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Healthcare Financial Management Lecture Packet 1 2022

Please review with notes page visible.

Respectfully,

GEG

Outline

The Objective of Healthcare Management.

The Objective of Healthcare Financial Management.

What is Healthcare Financial Management?

Traditional Responsibilities of Financial Managers.

Major Responsibilities of Healthcare Financial Management.

The Four C's of Financial Management.

The purpose of this lecture is to provide an overview of the Healthcare Financial Management discipline. This will be accomplished by focusing on the objectives of healthcare management and healthcare financial management. We will also discuss the responsibilities of healthcare financial managers. We will then conclude this presentation by focusing on the Four C’s (cost, cash, capital and control) of financial management.

The Objective of Healthcare Management.

The Objective of Healthcare Management

The overall objective of healthcare management is to accomplish the organizational purpose.

Organizational Purpose: (formal definition) “To provide the community with the services it needs at clinically acceptable levels of quality at a publicly responsive level of amenity, and at the least possible cost (Berman, Kukla, and Weeks 1994).

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Provide services at a high level of quality, serve as many people as you can, and keep costs as low as possible). (broad view)

Organization Purpose also depends on the line of business. (specific view)

Who are we, what do we do?

Why is the organizational purpose important?

The Objective of Healthcare Financial Management?

The Objective of Healthcare Management

The objective of healthcare financial management is provide both accounting and finance information that assists healthcare managers in accomplishing the organization’s purpose.

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Two Broad Areas of Accounting:

Financial Accounting: Provide information for external users.

This type of information is heavily regulated by the Financial Accounting Standards Board (FASB)

e.g. preparation of income statement.

Managerial Accounting: Provide information for internal use.

These types of statements are not regulated

e.g. budgets, cost allocations.

The Objective of Healthcare Management

Accounting Versus Financial Management:

Accounting: focuses on the financial measurement of events that reflect the resources, operations, and financing of an organization.

--vs.--

Financial Management: focuses on the theories, concepts, and tools necessary to help managers make better financial decisions.

What are you going to do with the information at hand.

What is Healthcare Financial Management?

What is Healthcare Financial Management

Finance: (initial role):

The traditional role of finance has been to borrow and invest funds that will assist managers in accomplishing its organizational purpose.

Reactive approach

____________________________________________________

Finance: (larger present day role):

Use managerial, financial accounting, and finance theory to evaluate past decisions and shape new organizational decisions.

Proactive approach

e.g. ratio analysis, cost allocations, capital budgeting.

There are many more techniques we will discuss during the semester.

What is Healthcare Financial Management Nowicki (2008): The Financial Management of Hospitals and Healthcare Organizations

Economics

Financial Accounting

Finance

Managerial Accounting

Operations Research

Statistics

Financial Management

Clinical Objectives

The purpose of this slide is to identify all of the various disciplines which encompasses financial management (highlighted in red). Financial management mainly include the areas of finance, financial accounting and managerial accounting. In addition, financial management includes the disciplines of economics, operations research, statistics, and a relatively new focus on clinical objectives. All of these tools must be used effectively and efficiently to guide the financial strategy of an organization.

Traditional Responsibilities of Finance Managers

Budgeting:

The formation of budgets are an important process for any organization.

Budgeting involves the process of constructing and using budgets.

Budgets are detailed plans for obtaining and using resources during a specified time period.

We will revisit later

____________________________________________________

Managing Financial Operations:

Healthcare organization spent a lot of time managing cash and supplies as well as collecting money for services rendered.

Proper management of these functions is necessary to ensure operational effectiveness and to reduce costs.

Today, managers at all levels should be involved in this process.

We will revisit later

Traditional Responsibilities of Finance Managers

Financing Decisions:

All organizations must raise funds to buy the assets necessary to support operations.

Such decisions may involve issues such as: deciding between long-term and short-term debt, the use of lease versus conventional financing.

Senior managers and the financial staff typically make the financial decisions, but these decisions have ramifications for managers at all levels.

Traditional Responsibilities of Finance Managers

Capital Investment Decisions:

Involve decisions which surround the purchase/sale of property, plant and equipment (PPE).

These types of decisions are the primary means by which businesses implement strategic plans.

Thus, capital investment decisions play a significant role in the financial future of all businesses.

Traditional Responsibilities of Finance Managers

Financial/Operational Analysis:

In order to achieve and maintain a high level of organization performance, all business must constantly monitor their financial/operational conditions.

Can be accomplished with the use of dashboards.

