c428 glossary

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415 abuse. An unintentional misrepresentation of fact. accountable care organization (ACO). An organization that coordinates care among healthcare organizations and physicians. A key element of an ACO is that some portion of its reimbursement is tied to accountability. accounts payable. Amounts the organization owes to suppliers and other trade creditors for mer- chandise and services purchased from them, but for which the organization has not yet paid. accounts receivable. Amounts due to the organization from patients and insurers for services that the organization has already provided. accrued expenses payable. Liabilities for expenses that have been incurred by the hospital but for which the hospital has not yet paid, such as compensation to employees. activity-based costing. A method of determining product cost by using cost drivers , or activity mea- sures, to assign indirect costs to products. actual costs. Historical costs incurred. advancing care information. Programs that reward healthcare providers with incentive payments for the quality of care they deliver to Medicare beneficiaries. Alternative Payment Models (APMs). Fundamental changes to reimbursement that generally include moving providers away from low-risk fee-for-service payment to risk-assuming methods of payment. GLOSSARY Copyright 2018. Health Administration Press. All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law. EBSCO Publishing : eBook Collection (EBSCOhost) - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY AN: 1839058 ; Michael Nowicki.; Introduction to the Financial Management of Healthcare Organizations, Seventh Edition Account: ns017578.main.eds

416 G l o s s a r y asset efficiency ratios. Ratios that measure efficiency by comparing revenue to assets. assets. Economic resources that provide or are expected to provide benefit to the organization. average collection period. A financial ratio that shows the average time a healthcare organization takes to collect money owed to it. average costs. Full costs divided by the number of products or services. bad debt. Patient bills that the patient can but is unwilling to pay based on the hospital’s collection policy. bad debt expense. The amount for which the organization provided services with the expectation of payment. balance sheet. A statement that shows the organization’s financial position at a specific point in time. book overdraft. The process of transferring money from an interest-bearing account to the checking account as the money is drawn. budgeting. The process of converting the operating plan into monetary terms. Bundled Payments for Care Improvement (BPCI) initiative. A program developed by CMS in 2013 to better coordinate care across providers by replacing fee-for-service payments to multiple providers with a single payment for an episode of care that multiple providers must share. capital analysis. A process to determine how much a capital expenditure will cost and what return it will generate. capital expenditures. Purchases of land, buildings, and equipment used for operations. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

G l o s s a r y 417 capital structure ratios. Ratios that measure an organization’s long-term liquidity by measuring a variety of relationships to capital. capitated price. A healthcare payment system in which an organization accepts a monthly payment from a third-party payer for each individual covered by that payer’s plan, regardless of whether a given individual is treated in a given month. Also known as capitation , it provides a financial incentive to a healthcare organization to keep its population from using more healthcare services than necessary because the organization profits only if the total cost of treating the specified population falls below the total capitated price provided by the third-party payer. carrying cost. The cost incurred by the organization for extending credit to the patient after the organization has provided services. cash. Money on hand and money to which the organization has immediate access that is deposited in a bank. Cash equivalents are reported as cash and include investments with a maturity of three months or less (e.g., treasury bills, money market funds). cash budget. A cash flow management tool that predicts the timing and amount of cash flows and systematically examines the cost implications of each alternative. cash conversion cycle. The process of converting resources represented by cash outflows into products or services represented by cash inflows. In healthcare organizations, cash outflows consist of employee wages and supply expenses; cash inflows consist of patient revenues. cash flow. The difference between cash receipts (inflows) and cash disbursements (outflows) for a given accounting period. charge capture assessment. A comparison of medical records to patient invoices to make sure the organization is not missing billable items. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

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418 G l o s s a r y charge master enrichment. An analysis of charges to make sure every item is recognized by third-party payers as a legitimate charge. charge masters. Lists of items for which providers charge. charges. The amount patients are expected to pay for services; also called prices or rates. charging analysis. An examination of charges to make sure maximum reimbursement is being received. charitable organization. An organization that provides community benefit or serves the public interest. In the case of healthcare, a hospital is a charitable organization if it provides care to people who cannot pay for their care or provides community health benefits. charity care. Care provided to patients who the organization knows cannot pay for the care. closed-panel HMO. A health maintenance organization that contracts with or employs physicians to treat enrollees exclusively (i.e., the physicians do not treat other patients). collection period. The number of days between the time of service and the time of payment. commercial indemnity plan. An arrangement whereby an employer pays an insurance company, which in turn reimburses hospitals and physicians chosen by the employees. common stock. Money invested in the organization by its owners. community benefit. A term used by taxing authorities such as the Internal Revenue Service that refers to specific actions required from a tax-exempt organization to maintain tax-exempt status. community rating. A premium-setting method in which all groups covered by an insurance company pay essentially the same premiums, regardless of their health risks. compounding. The EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

