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# Financial Management of Health Care Organizations: An Introduction to Fundamental Tools, Concepts and Applications, 3rd Edition

**by**Zelman, William N.; McCue, Michael J.; Glick, Noah D.

3rd

### 9780470497524

0470497521

Hardcover

9/28/2009

Jossey-Bass

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## Summary

Thoroughly revised, this third edition of Financial Management of Health Care Organizations of-fers an introduction to the most-used tools and techniques of health care financial management. Comprehensive in scope, the book covers a broad range of topics that include an overview of the health care system and evolving reimbursement methodologies; health care accounting and finan-cial statements; managing cash, billings, and collections; the time value of money and analyzing and financing major capital investments; determining cost and using cost information in decision-mak-ing; budgeting and performance measurement; and pricing. In addition, this new edition includes information on new laws and regulations that affect health care financial reporting and performance, revenue cycle management expansion of health care services into new arenas, benchmarking, interest rate swaps, bond ratings, auditing, and internal control. This important resource also contains information on the 2007 Healthcare Audit Guide of the American Institute of Certified Public Accountants (AICPA).Written to be accessible, the book avoids complicated formulas. Chapter appendices offer advanced, in-depth information on the subject matter. Each chapter provides a detailed outline, a summary, and key terms, and includes problems in the context of real-world situations and events that clearly illustrate the concepts presented. Problem sets that end each chapter have been updated and expanded to support more in-depth learning of the chapters' concepts.An Instructor's Manual, available online, contains PowerPoint and Excel files.

## Author Biography

The Authors

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. He serves as associate editor of Health Services Management Research.

Noah D. Glick is senior health care consultant for FTI Consulting in its corporate finance division.

## Table of Contents

List of Tables, Figures, and Exhibits | |

Preface | |

TheAuthors | |

Acknowledgments | |

The Context Of Health Care Financial Management | |

Introduction | |

Rising Health Care Costs | |

The Payment System | |

Technology 6 | |

The Aging Population | |

Prescription Drug Costs and Medicare Part D | |

Chronic Diseases | |

Compliance and Litigation | |

The Uninsured | |

Efforts to Control Costs | |

Efforts by Payors to Control Health Care Costs | |

DRGs | |

Capitation | |

Global Payments | |

APCs | |

Pay-for-Performance | |

Cutting Delivery Costs | |

Shift to Outpatient Services | |

Cost Accounting Systems | |

Information Services Technology | |

Mergers and Acquisitions | |

Reengineering/Redesign | |

Alternative Forms of Care | |

Retail Health Care | |

Medical Tourism | |

Medical Home | |

Cost Control Issues with Ethical Overtones | |

Summary | |

Key Terms | |

Questions and Problems | |

Health Care Financial Statements | |

Introduction | |

The Balance Sheet | |

Assets | |

Current Assets | |

Noncurrent Assets | |

Liabilities | |

Current Liabilities | |

Noncurrent Liabilities | |

Net Assets | |

Stockholders' Equity | |

Notes to Financial Statements | |

The Statement of Operations | |

Unrestricted Revenues, Gains, and Other Support | |

Net Patient Service Revenues | |

Premium Revenues | |

Other Revenues | |

Net Assets Released from Restriction | |

Expenses | |

Depreciation and Amortization | |

Interest | |

Provision for Bad Debts | |

Other Expenses | |

Operating Income | |

Other Income | |

Excess of Revenues over Expenses | |

Below the Line Items | |

Change in Net Unrealized Gains and Losses on Other | |

than Trading Securities | |

Increases in Long-Lived Unrestricted Net Assets | |

Transfers to Parent | |

Extraordinary Items | |

Increase in Unrestricted Net Assets | |

The Statement of Changes in Net Assets | |

Changes in Unrestricted Net Assets | |

Changes in Temporarily Restricted Net Assets | |

Changes in Permanently Restricted Net Assets | |

The Statement of Cash Flows | |

Cash Flows from Operating Activities | |

Cash Flows from Investing Activities | |

Cash Flows from Financing Activities | |

Cash and Cash Equivalents at the End of the Year | |

Summary | |

Key Terms | |

Key Equations | |

Questions and Problems | |

Financial Statements for Sample Not-for-Profi t Hospital and For-Profi t Hospital and Notes to Financial Statement | |