In addition to monitor conditions businesses must take corrective action to make sure that the organizational purpose (goals) are met.

Traditional Responsibilities of Finance Managers

Financial Reporting:

Financial Reporting involves the reporting of the current financial/operating conditions of the company. This is primarily done for people who are not part of the organization.

This task is usually accomplished by referencing material on the financial statements.

Please see the next slides for examples on current events and their effect on the financial statements.

Traditional Responsibilities of Finance Managers

Financial Reporting (continued):

Hospitals' uncompensated care costs jumped to $38.3B in 2016: 3 findings

https://www.beckershospitalreview.com/finance/hospital-uncompensated-care-costs-jumped-to-38-3b-in-2016-3-findings.html

Written by Morgan Haefner | January 05, 2018

Hospitals nationwide saw uncompensated care costs increase 7.3 percent in 2016, according an American Hospital Association analysis.

Here are three findings from the report, which compiled data from the AHA's annual hospital survey.

The AHA found hospitals' uncompensated care costs were $35.7 billion in 2015, and grew to $38.3 billion in 2016.

While uncompensated care costs were roughly 7 percent higher in 2016, the figure was down 10.5 percent from 2014, when costs totaled $42.8 billion.

U.S. hospitals' uncompensated care costs totaled $46.4 billion in 2013, the highest cost reported during the past 26 years.

Traditional Responsibilities of Finance Managers

Financial Reporting (continued):

Becker’s Hospital CFO Report

Moody’s Severe flu season will pressure nonprofit hospital margins

Written by Alia Paavola | January 30, 2018 |

https://www.beckershospitalreview.com/finance/moody-s-severe-flu-season-will-pressure-nonprofit-hospital-margins.html

Despite an increase in patient admissions, the severe flu outbreak this season will pressure nonprofit hospital margins, according to a recent report by Moody's Investors Service.

A surge in patient volume is often credit-positive for hospitals since reimbursements are often tied to the number of patients served. However, the surge in flu-related patient volume will pressure hospital margins because reimbursements for flu-related services often fail to cover the cost of treatment.

"Minimizing the length of stay for flu patients is essential to maintaining margins, but the severity of this year's flu will complicate those efforts," the Moody's report reads.

Traditional Responsibilities of Finance Managers

Financial Reporting (continued):

Becker’s Hospital CFO Report

Moody’s Severe flu season will pressure nonprofit hospital margins

Written by Alia Paavola

https://www.beckershospitalreview.com/finance/moody-s-severe-flu-season-will-pressure-nonprofit-hospital-margins.html

In addition, the heightened patient volume increases other costs, such as overtime payments and other unbudgeted staffing costs, and may also limit facility capacity for more profitable services such as elective surgeries. Many hospitals across the nation are considering canceling elective surgeries, which are a valuable source of revenue, as their facilities grapple with an influx of flu-related cases.

Since flu-related admissions are often unplanned, and in many markets there are shortages of primary care physicians, many flu patients are heading to the emergency department to receive care, which is costly.

"Treating large numbers of patients in the ED creates a bottleneck to efficient flow of patients through the hospital and is often an expensive place to receive care," the report reads.

Moody's also notes flu patients are at a higher risk for complications, which may increase hospital costs.

Financial Reporting (continued):

Nonprofit hospital margins unlikely to recover until COVID 19 vaccine

Ayla Ellison Friday, July 17th, 2020

https://www.beckershospitalreview.com/finance/fitch-nonprofit-hospital-margins-unlikely-to-recover-until-covid-19-vaccine.html

Median financial ratios for nonprofit hospitals and health systems improved before the COVID-19 pandemic, which will provide some financial cushion to withstand financial pressures, according to a report from Fitch Ratings.

The medians for 2019, based on 2018 data, showed the nonprofit hospital and health system sector stabilized after a period of operational softness. The medians for 2020, based on 2019 audited data, are expected to show improvement in operating margins driven by higher revenues, cost reductions and increased cash flow, Fitch said.

"We expect the 2020 medians will represent peak performance levels until the sector is able to recover from the effects of the pandemic on operations," Fitch said.

Traditional Responsibilities of Finance Managers

Financial Reporting (continued):

Becker’s Hospital CFO Report

Nonprofit hospital margins unlikely to recover until COVID 19 vaccine

Ayla Ellison Friday, July 17th, 2020

https://www.beckershospitalreview.com/finance/fitch-nonprofit-hospital-margins-unlikely-to-recover-until-covid-19-vaccine.html

The credit rating agency said the nonprofit healthcare sector is unlikely to stabilize until a COVID-19 vaccine is widely available.