G l o s s a r y 419 action of adding interest to interest on an investment. compulsory health insurance. A legal requirement that everyone have health insurance. consumer-driven plan. A health plan that provides information and incentives to encourage enrollees to make wise healthcare choices. controllable costs. Costs that are under the manager’s influence, such as labor. controller. The chief accounting officer of an organization. coordination of benefits. A step in the billing process during which the order of insurance company liability is identified for accounts that have multiple insurance companies. corporate planning. A business planning approach based on market needs. It consists of four major stages: strategic planning, operational planning, budgeting, and capital budgeting. corporate restructuring. A legal strategy involving the establishment of subsidiaries or related corporations in order to maximize the economic position of a healthcare organization. cost accounting. The study of costs, including methods of classifying, allocating, and identifying costs. cost allocation. Assigning indirect costs, and some direct costs, to departments that generate charges. Also called cost finding or cost analysis . cost center. A department; from an accounting standpoint, a department that consumes money. cost-led pricing. Setting prices after costs have been projected. cost shifting. The practice of transferring costs to some payers to offset losses from other payers. credit-and-collection cost. The cost incurred by the organization for billing and collecting during the organization’s average payment cycle. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

420 G l o s s a r y critical success factors. Subgoals of a plan, monitored during performance management to measure progress of the overall plan. current assets. Resources that the organization expects to consume within one year. current liabilities. Economic obligations, or debts, that are due within one year. current portion of long-term debt. The amount of the organization’s long-term debt (not including interest) that is expected to be paid within one year. debt. Money that is borrowed by an organization. deferred revenue. Money received by the hospital but not yet earned by the hospital, such as registration fees for an educational program not yet provided. defined-benefit plan. A health plan in which the employer pays the premium, or an established part of the premium, regardless of the cost. defined-contribution plan. A health plan in which the employer pays a set amount toward the cost of the premium and the employee pays the rest. Thus, if an employee chooses an expensive plan, the employee pays more than if a less expensive plan were chosen. delinquency cost. The cost incurred by the organization for the patient not paying on time. This cost can include the costs associated with turning the account over to a collection agency or with writing off the account to bad debt. depreciation and amortization. Expensing of long-term assets over time to show their declining value. diagnosis-related group (DRG). A grouping of similar healthcare cases that should require similar resource consumption. DRGs are used by Medicare to calculate prospective payments. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

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G l o s s a r y 421 differential costing. A method of assembling costs and sometimes revenues to alternative decisions. Also known as incremental costing or relevant costing . differential costs. The difference in costs between two or more alternatives. Also known as incremental costs. direct apportionment. A cost allocation method that moves costs from departments that do not generate revenue to departments that do generate revenue. direct contracting. The practice of an employer making a contractual agreement directly with an integrated delivery system to deliver health services to employees. direct costs. Costs that can be traced directly to a department, product, or service. directionality. Statistical property for numbers that always improve in one direction and always worsen in the other direction. direct service plan. An arrangement whereby an employer prepays specific hospitals and physicians to take care of employees. discontinuities. Disruptions to the inventory process, such as the introduction of a new version of a product. Disproportionate Share Hospital. A CMS designation initiated in 1985 for a hospital that serves a disproportionately high percentage of low-income patients and therefore receives payments from Medicare and Medicaid to cover the increased cost of providing care to low-income patients. double apportionment. A cost allocation method that allocates costs from non-revenuegenerating cost centers to other non- revenue-generating cost centers (as appropriate), then allocates costs from revenue-generating cost centers to other revenue- generating cost centers (as appropriate), and then allocates costs from non-revenue-generating cost centers to revenue-generating cost centers. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

