Context of Health Care
Financial Management
Write down short about differences between cash fees and
accrual fees:
cash fees tracking cash when they receive it .accrual fees required
revenue when they earn it
Chapter 1
سؤال مقالي
Learning Objectives
• Identif kef elements that are driving changes in health care
deliverf
• Identif kef approaches to controlling health care costs and
resultng ethical issues
• Identif kef changes in reimbursement mechanisms to
providers
Lowering Costs
1. Pat&nt Prot&cton and .nordabl& aar& .ct a.a.):is the
largest efort toward reiorm oi the health care sfstem
since the advent oi government enttlement programs in
the 1960s.
• Th& goal of th& .a. is to provide mechanisms to expand
access to care, improve qualitf, and control costs.
2. Th& a&nt&rs for M&dicar& and M&dicaid S&rvic&s aaMS)
had artculated a vision ior health care qualitf: “the right
care ior everf person everf tme:’
aMS’s stat&d obj&ctv& is to promote saie, efectve, tmelf,
patent-centered, efcient, and equitable care CMS trfing to
control rising costs.
Lowering Costs
3. Valu& Bas&d Purchasing aVBP): CMS has been working
to replace its old fnancing sfstem, which is basicallf
rewarded the quanttf oi care, with valu&-bas&d
purchasing aVBP), a sfstem that improves the linkage
between pafment and the qualitf oi care
Goals of the Health Care System
• .cc&ss
• aost
• Quality
Goals of the Health Care
System
• k&y issu&s an&ctng h&alth car& organizatons. It is organiz&d
into thr&& s&ctons:
1. Changing methods oi health care fnancing and deliverf,
2. Addressing the high cost oi care
3. Establishing value-based pafment mechanisms
1- Changing Methods Of Health Care
Financing and Delivery
• Requirement that almost all individuals have insurance
coverage.
• Requirement that states create insurance exchanges where
individuals and small businesses can obtain coverage.
• Provisions ior expansion oi Medicaid coverage to all eligible
individuals under age sixtf-fve.
1- Changing Methods Of Health
Care Financing and Delivery
• Provisions ior medical loss rato and premium rate reviews
ior health plans
• Bundled pafments and VBP
• .ccountabl& aar& Organizatons a.aOs): A group oi
healthcare providers who provide coordinated care to target
patent populatons, with the intent oi tfing fnancial
incentves to qualitf outcomes and lowered costs.
Health Insurance Exchanges
1. Ris& of uninsur&d from 36 million to 50 million 2001-2010 ,
this ris& is du&:
Health insurance and out-oi-pocket costs becoming too costlf.
Individuals being screened out bf insurance underwriters
because oi preexistng conditons.
Emplofers either scaling back emplofees’ benefts or
eliminatng them altogether bf hiring part-tme workers.
State governments tghtening Medicaid eligibilitf criteria.
Individuals voluntarilf deciding not to purchase insurance .
Health Insurance Exchanges
• ACA authorizes compettve insurance marketplace the state
level and provides ior two tfpes oi exchanges, an individual
exchange and a small business exchange
• Rise oi uncompensated care ior the uninsured 2001-2011
• .ccountabl& aar& Organizatons a.aO) : is a voluntarf group
oi health care providers who come together to provide
coordinated care to a patent populaton in order to improve
qualitf and reduce costs bf keeping patents healthf and bf
reducing unnecessarf service duplicaton
Health Insurance Exchanges
Pat&nt a&nt&r&d M&dical Hom& : A partnership
between primarf care providers (PCPs), patents, and
patents’ iamilies to deliver comprehensive care over the
long term in varietf oi setngs.
• New technologf
• VBP
Factors Affecting the Cost of Care
يجي٪١٠٠ مقالي
Information Technology
The largest investment oi tme and resources in this area is
th& &l&ctronic h&alth r&cord aEHR).
El&ctronic H&alth R&cord aEHR) Also call&d an &l&ctronic
m&dical r&cord aEMR), this online version oi patents’
medical records can include patent demographics,
insurance iniormaton, dictatons and notes, medicaton
and immunizaton histories, ancillarf test results, and the
like.
