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Essentials of Health Care Finance

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Title: Essentials of Health Care Finance


1
Essentials of Health Care Finance Cleverley and
Cameron Sixth Edition
Corporate Finance and theFinancial Manager
Chapter 1
2
Topics Covered
  • Information and Decision Making
  • Uses and Users of Financial Information
  • Financial Organization
  • Types of Financial Decisions
  • Forms of Business Organization

3
Defining Finance
  • A basic tenet of finance is that the existence of
    economic organizations (e.g., firms and
    governments) facilitate the satisfaction of
    peoples consumption preferences

4
Introduction to Health Care Finance
Payment System
Technology
Litigation
Rising Health CareCosts
Managed Care
Uninsured
Aging Population
5
Major Players in Efforts to ControlHealth Care
Costs
Payers
Providers
6
Payers' Methods to Control Health Care Costs
Cost Levers
Review for medical necessity--Concurrent,
retrospective
Referrals from primary care provider (PCP) prior
to treatment
Determining payments in advance for services
Patients/consumer education by docs, hospitals
and managed care organizations (MCOs)
Capitation, per diems, case rates, etc.
Approval for capital expenditures by agency
7
Providers Methods to ControlHealth Care Costs
Cost Control
Redesign
Info technology
Cost accounting
Mergers/ Acquisitions
8
Health Care Financial Management
Financial Accounting
Finance
Managerial Accounting
9
Health Care Financial Management
Managerial Accounting
Financial Accounting
Finance
Planning/Budgeting/ Controlling Cost
Finding Pricing Performance Measurement Product
ivity
Monitoring and Recording Transactions Protectio
n of Assets (Stewardship) Compliance Efficie
ncy
Funding/Financing Financial statementanalysis A
cquisition/Growth of Capital Flow of
Resources Investment/Divestment Managing Risk
10
Types of Health Care Entities
Governmental
Investor- Owned
11
Corporate Ownership TypesOwners and Goals
  • Type Owner Goal
  • Investor-Owned Shareholders Maximize Shareholder
    Wealth
  • Not-for-Profit Community/ Various, including
  • Public interest profit
  • Holding Various Isolation of risk
  • Control with fraction of ownership
  • Separation of for-profit and
    not-for-
  • profit subsidiaries

12
Not-for-Profit
  • Tax code definition
  • An organization operated exclusively for
    religious, charitable, scientific, public safety,
    literary or educational purposes

13
Not-for-Profit
  • Criteria
  • operates exclusively for public, not private
    interests
  • no profits are used for private gain
  • no political activities
  • if liquidation occurs, assets will continue to be
    used for charitable purpose

14
Not-for-Profit
  • Hospital characteristics
  • Control...Board with no direct economic interests
  • Open medical staff and leasing privileges
  • Hospital operates an emergency room
  • Hospital does education and research
  • Community programs

15
Not-for-Profit
  • Disqualifying Activities
  • Controlled by Medical Staff
  • Restricts privileges
  • Leasing at less than fair market value
  • Limiting use of facility
  • Contractual agreements with controlling MDs
  • No charity care

16
Legal Forms of Firm Structure
Sole Proprietorships
Partnerships
Corporations
  • General partnership
  • Limited partnership
  • Regular C corporation
  • Subchapter S corporation
  • Limited liability company

17
Firm Structure
Sole Proprietorships
Partnerships
18
Firm Structure
Sole Proprietorships
Unlimited Liability Personal tax on profits
Partnerships
19
Firm Structure
Sole Proprietorships
Unlimited Liability Personal tax on profits
Partnerships
Limited Liability Corporate tax on profits
Personal tax on dividends
C Corporations
20
Firm Structure
Unlimited Liability Personal tax on profits
Sole Proprietorships Partnership
Flow-through personal tax on profits
Hybrid FormsPC, PA, LP, LLC, LLP,S corp., etc.
Limited Liability
Corporate tax on profits Personal tax on
dividends
C Corporations
21
Number and Receipts of U.S. Proprietorships,
Partnerships, and Corporations, 1995
22
Not-for-Profit vs. For Profit
  • Financial reporting for NFP, business-oriented
    organizations and investor-owned health care
    enterprises generally is consistent except for
    transactions that are clearly not applicable.
  • Shareholders equity
  • Contributions

23
Organization of the Financial Management Function
Board of Directors
President (Chief Executive Officer)
Chief Financial Officer
Vice President Operations
Vice President Marketing
24
Organization of the Financial Management Function
Chief Financial Officer
Treasurer Capital Budgeting Cash
Management Credit Management Dividend
Disbursement Fin Analysis/Planning Pension
Management Insurance/Risk Mgmt Tax
Analysis/Planning
Controller Cost Accounting Cost Management Data
Processing General Ledger Government
Reporting Internal Control Preparing Fin
Stmts Preparing Budgets Preparing Forecasts
25
Selected Activities of a Financial Services
Department
Financial
Invest- ments
Financial Statements/ Reports
Admissions
Collections
Billings
Accounting
Managerial
Pricing -External -Internal
Planning/ Budgeting
Special Studies
Variance Analysis
Performance Measurement
Cost-Finding
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