422 G l o s s a r y economic order quantity. The number or amount of items that should be ordered each time to result in the minimum total inventory costs. electronic data interchange. A method of payment in which the payer, such as Medicare, electronically transmits payment to the healthcare organization’s bank and sends related information to the organization. employer-based proposal. A health reform idea that employers should provide health insurance for their employees. equity. Ownership claim against total assets; the difference between assets and liabilities in a for-profit organization. estimated third-party adjustments. Approximations of how much money the organization will be required to return to third- party payers due to overpayments to the organization. excess of revenues over expenses. Operating income plus nonoperating income minus total expenses. executive committee. A committee of the governing body of an organization that monitors all the other committees. expenses. Amounts of resources used by the organization. experience rating. A premium-setting method in which different groups covered by an insurance company pay different premiums based on their risk. factoring receivables. The practice of selling accounts receivable to a third party at a discount. The third party attempts to collect the accounts and keeps the money. fiduciary. A person, or governing body, in a position of great trust and confidence. The term is typically used to describe the duty of an entity to be loyal and responsible. finance committee. A committee of the governing body of an organization that monitors the CEO’s performance in financial affairs. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

G l o s s a r y 423 financial accounting. A type of accounting that provides historical accounting information to external users. financial accounting costs. The amount of money used for a certain purpose. financial analysis. Methods used by investors, creditors, and management to evaluate past, present, and future financial performance of an organization. first-in, first-out (FIFO). An inventory valuation system that assumes that the first items put into inventory will be the first taken out. Thus, the value of the remaining inventory is based on the cost of the most recent additions to inventory. fixed costs. Costs that remain constant in relation to changes in volume. float period. The time between when a check is written and when it is presented for payment. foundation. A not-for-profit corporation, usually a subsidiary of a for-profit organization, that facilitates education and research or otherwise undertakes charitable projects. fraud. An intentional misrepresentation of fact designed to induce reliance by another. full costing. A method of assembling direct and indirect costs to a product or service to determine its profitability. full costs. Costs that include both direct and indirect costs. future value. The anticipated value of an investment at a given point in the future, taking into account factors such as interest rate, time, and the frequency of compounding. gross patient services revenue. The total amount of charges for patients utilizing the hospital, regardless of the amount actually paid. gross receivable. The full amount a healthcare organization charges. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

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424 G l o s s a r y Healthcare Financial Management Association (HFMA). Association of healthcare financial managers; confers four certifications: certified revenue cycle representative, certified technical specialist, certified healthcare financial professional, and fellow of the Healthcare Financial Management Association. Health Insurance Portability and Accountability Act of 1996 (HIPAA). Legislation that mandated privacy and security regulations for the healthcare industry. health maintenance organization (HMO). An organization that integrates the financing and delivery of healthcare into one organization. high-deductible health plan. A health insurance plan with higher deductibles and lower premiums than traditional health plans. horizontal analysis. Evaluation of the trends in an organization’s finances by focusing on percentage change over time. Hospital Value-Based Purchasing Program. A program initiated by CMS in 2012 that rewards hospitals with incentive payments for high-quality care delivered to Medicare patients. Other payers have initiated similar programs. incremental budgeting. Budgeting only for changes, such as new equipment. The assumption in incremental budgeting is that the current budget is already optimal. incremental planning. Planning only for changes, such as new equipment. The assumption in incremental planning is that current operations are already optimal. indirect costs. Costs that cannot be traced directly to a department, product, or service. Also known as overhead costs . integrated delivery system. A system of healthcare providers capable of accepting financial responsibility for and delivering a full range of clinical services. interest. Expense incurred with borrowed money. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

G l o s s a r y 425 internal auditor. Staff member who monitors the effectiveness of an accounting system by verifying the system’s internal control. internal control. Accounting systems and procedures that identify and correct errors as they occur. internal rate of return (IRR). The minimum return one needs to break even on an investment. It is the necessary net present value of an investment that, when added to the final market value of the investment, equals the current cost of the investment. inurement. Providing an employee benefit, such as salary, that is greater than the value of the employee’s work. inventories. The value of supplies on hand that are properly presented as a current asset on the balance sheet. When inventories are used, they are presented as a supply expense on the statement of operations. inventory. The cost of food, fuel, drugs, and other supplies purchased by the hospital but not yet used or consumed. inventory management. The management and control of items that have an expected useful life of fewer than 12 months. inventory turnover. A ratio that measures how many times an organization goes through its inventory relative to its operating revenue. investment policy. A board-approved policy that directs the chief financial officer or controller in making short-term investment decisions. job-order costing. A method of determining product cost by sampling the product’s actual direct costs and developing a relative value unit (RVU)—a measure of resources consumed by each product—in varying amounts for each product. The Joint Commission. The primary accrediting body for healthcare organizations. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