Information Technology
Th& HITEaH .ct a2009) was &nact&d with th& goal of :
Creatng and expanding the current health care IT
inirastructure,
Promotng electronic data exchange
Substantallf and rapidlf increasing EHR adopton to 90 %.
Th& HITEaH .ct substantally &xpand&d HIP.. aH&alth
Insuranc& Portability and .ccountability .ct of 1996) privacf
and securitf rules and increased the penaltes ior HIPAA
violatons.
A set oi iederal compliance regulatons enacted in 1996 to
ensure standardizaton oi billing, privacf, and reportng practces
as insttutons convert to electronic sfstems.
Impacts to Reimbursement:
• Cost Accountng Sfstems
• Group Purchasing Organizatons
• Reengineering/Redesigning
• Mergers and Acquisitons
• Retail Health Care
• Medical Tourism
• Compliance
• Recoverf Audit Contractors (RACs)
• VBP
• New DRG Sfstem
• ICD 10
Impacts to Reimbursement
• Group Purchasing Organizatons aGPOs): Third-partf
enttes that contract with multple hospitals to ofer cost
savings in the purchase oi supplies and equipment bf
negotatng large-volume discounted contracts with vendors.
• R&&ngin&&ring/R&d&signing : Health care organizatons
have been redesigning their work processes in order to
achieve efciencies and reduce cost.
• Common techniques include process analfsis, lafout
redesign, work redesign, total qualitf management and care
mapping E.g :Six Sigma.
• The fve major components oi it : defne, measure, analfze,
improve, and control anicknam&d DM.Ia)
Impacts to Reimbursement
• M&rg&rs and .cquisitons: From an accountng
perspectve, a merger requires that neither oi the partes
coming together has control. In an acquisiton, there is a
controlling partf, and the assets and liabilites are marked
to iair value.
Acquisitons are more common than mergers in the health
care industrf.
• R&tail H&alth aar&: Generallf preventatve-care walk-in
medical services provided in a retail outlet, such as a
pharmacf, bf a licensed care provider.
Impacts to Reimbursement
• M&dical Tourism: Patents who travel to ioreign countries
to obtain normallf expensive medical services at a steep
discount.
• aomplianc&: The need to abide bf governmental
regulatons, whether thef be ior the provision oi care, billing,
privacf, securitf, etc
• R&cov&ry audit contractor program aR.a): A program
created under the Medicare Modernizaton Act oi 2003 to
identif and recover improper Medicare pafments paid to
health care providers.
Impacts to Reimbursement
• Valu& Bas&d Purchasing aVBP): CMS has been working
to improve the linkage oi pafment with the qualitf oi care
bf implementng a value based purchasing strategf to replace
its old fnancing sfstem, which basicallf rewarded the quanttf
oi care.
• N&w DRG Syst&m : based on Medicare severitf-adjusted
diagnosis related groups (MS-DRGs), has 25 major disease
categories, 745 diagnosis related groups, and 3 subclasses oi
complicatons and comorbidites.
It is intended to more cloself align reimbursement to patent
severitf oi illness, which means that certain hospitals will earn
more but manf will earn less.
Impacts to Reimbursement
• IaD-10: The World Health Organizaton’s Internatonal
Statstcal Classifcaton oi Diseases and Related Health
Problems (lCD) is a coding sfstem ior diseases that is used
in the United States ior health insurance claim
reimbursement.
• Th& IaD-10:
1. Addresses these issues
2. Also assists in morbiditf and mortalitf data reportng.
Summary
• Health care administrator iaces numerous
complex issues when making strategic and
fnancial decisions.
• High ethical standards must be demonstrated.
Health Care
Financial Statements
Chapter 2
Learning Objectives
• Identiy basic 4nancial statements ior health
care enttes
• Read basic 4nancial statements
Terms to Know
• Generally Accepted Accounting Principles(GAAP):
requires certain disclosure (footnote) information to be
presented to give readers of the financial statements a
much clearer picture than they would have otherwise of
the financial position and results of operations of the
entity.
• Financial Accounting Standards Board (FASB) used
on both commercial and not for profit . It is the auditor’s
responsibility to evaluate the presentation of both the
statements and the note disclosures.
