CHFA cheat sheet

Balance sheet equation: Assets = Liabilities + Net Assets (equity). For-profit healthcare entities use Stockholders' Equity.

Revenue recognition for patient service revenue: recognize at net realizable amount, i.e., gross charges less contractual allowances and discounts, not gross charges.

Charity care is not reported as revenue; it is disclosed in notes and on the statement of operations as a reduction of gross patient service revenue under FASB ASC 954.

Bad debt expense is reported as an operating expense (or as a deduction from revenue if policy elected), distinct from charity care.

Statement of operations for a nonprofit healthcare entity includes: net patient service revenue, other revenue, expenses by natural classification, and excess of revenue over expenses.

Statement of cash flows: operating activities include cash from patient services and payments to employees/suppliers; investing includes capital expenditures; financing includes debt proceeds and repayments.

Restricted net assets (donor-restricted) are reported separately from unrestricted net assets; temporarily restricted vs. permanently restricted distinctions apply under older GAAP, while ASU 2016-14 uses two classes: net assets with donor restrictions and without.

Depreciation is a noncash expense; it is added back to net income in the operating section of the cash flow statement under the indirect method.

Inventory costing: healthcare supplies typically use FIFO or weighted average; LIFO is permitted under US GAAP but not IFRS.

Contribution margin = Revenue − Variable Costs. Contribution margin ratio = Contribution margin ÷ Revenue.

Break-even volume (units) = Fixed Costs ÷ Contribution Margin per Unit. Break-even revenue = Fixed Costs ÷ Contribution Margin Ratio.

Target profit volume = (Fixed Costs + Target Profit) ÷ Contribution Margin per Unit.

High-low method: Variable cost per unit = (Cost at high activity − Cost at low activity) ÷ (High activity − Low activity); Fixed cost = Total cost − (Variable cost per unit × Activity).

Step-down method allocates support department costs to other support and patient service departments in a sequential order; once a department's costs are allocated, it is closed.

Direct method allocates support costs only to patient service departments, ignoring services provided to other support departments.

Reciprocal method recognizes all interdepartmental services; solved via simultaneous equations or repeated iterations.

Activity-based costing (ABC) assigns overhead based on activities (e.g., admissions, lab tests) using cost drivers; more accurate for diverse services than a single volume-based rate.

Relevant cost for decision making: future costs that differ between alternatives. Sunk costs and allocated fixed costs are generally irrelevant.

Operating budget components: volume forecast (patient days, visits, cases), revenue budget, staffing/FTE budget, supply budget, and expense budget.

Flexible budget adjusts for actual volume; variance analysis compares actual results to the flexible budget (volume-adjusted) rather than the static budget.

Volume variance = (Actual volume − Budgeted volume) × Budgeted contribution margin per unit.

Price/rate variance = (Actual price − Budgeted price) × Actual quantity. Efficiency/quantity variance = (Actual quantity − Budgeted quantity) × Budgeted price.

FTE calculation: FTEs = Total paid hours ÷ 2,080 (or ÷ productive hours standard).

Cash budget: beginning cash + cash receipts − cash disbursements = ending cash before financing; then add borrowings/repayments to meet minimum cash balance.

Forecasting methods: moving average, exponential smoothing (weight α), regression, and scenario analysis. Seasonal indices adjust for monthly volume patterns.

Zero-based budgeting requires each cost center to justify all expenses from zero each period; incremental budgeting starts from prior period and adjusts.

Current ratio = Current Assets ÷ Current Liabilities. Quick ratio = (Cash + Marketable Securities + Net Receivables) ÷ Current Liabilities.

Days in accounts receivable = (Net Accounts Receivable ÷ Net Patient Service Revenue) × 365.

Days cash on hand = Cash and equivalents ÷ (Total expenses − Depreciation) ÷ 365.

Operating margin = (Operating Income ÷ Operating Revenue) × 100. Total margin = (Excess of revenue over expenses ÷ Total revenue) × 100.

Debt service coverage ratio (DSCR) = (Excess of revenue over expenses + Depreciation + Interest) ÷ (Principal + Interest).

Equity financing ratio = Net Assets ÷ Total Assets. A higher ratio indicates greater financial flexibility.

Return on assets (ROA) = Net Income ÷ Total Assets. Return on equity (ROE) = Net Income ÷ Net Assets.

Benchmarking compares ratios to peer groups (e.g., Moody's, S&P, Fitch medians) and to internal trends; adjust for accounting differences before comparison.

Aging of receivables: percentage of A/R in 0–30, 31–60, 61–90, 91–120, and 120+ day buckets; rising 90+ day percentage signals collection issues.

Net present value (NPV) = Present value of cash inflows − Initial investment. Accept project if NPV > 0.

