CHFD cheat sheet

Healthcare entities apply FASB ASC 954 (health care entities); investor-owned providers follow ASC 606 for revenue from contracts with customers, recognizing revenue as performance obligations are satisfied.

Net patient service revenue is reported at the transaction price net of contractual adjustments and implicit price concessions; charity care is excluded from revenue but disclosed, while bad debt is an operating expense.

Patient accounts receivable are reported net of an allowance for doubtful accounts; implicit price concessions under ASC 606 are often recorded as a direct reduction of revenue rather than as bad-debt expense.

Third-party settlements (Medicare/Medicaid cost reports) are estimated and trued up later; changes in estimates are recognized in the period of change, not retroactively restated.

Continuing care retirement communities and entrance fees follow ASC 954-430 guidance; refundable portions of entrance fees are liabilities and nonrefundable portions are recognized as revenue over the actuarial life expectancy.

Nonprofit hospitals classify net assets as without donor restrictions and with donor restrictions; board-designated funds remain without donor restrictions but are separately disclosed.

Charity care and community benefit are reported in the notes and often in a separate schedule; they are not netted against gross charges on the face of the income statement.

Statement of cash flows for healthcare entities uses the indirect method commonly; restricted cash and investments with limited use may be presented separately under ASU 2016-18.

Contribution margin per unit = price − variable cost per unit; contribution margin ratio = contribution margin ÷ revenue; break-even 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 volume − cost at low volume) ÷ (high volume − low volume); fixed cost = total cost − variable cost × volume.

Healthcare cost allocation often uses step-down or reciprocal methods for overhead departments (housekeeping, dietary, laundry) before assigning to patient-care departments.

Activity-based costing assigns costs using cost drivers such as patient days, number of admissions, nursing hours, or number of procedures, which better reflects resource use than a single allocation base.

Direct costing (variable costing) separates fixed and variable costs for internal decisions; full absorption costing is required for external reporting under GAAP.

Relevant costs for decisions exclude sunk costs and allocated fixed costs that do not change between alternatives; incremental analysis compares only avoidable costs and revenues.

Cost per case-mix-adjusted discharge or per RVU normalizes cost comparisons across differing patient acuity and is a common healthcare productivity metric.

Operating budget components: volume (admissions, visits, procedures), revenue net of contractuals, salaries and benefits, supplies, purchased services, depreciation, and interest.

Flexible budget recalculates variable costs at actual volume; the static budget variance is decomposed into volume variance and flexible (rate/efficiency) variance.

Volume variance = (actual volume − budgeted volume) × budgeted contribution margin per unit; rate variance = (actual rate − budgeted rate) × actual volume.

Cash budget projects receipts and disbursements by period; it must account for lag between billing and collection and for contractual write-offs.

Zero-based budgeting requires each department to justify its entire base, while incremental budgeting adjusts the prior year by a percentage; ZBB is more resource-intensive but controls growth.

Rolling forecast replaces the expired period with a new future period each cycle, keeping a constant forecast horizon (commonly 12 months).

Statistical forecasting uses trend, seasonality, and regression; healthcare volume often shows seasonality (flu season, elective procedure timing) that must be modeled.

Variance thresholds and materiality limits determine which budget variances require written explanation and corrective action plans.

Revenue cycle stages: scheduling and preregistration, registration and eligibility verification, charge capture, coding, claim submission, denial management, and collections.

Key metrics include days in accounts receivable (A/R ÷ average daily net revenue), clean claim rate, denial rate, and net collection rate (payments ÷ net expected reimbursement).

Prospective payment systems: Medicare inpatient uses MS-DRGs; outpatient uses APC groups; physician services use the Resource-Based Relative Value Scale (RBRVS) with geographic practice cost indices.

Medicare DRG payment = DRG relative weight × base rate (adjusted for wage index, IME, DSH, and outlier adjustments).

Payer mix and contractual allowance management determine net revenue; a shift toward higher-government-payer mix typically lowers net revenue per case.

Denials must be tracked by root cause (eligibility, authorization, coding, medical necessity); appeal within payer deadlines and rework claims promptly to protect cash flow.

Charge master maintenance aligns charges with CPT/HCPCS codes, pricing, and payer contracts; charges should exceed net reimbursement but do not determine payment under prospective systems.