• Governmental Accounting Standards Board (GASB)
government- standard set of financial statements
Statements used in Not for Profit Health
Care Entities
• Balance sheet:
1. Statement oi Operatons
2. Statement oi Changes in Net Assets
3. Statement oi Cash Flows
Balance Sheet
• Snapshot oi an organizaton.
• Summary oi the enttyys assets, liabilites, and net
assets.
• Captures what the entty looks like at a partcular
point in tme.
• Created usually the last day oi the accountng
period (e.g., quarter or 4scal year).
مقالي
Balance Sheet Components
Write down the main component that cover the balance
sheet.?
• Heading-Name oi the organizaton and date
• Body includes:
• Assets=Liabilites + Net Assets
• Liabilites have 2 categories-current and non current
• Net Assets=Communites interest in the assets oi the
not ior pro4t
• Footnotes=additonal key iniormaton
Assets
• Probable iuture economic bene4ts obtained or
controlled by a partcular entty as a result oi
past transactons or events.
• Represent resources owned
• Are recorded at their cost unless donated
• Ii donated recorded at iair value at date oi
donaton
More on Assets
• Current assets are those used or consumed within a
year
• Limited or restricted to use in noncurrent porton
ident4ed ior how they can be used
• Noncurrent assets are resources to be used or
consumed over a period oi tme > one year
• Cash and cash equivalents are the most liquid asset
on the balance sheet
• Noncurrent and long term are used interchangeably
Current & Non-current Assets
• Current may include : It will be used or consumed within
one year .
Examples of current assets are Cash and cash
equivalents:
• Investments .
• Assets limited as to use (current porton)
• Patent accounts receivable
• Inventories, prepaid expenses, and other similar assets
Current & Non-current Assets
• Performance Indicator :
• The FASB requires not -ior -pro4t health care
enttes to include a periormance indicator in their
statement oi operatons.
• The FASB de4nes it as an intermediate level that
reports the results oi operatons.
• Liquidity
• A measure oi how quickly an asset can be converted
into cash .
Current & Non-current Assets
• Investments :Most health care enttes invest excess
iunds.
• Investments in marketable securites that are held
by a not-ior-pro4t entty are carried at iair value.
Current & Non-current Assets
• The resources oi the entty that will be used or
consumed over periods longer than one year.
• Noncurrent may include: seli insurance, bene4t
plans, capital equipment, held by the board under
bond indenture agreements, property and
equipment, goodwill(satsiacton) , net oi
accumulated amortzaton.
Current & Non-current Assets
• Goodwill : is the term used ior what an entty is
buying in an acquisiton when it pays cash and
assumes liabilites in excess oi the iair value oi
the assets acquired.
Liabilities
• Obligatons oi the entty to pay its creditors
• Can be debts or other obligatons
• 2 types
1. Current Liabilites-Due within one year
2. Noncurrent liabilites- Resources used or
consumed over periods > one year
Current & Noncurrent
Liabilities
• Current could include: accounts payable, accrued
expenses, salaries & wages, estmated payables to
third partes Third-Party Payers (these are enttes
that pay on behali oi patents), short term
borrowings, commercial paper.
• Noncurrent could include: long term debt, seliinsurance reserves, accrued pension and retree
health costs.
Net Assets
• Remaining assets afer deductng its liabilites
• 3 classes:
1. Permanently restricted
2. Temporarily restricted
3. Unrestricted
• May also include- non controlling ownership
one of the following fundamental accounting
interest in subsidiaries Which
equation must be in balance After each transaction
• Net assets= Assets – Liabilites
املعادلة اللي ممكن تجي الوحيده
Notes to Financial Statements
(Footnotes)
• Notes are an integral part oi the 4nancial
statements.
• Because the iniormaton in the body oi the
statement is presented in summary iorm,
additonal key iniormaton must be presented in
the notes.