Internal rate of return (IRR) is the discount rate at which NPV = 0. Accept if IRR > cost of capital (hurdle rate).

Payback period = Initial investment ÷ Annual net cash inflow (for even cash flows). Ignores time value of money.

Discounted payback period uses present value of cash flows; longer than simple payback.

Profitability index = PV of future cash flows ÷ Initial investment. Accept if PI > 1.

Weighted average cost of capital (WACC) = (E/V × Re) + (D/V × Rd × (1 − Tax rate)). For nonprofits, tax shield may not apply.

Capital budgeting cash flows include incremental revenues, operating costs, salvage value, and tax effects; exclude sunk costs and allocated overhead that do not change.

Capital rationing: rank projects by profitability index when capital is limited.

Lease vs. buy analysis compares after-tax cost of leasing (lease payments × (1 − tax rate)) to after-tax cost of owning (depreciation tax shield, interest, maintenance).

Revenue cycle steps: scheduling/registration, insurance verification, charge capture, coding, claim submission, payment posting, denial management, and collections.

Clean claim rate = Number of claims accepted first pass ÷ Total claims submitted × 100. A high clean claim rate reduces days in A/R.

Contractual allowance = Gross charges − Expected reimbursement (per payer contract). Net patient service revenue = Gross charges − Contractual allowances − Discounts − Charity care (if included).

Prospective payment systems: Medicare inpatient uses MS-DRGs; outpatient uses APC groups; physicians use MPFS (RVUs × GPCI × conversion factor).

DRG payment = DRG relative weight × Hospital base rate (adjusted for wage index, IME, DSH, etc.).

Case mix index (CMI) = Sum of DRG weights ÷ Total discharges. Higher CMI increases expected Medicare payment.

Denial rate = Denied claims ÷ Total claims × 100. First-pass denial rate is a key revenue cycle KPI.

Net collection rate = Payments ÷ (Charges − Contractual adjustments) × 100. Target often >95%.

Under the 340B drug discount program, eligible hospitals may purchase outpatient drugs at reduced prices; program compliance requires careful tracking.

Price elasticity of demand = % change in quantity demanded ÷ % change in price. Healthcare demand is generally inelastic for urgent services.

Moral hazard: insurance coverage reduces the marginal cost to patients, increasing utilization.

Adverse selection: individuals with higher expected healthcare costs are more likely to purchase generous insurance.

Supplier-induced demand: providers may recommend services that patients would not choose with full information.

Cost-effectiveness analysis: incremental cost-effectiveness ratio (ICER) = (Cost of new intervention − Cost of comparator) ÷ (Effectiveness of new − Effectiveness of comparator).

Economies of scale: average cost per unit decreases as volume increases, up to a point; diseconomies may occur beyond capacity.

Opportunity cost is the value of the next best alternative forgone when resources are used for a particular purpose.

Fixed costs do not vary with volume in the short run; variable costs do. Average fixed cost declines as volume rises.

Payer mix = Percentage of total revenue (or volume) from each payer type (Medicare, Medicaid, commercial, self-pay, other).

Weighted average reimbursement = Σ (Payer mix % × Payer reimbursement rate). A shift toward lower-paying payers reduces net revenue.

Risk pooling: spreading financial risk across a larger population reduces variance; insurance is a mechanism for risk pooling.

Capitation pays a fixed amount per member per month (PMPM) regardless of services used; provider bears utilization risk.

Shared risk/accountable care arrangements tie a portion of payment to quality and cost targets; downside risk means potential repayment.

Stop-loss insurance protects providers or payers against catastrophic claims above a threshold.

Payer contract analysis: compare reimbursement rates to cost per case; a payer with rates below cost may still contribute to fixed costs if contribution margin is positive.

Risk adjustment (e.g., HCC models) adjusts payments for patient acuity; accurate coding is essential to avoid underpayment.

Sarbanes-Oxley Act (SOX) applies to publicly traded companies; nonprofit healthcare organizations may adopt SOX-like governance voluntarily.

Internal control framework (COSO): control environment, risk assessment, control activities, information and communication, monitoring.

Segregation of duties: separate authorization, custody of assets, and recordkeeping to prevent fraud.

False Claims Act prohibits knowingly submitting false claims; whistleblower protections and treble damages apply.

Anti-Kickback Statute (AKS) prohibits remuneration for referrals of federally reimbursed services; safe harbors provide protection.

Stark Law (Physician Self-Referral Law) prohibits physician referrals of designated health services to entities with which the physician has a financial relationship, unless an exception applies.

HIPAA Privacy and Security Rules protect patient health information; breaches require notification and may trigger penalties.

Compliance program elements: written policies, compliance officer, training, auditing/monitoring, hotline, enforcement, and corrective action.

Board governance: fiduciary duties of care and loyalty; audit committee oversight of financial reporting and internal controls.