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Prompt: What are the primary uses of financial information?Requirements: 250 words minimum initial post, 100 words minimum reply mha_643_unit_1.pdf Unformatted Attachment Preview MHA643 Healthcare Finance and Budgeting Belhaven University Unit 1 Financial Information and the Decision Making Process Financial Environment of Healthcare Organizations 1 Welcome to Healthcare Finance and Budgeting This course emphasizes financial administration and financial operations theory, principles, and concepts as they relate to health care financial decision-making. Finance and budgeting methods are reviewed as well as accountability. 2 Format for Unit Sessions  Class Topics       Financial Information and the Decision Making Process Financial Environment of Healthcare Organizations The Legal and Regulatory Environment Health Insurance and Managed Care Billing and Coding for Health Services Measuring Community Benefit 3 Format for Unit Sessions, cont.  Revenue Determination Financial Statements/Analyzing Financial Position  Financial Analysis of Alternative Healthcare        Firms Strategic Financial Planning Cost Concepts and Decision Making Product Costing/Management Control Process Cost Variance Analysis Working Capital and Cash Management Developing a Cash Budget Learning Tools  Class lectures   Textbook   Reading Individual homework   Hearing and seeing Analyzing Discussion forum   Completing all components is very important to accomplish the objectives of the course. Applying and examining 5 Online Learning  Characteristics   Online learners must be highly selfmotivated. Online learners must have high responsibility for assignments and discussions.  Facts    Online learning is not easier than traditional classroom learning. Learners must meet deadlines. It’s easy to think we’re anonymous because there’s no face time. 6 Tips for Success  Course Page  Activities    Weekly discussions Media    Schedule  Individual homework Discussion forum   Module Handouts & links Class lectures  Be attentive to deadlines. The week (unit) begins on Sunday and ends on Saturday.   Observe Sabbath Manage your time 7 Tips For Success, cont.  Do not procrastinate.    It’s easy to get behind in an asynchronous course. False security that there is time to catch up Each week builds on the previous week.  Set your schedule.       Assigned readings View Lecture Initial post to discussion boards Written assignment/ Homework assignment Quiz Final response to the discussion boards Class Objectives  In this course, we will:     Demonstrate an understanding of the healthcare marketplace in the United States and integrate a Christian worldview. Analyze the revenue cycle for healthcare organizations. Determine the relationship between financial planning and strategic planning. Define the budget process and analyze managerial use of a budget. 9 Class Objectives, cont.   Demonstrate an understanding of financial statements, and variance analysis and how management uses them. Comprehend how to prepare a cash budget and relationship with working capital. Biblical Foundation “For wisdom will enter your heart, and knowledge will fill you with joy. Wise choices will watch over you, understanding will keep you safe.” (Proverbs 2:10-11 New Living Translation) 11 Who are Healthcare Decision Makers?        Doctors Nurses Dietitians Pharmacists Radiation Therapists Any many others Their specialized education most likely did not include courses in accounting & finance. Effectiveness of Financial Management  Dependent on many factors such as:     Environmental conditions Personnel capabilities Information quality Much of this activity is carried out through the accounting process. Information and Decision Making  A good information system should specifically:     List possible courses of action List events that might affect the expected results Indicate the probability that those events will occur Estimate the results accurately, given an actionevent combination. 14 Uses and Users of Financial Information  There are five uses of financial information that are important in decision making:      Evaluating the financial condition of an entity Evaluating stewardship within an entity Assessing the efficiency of operations Assessing the effectiveness of operations Determining the compliance of operation with directives. 