Case studies
Assignment 1
Foster Pharmaceuticals: case review receivable management
With respect to the data collected and recorded in the excel spreadsheet; the first issue that can be acknowledged is that the customers have been paying slowly. Despite that, it can be depicted that the average collection period is relatively shorter in the second quarter. The reason for that is because of the fluctuation in sales. Since aging schedules somehow provides incorrect signals, it implies that in case sales fluctuates or show seasonality, it is important to compare the first quarter of the previous year with that of the following year (Khan & Jain, 2004). The assumption here is that the first quarter will always display the same trend or seasonality.
In comparing the uncollected balances as of the end of March and June for the first and second year, it is important to consider using receivable to sales ratio. This is because it is the best one when sales keeps on varying. In this case, differences between sales are brought about by sales and not the rate of payment when comparing payment patterns of each month. For example, in case the sales are kept steady, the increase in receivable to sales ratio during the month of March and July implies that the consumers are settling their debts slowly (Shim & Siegel, 2008). For instance, in case the ratio obtained at the end of June is 80%, it implies that payments are made much faster. Despite that, this is too odd because it doesn’t add up to 100%. Considering the quarterly carrying cost of the receivables for each customer, it means that any value which is above 100% suggests that the business offers liberal payment period. Also for the value which is below 100% it means that the business has been experiencing shorter payment period.
When the gross profit margin for any receivables is lower, it means that the carrying costs will be higher. Equally, depending on the firm’s receivable collection time and sales mix, different clients produce varying carrying costs. Thus, this implies that the Large Retail Chain 2 doesn’t produce the slowest payment pattern or the highest sales percentage, but by combining the two is what will be the highest (Salek, 2005). To the management authority of this organization, it implies that the driving force is not the client with the maximum forecast of sales i.e. (Larger Retail Chain 1) or the one which with the lowest collection time (Regional Drug Store). This illustrates that what matters most is the combination of sales and the upcoming collection period.
Nonetheless, always business organizations want their clients to settle their debts fast. Equally, the customers do prefer to make payment slowly or when they are able to do so. Therefore, considering the data in the excel spreadsheet; there are various strategies that they can implement. One of this is that the business can decide to increase or offer discounts for those customers who make earlier payments. The impact of this technique will be depending on the amount of discount to be offered. Secondly, the management can equally decide to tighten its current credit policy through demanding minimum payment period or shortening it (Khan & Jain, 2004).
Furthermore, the hospital needs to take into consideration the existing value of the revenue and the existing value of their cost. In case the firm’s outstanding debt balances are with few and significant clients, it can opt to take into consideration the impacts of upsetting them through changing the cash flow speed. With the increase in sales, the receivables collected will also differ (Shim & Siegel, 2008).
Despite the fact that a large percentage of the receivable management of the firms is computerized, each individual has his or her own system. This is what compels the health care professionals to employ complex computerized systems. Similarly, the physicians will be forced to have to be in the position of maintaining a large number of specialists to assist in operating the systems. With such a systematic change to this organization, it will be advantageous because it will enable the management authority to tie its economics and investments together (Salek, 2005)
As from the above illustrations, it is clear that carrying costs of the accounts receivables increases with the increase in the interest rates. Because of that, it is important for the management authority of Foster to ensure that they tightened its credit policy so as to encourage customers to make faster payments. For slow payments, it means this strategy will give the firm the ability of reducing pressure brought by inflation since its rate of spending or buying will be low. Despite that, the firm will also experience the reduction of profit because of decline in sales as the slow paying customers opt to leave (Khan & Jain, 2004).
Finally, based on the data collected, there are various things which can be taken into consideration. First, sales fluctuations and seasonality should not be depended upon because it cannot offer a clear picture regarding the aging schedules and the average collection period. Therefore, in the process of analyzing, for instance, sensitivity analysis, it is important for the management authority to take into consideration fluctuation in sales and perhaps smooth sales. This is important because it gives enough time in scrutinizing other issue regarding receivable policy (Shim & Siegel, 2008). With Foster, it is imperative to take into account the impacts of its two large retail chains and not the smaller ones. Lastly, the firm should take into consideration all the challenges it will face when using aggressive collection approaches including the community and patient relations.
Assignment 2
Methods of cost controls in health care reimbursement models and how the methods have affected the availability of services.
1. Describe the methods reviewed.
- a) Capitation – refers to a form of payment arrangement made for various health care services professionals, such as, nurse practitioners, physician, and so on. With it, group of physician or an individual physician is paid a certain amount of cash for each and every enrolled person they are assigned to, for certain duration, whether he or she is seeking health care or not (Liddy et al., 2014). The health care providers are usually contracted by the independence practice associations (IPA). These organizations assist in enlisting the health care professionals to care for health maintenance (HMO) enrolled patients. The remuneration for each physician is generally based on the anticipated health care utilization by the patient regardless of whether the patient visits made are more or less. Despite that, greater payments are made by patient/s with significant clinical history.
Moreover, per member per month (PMPM) approach is used to assist in assigning the patients to health care professionals depending on their lifestyle, sex, race, age, and so on. Similarly, with this model, it is paramount for health care professionals to ensure that they have assisted the patient or patients they serve to avoid costly tests and procedures. This has the potential of making them maximize their reimbursement. This implies that specified services are the ones which are paid for on the basis of capitation (Liddy et al., 2014).
Aggregated caps _ this refers to the amount which is set by the Centers for Medicare and Medicaid Services (CMS) each year to assist in figuring, in aggregate, the maximum amount which the hospital will be compensated for the Medicare hospice services. Moreover, this model assists in limiting the total aggregate payments any hospital can get each year. In this case the number of health care beneficiaries for a specific hospital’s cap year is determined through totaling the fractional or whole share of the individual beneficiary who received it (D.H.H.S, 2016).
2. How have the methods affected the availability of services?
With capitation, one of the effects it has is that it ends up creating conflicts of interest between incomes of physicians and the expectations of patients as far as their treatment is concerned, particularly to those who are chronically ill. Health care providers have also realized that this model have the potential of making them resent their clients because of various financial reasons. Likewise, the loss of satisfaction and trust makes patients to their physicians to the loss of confidence in the services provided (Liddy et al., 2014). On the same note, capitation results to reduced office visits as well as long waiting time for those patients who had booked appointments with concerned doctors. The impact of this is that it increases patient switching from one hospital to another.
Conversely, aggregated caps end up restricting the amount of payments that hospital collects from Medicare after the end of twelve months. Additionally, despite of the manner in which this model assists a large percentage of patients, the truth is that the manner in which the aggregated cap is computed and the risks associated with the repayment period incentivizes hospitals coming closer when the cap is ceiling. At this point, existing patients get discharged before the cap year has ended (D.H.H.S, 2016).
References
DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services. (2016). Hospice Payment System. Retrieved 3 December 2017, from: https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/downloads/hospice_pay_sys_fs.pdf
Khan, M. Y., & Jain, P. K. (2004). Financial management ; Text, problems and cases. New Delhi: Tata McGraw-Hill.
Liddy, C., Singh, J., Kelly, R., Dahrouge, S., Taljaard, M., & Younger, J. (2014). What is the impact of primary care model type on specialist referral rates? A cross-sectional study. BMC Family Practice, 15(1), 22. doi:10.1186/1471-2296-15-22
Salek, J. G. (2005). Accounts receivable management best practices. Hoboken, N.J: John Wiley & Sons.
Shim, J. K., & Siegel, J. G. (2008). Financial management. Hauppauge, N.Y: Barron's Educational Series.
