Question

You are the new CFO for XYZ Hospital. You have asked the accounts receivable manager to review the accounts receivable information for Quarter 1, 20X1 and Quarter 20X2 and determine if the organization's collection procedure is improving.

Givens (in '000)		Quarter 1, 20X1
Time		Sep	Aug	Jul	Quarter
Days outstanding		1-30	31-60	61-90	1-90
Net accounts receivable		$500	$800	$3,700	$5,000
Net patient revenue		$1,000	$5,000	$9,000	$15,000
Calculations:	Formula
Aging schedule	[a]	10%	16%	74%
Days	[Given 2]	30	30	30	90
Average daily patient revenue	[Given 4 / B]	$33	$167	$300	$167
Days in accounts receivable	[Given 3 / C]				30
Receivables as percent of revenues	[Given 3 / Given 4]	50%	16%	41%
[a] [Given 3] (month) / [Given 3] (quarter)
Givens (in '000)		Quarter 2, 20X1
Time		Dec	Nov	Oct	Quarter
Days outstanding		1-30	31-60	61-90	1-90
Net accounts receivable		$3,800	$800	$400	$5,000
Net patient revenue		$4,000	$5,000	$6,000	$15,000
Calculations:	Formula
Aging schedule	[b]	76%	16%	8%
Days	[Given 6]	30	30	30	90
Average daily patient revenue	[Given 8 / G]	$133	$167	$200	$167
Days in accounts receivable	[Given 7 / H]				30
Receivables as percent of revenues	[Given 7 / Given 8]	95%	16%	7%

The accounts receivable manager reports the following to the CFO:

• The total net accounts receivable and total net patient revenues are consistent between quarters, as are days in accounts receivable.

• In Quarter 1, 74% of receivables were outstanding for more than 60 days, which vastly improved to 8% in Quarter 2. This improvement may reflect that in Quarter 1 of the year, when most patients' health plans renew, more of the balance falls on the patients as annual deductibles, which may not be paid off quickly. In Quarter 2, once the deductibles have been paid off, third-party insurers pay a larger share of the balance and will do so more quickly.

• There is a considerably higher percentage of receivables as a percent of revenue in the most recent month of   Quarter 2 as in Quarter 1, which may indicate a change in credit policy that allows patients to be treated on credit, or else more patients selected credit to pay for their services.

The aging schedule looks at each period as a percent of total receivables in the quarter, and ignores the differences between the cash flows of the two quarters.

• The total net accounts receivable and total net patient revenues are consistent between quarters, as are days in accounts receivable.

• In Quarter 1, 74% of receivables were outstanding for more than 60 days, which vastly improved to 8% in Quarter 2. This improvement may reflect that in Quarter 1 of the year, when most patients' health plans renew, more of the balance falls on the patients as annual deductibles, which may not be paid off quickly. In Quarter 2, once the deductibles have been paid off, third-party insurers pay a larger share of the balance and will do so more quickly.

• There is a considerably higher percentage of receivables as a percent of revenue in the most recent month of   Quarter 2 as in Quarter 1, which may indicate a change in credit policy that allows patients to be treated on credit, or else more patients selected credit to pay for their services.

• The aging schedule looks at each period as a percent of total receivables in the quarter, and ignores the differences between the cash flows of the two quarters.

The report to the CFO is accurate?
True
False