15 Financial Condition     Most common use of financial information Equated with the organization’s viability or capacity to continue to pursue its goals Most business decisions are directly or indirectly based on perceived financial condition. Short-run and long-run effects are considered. Stewardship    Historically, stewardship was the most important use of accounting and financial information systems. Designed to prevent the loss of assets or resources through employees’ malfeasance Well-designed accounting systems prevent the occurrence of employee fraud and embezzlement. Efficiency     Is becoming increasingly important in healthcare operations The ratio of outputs to inputs The lowest possible cost of production Adequate assessment implies the availability of standards against which actual costs may be compared. Effectiveness     Concerned with the attainment of objectives through production of outputs More difficult to measure than efficiency because objectives or goals are typically not stated quantitatively More emphasis is placed on efficiency than effectiveness. May result in unnecessary services at an efficient cost Compliance     Financial information may be used to determine whether compliance with directives has taken place. Internal directives: keeping within budget External directives: rate setting, regulatory agencies Financial reporting is required to ensure compliance. Financial Organization  Financial Executives International categorizes financial management functions as either:    Controllership or Treasurership The separation of duties is important to the understanding of financial management. Controllership Duties        Planning for control Reporting and interpreting Evaluating and consulting Administrating taxes Reporting to government Protecting assets Appraising economic health Treasurership Duties        Providing capital Maintaining investor relations (for profit firms) Providing short-term financing Providing banking and custody Overseeing credit and collections Choosing investments Providing insurance Forms of Business Organization  According to the American Institute of Certified Public Accountants, there are four main types of organizations in healthcare:      Not-for-profit, business-oriented For-profit healthcare entities Government HCOs Non-governmental, nonprofit HCOs These types differ in terms of ownership structure. Not-for-Profit, Business Oriented Organizations      Owned by the entire community rather than investor owned Primary goal: to serve the community by providing health services Run as a business to ensure long-term financial viability; organized as 501(c)(3) Expected to provide community benefit Exempt from federal income taxes and property taxes For-Profit Healthcare Entities      Main objective: earn profits for investors Management must balance their fiduciary responsibilities between the owners and their mission of providing healthcare services. Have a wide variety of organization and ownership structures Publically traded companies may raise equity capital through the sale of stocks. May also be privately held For-Profit Healthcare Entities, cont.  For-Profit Healthcare Entities may be:      Investor owned Professional corporations/professional associations Sole proprietorships Limited partnerships Limited liability partnerships/limited liability companies Investor Owned Entities      May be either publicly traded or privately held Managers are expected to maximize wealth. Can raise funding through risk-based equity capital Limited liability Earnings taxed at the corporate level and shareholder level (double taxation) Professional Corporation     Also called Professional Associations Corporate form for professionals who want the benefit of incorporation Does not shield its owners from professional liability Widely used by physicians and other healthcare professionals Sole Proprietorships        Unincorporated businesses owned by a single individual Easy and inexpensive to set up and dissolve No sharing of profits Sole proprietor has total control Few government regulations No special income taxes Disadvantages: unlimited liability and limited access to capital Partnerships      Unincorporated businesses with two or more owners Easy to form Subject to few government regulations Not subject to double taxation Disadvantages: difficult to dissolve, potential conflict among partners Limited Partnerships    One general partner has unlimited liability for the partnership’s debts and obligations. Offer limited liability to the limited partners along with tax flow-through treatment Disadvantage: the requirement to have a general partner liable for their debts and obligations Limited Liability Partnerships     Also called Limited Liability Companies Combines the tax flow-through treatment characteristics of a partnership with the liability protection of a corporation The liability of the general partner is limited. Permit owners to structure allocations of income and losses any way they desire as long as partnership tax allocation rules are followed Governmental HCOs      Public corporations owned by state or local governments Operated to benefit the communities they serve Assets and accumulated earnings belong to the public or charitable beneficiaries. Can raise additional revenue through taxes Exempt from income and property taxes Non-governmental, Nonprofit