HSMC/BAFI 420 – Health Finance Questions for the Midterm Exam Spring 2023Java

Java Python Questions for the Midterm Exam, Spring 2023

HSMC/BAFI 420 – Health Finance

1. ORGANIZATIONAL ECONOMICS AND EFFICIENCY (Unidentified Healthcare session)

Consider the financial ratios for University Hospitals of Cleveland (UH), Medical Mutual Health Insurance (MMO), and Kaiser Health Plans (K-P)

Note: “Capital” in the turnover and return ratios is assumed to be the amount provided by long term debt financing plus equity (where “equity” is typically labeled “net assets” on not-for-profit” balance sheets).  In other words, it is permanent capital raised excluding trade credit.

Then the DuPont chart relationships for 2021 financial statements are as follows:

Margin  x Turnover x Leverage = Return on Equity (profit/revenue)  (revenue/capital)  (capital/equity)    =   (profit/equity) UH:       8.8% x 0.2 x 2.1           = 11.8% MMO:   5.3%     x 0.8       x 1.5           =  6.5% K-P:       8.7% x 1.2 x 1.5           = 15.3%

[a]. For each of these, what factors are the most important determining the level of each  multiplier in the relationship? Explain your rationale. (Note: Attached note from class on drivers of financial structure in Appendix A might help in considering candidates)

[b]. How do you suppose the recent epidemic affected this data for each organization? Why?

2. HEALTH CARE INVESTMENT (Seamans Clinic session)

For each of the following three potential investments by a hospital system, describe the key factors (relevant cash flows, key risks, major players, decision criteria, etc.) that would drive your recommendations. Feel free to investigate more about each from internet sources.

[a] Enterprise Data Warehouse and Population Health Data Analytics/Business

Intelligence Capabilities-(ability to aggregate clinical and insurance claims data, model payer reimbursement contracts, and evaluate health care utilization and disease/condition cost trends)

[b] Home monitoring system (for use with patients in a new “Hospital at Home” Medicare contract)

[c] Linear Accelerator advanced cancer treatment equipment ($5 mil Varian Truebeam Radiation system)

3. VALUATION (Medfield Pharmaceutical session)

Consider the current sale of Oak Street Health to CVS as discussed in the attached article in Appendix B.

[a] How can you explain the purchase price by CVS of $10.6 billion (i.e., $39 per share--a 50% premium over the prior equity value of Oak Street) when they are still losing $200 million each year?

[b] How can each site of Oak Street do so well when their customers are almost all covered by Medicare and Medicaid and come from largely disadvantaged populations?

[c] How can you determine a total market value for a firm like this and what is the source of

it? Would you buy more stock at the current price or sell what you have for $39 per share? Why?

4. INSURANCE (Kaiser-Permanente Obesity session)

Compare the decisions K-P made in the obesity program discussed in that case discussion with the investments we studied in the Seaman’s case