426 G l o s s a r y joint venture. A relationship between two business entities entered into for a specific purpose and period of time. just-in-time inventory method. Inventory method in which supply items are delivered immediately prior to use. last-in, first-out (LIFO). An inventory valuation system that assumes that the last items put into inventory will be the first taken out. Thus, the value of the remaining inventory is based on the cost of the earliest additions to inventory. liabilities. Economic obligations, or debts, of the organization. liquidity. A characteristic of an investment that pertains to how quickly it can be converted to cash. liquidity ratios. Ratios that measure an organization’s ability to meet short-term obligations. lock box. In healthcare, a system in which payments from patients are mailed directly to a bank, which credits the healthcare organization’s account more quickly than if the check had been mailed to the organization. long-term debt, net of current portion. An economic obligation, or debt, that is due in more than one year, minus the amount that is due within one year. long-term investments. Economic resources that the hospital owns, such as corporate bonds and government securities, and intends to hold for more than one year. long-term liabilities. Economic obligations, or debts, that are due in more than one year. managed care organization. An organization that controls the cost and quality of and access to healthcare. managed-competition proposal. A health reform idea that blended government regulation with free-market competition. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

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G l o s s a r y 427 management connective processes. Management functions that connect elements of the healthcare organization, including communicating, coordinating, and decision making. management functions. The key functions of a manager, including planning, organizing, staffing, directing, and controlling. managerial accounting. A type of accounting that provides accounting information, generally current or prospective in nature, to internal users. managerial accounting costs. Costs that help management make better decisions. marginal costs. The costs of producing one more unit of something. materials management. The management and control of inventory, services, and equipment from acquisition to disposition. Medicaid. A program created by the federal government, funded by the federal and state governments, and administered by the state government, to provide free or low-cost healthcare to low- income recipients. Medicaid coverage gap. A hole in insurance coverage created by states that did not expand Medicaid (for example, an eligibility income limit of 44 percent of the federal poverty level) and subsidized insurance on the exchanges that starts at 100 percent of the federal poverty level. Medicare. A federally funded program that provides health insurance to Americans at age 65. Merit Incentive Payment System (MIPS). A government- mandated program that provides a Medicare performance-based payment adjustment based on quality, resource use, advancing care information, and cost to physicians and certain other clinicians, to be initiated no later than 2019. multiple apportionment. A two-step cost allocation method that makes multiple, simultaneous apportionments during the first step. Also known as algebraic apportionment. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

428 G l o s s a r y National Patient Safety Goals (NPSGs). A set of goals established by The Joint Commission to address safety areas of special concern for hospitals. net assets. The difference between assets and liabilities in a not- for-profit organization, which represents the owner’s and others’ financial interests in the organization. net assets released from restrictions used for operations. Money previously restricted by donors that has become available for operations. net income. The difference between collected revenues and expenses; a reasonable amount is considered the most important objective of healthcare financial management. net patient services revenue. Money generated by providing patient care minus the amount the organization will not collect as a result of discounting charges per contractual agreement and providing charity care. net present value (NPV). The present value of the future cash flow of an investment. NPV takes into account the fact that future cash flows are “discounted” to determine their present value. net receivable. The gross receivable minus any negotiated discounts. network HMO. A health maintenance organization that contracts with physician groups to provide care for enrollees. A network HMO may be either an open-panel or a closedpanel HMO. noncurrent assets. Economic resources that have a life of one year or more (i.e., the organization expects to consume them over a span longer than one year). nonoperating costs. Costs associated with supporting the production of a product or the provision of a service. nonoperating income. Money earned from non–patient care services, such as investment income. notes payable. Short-term obligations for which a formal contract has been signed, such as a short-term loan. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