"The sector has shown considerable resiliency over the years, weathering significant events such as the Great Recession and legislative changes to funding," Fitch said. "However, the coronavirus presents entirely new and fundamental challenges for the sector in the short term in the form of volume and revenue disruption, and over the medium to longer term with expected deterioration of individual provider payor mixes and possible changes in the behavior of healthcare consumers."

Traditional Responsibilities of Finance Managers

Financial Reporting (continued):

Delta variant creates setbacks in hospital financial recovery

Alia Paavola - Tuesday, August 24th, 2021 Print | Email

https://www.beckershospitalreview.com/finance/delta-variant-creates-setbacks-in-hospital-financial-recovery.html

Hospitals and health systems in the U.S. experienced both patient volume declines and financial setbacks in July as COVID-19 cases spiked due to the rapid spread of the delta variant, according to an Aug. 24 report from consulting firm Kaufman Hall.

Compared to pre-pandemic levels seen in 2019, hospitals saw lower margins and patient volumes. In addition, while revenues rose above 2019 levels, the gains were often offset by expense increases.

The median hospital operating margin was 3.2 percent in July, not including relief funding. With the relief aid, the median hospital margin was 4.1 percent in July. Additionally, hospitals' median operating earnings before interest, taxes, depreciation, and amortization margin for July was 7.7 percent without the federal relief aid and 8.9 percent with the relief aid.

Traditional Responsibilities of Finance Managers

Financial Reporting (continued):

About 1 in 5 healthcare workers have left medicine since the pandemic began — Here's why

With about 1 in 5 healthcare workers leaving medicine since the pandemic began, The Atlantic explored numerous reasons why providers are leaving healthcare, coming up with at least seven key reasons.

The U.S. healthcare sector has lost nearly half a million workers since February 2020, according to estimates from the Bureau of Labor Statistics. Eighteen percent of healthcare staff have quit since the pandemic began, while 12 percent have been laid off, according to survey research company Morning Consult. Of the remaining workers, 31 percent have thought about leaving their employer, according to Morning Consult.

"Physicians are some of the most resilient people out there," Sheetal Rao, MD, a primary care physician who left her job last October, told The Atlantic. "When this group of people starts leaving en masse, something is very wrong."

Excluding those who have left the field because of layoffs or conditions linked to long COVID, below are seven reasons healthcare workers are exiting the field, per The Atlantic:

Please see the Assigned Readings folder for the full text article.

Traditional Responsibilities of Finance Managers

Financial Reporting (continued):

94% of nursing homes face staff shortages: AHCA, NCAL

https://www.beckershospitalreview.com/post-acute/94-of-nursing-homes-face-staff-shortages-ahca-ncal.html?utm_campaign=bhr&utm_source=website&utm_content=related

Almost all, or 94 percent, of U.S. nursing homes face staff shortages, according to a recent survey conducted by The American Health Care Association and National Center for Assisted Living.

The findings, posted June 23, were from a survey of 616 nursing homes and 122 assisted living communities across the U.S.

Four other key findings:

1. Nearly three-fourths of nursing homes and more than half of assisted living communities said their facility's overall workforce situation has gotten worse compared to 2020.

2. More than half of facilities are actively trying to fill vacant positions for certified nursing assistants, licensed practical nurses, registered nurses, dietary staff and housekeeping roles.

3. The majority of providers believe higher reimbursement to offer better pay and benefits would help recruit and retain staff.

4. More than half of facilities in 2020 said staff in essential positions — such as CNAs or direct caregivers and dietary staff — had quit.

The Major Responsibilities of Healthcare Financial Management?

Major Responsibilities of Healthcare Financial Management

Generate Income:

The philosophy of all organizations is to survive and grow.

The organization will cease to exist if it cannot afford to operate.

With non-healthcare organizations: The goal is to maximize owner’s wealth.

E.g. Google, Apple

_________________________________________________________________With healthcare organizations: The goal is to maintain community services****.

Further distinctions exist with for-profit and not-for profit hospitals.

We will revisit later.

Major Responsibilities of Healthcare Financial Management

Respond to Regulations:

There is a tremendous amount of regulation in health care.

Federal, state/local governments all play a role in regulating the healthcare industry.

Federal state and local governments pay over 45 percent of all healthcare bills Thus, these entities have a vested interest in how the care is provided.

__________________________________________________________________

Healthcare organizations are in the position to take care of the sick, the elderly, and the poor.

