Chapter 15 — Revenue Cycle and Current Accounts Management PROBLEM 8

Chapter 15 — Revenue Cycle and Current Accounts Management PROBLEM 8

HEALTHCARE FINANCIAL MANAGEMENT

Chapter 15 — Revenue Cycle and Current Accounts Management

PROBLEM 8
Fargo Memorial Hospital has annual net patient service revenues of $14.4 million. The hospital’s patient
accounts manager estimates that 10 percent of third party payers pay on Day 30, 60 percent pay on Day 60,
and 30 percent pay on Day 90.
a. What is Fargo’s average collection period? (Assume 360 days per year throughout this problem.)
b. What is the firm’s current receivables balance?
c. What would be the firm’s new receivables balance if a newly proposed electronic claims system resulted
in collecting from third-party payers in 45 and 75 days, instead of in 60 and 90 days?
d. Suppose the firm’s annual cost of carrying receivables was 10 percent. If the electronic claims system
costs $30,000 a year to lease and operate, should it be adopted? (Assume that the entire receivables
balance has to be financed.)

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