companies, employers, and accountants do to create a market mechanism in the healthcare industry?
5. What is price elasticity? How price elastic is the demand for healthcare services.
6. Why do consumers have difficulty judging the quality of healthcare services? Should accountants be concerned with quality issues.
7. Who was the hospital’s customer under the traditional fee-for-service and cost-reimbursement payment systems? Did this influence hospital cost behavior?

Chapter Ten

1. Studies have shown that physicians who own laboratories order more lab tests than physicians who do not. What might be the reason for this? Do you see any potential conflict of interest in physicians owning laboratories, pharmacies, or hospitals?
2. If indeed there were too many elective surgeries in the traditional healthcare industry, what might be done to address this problem?
3. Under cost reimbursement, what were the incentives for physicians and hospitals with regard to patient length of stay?

Chapter Eleven

1. During the 1960s and 1970s, the government attempted to control healthcare costs through regulation, using a utility industry model. Why didn’t this work?
2. Why were most hospitals formed as not-for-profit organizations? Why was cost reimbursement the dominant payment system for healthcare for so many years?
3. What is incentive reimbursement? How does it attempt to create a market mechanism?
4. From what you have learned, what do you think might be the advantages and disadvantages to physician incentive reimbursement?

Chapter Thirteen

1. Charles Stoker had seen three revolutions in healthcare during his career. What were these, and how do you think they influenced hospital administrator behavior? How do you think they have changed the role of hospital controller?

1. What is a health maintenance organization (HMO) and how does it attempt to control healthcare costs?
2. Henry Kaiser started one of the first HMOs in the country. If this program was successful in controlling costs, why didn’t HMOs initially flourish in other parts of the country?
3. Are there greater incentives for physicians to provide preventive medicine in an HMO than in a fee-for-service practice? Why?
4. How has prospective reimbursement influenced hospital length of stay? Why?
5. What is a DRG reimbursement system, and how are its incentives different from cost reimbursement and capitation payment.
6. Stoker believes that DRG reimbursement is essentially a fixed price contract. Is he right?

1. Why are many physicians threatened by prospective reimbursement?
2. In recent years, HMOs have come under fire by certain consumer groups. Are any of their criticisms related to physician incentive reimbursement? What might be done to address the problem?

Chapter Fourteen

1. What are some of the concerns Wes Douglas is starting to have about managed care?

2.Does the fact that most healthcare costs are paid by third-party payers (i.e. insurance companies or employers) rather than by the patient, influence patient attitudes and behavior?

Chapter Eighteen—Including Supplement Two

1. What is a variance and how is it calculated? How does Wes Douglas feel variances might help him understand the reasons for the losses that PeterBrannanHospital is currently experiencing?
2. Why was cost accounting a relatively rare practice in hospitals before the advent of managed care? Why has managed care created a need for cost accounting?
3. Define the terms external validity and internal consistency as used by Dr. Alma Cowdrey.
4. Why does Wes Douglas want Alma Cowdrey to determine the standard labor rates for Peter Brannan hospital?
5. Other than the establishment of standard rates for cost accounting, what other factors might motivate large employers to contract for a compensation study?

Supplement Two

1.What is the difference between a job task and a job characteristic? Which does Cowdrey plan on using in his compensation study? Why?

1. What is the difference between linear and multiple regression? Which technique does Cowdrey plan on using in his study? Why?

3.Explain the meaning of each of the following variables, as they relate to Cowdrey’s compensation study, in the following multiple regression equation:

Y = a + b1X1 + b2X2 + . . . bnXn

4.The formula for calculating job characteristic points for the Nursing Department of Charity Hospital is

Y = 55 + 12X1 + 22X2 +3X3

A consultant, who provided the following data, was hired to evaluate the position of Nurses Aide using a multiple regression methodology.

X1 = 3 points, X2 = 1 point, X3 = 5 points

Calculate the total job characteristic points for the position of Nurses Aide at CharityHospital.

5.The formula for calculating job characteristic points in the Business office of MedinaMemorialHospital is:

Y = a + b1X1+ b2X2 + b3X3 + . . . bnXn

Jeannine Cortez, personnel director, has determined that the constant a is 6.06 and the market betas for office workers are as follows:

Ms. Cortez interviewed several employees in the Business Office using a multiple regression evaluation system and rated the above job characteristics for each of the jobs as follows (remember these are the x values).

Calculate job points (a surrogate for compensation) for each position.

6.The position of assistant controller at CommunityHospital has an entry rate of $20 per hour, a range of 50 percent, and six steps. Prepare a salary schedule for this position.

The salary schedule lane looks like this:

7.HopkinsHospital has recently finished a study to determine the internal consistency of its present salary schedule using regression type methodology. When existing salaries are graphed against job characteristic points, the data points are as follows:

From these data, what can you conclude about the internal consistency of the hospital’s present salary schedule? Is it possible to calculate a salary line from these data?