Statement of Operations
• Summary oi the enttyys revenues and expenses
over a period oi tme
• Period is usually the tme between statements
• Uses the accrual basis for accountng
• It does not use the cash basis ior accountng
• Represents how much the entty earned, its
gains and other sources oi revenue and the
resources used during the accountng period
Statement of Operation Components
• Title-name oi entty, statement and period ior
iniormaton
• Unrestricted revenue, gains and other support
• Net patent services revenue
• Premium revenue
• Other revenue
• Provision ior bad debt
• Net assets released irom restricton
Statement of Operations
continued
• Expenses
• Depreciaton and amortzaton (non cash expenses)
• Operatng Income
• Non operatng items
• Excess oi revenue over expenses
• Excess oi revenue over expenses, net oi non
controlling interest
Statement of Changes in Net Assets
• Repeats some oi the iniormaton on the
statement oi operatons to explain changes in
unrestricted net assets but also adds iniormaton
about changes in restricted net assets
• Areas covered are unrestricted net assets,
temporarily restricted net assets, permanently
restricted net assets, increase in net assets and
net assets at the beginning and end oi the year
Statement of Cash Flows
• Takes the accrual basis Knancial statements that
report actvity as it was earned and expended or
commited ior expenditure and converts it to the
actual fow oi cash
• Covers the same tme period as the statement oi
operatons
• Discloses key noncash investng and Knancing
transactons
Statement of Cash Flows Components
• Title-Name oi entty, statement and period oi tme
statement covers
• Cash fows irom operatng actvites (in entty)
• Cash fows irom investng actvites (includes investng
in seli)
• Cash fows irom Knancing actvites
• Net increase (decrease) in cash & cash equivalents
• Cash & cash equivalents at beginning oi year
• Cash & cash equivalents at end oi the year
• Supplemental iniormaton
Summary
• Examined have been the 4 basic Knancial statements
which comprise a picture oi the Knancial health oi a
non proKt, business oriented health care entty.
• The iour basic Knancial statements are:
• Balance Sheet
• Statement oi Operatons
• Statement oi Changes in Net Assets
• Statement oi Cash Flows
C
Type of
Book
Financial Statement
Analysis
Chapter 4
Learning Objectives
• Analyze the fnancial statements of healthcare
organizatons using the horizontal analysis, vertcal
analysis and rato analysis
• Calculate and interpret liquidity, proft, actvity and
capital structure ratos
Analyze financial statements
• Three approaches are commonly used to analyze
3nanc4al statements5
Tools of Analysis
1. Horizontal analysis.
2. Vertcal analysis.
3. Rato analysis.
Horizontal and vertcal analyses are two of the most
commonly used techniques to analyze fnancial
statements
1- Horizontal Analysis
• It looks at the percentage change in a line item from one year
to the next.
• Goal – What is the percentage change in a line item from one
year to the next year ?
• An 4ssue w4th hor4zontal analys4s is that small percentage
changes can hide major dollar efects
• Another 4ssue is that large percentage changes from year to
year may be relatvely inconsequental in terms of dollar
amounts
Trend Analysis
A type of horizontal analysis that looks at changes in
line items compared with a base year.
Compares changes over a longer period of tme by
comparing each year with a base year.
2- Vertical (Common-Size)
Analysis
• Purpose is to answer the general queston, What
percentage of one line item is another line item?
• Vertcal analysis is useful for analyzing the balance
sheet
• It’s Called common s4ze because it converts every
line item to a percentage, thus allowing
comparisons between the fnancial accounts of the
organizatons of diferent sizes
3- Ratio Analysis
• Preferred approach for gaining an in depth
understanding of fnancial statements
• Rato expresses the relatonship between 2
numbers as a single number.
• This provides an indicaton of the organizaton’s
ability to cover current obligatons with current
assets (ability to pay short term debt).
Categories of Ratios
1. L4qu4d4ty-How well is the organizaton positoned
to meet its short-term obligatons?
2. Pro3tab4l4ty-How proftable is the organizaton?
3. Actv4ty- How efciently is the organizaton using
its assets to produce revenues?
4. Cap4tal structure- How are the organizaton’s
assets fnanced and ability to take on new debt?
Liquidity Ratios
• It’s answer the queston, How well is the organizaton
positoned to meet its current obligatons?
• S4x key ratos fall 4nto th4s category5 the current rato, qu4ck
rato, ac4d test rato, days 4n accounts rece4vable, days cash
on hand, and average payment per4od
1. Current Rato-proporton of all current assets to all current
liabilites
2. Qu4ck Rato-used in industries in which net accounts
receivable is relatvely liquid (not usually used in health care
organizatons)
More Liquidity Ratios
3. Ac4d Test Rato-most stringent test of liquidity How much
cash is available to pay of all current liabilites?