G l o s s a r y 429 open-panel HMO. A health maintenance organization that exerts moderate control over physicians by contracting with them to provide care for enrollees. However, these physicians can see other patients. operating costs. Costs associated with producing a product or providing a service. operating expenses. Resources used on operations to generate revenue in support of the organization’s mission statement. operating income. Money earned from providing patient care services. It includes the total revenue, gains, and other support minus the total operating expenses. operational planning. The process of translating the strategic plan into a year’s objectives. opportunity costs. Potential revenues forgone by rejecting an alternative. other noncurrent assets. Assets limited as to use (by contracts with outside parties) and goodwill, which represents the amount above fair market value based on an entity’s future earning potential. other operating expenses. Miscellaneous expenses that have not been reported elsewhere. other operating revenue. Money generated from services other than health services to patients and enrollees. It may include revenue from rental equipment and office space, sales of supplies and pharmaceuticals, cafeteria and gift shop sales, and so on. Often the test for whether revenue is considered other operating revenue or nonoperating revenue is whether the revenue was generated in support of the organization’s mission statement. overstock cost. The cost of carrying more inventory than demand calls for. patient dumping. Denying care to or transferring a patient based on the patient’s inability to pay. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

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430 G l o s s a r y payback period. The number of years necessary for cash flows to recover the original investment. peer review organizations (PROs). Organizations that ensure that providers give appropriate care to Medicare recipients. per diagnosis rate. A method of paying for healthcare in which the hospital is paid a flat fee for each given diagnosis, regardless of the actual service provided. per diem rate. A method of paying for healthcare in which the hospital is paid a flat fee per day, regardless of the service delivered on any given day. permanently restricted net assets. Donor-restricted net assets with restrictions that never expire, such as endowment funds. physician–hospital organization (PHO). A joint venture between a hospital organization and physicians that is capable of contracting with managed care organizations. planning horizon. The length of time management is looking into the future. plant and equipment, net. Economic resources, such as land, buildings, and equipment, minus the amount that has been depreciated over the life of the buildings and equipment (which is called accumulated depreciation ). pledging receivables. The practice of using accounts receivable as collateral for a loan. preferred provider organization (PPO). An organization that provides discounted healthcare services to insurance carriers and employers. premium revenue. Money generated from capitation arrangements that must be reported separately from patient services revenue because premium revenue is earned by agreeing to provide care, regardless of whether care is ever delivered. prepaid expenses. Expenditures made by the hospital for goods and services not yet consumed or used in hospital operations (sometimes referred to as deferred expenses ), such as rent and EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

G l o s s a r y 431 insurance premiums. present value. The current value of an investment. price-led costing. Reducing costs after prices, or effective prices (i.e., collections), have been determined by the payers. process costing. A method of determining product cost by dividing the full costs of the organization or department during a given accounting period by the number of products or services produced or provided during the given accounting period. production units. The best measures of what an entity is producing. For example, patient days and admissions are both considered production units for a hospital. profitability ratios. Ratios that measure an organization’s ability to exist and grow. prospective payment. A payment system in which a healthcare organization accepts a fixed, predetermined amount to treat a patient, regardless of the true ultimate cost of that treatment. Diagnosis-related groups (DRGs) are one type of prospective payment; Medicare pays hospitals a fixed amount for an episode of treatment based on that treatment’s DRG. ratio. A comparison between two or more financial facts, such as income to assets or assets to liabilities. ratio analysis. Evaluation of an organization’s performance by computing the relationships of important line items in the financial statements. ratio of cost to charges. A method of determining product cost by relating its cost to its charge. This ratio is usually calculated by dividing an organization’s total operating expenses by the gross patient revenue. The resulting percentage is then applied to any product’s charge in the organization to calculate the product’s cost. Readmission Reduction Program. A CMS program designed to reduce payments to hospitals for patients who return to the EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

432 G l o s s a r y hospital with certain diagnosed conditions within 30 days of their prior admission for the same condition. receivables, net. Money due to the organization from patients and third parties for services already provided. recovery audit contractor (RAC). A private business that detects and recovers improper Medicare payments to providers. relevant costs. Costs that are important to a decision at hand. resource-based relative value scale (RBRVS). A Medicare reimbursement system that provides a flat, per-visit fee to physicians rather than reimbursing them according to their customary charges. responsibility costing. A method of assembling costs by cost center or department. retained earnings. Income earned by the organization from operations minus dividends (distributions of earnings paid to stockholders based on the number of shares of stock owned). revenue center. A cost center (department) that generates money. revenue cycle. A multidisciplinary approach to reducing the amount in accounts receivable by effectively managing the production and payment cycles. revenues. The amounts earned by the organization or sometimes donated to it. RVU schedule. A list of charges, such as procedures performed by the laboratory or the radiology department, based on relative value units (RVUs). second-party payment. Payment for healthcare that comes from the person receiving the service (i.e., patients paying their own bills). semivariable costs. Costs that change incrementally in response to changes in volume. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