8.HopkinsHospital then obtained salary information from competing hospitals, which it used to draw a salary line. It decided to adopt this salary line for establishing its internal salary schedules. Since the controller had bad eyesight and didn’t like reading charts, he used a linear regression methodology to determine that the constant was $4.50 per hour and the slope of the line was $.30 per job characteristic point.

A.What is the equation of the salary line?

B. The position of housekeeper has been evaluated as having 67 job characteristic points. What should the position pay per hour?

9.Mary Wycoff, assistant human resource director, is interested in determining the multiple regression formula for job characteristic points are for the hospitals in her region. She wants to use the betas from this formula to develop a salary formula for her own hospital.

A.From the data given, calculate the constant and the betas for a new regression based salary evaluation program.

1. The position of Nurse aide has been evaluated and the evaluator has assigned the following points: Job Characteristic 1 = 2; Job Characteristic 2 = 1; Job Characteristic 3 = 2. From this data, calculate a proposed hourly wage.

Supplement Three

1. Define and provide examples of primary, intermediate, and final hospital products.
2. What is a cost roll-up?
3. How does Nathan Stocks’ “quick and dirty” costing system differ from the one he eventually hopes to install? What is the reason for installing a quicker system?
4. What methodologies are available to determine the standard time required to manufacture a product or service? What are the advantages and disadvantages of each?

Chapters Twenty-One and Twenty-Two

1. What could Accounting have done to prevent the fraud that Ryan Raymer has engaged in?

1. Hap Castleton told Amy that managed care attempts to control costs in three ways. List these, and explain the advantages and disadvantages of each from the standpoint of quality and cost.
2. Consider the following stakeholders: (1) physicians, (2) patients, (3) employers, (4) insurance companies, and (5) hospitals. Which of these are in the best position to monitor (1) quality, and (2) cost? Explain your reasoning.

Chapter Twenty-Three

1. How is Life Flight a marketing tool?
2. Why are hospitals more concerned with marketing under prospective reimbursement than they were under cost reimbursement?
3. What are the principal causes of out-migration for rural hospitals?

Supplement Four

1. Explain how a hospital makes or looses money under the following payment systems: (a) billed charges, (b) cost reimbursement, (c) DRG payment, and (d) capitation payment.

Supplement Six

1. Explain the difference between job-order costing and process costing.
2. Explain the differences between actual, normal and standard costing.

Supplement Seven

1. Using the outline provided by Nathan Stocks, identify the information needs under DRG costing.

Supplement Eight

1. What are the three levels of cost detail proposed for the cost system to be developed for PeterBrannanCommunityHospital?
2. What is the 80/20 Pareto Principle, and what is its application in hospital standard costing?
3. List three approaches to determining the standard time a procedure should take to perform. What are the advantages and disadvantages of each method?
4. What is a relative value unit (RVU)?

Supplement Nine

1. Explain the meaning of each symbol in the linear regression equation y = a + bx, when linear regression is used to separate total costs into fixed and variable components.

2.Wally Hughes, director of housekeeping for St. Mary’s Hospital has accumulated the following data on the labor costs of housekeeping for the delivery room:

Required:

1. Calculate the estimated fixed and variable costs using

1. The high-low method.[1]

1. The least squares method (use the regression analysis option in Excel or some other spreadsheet program).

1. What does the r2 tell us about the model?

1. Using spreadsheet software, demonstrate the closeness of the fit by sorting the data in ascending order, then graph the data.

D.From preadmission information provided by the Admitting Department, Wally estimates that St. Mary’s Hospital will deliver 86 babies in July. Using the cost equation from your regression projection, what should the budget for labor be for the month of July?

3.Tracy Hilliam, manager of the Carbon County Clinic, has collected the following data on the costs of providing black-lung x-rays to coal miners:

Required

1. Using spreadsheet software, prepare a scatter graph of the costs shown above.What is the Y intercept? What does the graph tell you about the data? Can we use a linear function to model the data?

1. Use regression methodology to calculate the cost function in the range from 20 to 40 x-rays.

4.John Banaski, director of pharmacy at HuntingtonMemorialHospital, has collected the following information on the labor costs of operating the pharmacy:

Required:

1. Using spreadsheet software, prepare a sactter diagram of the above data.

1. Analyze the data shown on the graph. What is the probable reason for the cost pattern shown?

5.CullimoreHospital uses RVUs to determine standard labor rates for each of its lab tests. An RVU has been calculated to be equivalent to $8.50 of direct labor. Determine the standard labor costs for a test with 6 RVUs of labor.

1. McCormickMemorialHospital uses industrial engineered studies to calculate standard labor costs. The laboratory uses a standard costing system. The standard labor to perform a white blood count (WBC) is four minutes. The standard labor rate for technicians is $15 per hour. What is the standard labor cost for a WBC?

Supplement Ten