4. Days 4n Accounts Rece4vable rato-How quickly
a hospital is convertng its receivables into cash.
5. Days Cash on Hand rato-number of days worth of
expenses an organizaton can cover with its most liquid
assets.
6. Average Payment Per4od-How long on average it takes
an organizaton to pay its bills.
Revenues, Expenses and Profitability Ratios
• Most common are5
• Operatng revenue per adjusted d4scharge-measures
total operatng revenues generated from the patent care
line of business based on its adjusted inpatent discharges
• Operatng Expense per Adjusted D4schargemeasures total operatng expenses incurred for providing its
patent care services based on its adjusted inpatent
discharges
• Return on Total Assets-measures how much proft is
earned for each dollar invested in assets
More Ratios
• Salary and Bene+t Expense as a Percentage of Total
Operatng Expenses-measures the total operatng
expenses that are atributed to labor costs
• Operatng Marg:ns-measures profts earned from the
organizatons main line of business
• Non-operatng Revenue Rato-fnd out how dependent
the organizaton is on patent-related net income
• Return on Net Assets-measures the rate of return for
each dollar in net assets
Activity Ratios
• May be called Efciency Ratos
• Ask the queston “For each dollar invested in assets, how many
dollars of revenue are being generated”?
• Most ratos :n th:s category take the general formD
• The higher the rato, the more efciently the assets are being
generated.
Activity Ratios
1. Total Asset Turnover RatoD Total Operatng Revenues I Total
Assets) Dmeasures the overall efciency of the organizaton’s
assets in producing revenue. It answers the queston, For every
dollar in assets, how many dollars of operatng revenue are
being generated?
2. F:xed Asset Turnover RatoD (Total Operatng Revenues I Net
Plant and Equ:pment)D aids in the evaluaton of the most
productve assets, plant and equipment. To calculate the fxed
asset turnover rato.
3. Age of Plant Rato (Accumulated Deprec:aton – Deprec:aton
Expense)Dprovides an indicaton of the average age of a
hospital’s plant and equipment.
Capital Structure Ratios
• It’s answer two questonsD
1. How are an organizaton’s assets fnanced?
2. and, How able is this organizaton to take on new
debt?
• Examine the statement of cash fows to determine
if signifcant long term debt has been acquired or
paid of OR if there has been a sale or purchase of
fxed assets.
Capital Structure Ratios
Continued
• Cap:tal structure ratos :ncludeD
1. Long term debt to net assets-measures the proporton of
debt to net assets
2. Net assets to total assets-refects the proporton of total
assets fnanced by equity
3. T:mes Interest Earned-enables creditors and lenders to
evaluate a hospitals ability to generate the earnings
necessary to meet interest expense requirements
4. Debt serv:ce Coverage-measures the ability to repay a
loan
Summary
• Three ways have been presented to analyze fnancial
statements
• Hor:zontal analys:s which examines year to year
changes in line items of fnancial statements
• Vertcal analys:s which compares one line item with
another line item for the same tme period
• Rato analys:s which examines the rato of one line
item to another
• Rato analys:s is the preferred approach for detailed
analysis of fnancial statements of healthcare
organizatons
Working Capital
Management
Chapter 5
Learning Objectives
• Defne working capital and the revenue cycle
• Understand working capital and revenue cycle
management
• Construct a cash budget
• Understand receivables and payables management
Working Capital
• Working capital refers to both current assets and
current liabilites
Working Capital= Current Assets + Current
Liabilites
• Net working capital refers to the diference
between current assets and current liabilites.
Net Working Capital= Current Assets – Current
Liabilites
Working Capital Cycle
• In the day-to-day operatons of an organizaton,
an ongoing series of cash infows and outlows
pays for day-to-day expenses (such as supplies
and salaries).
• In healthcare payments where payment for
services may be out 2 months or more, there
must be sufcient cash on hand to pay bills
• To do this requires managing the four phases
of the working capital cycle
Working Capital Cycle
Working Capital Cycle
• The working capital cycle involves not only
ensuring that total cash infows cover cash
outlows but also managing the tming of these
fows.
