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Financial Management of Health Care Organizations: An Introduction to Fundamental Tools, Concepts and Applications, 4th Edition

ISBN: 978-1-118-46658-2
704 pages
December 2013, Jossey-Bass
Financial Management of Health Care Organizations: An Introduction to Fundamental Tools, Concepts and Applications, 4th Edition (1118466586) cover image

Description

This new Fourth Edition of Financial Management of Health Care Organizations, offers an introduction to the most-used tools and techniques of health care financial management, including health care accounting and financial statements; managing cash, billings and collections; making major capital investments; determining cost and using cost information in decision-making; budgeting and performance measurement; and pricing.

New to this edition: The Perspectives sections and the glossary have been updated. The book features a cutting-edge view of the health care landscape in 2013 and beyond after passage and pending implementation of the Affordable Care Act. Areas of expanded content include revised examples of financial statements for both private non-profit hospitals and investor-owned hospital management companies, changes in bad debt and charity care, the role of financial statements, the discount rate or cost of capital, lease financing section, use of cost information, budgeting, cost centers, and current forms of reimbursement Content new to this edition includes valuation of accounts receivable and the "waterfall" effect of cash collections, differences between Posting-Date and Service-Date reporting methodologies, calculation of effective annual interest rate, application of time value of money in perspectives, and Activity-Based Costing from the perspective of labor, supplies, and equipment.

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Table of Contents

Preface xiii

Acknowledgments xix

The Authors xxi

Chapter 1 The Context of Health Care Financial Management 1

Changing Methods of Health Care Financing and Delivery 3

Addressing the High Cost of Care 9

Establishing Value-Based Purchasing 21

Summary 23

Key Terms 24

Review Questions 24

Chapter 2 Health Care Financial Statements 27

The Balance Sheet 28

The Statement of Operations 51

The Statement of Changes in Net Assets 65

The Statement of Cash Flows 68

Summary 73

Key Terms 75

Key Equations 75

Review Questions and Problems 76

Appendix A: Financial Statements for Sample Not-for-Profit and For-Profit Hospitals, and Notes to Financial Statements 86

Chapter 3 Principles and Practices of Health Care Accounting 103

The Books 103

An Example of the Effects of Cash Flows on Profit Reporting under Cash and Accrual Accounting 106

Recording Transactions 110

Developing the Financial Statements 120

Summary 126

Key Terms 127

Review Questions and Problems 127

Chapter 4 Financial Statement Analysis 137

Horizontal Analysis 138

Trend Analysis 143

Vertical (Common-Size) Analysis 144

Ratio Analysis 146

Liquidity Ratios 151

Revenue, Expense, and Profitability Ratios 161

Activity Ratios 172

Capital Structure Ratios 175

Summary 183

Key Equations 186

Key Terms 187

Review Questions and Problems 187

Chapter 5 Working Capital Management 209

Working Capital Cycle 209

Working Capital Management Strategies 211

Cash Management 215

Sources of Temporary Cash 216

Revenue Cycle Management 222

Collecting Cash Payments 225

Investing Cash on a Short-Term Basis 228

Forecasting Cash Surpluses and Deficits: The Cash Budget 230

Accounts Receivable Management 233

Methods to Monitor Revenue Cycle Performance 237

Fraud and Abuse 239

Summary 243

Key Terms 246

Key Equations 246

Review Questions and Problems 246

Chapter 6 The Time Value of Money 259

Future Value of a Dollar Invested Today 259

Present Value of an Amount to Be Received in the Future 266

Future and Present Values of Annuities 270

Future and Present Value Calculations and Excel Functions for Special Situations 275

Summary 283

Key Terms 284

Key Equations 284

Review Questions and Problems 286

Appendix B: Future and Present Value Tables 291

Chapter 7 The Investment Decision 301

Objectives of Capital Investment Analysis 302

Analytical Methods 306

Using an NPV Analysis for a Replacement Decision 320

Summary 325

Key Terms 327

Key Equation 327

Review Questions and Problems 327

Appendix C: Technical Concerns in Calculating Net Present Value 335

Appendix D: Adjustments for Net Working Capital 342

Appendix E: Tax Implications for For-Profit Entities in a Capital Budgeting Decision and the Adjustment for Interest Expense 344

Appendix F: Comprehensive Capital Budgeting Replacement Cost Example 348

Chapter 8 Capital Financing for Health Care Providers 359

Equity Financing 362

Debt Financing 364

Bond Issuance Process 375

Lease Financing 387

Summary 392

Key Terms 393

Key Equations 394

Review Questions and Problems 394

Appendix G: Bond Valuation, Loan Amortization, and Debt (Borrowing) Capacity 399

Chapter 9 Using Cost Information to Make Special Decisions 409

Break-Even Analysis 410

Product Margin 433

Applying the Product Margin Paradigm to Making Special Decisions 438

Summary 445

Key Terms 446

Key Equations 447

Review Questions and Problems 447

Appendix H: Break-even Analysis for Practice Acquisition 458

Chapter 10 Budgeting 465

The Planning-and-Control Cycle 465

Organizational Approaches to Budgeting 470

Types of Budgets 481

Monitoring Variances to Budget 489

Group Purchasing Organizations 491

Summary 493

Key Terms 495

Key Equation 496

Review Questions and Problems 496

Appendix I: An Extended Example of How to Develop a Budget 498

Chapter 11 Responsibility Accounting 521

Decentralization 521

Types of Responsibility Centers 524

Measuring the Performance of Responsibility Centers 529

Budget Variances 532

Summary 544

Key Terms 546

Key Equations 546

Review Questions and Problems 547

Chapter 12 Provider Cost-Finding Methods 551

Cost-to-Charge Ratio 551

Step-Down Method 552

Activity-Based Costing 559

Summary 571

Key Terms 572

Review Questions and Problems 572

Chapter 13 Provider Payment Systems 579

Evolution of the Payment System 583

Risk Sharing and the Principles of Insurance 608

Evolving Issues 614

Technology 614

Summary 616

Key Terms 617

Review Questions and Problems 618

Appendix J: Cost-Based Payment Systems 619

Glossary 627

Useful Websites and Apps 653

Index 659

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Author Information

William N. Zelman is a professor in the Department of Health Policy and Administration in the University of North Carolina at Chapel Hill.

Michael J. McCue is a professor in the Department of Health Administration at Virginia Commonwealth University.

Noah D. Glick is a senior healthcare consultant for FTI in its Health Solutions division.

Marci S. Thomas is a clinical associate professor in the Department of Health Policy and Administration in the School of Public Health at the University of North Carolina, Chapel Hill.

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