Essentials of Health Care Finance

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Essentials of Health Care Finance Cleverley and
Cameron Sixth Edition
Corporate Finance and theFinancial Manager
Chapter 1
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Topics Covered

• Information and Decision Making
• Uses and Users of Financial Information
• Financial Organization
• Types of Financial Decisions
• Forms of Business Organization

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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

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Introduction to Health Care Finance
Payment System
Technology
Litigation
Rising Health CareCosts
Managed Care
Uninsured
Aging Population
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Major Players in Efforts to ControlHealth Care
Costs
Payers
Providers
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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
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Providers Methods to ControlHealth Care Costs
Cost Control
Redesign
Info technology
Cost accounting
Mergers/ Acquisitions
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Health Care Financial Management
Financial Accounting
Finance
Managerial Accounting
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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
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Types of Health Care Entities
Governmental
Investor- Owned
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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

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Not-for-Profit

• Tax code definition
• An organization operated exclusively for
  religious, charitable, scientific, public safety,
  literary or educational purposes

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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

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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

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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

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Legal Forms of Firm Structure
Sole Proprietorships
Partnerships
Corporations

• General partnership
• Limited partnership

• Regular C corporation
• Subchapter S corporation
• Limited liability company

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Firm Structure
Sole Proprietorships
Partnerships
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Firm Structure
Sole Proprietorships
Unlimited Liability Personal tax on profits
Partnerships
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Firm Structure
Sole Proprietorships
Unlimited Liability Personal tax on profits
Partnerships
Limited Liability Corporate tax on profits
Personal tax on dividends
C Corporations
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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
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Number and Receipts of U.S. Proprietorships,
Partnerships, and Corporations, 1995
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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

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Organization of the Financial Management Function
Board of Directors
President (Chief Executive Officer)
Chief Financial Officer
Vice President Operations
Vice President Marketing
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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
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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