• To the extent that payments come due before
cash is available, the organizaton has to obtain
cash from sources other than existng revenues,
such as from investments or through short-term
borrowing.
Working Capital Management Strategies
• Defned as the amount of working capital an
organizaton must keep as a cushion
• It has 2 components:
1. Asset Mix-amount of working capital an organizaton
keeps on hand relatve to its potental working
capital obligatons
2. Financing Mix-how an organizaton chooses to
fnance its working capital needs
Asset Mix Strategy
• Contnuum of aggressive to conservatve
• Aggressive-atempts to maximize returns by
investng excess funds in non-liquid assets expected
to have high earnings .
• Conservatve-minimizes its risk of having insufcient
short-term funds by maintaining higher liquidity.
Financing Mix Strategy
• Financing mix refers to how the organizaton chooses to
fnance its working capital needs.
• 3 rules to follow to decide between short term and long
term borrowing to fnance working capital needs
1. Finance short term working capital needs with short
term debt
2. Finance long term working capital needs with long
term fnancing
3. Finance fuctuatng needs for working capital by
employing a mixed strategy
Cash Management
• Refers to currency and cash equivalents
• 3 major reasons to hold cash:
1. Daily operatons purposes
2. Precautonary purposes
3. Speculatve purposes
Sources of Temporary Cash
• Bank Loans-lines of credit, commitment fees,
compensatng balances, transacton notes.
• Trade credit or payables-extension of credit from
supplies.
Revenue Cycle Management
• Successful cash management is driven by a billing process that
must be tmely and accurate.
• Ensuring a tmely and accurate billing process determines the
success of cash management .
• Several hindrances can delay the billing process and collecton
of cash. For instance:
1. Patents who use more than one name or who have had
name changes
2. Address changes or no address or phone number on fle
3. Lack of clarity about who is responsible for paying the bill,
or outdated insurance informaton
4. Specifc requirements demanded by various insurers, such
as retrospectve reviews
Revenue Cycle Management
• A typical example might be an incoherent patent who is
accepted into the emergency department for treatment.
In its efort to turn around beds quickly to make room for the
next patent, the hospital might discharge this patent when he
or she is medically cleared but before complete billing
informaton has been gathered.
• Or an uninsured patent may intentonally provide an expired
insurance card or go under the name of an insured relatve or
friend to avoid payment. By the tme the hospital realizes the
problem, the claim has been denied and the patent is
unreachable.
مقالي
Revenue Cycle Management
Component of cycle management process?
Revenue Cycle Management
1- Scheduling or Preregistraton:
• The normal revenue cycle begins with the patent’s phone call to
schedule an appointment.
• Preregistraton and admission screenings are important because they
help the health care organizaton determine a patent’s ability to pay
by verifying name, address, employment status, and insurance
coverage.
2- Registraton
• For patents who do not preregister (for example, an emergency
room patent), hospitals need to try to follow the same processes
used in preregistraton in terms of insurance verifcaton and ability
to pay
Revenue Cycle Management
3. Charge Capture
• The integraton of a patent’s fnancial and clinical informaton
is critcal to the revenue cycle.
• Correctly identfying the diagnostc and procedural codes
when providing patent services is a critcal step toward
capturing charges and identfying billing items.
• The primary objectve for this system is the accurate, tmely,
and seamless transfer of data and informaton.
Revenue Cycle Management
4- Coding
• The primary objectve of internal claims processing is to avoid
claims denials.
• This involves the proper conduct of utlizaton review: preadmission
certfcaton and second opinions to verify medical necessity,
verifcaton of patent insurance, appropriate record keeping and
patent classifcaton, and the like.
5- Electronic Billing
• Electronic billing is a process whereby bills are sent electronically
to third partes through electronic data interfacing (EDI).
Revenue Cycle Management
6- Payment:
• Timely payment of a claim, especially if it is paid
electronically, can speed up the cash fow payments.
• Electronic fund transfers going directly into designated
bank accounts also provide a more secure and reliable
process for hospitals to receive their cash.
Collecting cash payments
• Because health care providers depend primarily on
third -party health plans to pay for patent bills, they
constantly try to upgrade and improve their revenue
cycle management processes to ensure tmely and
accurate cash collectons.
