financial management in healthcare class
Fundamentals of
Health Care Management
Chapter One
January
Learning Objectives
• Recite the amount of Dollars flowing through the health care industry
• Describe the importance of health care financial management
• Explain the role and objective of health care
• Describe the twofold purpose of financial management
Learning Objectives continued
• Recognize the category of providers
• Identify how a hospital financial administrator operates within an annual calendar of financial events (we are starting with January)
• Build a hospital pro forma financial statement
Financial Management • Has its own policies and procedures
• Generally Accepted Accounting Principles are used (GAAP)
• Procedures require estimates and approximations based on previous experience
• In the health industry—standards represent the ability to properly report operating results over time as well as net assets
• Price increase a function of change in volume, severity, and expense
What is Health Care?
• Maintenance or restoration of health of the body or mind
• $2.6 trillion dollar industry
• From 1966-2009, health care % of GDP grew to 17.9 %
• 314 percent increase
• US GDP in health care leads the industrialized world
• Projections for 2015=$3 trillion
What is Management?
• For profit—maximize owners/shareholder profit
• Not for profit—produce the best possible bottom line
• For profit— “management must administer the assets of the enterprise in order to obtain the greatest wealth for the owner”
• Not for profit—produce the best possible financial outcomes while minimizing risk to the organization
What is Financial Management?
• Strategizing the organization’s financial direction as well as the performance of its day-to-day financial operations
• Dual purpose
• Determine the strategic financial direction
• Manage day to day financial operations
• Sound financial aids the general manager in carrying out their responsibilities
Financial Highly Visible and Important Matters
• Setting prices for services
• Producing and analyzing discounts
• Recording and analyzing cost information
• Preparing and reporting financial projections
Why is Financial Management Important?
• Primary role—broker of information
• Secondary role—reporting financial results periodically
• If applied properly it maximizes decision making in uncertain times
Nowicki’s 6 Major Objectives of Health Care Financial Management
• To generate income
• To respond to regulations
• To facilitate relationships with third party payers
• To influence method and amount of payment
• To monitor physicians
• To protect the organization’s tax status
Ridgeland Heights Medical Center • Fictional medium-sized medical center
• Primary statistics
• 11,000 inpatient admissions out paced by 180,000 outpatient services
• Managed care reduces access to care
• Declining inpatient leaves 3 alternatives
• Steal market share
• Grow market share by providing new services
• Grow market share by recruiting new doctors
Decision Time
• Pro forma developed has projected income
• It contains a series of assumptions
• These lead to a go or no go decision
• Decision based on net present value(NVP) or internal rate of return (IRR)
• Organization may have a “hurdle rate”
• Reflects the minimum % return on its investment
More on Pro forma
• Volume assumptions
• Revenue assumptions
• Expense assumptions
Finance Committee and BOD calendar
• Board sets policy direction for the organization
• This is carried out by administration/managers
• Standing committees
• Specific formats for $$ information needed
• BOD financial committee has specific authority stated in the bylaws
• Monthly financial statements
• Accounts receivable
Year End Closing
• An outside accounting firm audits the financial books and records of the organization for the previous year
• Very time consuming
• Multiple tasks must be completed
• Refer to Ridgeland example for details