E.g. This is one of the reasons for the Emergency Medical Treatment & Labor Act of 1986 (EMTALA).

_________________________________________________________________

Quasi-regulations: Healthcare organizations must also meet quasi-regulations (e.g. accreditation, certification) to qualify for reimbursement from many third party payers.

Major Responsibilities of Healthcare Financial Management

Facilitate Relationships with Third Party Payers (continued):

Complex relationship

Third Party Payers account for over 80 percent of the operating revenue for healthcare organizations.

Financial managers must be responsive to the needs of third-party payers and must treat these payers as 'valued customers.'

In addition, financial managers must be responsive to the patient as a customer. The patient has influence over the third-party payer.

This increased focus on responsiveness usually occurs in areas where you have high hospital (health provider) competition markets.

Hospital competition and consolidation is measured by the Herfindahl–Hirschman Index.

We will revisit this concept later

Major Responsibilities of Healthcare Financial Management

Influence Reimbursement Levels:

Underneath the facade, there is usually an acrimonious relationship between hospitals and third-party payers.

_____________________________________________________________

This acrimonious relationship can be traced to the advent of two types of reimbursement mechanisms.

Prospective Payment: agreeing in advance to a price for providing care. (i.e. Per diem Payments, Diagnostic Related Groups DRGs).

Capitation: Price per subscriber before the subscriber actually needs care (Private health insurer’s form of prospective payment).

The dispute is over: Continuum Health Partners and UnitedHealthcare signed a new contract Wednesday night after months of sometimes tense negotiations. The contract is for all product lines, including commercial, Medicare and Medicaid, and is effective retroactively to March 1.

“We're pleased with the outcome,” said Ruth Levin, Continuum's chief negotiator on the contracts.

The contract dispute dates back to December, and Continuum dropped from UnitedHealthcare's network on Jan. 1. United and the health system—which includes Beth Israel Medical Center, St. Luke's-Roosevelt Hospital Center, Long Island College Hospital and the New York Eye and Ear Infirmary—failed to agree on new contract terms over reimbursement and other issues.

On one hand, United was trying to hold down the cost of premiums….A spokeswoman for the insurer (stated that United) “a responsibility to our employers and health plan participants to balance affordability and access.”

UNITED HEALTHCARE CONTRACTS DROPPED HOSPITALS

http://www.crainsnewyork.com/article/20100312/FREE/100319959#ixzz1kKu5hNoe

Major Responsibilities of Healthcare Financial Management

Ms. Levin, who is Continuum's corporate senior vice president

“United took the position that if we didn't agree to their language terms, they were not interested in further discussions,”

Continuum would try to obtain “the necessary protections against potential abuse of underpayments, denials, unreasonably burdensome and costly administrative requirements, etc..”

The dispute escalated in January, when Continuum filed a request for an injunction in Manhattan Supreme Court to stop United from “improperly removing" some 1,500 Continuum doctors from United's networks.

All the bickering over a contract is now history, with the hospital chain and United agreeing on undisclosed terms.

Continuum, meanwhile, is continuing to negotiate a contract with another large insurer, Aetna.

UNITED HEALTHCARE CONTRACTS DROPPED HOSPITALS (continued)

Major Responsibilities of Healthcare Financial Management

Doctors, Anthem agree to contract

Graves-Gilbert Clinic, insurance provider end a two-year dispute

http://www.bgdailynews.com/news/doctors-anthem-agree-to-contract/article_56c2ec31-1cac-50a3-9d8d-7e2aa2e3adbb.html

By JENNA MINK, The Daily News, jmink@bgdailynews.com/783-3246 Dec 15, 2009

Graves-Gilbert Clinic patients covered by Anthem insurance can continue to receive care at the clinic after the two reached a contract agreement Monday.

Graves-Gilbert Clinic announced today that it signed a two-year contract with the insurance company, which will go into effect Jan. 1.

The agreement ends a nearly two-year dispute between the clinic and the insurance provider centered around physician reimbursement fees. Graves-Gilbert had requested an increase in the amount of money physicians receive for their services, and Anthem was not willing to grant that increase.

The two companies reached an agreement 18 days before the current contract expired. Graves-Gilbert would have terminated its contract with Anthem on Jan. 1 if the dispute was not settled.

Major Responsibilities of Healthcare Financial Management

Doctors, Anthem agree to contract (continued)

If the contract had been terminated, thousands of local Anthem members probably would have been looking for new physicians.