• Proper internal controls must be implemented to
ensure accurate recording and depositng of cash
payments.
Collecting cash payments
• Finally, providers should use banking services to accept
online credit card payments over the Internet and debit or
credit card accounts for high-deductble health plans.
• Health care providers can also employ other
techniques to assist in collectng their payments,
such as:
1. Decentralized collecton centers and concentraton
banking
2. Lockboxes
3. Wire transfers
Collecting cash payments
1. Decentralized collecton centers and concentraton
banking allow health care providers to have payers
send their payments to a nearby locaton (thus
reducing mail foat, the tme spent in the mail
before the payment reaches its destnaton).
These collecton centers deposit the payments they
have received in the provider’s local bank.
Collecting cash payments
2. Lockboxes
• Under the Lockbox form of collecton, a payer sends
payments to a post ofce box located near a Federal
Reserve bank or branch.
• The bank picks up the payments from the box and
at various tmes during the day deposits these funds
into the health care provider’s account, processes
the checks, and sends the facility a list of the payers
and payments.
3. Wire Transfers eliminate mail and transit foat
Investing Cash on a Short Term Basis
• A]er an organizaton has gone through the efort to collect
its cash, it wants to ensure that the money is invested
appropriately to generate a favorable return.
• Some of the key atributes of these short-term investments
are summarized in:
1. Treasury Bills
2. Negotable Certfcates of Deposit
3. Commercial Paper
4. Money Market Mutual Funds
Forecasting Cash Surpluses and Deficits
• In planning fnancially tming of cash fows in and
out must be known.
• Forecast of the above is useful for short term
planning
• Cash Balance-The amount of cash an organizaton
must have on hand at the end of the current
period to ensure that it has enough cash to cover
expected outlows during the next forecastng
period.
Accounts Receivable Management
• Most is paid by a third party payer making up about 75% of a
health care providers current assets
• Providers contnuously face the problem of trying to control
a largely external process in order to ensure the tmely
payment of accounts.
• Timely and accurate billing is essental and an internal
process
• Receivables as a percentage of revenue is a means to judge
the management’s success in collectng revenues.
Accounts Receivable Management
• (Aging schedule) What Is an Aging Schedule?
• A table that shows the percentage of receivables
outstanding by the month they were incurred. This is
o]en also called an age trial balance.
Methods to Monitor Revenue
Cycle Performance
• Personnel involved in the day-to-day operaton and
evaluaton of revenue cycle management, such as the director
of patent fnancial services and service-line managing
directors, may have an interest in more detailed measures
related to the revenue cycle.
• Cost to collect is viewed by these managers as a key revenue
cycle performance indicator because it measures the costs of
all the departments involved in managing the revenue cycle
processes.
Methods to Monitor Revenue
Cycle Performance
• The majority of these costs relate to staf (salary,
training, and benefts), informaton technology
(hardware, so]ware, and support).
• These operatng costs are measured as a percentage
of the actual cash collected during a given period
(monthly, quarterly, or annually).
Methods to Monitor Revenue Cycle
Performance
Fraud and Abuse
• Comply with laws and regulatons related to
patent billing, cost reportng , physician
transactons and occupatonal health and safety
to ensure fraud and abuse are eradicated.
• HHS(United States Department of Health and Human
Services), CMS(Content management system) and OIG
(Ofce of Inspector General )have programs and
approaches to help minimize fraud and abuse as
well as structure for compliance programs
Summary
• Working capital is needed because it turns the
capacity of a health care organizaton into
services and revenues.
• All health care organizatons must have sufcient
working capital available to meet everyday
needs.
• Working capital management strategies must
chosen and utlized to meet the fnancial needs
of the health care organizaton.
b
College of Health Sciences
Department of Public Health
ASSIGNMENT COVER SHEET
Course name:
Financial Management for Healthcare
Course number:
HCM213
CRN
12345
Assignment title or task:
Assume yourself as a senior manager of a healthcare
organization and you have given the responsibility to take
capital investment decision.
Detail what are the available options you have and which
one will you choose and why.
Student Name:
Students ID:
Submission date:
Instructor name:
Dr. ABC
Grade:
…..out of 5