Under the 340B program and value-based contracts, reimbursement may include bundle or shared-savings components; model these separately from fee-for-service revenue.

Ratio categories: liquidity (current, quick, days cash on hand), profitability (operating margin, total margin, EBITDA margin), leverage (debt-to-capitalization, debt service coverage), and efficiency (asset turnover, A/R days).

Operating margin = operating income ÷ operating revenue; total margin = excess of revenue over expenses ÷ total revenue.

Days cash on hand = unrestricted cash and investments ÷ [(total expenses − depreciation) ÷ 365].

Debt service coverage ratio = (excess of revenue over expenses + depreciation + interest) ÷ (principal + interest payments); a common covenant threshold is 2.0x or higher.

Pro forma analysis models the financial effect of a proposed change (new service line, payer contract, staffing model) on volume, revenue, cost, and margin.

Sensitivity analysis varies key assumptions (volume, payer mix, rates, labor cost) one at a time or in scenarios to test the robustness of projections.

Variance analysis compares actual to budget and prior year; report price, volume, and mix effects separately to explain margin changes.

Benchmarking against peer databases (e.g., median operating margin, days cash) contextualizes performance but must account for case mix and payer mix differences.

Net present value = present value of cash inflows − initial investment; accept independent projects with NPV > 0.

Internal rate of return is the discount rate at which NPV = 0; accept if IRR exceeds the cost of capital or hurdle rate.

Payback period = time to recover the initial investment from cumulative cash flows; it ignores cash flows after payback and the time value of money unless discounted payback is used.

Profitability index = present value of cash inflows ÷ initial investment; useful for ranking projects under capital rationing.

Capital budgeting cash flows should be incremental, after-tax, and exclude sunk costs, allocated fixed overhead, and financing costs (which are captured in the discount rate).

Weighted average cost of capital = (cost of debt × (1 − tax rate) × debt weight) + (cost of equity × equity weight); it is the discount rate for average-risk projects.

Capital allocation typically ranks projects by strategic fit, NPV, risk, and regulatory or community need, subject to an annual capital budget constraint.

Lease-versus-buy analysis compares the present value of lease payments (after tax) with the present value of purchase cost, depreciation tax shield, and residual value.

COSO framework components: control environment, risk assessment, control activities, information and communication, and monitoring activities.

Segregation of duties separates custody of assets, authorization, recording, and reconciliation; no single person should control all four for a transaction cycle.

Key healthcare compliance laws: False Claims Act (knowingly submitting false claims), Anti-Kickback Statute (remuneration for referrals), Stark Law (physician self-referral), and HIPAA (privacy and security of protected health information).

The False Claims Act includes qui tam provisions allowing whistleblowers to sue on the government's behalf and share in recoveries; penalties are per claim plus treble damages.

An effective compliance program includes written policies, a compliance officer and committee, training, hotline, auditing and monitoring, and enforcement and discipline.

Internal control deficiencies are classified as deficiencies, significant deficiencies, or material weaknesses; material weaknesses must be reported to those charged with governance.

Ethical standards require independence, objectivity, confidentiality, and competence; conflicts of interest must be disclosed and managed, not hidden.

Bank reconciliations, surprise cash counts, access controls, and audit trails are common control activities for cash and revenue cycle processes.

Strategic financial planning aligns capital and operating resources with the organization's mission, service-line strategy, and community benefit obligations.

Service-line profitability analysis combines direct and allocated costs with net revenue to decide investment, growth, or divestiture.

Payer contract negotiation uses cost per case, contribution margin, and volume impact; model the net effect of rate changes across the full payer mix.

Physician alignment strategies (employment, joint ventures, professional service agreements) must satisfy Stark and Anti-Kickback requirements and be priced at fair market value.

Key performance indicators for leadership include operating margin, days cash on hand, A/R days, denial rate, cost per case, and patient satisfaction, tracked against targets.

Enterprise risk management identifies financial, operational, regulatory, and strategic risks and assigns mitigation owners and monitoring metrics.

Mergers and affiliations require valuation, synergy analysis, and due diligence on reimbursement, payer contracts, and compliance exposure.

Board reporting should present financial results against budget, cash and liquidity position, capital plan status, and key strategic initiatives in a concise dashboard.