Graves-Gilbert told its patients that the clinic would stop seeing Anthem members after March 31 if an agreement was not reached.

Several people expressed support of an agreement between Anthem and Graves-Gilbert, Thorn said.We’ve had a lot of people call in support,” he said. “Employers as well as patients.”

The dispute would have impacted one of the city’s biggest employers - Western Kentucky University. About 1,900 university employees are covered by Anthem insurance.

But during the dispute, both parties acknowledged that an agreement still could be reached.

Major Responsibilities of Healthcare Financial Management

Respond to Changes in Federal Reimbursement Policy

In the 1980s federal government instituted prospective payment for in-patient hospital services. (Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982).

What was the potential impact?

In the 1990s federal government instituted prospective payment for out-patient services (Balanced Budget Amendment (BBA) of 1997).

What was the potential impact?

Major Responsibilities of Healthcare Financial Management

Respond to Changes in Federal Reimbursement Policy (continued)

Obamacare Insurance Mandate Is Struck Down by Federal Appeals Court

A federal appeals court on Wednesday struck down a central provision of the Affordable Care Act, ruling that the requirement that people have health insurance was unconstitutional.

Some 17 million Americans could lose the coverage gained through the Affordable Care Act if the law were thrown out, more than 50 million people with pre-existing medical conditions could again be denied health insurance and insurers would no longer have to cover people up to age 26 under their parents’ plans.

A central question in the case was whether the Affordable Care Act’s “individual mandate” requiring most Americans to buy health insurance or pay a penalty became unconstitutional after Congress reduced the penalty to zero dollars as part of the tax overhaul bill enacted in 2017. When the Supreme Court upheld the mandate in its landmark 2012 ruling that saved the law, it was based on Congress’s power to impose taxes.

Please see the assigned readings folder for full text of article.

Major Responsibilities of Healthcare Financial Management

Respond to Changes in Federal Reimbursement Policy (continued)

Estimating the Impact of Repealing the Affordable Care Act on Hospitals

Findings, Assumptions and Methodology

Submitted to: The Federation of American Hospitals (FAH) The American Hospital Association (AHA)

http://www.aha.org/content/16/impact-repeal-aca-report.pdf

In modeling the repeal of the ACA as laid out in H.R. 3762, we found that between 2018 and 2026,

The loss of coverage would have a net impact on hospitals of $165.8 billion with the restoration of Medicaid DSH reductions.

The ACA Medicare reductions are maintained and hospitals will suffer additional losses of $289.5 billion from reductions in their inflation updates.

Full restoration of Medicare and Medicaid Disproportionate Share Hospital (DSH) payment reductions embedded in ACA would amount to $102.9 billion.

Major Responsibilities of Healthcare Financial Management

Monitor Physicians:

Health care managers must monitor physicians and their potential financial liability to the organization in terms of their ordering patterns and their possible negligence.

Usually accomplished with Utilization Review

This is a relatively new role and a very hard thing to do. However, taking increased emphasis with population health management (capitation) and RAC (Recovery Audit Program) audits.

Major Responsibilities of Healthcare Financial Management

Monitor Physicians (continued):

In 2013, physicians accounted for over 30 percent of all health care spending.

As a result, there is a lot of potential for waste, fraud and abuse.

Physicians are the key that starts the financial engine of the hospital and they know it!

______________________________________________________________________

Healthcare financial managers must ensure (through the utilization review process) that physician ordering patterns are consistent with what the patient needs.

Major Responsibilities of Healthcare Financial Management

Protect Tax Status:

For-Profit healthcare organizations must seek ways of reducing tax liability.

Why?

_______________________________________________________________

Not-for-Profit healthcare organizations seek ways of protecting their tax-exempt status from the attempts of state and local governments to find new resources.

The recent recession has spurred on more efforts by state/local governments in this area.

Relatively recently tax-exempt status of hospitals have come under judicial scrutiny.

Major Responsibilities of Healthcare Financial Management

Class Action Suits Against Non-Profit Hospitals http://www.crowell.com/NewsEvents/Newsletter.aspx?id=535

Protect Tax Status (continued):

Nationwide litigation against not-for-profit hospitals has exploded in recent days. On June 16, 2004, thirteen class action lawsuits were filed against not-for-profit hospital systems in eight states.

In general, the litigation includes claims for breach of contract, EMTALA violations, fraud, unjust enrichment, and civil conspiracy. The filing of these lawsuits coincides with Congressional hearings on hospital pricing practices and tax-exempt status.

