Question

Answer the following questions, being concise in your responses.

1. Explain the two (2) criteria for true comparability

2. How important is the understanding of comparative data as a healthcare manager to the finances of the facility?

3. Briefly discuss the two (2) sources of operating budget information

4. Explain how a flexible budget is useful in healthcare

5. Briefly relate Diagnostic-Related Groups (DRGs) to financial management in healthcare.

Answer 1

1. Two criteria for true comparability are:

• The accounting and costing principles must be the same between the two entities / periods
• The two entities must be operating in a similar type of industry

2. It is very important for a costing/accounting manager to understand the comparative data in a helathcare industry in order to decide on factors like:

• Staff mix of doctors and nurses
• Costing of services like ECG/Blood test report/other reports etc
• Costing of bed day per patient
• Inventory and reorder level of medicines

3. Two sources of operating budget information are:

• Daily MIS reports of operating cash flow and expenses
• Budgetary comparisons with actuals report for every quarter released by the management

4. Under flexible budget we treat the total cost as semi fixed cost/semi variable cost and depending upon the volume we find out the fixed component and variable component. Therefore flexible budget is directly related to the volume of activity.

In health care most of the costs are semi fixed costs and depending upon the volume of activity we can try to eek out the fixed component and variable component. So depending upon the volume of activity we can decide on factors like staffing of doctors, nurses, inventory of medicine etc