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