The purpose of this slide is to discuss the legal scrutiny that numerous not for profit hospitals had to deal with in the recent past.

For the full article, please see reading on blackboard titled Class Action Suits Against Non-Profit Hospitals

Major Responsibilities of Healthcare Financial Management

Class Action Suits Against Non-Profit Hospitals (continued) http://www.crowell.com/NewsEvents/Newsletter.aspx?id=535

The AHA has aided and abetted Catholic Healthcare Partners (CHP’s) breaches of contract by providing assistance and advice on how to bill for and collect “grossly inflated” medical charges from Plaintiffs.

The AHA has also lobbied the Department of Health and Human Services, and such efforts have contributed to CHP’s breaches of contract.

_______________________________________________________________________

Plaintiffs seek a preliminary and/or permanent injunction against CHP’s billing and collections practices.

For the full article, please see reading on blackboard titled Class Action Suits Against Non-Profit Hospitals

Major Responsibilities of Healthcare Financial Management

Protect Tax Status (continued):

40% of hospitals not publishing community health needs assessments, putting tax-exempt status at risk

Alia Paavola - Thursday, August 26th, 2021 Print | Email

https://www.beckershospitalreview.com/finance/40-of-hospitals-not-publishing-community-health-needs-assessments-putting-nonprofit-status-at-risk.html

Forty percent of nonprofit hospitals are failing to complete and publicly report documentation required for a community health needs assessment, according to a study published Aug. 24 in JAMA Network Open.

As mandated by the ACA, nonprofit hospitals are required to complete community health needs assessments every three years to ensure they are producing community benefits with the costs saved from tax exemptions.

Major Responsibilities of Healthcare Financial Management

40% of hospitals not publishing community health needs assessments, putting tax-exempt status at risk (continued)

In particular, nonprofit hospitals are required to do three things: conduct the assessment and adopt an implementation strategy, abide by documentation requirements and make those documents publicly available. Not doing these three things could jeopardize a nonprofit hospital's ability to receive tax exemptions.

Researchers found that only 60 percent of hospitals had both a community health needs assessment and an implementation strategy publicly available, and many documents were missing.

For the study, researchers analyzed a random sample of 500 U.S. hospitals to determine adherence to these requirements. The researchers assessed the hospitals' IRS form 990 Schedule H from a ProPublica database.

Researchers noted that the 60 percent statistic applies to whether hospitals completed all three requirements.

Major Responsibilities of Healthcare Financial Management

North Carolina nonprofit hospitals' charity care rarely exceeds tax breaks, report shows

A majority of North Carolina nonprofit hospitals' charity care spending did not exceed 60 percent of their tax breaks in 2019 and 2020, an Oct. 27 analysis by Johns Hopkins Bloomberg School of Public Health and the North Carolina State Health Plan showed.

North Carolina State Treasurer Dale Folwell invited researchers from both organizations to create the report, according to a press release from his office.

The report found that fewer than 25 hospitals surpassed the amount of their tax exemption through their charity care spending, while the largest hospitals in the state collected tax breaks of more than $1.8 billion in 2019 and 2020.

Please see the Assigned Readings folder for the full text article.

The Four C's of Financial Management

All of the financial activities listed previously can be summarized by focusing on cost, cash, capital and control.

___________________________________________________________________

Costs:

Costs must be continuously monitored to ensure that they are not excessive for the number of services provided.

Rampant costs as compared to revenues usually spell doom for any business.

The measurement and minimization of costs is vital to the financial success of all healthcare organizations.

The Four C's of Financial Management

Cash:

Businesses must have sufficient cash on hand to meet payment obligations as they occur.

Cash is the lubricant that makes the wheel of a business run smoothly; without it, the business grinds to a halt.

Businesses must have sufficient cash on hand (or the ability to quickly raise it) to meet cash obligations as they occur.

***In healthcare, a critical part of managing cash is collecting money from third party payers for patient services provided.

We will revisit all of these concepts later.

The Four C's of Financial Management

Capital:

Capital represents the funds (money) that is used to acquire land, buildings, and equipment.

Without capital, healthcare businesses would not have the physical resources needed to provide patient services (and also generate revenue).

Thus, capital allows healthcare organizations to meet the healthcare needs of their communities.

The Four C's of Financial Management

Control:

A business must control is financial and physical resources to ensure that they are being wisely employed and protected for future use.

In addition to meeting current mission requirements, healthcare organizations must plan to meet the changing environment and society's future healthcare needs.

Healthcare Financial Management Lecture Packet 1 2022