Health care Finance

1. Health care Finance Module 1: Introduction to health care finance Student notes

2. Introduction to the US health care system

3. Describe common characteristics of the US health care system • 3 major issues • Access, cost, quality • Access = Limited by insurance • Cost • Grows faster than inflation; spend more $ than any other nation • Spending (2015 estimates) • Quality = Racial and economic disparities

4. Continued • More integrated delivery systems • Private/public payer mix • Medical bills due to bankruptcy • High number of malpractice lawsuits • Paradox of excess and deprivation

5. The business of health care

6. How do we know health care is a business • Health care is a business • A business needs to have sufficient revenue to pay all the costs associated with creating and selling its goods or services

7. Understand the similarities and differences in health care to other businesses • Similar • Enough revenue to cover expenses (Revenue – expenses = profit) • CEOs make a lot of money

8. Understand cont. • Different • Abundance of agency relationship • Mixture of government, NFP, FP • Highly regulatory environment

9. Understand continued • Different • Wider range of financing options • Revenue mainly comes from 3rd party payers • Rapidly growing • Many organizations are NFP

10. Understand the common ownership forms of HCO, be able to list examples in the local area, discuss advantages of each, disadvantages of each (Lecture)

11. Understand ownership/examples in local area • Public vs. Private • Public = owned by the public (people) ran by the government • Private = owned/ran by a non-government entity

12. Ownership • NFP vs. FP • Revenue – Expenses = Profit • Do NFP make a lot of residuals? • Government will never be classified as for-profit

13. Understand ownership • Public-held vs. Private-held • Multiple types within one organization • Terminology • Shareholder/Stockholder = owns company through stock • Stakeholder = interested in the company but may not have any financial ties (Patients, community, nurses, doctors)

14. Advantages of each • NFP = Tax-exempt status • FP = Get equity • Private = Avoid bureaucracy • Public = Financial security through the government • Private-held = Maintain ownership • Public-held = Get money from stocks

15. Disadvantages of each • NFP = Restrictions on what you can and cannot do • FP = Answering to owners and their needs • Private = Limitations on funding • Public = Government controls you (Bureaucracy) • Private-held = Can’t issue stock for $$ • Public-held = Major changes have to be sent to stockholders

16. Understand the NFP organization and explain the importance of community benefits of tax-exempt status • Describe NFP • IRS form 1099 • 501(c) = 1-29 = most common in HCO = 3 (other kinds as well 501(d) • Exempt from paying taxes • Have to provide some community benefits (importance)

17. Continued • New rules under the ACA • Community health needs assessment • Financial assistance • Limitation on charges • Billing and collecting

18. Continued • Type of hospitals • Hospitals in 2011, received 24.6 billion in tax breaks due to NFP status • Most think that’s charity care

19. Understand how health care is different from a charity • Health care is NOT a charity.   • Charity - Type of NFP (sells goods/services).   • NFP/FP oftentimes have charities within the organization (charity care)  • Pure charity = does not sell goods or services ($ = soliciting contributions).   • Non-operating charity = Grants to others • Operating charity = some type of services  • Other • Rely heavily on volunteers • Availability vs. a defined need 

20. Introduction to health care finance

21. What is financial management • Why do I need to study finance? • Because everyone is involved • Most decisions you make involve $$

22. Continued • What is financial management (how it different from accounting?) • Accounting and financial functions • Accountants = gives us the information • Finances = understand the information

23. Continued • What is health care finance = plan for, acquire, and use resources to maximize the efficiency and value of the enterprise within a healthcare organization • What does a financial manager do • Get $$ from financial markets • Decide how to use the $$ to run the organization • Manage revenue

24. 3b. Describe 4 C’s of finance • The measurement and minimization of costs are vital activities to the financial success of all healthcare organizations. • A business might be profitable but still face a crisis because of a shortage of cash. • Capital represents the funds (money) used to acquire land, buildings, and equipment. • Finally, a business must control its financial and physical resources to ensure that they are being wisely employed and protected for future use - conservation.

25. Key positions in finance • CFO • Comptroller • Treasurer • CIO • Auditor = internal/independent • Board of directors

26. Describe the 5 pillars of financial practice • Understanding of Cash flows • Recognition Maximizing behavior • Risk aversion = degree to which a person is willing or unwilling to take on a risky venture  • Time-value-of-money • Control of Opportunity cost

27. Reimbursement mechanisms

28. Understand common reimbursement mechanisms/risk/incentives • Retrospective payment = Third-party payers making payments after the provider has rendered a service, based on what the provider charges for the service rendered.  • Prospective payment = Method for reimbursing based on a predetermined rate for the treatment of specific illnesses

29. Continued • Capitation payment = It pays a physician or group of physicians a set amount for each enrolled person assigned to them, per period of time, whether or not that person seeks care. • Discounted payment = Pays based on an discounts through a pre-established contract with a provider