CHFA key terms

A method that records revenue when earned and expenses when incurred, regardless of when cash changes hands. It matches costs to the periods they benefit and is required for most healthcare financial statements.

The amount a provider expects to collect for patient services after contractual allowances and discounts are subtracted from gross charges. It reflects negotiated payer rates rather than list prices.

The difference between a provider's established charges and the amount a payer has agreed to pay under contract. It is deducted from gross revenue to arrive at net patient service revenue.

Free or discounted services given to patients who cannot pay and who qualify under a provider's financial assistance policy. It is distinguished from bad debt, which involves patients believed able to pay.

The portion of patient balances written off because patients failed to pay despite an expectation they could. It is reported as an operating expense rather than a revenue deduction.

A contra-asset reserve that estimates receivables likely to be uncollectible. It reduces the reported net receivable balance and is adjusted as collection experience changes.

Revenue remaining after variable costs are subtracted, which goes toward covering fixed costs and generating profit. Managers use it to judge how a service line or volume change affects overall margin.

A calculation identifying the volume or revenue at which total revenue equals total cost, producing neither profit nor loss. It helps assess how far volume can fall before losses begin.

An expense that stays roughly constant in total over a relevant range of activity, such as building rent or salaried staff. Per-unit fixed cost falls as volume rises.

An expense that changes in total roughly in proportion to volume, such as clinical supplies or hourly labor. Per-unit variable cost is often treated as constant within a relevant range.

A costing method that assigns overhead to services based on the activities they consume, using multiple cost drivers rather than a single volume measure. It can reveal that high-volume services are not always the most costly.

The process of distributing indirect costs across departments or service lines using a chosen basis, such as square footage or patient days. The method chosen materially affects reported profitability by service.

A cost that can be traced specifically and conveniently to a service, department, or patient encounter, such as the supplies used in a procedure. It contrasts with costs that must be allocated.

A plan covering expected revenue and expenses for routine operations over a period, usually a fiscal year. It translates volume and rate assumptions into projected margins and cash needs.

A plan for major long-term investments such as buildings, imaging equipment, or information systems, including how they will be funded. Projects are typically ranked using discounted cash flow and strategic fit.

A budget that adjusts for actual volume by applying variable rates to the realized activity level. Comparing actual results to a flexible budget separates volume effects from price and efficiency effects.

The difference between budgeted and actual results caused by serving more or fewer patients or units than planned. It isolates the effect of activity level from rate and cost-control effects.

A budgeting approach that builds each period's budget from zero, requiring justification of every activity and cost rather than adjusting last year's figures. It is labor-intensive but exposes entrenched spending.

The practice of comparing actual financial results with budgeted or expected amounts and explaining the differences. Analysts separate causes such as volume, rate, and cost into distinct components.

A technique comparing line items across successive periods to show growth or decline trends, often expressed as percentage changes. It highlights shifts that a single-period statement would hide.

A technique expressing each line item on a statement as a percentage of a base figure, such as total revenue or total assets. It allows comparison of cost structure across organizations of different size.

A financial statement in which every line is shown as a percentage of a single base, making comparisons across periods or organizations easier. It is the output of vertical analysis.

Current assets divided by current liabilities, indicating the ability to meet obligations due within a year. A very high value may signal idle resources rather than strength.

The number of days an organization could operate using existing unrestricted cash at its current cash expense rate. It is a core liquidity benchmark watched by rating agencies and lenders.

Operating income divided by operating revenue, showing the percentage of revenue retained after routine operating expenses. It excludes investment gains and other non-operating items, so it measures core performance.

Excess of revenue over expenses divided by total revenue, including non-operating income such as investment returns. It shows overall profitability but can mask weak operations when investment gains are large.

Net receivables divided by average daily net patient revenue, estimating how long it takes to collect. Rising days suggest billing delays, denials, or payer friction.

The sum of a project's expected cash flows discounted to today's value minus its initial investment. A positive result suggests the project creates value at the chosen discount rate.

The discount rate at which a project's net present value equals zero. It is compared with a hurdle rate to decide whether to proceed, but can mislead when comparing projects of different sizes.

The rate used to convert future cash flows into present value, reflecting the time value of money and project risk. A higher rate reduces the value placed on distant cash flows.

A situation where limited capital forces an organization to select among competing investment projects, so not all positive-value projects are funded. Ranking methods help direct scarce funds to the highest-value uses.

The time required for cumulative cash inflows to recover a project's initial investment. It is simple to compute but ignores cash flows after the payback point and the time value of money.

A provider's comprehensive list of prices for every service and supply, used as the starting point for billing. Actual payment usually depends on payer contracts rather than these listed charges.

The percentage of claims accepted on first submission without rejection or correction. Higher rates speed cash collection and reduce rework cost in the revenue cycle.

The proportion of claims a payer rejects or refuses to pay, often expressed as a percentage of submitted claims or dollars. Tracking denial reasons guides process fixes and appeal priorities.

A reimbursement method that sets payment in advance for a defined unit of service, such as a diagnosis-related group for inpatient care. Providers bear the financial risk of costs exceeding the fixed payment.

A classification system grouping inpatient stays by diagnosis, procedures, and complications, with a fixed payment assigned to each group. It underpins Medicare inpatient prospective payment.

The proportion of a provider's revenue or volume coming from each payer type, such as Medicare, Medicaid, and commercial insurers. Shifts in mix strongly affect realized rates and margin.

A measure of the average resource intensity or severity of a provider's patient population relative to a standard. Higher values usually justify higher average payments and signal a more complex case load.

The practice of charging some payers more to offset shortfalls from lower-paying payers such as Medicare and Medicaid. It becomes harder as commercial payers push back with narrower networks and rate pressure.

Policies and procedures designed to safeguard assets, ensure reliable reporting, and promote compliance with laws. In healthcare, controls commonly focus on billing integrity, cash handling, and access to systems.

Dividing responsibilities so that no single person can both commit and conceal an error or fraud, such as separating cash receipt from reconciliation. It is a foundational preventive control.

A structured set of policies, training, monitoring, and reporting channels that helps an organization follow applicable laws and payer rules. In healthcare it often centers on billing accuracy and anti-fraud requirements.