health care finance

Part I: Health Care Finance Overview

CHAPTER 1: INTRODUCTION TO

HEALTH CARE FINANCE

History of Financial Management

• Codifying management thought over time results in more organized management technique-building.

History of Financial Management

• Historical efforts all sought to make

organizations work more effectively.

Concept of this Text

• A method of getting money in and out of the business

• Revenues = Inflow

• Expenses = Outflow

Concept of the Text

• “How does this happen in business?”

• The purpose of this text is to show how the various elements of finance fit together; in other words, how “it happens in business.”

• The key to understanding finance is understanding the various pieces and their relationship to each other.

Managers’ Viewpoints

• Managers within a health care organization will generally have one of three views:

– Financial

– Process

– Clinical

• The way they manage will be influenced by which view they hold.

Managers’ Viewpoints

The Financial View

• Work with finance on a daily basis.

• Responsible for the reporting function.

• Usually also do strategic planning.

The Process View

• Work with the system of the organization.

• Responsible for data accumulation.

• Often affiliated with the information system department.

The Clinical View

• Usually work with and interact directly with patients.

• Responsible for service delivery.

• Also responsible for clinical outcomes.

Four Elements of Financial Management

• Planning

• Controlling

• Organizing and directing

• Decision-making

Four Elements of Financial Management

• Planning — Identify steps that must be taken to accomplish and organization’s objectives.

• Controlling — Make sure that each area of the organization is following the plans that have been established.

• Organizing and Directing — Decide how to use organizational resources to most effectively carry out established plans.

• Decision-Making — Make choices among available alternatives.

The Organization’s Structure

• Important to management because it influences the way the managers manage.

Types of Organizations

• Profit-oriented (aka “proprietary”)

• Non-profit-oriented (aka “not-for-profit”)

Profit-Oriented Organizations

• Are responsible for paying taxes.

• May be corporations, partnerships, or individuals.

Non-Profit Oriented Organizations

• Do not pay income taxes

• May be voluntary

• May be the government

The Organization’s Structure

• Voluntary organization types may be: churches, private schools, or foundations

• Government organization types may be: federal; state; county; city; combination of city-county; hospital taxing district; or state university.

Organization Charts

• Often used to illustrate the structure of an organization.

• How the degree of decentralization within the organization.

The Organization’s Structure

• The purpose of an organization chart is to indicate how responsibility is assigned to managers.

• The formal lines of communication and reporting.

• SUMMARY: The organization’s type affects it’s structure. It’s structure is shown in the organization chart.

Two Types of Accounting

• Financial

• Managerial

Financial Accounting

• Generally for outside, or third-party, use.

• Emphasizes external reporting.

• Must be in accordance with generally accepted accounting principles.

• Retrospective - (Usually concerned with transactions that have already occurred.)

Managerial Accounting

• Generally for inside, or internal, use.

• Used by managers.

• Not bound by generally accepted accounting principles.

• Prospective as well as retrospective — Concerned with the future as well as with transactions that have already occurred.