Principles And Practices Of Health Care Accounting | |

Introduction | |

The Books | |

Cash and Accrual Bases of Accounting | |

Cash Basis of Accounting | |

Accrual Basis of Accounting | |

An Example of the Effects of Cash Flows on Profit | |

Reporting Under Cash and Accrual Accounting | |

Recording Transactions | |

Rules for Recording Transactions | |

The Recording Process | |

Developing the Financial Statements | |

The Balance Sheet | |

Assets | |

Liabilities | |

Net Assets | |

The Statement of Operations | |

Unrestricted Revenues, Gains, and Other Support | |

Operating Expenses | |

Operating Income and Excess of Revenues over Expenses | |

Increase in Unrestricted Net Assets | |

Statement of Changes in Net Assets | |

Statement of Cash Flows | |

Summary | |

Key Terms | |

Questions and Problems | |

Financial Statement Analysis | |

Introduction | |

Horizontal Analysis | |

Trend Analysis | |

Vertical (Common-Size) Analysis | |

Ratio Analysis | |

Categories of Ratios | |

Key Points to Consider When Using and Interpreting Ratios | |

Liquidity Ratios | |

Current Ratio | |

Quick Ratio | |

Acid-Test Ratio | |

Days in Accounts Receivable | |

Days Cash on Hand | |

Average Payment Period | |

Liquidity Summary | |

Revenue, Expense, and Profi tability Ratios | |

Operating Revenue per Adjusted Discharge | |

Operating Expense per Adjusted Discharge | |

Salary and Benefi t Expense as a Percentage of Total Operating Expense | |

Operating Margin | |

Nonoperating-Revenue Ratio | |

Return on Total Assets | |

Return on Net Assets | |

Revenue, Expense, and Profitability Summary | |

Activity Ratios | |

Total Asset Turnover | |

Fixed Asset Turnover | |

Age-of-Plant Ratio | |

Activity Summary | |

Capital Structure Ratios | |

Long-Term Debt to Net Assets | |

Net Assets to Total Assets | |

Times Interest Earned | |

Debt Service Coverage | |

Capital Structure Summary | |

Summary of Newport Hospital's Ratios | |

Summary | |

Key Terms | |

Key Equations | |

Questions and Problems | |

Working Capital Management | |

Introduction | |

The Working Capital Cycle | |

Working Capital Management Strategies | |

Asset Mix Strategy | |

Financing Mix Strategy | |

Cash Management | |

Sources of Temporary Cash | |

Bank Loans | |

Lines of Credit | |

Commitment Fees | |

Compensating Balance | |

Transaction Notes | |

Trade Credit or Payables | |

Revenue Cycle Management | |

Scheduling or Preregistration | |

Registration | |

Charge Capture | |

Coding | |

Billing | |

Payment | |

Collecting Cash Payments | |

Decentralized Collection Centers and Concentration Banking | |

Lockboxes | |

Wire Transfers | |

Investing Cash on a Short-Term Basis | |

Treasury Bills (T-bills) | |

Negotiable Certifi cates of Deposit | |

Commercial Paper | |

Money Market Mutual Funds | |

Forecasting Cash Surpluses and Defi cits-The Cash Budget | |

Cash Inflows | |

Cash Outflows | |

Ending Cash Balance | |

Accounts Receivable Management | |

Methods to Monitor Accounts Receivable | |

Methods to Finance Accounts Receivable | |

Factoring | |

Pledging Receivables as Collateral | |

Methods to Monitor Revenue Cycle Performance | |

Laws and Regulation for Billing Compliance | |

Health Insurance Portability and Accountability Act | |

Summary | |

Key Terms | |

Key Equations | |

Questions and Problems | |

The Time Value Of Money | |

Introduction | |

Future Value of a Dollar Invested Today | |

Using a Formula to Calculate Future Value | |

Using Tables to Compute Future Value | |

Using a Spreadsheet to Calculate Future Value | |

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

Using a Formula to Calculate Present Value | |

Using Tables to Compute Present Value | |

Using a Spreadsheet to Calculate Present Value | |

Annuities | |

Future Value of an Ordinary Annuity | |

Using Tables to Calculate the Future Value of an Ordinary Annuity | |

Using a Spreadsheet to Calculate the Future Value of an Ordinary Annuity | |

Future Value of an Annuity Due | |

Present Value of an Ordinary Annuity | |

Using Tables to Calculate the Present Value of an ordinary Annuity | |

Using a Spreadsheet to Calculate the Present Value | |

Present Value of an Annuity Due | |

Special Situations to Calculate Future or Present Value and Other Excel Functions | |

What If the Interest Rate Is Not Expressed as an Annual Rate? | |

How to Compute Periodic Loan Payments Using Excel | |

How to Calculate the Compounded Growth Rate | |

How to Calculate the Present Value of Perpetual Annuities | |

How to Solve for the Interest Rate of a Loan with Fixed | |

Loan Payments | |

Summary | |

Key Terms | |

Key Formulas | |

Questions and Problems | |

Future and Present Value Tables | |

The Investment Decision | |

Introduction | |

Objectives of Capital Investment Analysis | |

Nonfinancial Benefits | |

Financial Returns | |

Ability to Attract Funds in the Future | |

Analytic Methods | |

Payback Method | |

Analysis | |

Strengths and Weaknesses of the Payback Method | |

Net Present Value | |

Using the Small Hospital as an Example of Net Present Value Analysis | |

Decision Rules Regarding NPV | |

Using Spreadsheets to Calculate NPV | |

Strengths and Weaknesses of the NPV Method | |

Internal Rate of Return | |

Equal Cash Flows | |

Unequal Cash Flows | |

Decision Rules with IRR | |

Strengths and Weaknesses of IRR Analysis | |

Using an NPV Analysis for a Replacement Decision | |

Illustrative Example | |

Solution | |

Summary | |

Key Terms | |

Key Equations | |

Questions and Problems | |

Technical Concerns Regarding Net Present Value | |

Table of Contents provided by Publisher. All Rights Reserved. |