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G l o s s a r y 433 shareholders’ equity. The difference between assets and liabilities in for-profit healthcare organizations; it represents the ownership interest of stockholders in the organization. Also called stockholders’ equity , owners’ equity , or net worth . short-term securities. Investments with a maturity date of less than one year. single-payer proposal. A health reform idea that a single payer —namely, the federal government—should pay for all healthcare. skill mix. The proportional combination of particular skilled positions in a department. specific identification. An inventory valuation system that determines the actual value of each inventory item. staffing mix. The proportional combination of full-time, part-time, and temporary employees in a department. standard costs. Estimated or budgeted costs used for comparison. statement of cash flows. A financial report that shows the organization’s amounts of cash receipts and where they came from and the amounts of cash disbursements and where they went during the statement period. statement of changes in net assets. A financial report that shows the reasons why net assets changed from the beginning of the statement period to the end of the statement period. statement of operations. A financial report that summarizes the organization’s net revenues, expenses, and excess of net revenues over expenses over a period of time. step-down apportionment. A cost allocation method that allocates costs from non-revenuegenerating cost centers to other non-revenue-generating cost centers (as appropriate) and then to revenue-generating cost centers. stock-out cost. The cost of running out of inventory on an item, such as the cost of making a rush order. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

434 G l o s s a r y strategic planning. Long-range planning that anticipates where an organization will be in three to ten years. strategic thrusts. Broad statements of significant results that an organization wants to achieve related to its vision. Also called goals . sunk costs. Costs that have already been incurred and thus will not play a role in future decisions. tax-exempt. The status that allows an organization to pay no taxes, including sales tax, income tax, and property tax. Tax- exempt organizations may also raise capital by selling tax-exempt bonds, for which they can pay lower interest than comparable taxable bonds. temporarily restricted net assets. Donor-restricted net assets that the organization can use for the donor’s specific purpose after the organization has met the donor’s restriction, such as the passage of time or an action by the organization. temporary investments. Money placed in securities with maturities up to one year, such as commodities and options. third-party payer. An agent of the patient (the first party) that contracts with a provider (the second party) to pay all or a portion of the bill to the patient. total changes in net assets. The difference between total net assets at the beginning of the year and total net assets at the end of the year. trade credit. Credit extended to an organization by vendors. treasurer. The person responsible for managing the capital of an organization. true costs. Hypothetical costs that are the most accurate representation of full costs that can be determined by management. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

G l o s s a r y 435 two-sided risk. A risk model that allows the provider to share savings with the payer if costs are below a negotiated target and to lose Medicare reimbursement if costs are above a negotiated target. uncontrollable costs. Costs that cannot be influenced by the manager. unrestricted net assets. Net assets that have not been externally restricted by donors or grantors, such as the excess of revenues to expenses from operations. value-based programs. Programs that reward healthcare providers with incentive payments for the quality of care they deliver to Medicare beneficiaries. variable costs. Costs that change directly and proportionately in response to changes in volume. variance analysis. An examination of the differences (variances) between budgeted and actual amounts. Variance analysis requires managers to explain why budgeted and actual amounts do not match. vertical analysis. Evaluation of the internal structure of an organization by focusing on a base number and showing percentages of important line items in relation to the base number. weighted average. An inventory valuation system that uses an average of the costs of inventory items to determine the value of inventory. working capital. An organization’s current assets; the assets available to run the organization in the short term. working capital policy. Sources and methods used to finance working capital, as well as the quantity of working capital to be maintained. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

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436 G l o s s a r y zero-base budgeting. Budgeting that requires all operations to be justified anew; nothing in the current budget is assumed to be already optimal. zero-base planning. Planning that requires all operations to be justified anew; nothing is assumed to be already optimal. EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

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EBSCOhost - printed on 10/16/2023 3:38 AM via WESTERN GOVERNORS UNIVERSITY. All use subject to https://www.ebsco.com/terms-of- use

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c428 glossary

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