Organizations      Also called Voluntary Health and Welfare Organizations Perform voluntary services in their communities Tax exempt Rely primarily on public donations for funds Financial statements and management differ from that of business-oriented firms Financial Viability  Financial viability is the ability of the HCO to meet its financial obligations to its suppliers including employees, equipment suppliers, service contractors, vendors of consumable supplies, and lenders. HCOs Receive Money From:  Patients (the greatest proportion)   Self-payers Third-party payers       Blue Cross and Blue Shield Commercial insurance, including managed care Medicaid Medicare Self-insured employers Other HCOs Receive Money From: (cont.)  Nonpatients     Grants Contributions Tax Support Miscellaneous Healthcare Industry Segments  The top five industry segments according to expenditures are:      Hospitals (31\%) Physicians (21\%) Prescription drugs (10\%) Administration of private health insurance (7\%) Nursing homes (5\%) Sources of Operating Revenue  The four largest segments of operating funds are:     Hospitals Physicians Prescription drugs Nursing homes Funding in the Hospital Industry  Funding sources by percentage:  Public sources (more than 50\%)    Private insurance (36\%)     Medicare Medicaid Blue Cross and other commercial insurance carriers Managed care organizations Self-insured employers Direct payments by patients (3\%) Funding in the Physician Marketplace     Different from hospitals A large portion of funding comes from direct payments from patients (10\%). Private insurance makes up about 49\%. Public sources make up about 35\%. Funding for Prescription Drugs    42\% comes from private insurance sources. Medicare covers about 30\%. Medicaid covers over 8\%. Funding for Nursing Homes     Nursing homes receive almost no funding from private insurance. The major source of funding in Medicaid, not Medicare. The federal government pays over 50\% of all Medicaid expenditures. While Medicare payments are restricted to skilled nursing care, Medicaid payments are for intermediate-level (custodial) care. Healthcare Payment Systems   The various types of payments have a different effect on the organization’s financial position and may affect its business strategy. Payments may be based on:     Historical cost reimbursement Specific services Capitated rates Bundled services Historical Cost Reimbursement    Was the predominant form of payment for most institutional providers until the 1980s Payments based on “reasonable” historic costs Apportionment means the way costs are assigned or allocated to specific payers. Specific Services     Healthcare organizations have a master price list. (May be called a charge master) Prices have no relationship to amounts actually paid. Charges reported to CMS on a 1450 or Uniform Bill 2004 (also called a UB-40); consolidates individual charges. Current Procedural Terminology (CPT) codes Capitated Rates    A group of providers agree to provide healthcare services for enrollees during a specified period of time. (usually limited) Global capitalization means the provider will provide all medical services for enrollees. Capitation agreements were popular in the mid-1990s and are now on the decline. Bundled Services   Used in today’s healthcare environment Have two key features:    Payment is grouped into a mutually exclusive set of service categories. Service arrangements have a fixed fee schedule. Medicare payment schedule used as a basis for other health plans. Medicare Benefits  Medicare benefits have three parts:  Part A: Hospital insurance     Covers hospital, SNF, hospice, and some home health Provided free to all beneficiaries with 40 or more covered quarters of Medicare employment Requires a deductible Coinsurance Medicare Benefits, cont.  Part B: Medical insurance      Covers doctor’s fees, outpatient services, lab tests, durable medical equipment, and many preventative services Requires a monthly payment by the beneficiary Requires a deductible Coinsurance Part D: Prescription drug benefit  Beneficiaries can choose between:   A prescription plan covering drugs only or Medicare Advantage covering medical services and drugs Supplemental Insurance   Some Medicare beneficiaries purchase extra insurance from private insurance firms to cover deductibles and coinsurance amounts Also called Medigap coverage What’s next?     Complete the reading assignments. Complete the writing assignments. Answer the discussion questions. Complete the unit quiz. 53 References Centers for Disease Control.(2014). National health expenditures. Retrieved from: http://www.cdc.gov/nchs/data/hus/2015/0 94.pdf Cleverly, W.O., Song, P.H., Cleverly, J.O. (2011). Essentials of health care finance (7th ed.). Sudbury, MA: Jones and Bartlett Learning. 54 ... Purchase answer to see full attachment