Financial Management for Nurse Managers and Executives

by Finkler & Kovner

• ISBN13: 9780721677149
• ISBN10: 0721677142
• Edition: 2nd
• Format: Hardcover
• Copyright: 1999-11-19
• Publisher: Saunders

Summary

This resource clearly examines the broad range of financial management issues relevant to todays nurse managers, nurse executives, and nurse entrepreneurs. The authors help readers understand the costs of health care deliveryand offer them practical guidance on managing these costs. Revised and updated, this New Edition integrates the latest developments in managed care, home health care, accounting rules, and technology.

Author Biography

Cheryl Bland Jones is Associate Professor and Health Care Systems Coordinator, School of Nursing, Investigator, Southeast Regional Health Workforce Center, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina. Christine T. Kovner is Professor, College of Nursing, Senior Fellow, Hartford Institute for Geriatric Nursing, Faculty Fellow, New York University Hospitals Center, New York University, New York, New York. Steven A. Finkler is Professor Emeritus of Public and Health Administration, Accounting, and Financial Management, Program in Health Policy and Management, Robert F. Wagner Graduate School of Public Service, New York University, New York, New York.

Table of Contents

PART I A FINANCIAL MANAGEMENT FRAMEWORK	1	(77)
Introduction and Overview	3	(9)
Chapter Goals	3	(1)
Introduction	3	(1)
A Financial Management Framework	3	(2)
The Health Care Environment	4	(1)
Financial Management and the Health Care Organization	4	(1)
Economics	4	(1)
Financial Accounting	5	(1)
Accounting Principles	5	(1)
Financial Statement Analysis	6	(1)
Cost Analysis	6	(1)
Cost Management	6	(1)
Determining the Cost of Health Care Services	7	(1)
Recruiting and Retaining Staff	7	(1)
Planning and Control	7	(2)
Strategic Planning	7	(1)
Budgeting Concepts and Budget Preparation	8	(1)
Controlling Operating Results	8	(1)
Performance Budgeting	8	(1)
Managing Financial Resources	9	(1)
Short-Term Financial Resources	9	(1)
Long-Term Financing	9	(1)
Additional Management Tools	10	(1)
Management Information Systems and Computers	10	(1)
Forecasting and Other Decision-Making Methods	10	(1)
Marketing	10	(1)
Nursing and Financial Management: Current Issues and Future Directions	11	(1)
The Health Care Environment	12	(24)
Chapter Goals	12	(1)
Introduction	12	(1)
The Key Participants in the Health Care System	13	(8)
Providers	13	(1)
Nurses	14	(1)
Physicians	14	(1)
Hospitals	15	(1)
Government	16	(1)
Other Providers	16	(1)
Suppliers	17	(1)
Consumers	17	(1)
Regulators	18	(1)
Payers	19	(1)
Individual Consumers	19	(1)
Insurers	20	(1)
Employers	20	(1)
Government	21	(1)
Financing the Health Care System	21	(4)
The Medicare and Medicaid Programs	22	(1)
The Insurance System	22	(1)
Moral Hazard	23	(1)
Coinsurance, Deductibles, and Co-payments	24	(1)
Customary and Reasonable Coverage	24	(1)
Other Sources of Financing	25	(1)
Paying Health Care Providers	25	(5)
Hospital Payment	26	(1)
Cost-based Reimbursement	26	(1)
Charity Care	27	(1)
Prospective Payment Systems	27	(1)
Negotiated Rates	28	(1)
Nurse Payment	28	(1)
Physician Payment	29	(1)
Home Health Agency Payment	29	(1)
Nursing Home Payment	30	(1)
Methods Used To Control Payments for Care	30	(2)
Health Maintenance Organizations	30	(1)
Preferred Provider Organizations	31	(1)
Point of Service	32	(1)
Managed Care	32	(1)
Implications for Nurse Managers	32	(1)
Key Concepts	33	(2)
Suggested Readings	35	(1)
The Role of Financial Management Within the Health Care Organization	36	(21)
Chapter Goals	36	(1)
Introduction	36	(1)
The Role of Management	37	(1)
The Hierarchy of Health Care Organizations	37	(8)
The Top Management Team	38	(1)
Line vs Staff Authority	39	(1)
Formal Lines of Authority	39	(3)
Informal Lines of Authority	42	(2)
Centralized vs Decentralized Organizations	44	(1)
The Role of the CFO and Other Financial Managers	45	(3)
The Finance Function	45	(1)
The Financial Accounting Function	46	(1)
The Managerial Accounting Function	47	(1)
Internal Control Function	48	(1)
The Role of the CNE in Financial Management	48	(1)
The Role of Mid-Level Nurse Managers in Financial Management	49	(1)
Interactions Between Fiscal and Nurse Managers	50	(1)
Responsibility Accounting	50	(2)
Responsibility Centers	51	(1)
Incentives and Motivation	52	(1)
Power and Politics	53	(1)
Networking	53	(1)
Implications for Nurse Managers	54	(1)
Key Concepts	54	(1)
Suggested Readings	55	(2)
Key Issues in Applied Economics	57	(20)
Chapter Goals	57	(1)
Introduction	57	(1)
Fundamental Concepts of Economics	58	(2)
Economic Goods	58	(1)
Utility	58	(1)
Marginal Utility	59	(1)
Marginal Cost	59	(1)
Savings	59	(1)
Supply and Demand	60	(2)
Free Enterprise	60	(1)
An Example of Supply and Demand	60	(2)
Elasticity of Demand	62	(1)
Economies of Scale	63	(1)
Increasing Returns to Scale	63	(1)
Decreasing Returns to Scale	63	(1)
Economics and Incentives	64	(1)
Market Efficiency	65	(1)
Redistribution of Resources	65	(1)
Collective Action	65	(1)
Equity Improvement	66	(1)
Market Failure	66	(5)
Government Intervention	66	(2)
Lack of Full Information	68	(1)
Lack of Direct Patient Payment	69	(1)
Monopoly Power	69	(1)
Monopsony Power	70	(1)
Government-induced Inefficiency	71	(1)
Externalities	71	(1)
The Market for Nurses	71	(2)
Implications for Nurse Managers	73	(1)
Key Concepts	73	(2)
Suggested Readings	75	(2)
PART II FINANCIAL ACCOUNTING	77	(44)
Accounting Principles	79	(20)
Chapter Goals	79	(1)
Introduction	79	(1)
The Basic Framework of Accounting	80	(1)
The Central Financial Statements	81	(2)
The Balance Sheet	81	(1)
The Operating Statement	82	(1)
Accounting Terminology	83	(6)
Assets	83	(3)
Equities	86	(2)
Revenues and Expenses	88	(1)
The Recording and Reporting Process	89	(3)
Journal Entries	90	(1)
Ledgers	91	(1)
Reporting Information	92	(1)
Generally Accepted Accounting Principles	92	(3)
The Entity Concept	93	(1)
Going Concern	93	(1)
The Matching Principle and Cash vs Accrual Accounting	93	(1)
The Cost Principle	94	(1)
Objective Evidence	94	(1)
Materiality	94	(1)
Consistency	95	(1)
Full Disclosure	95	(1)
Fund Accounting	95	(1)
Implications for Nurse Managers	96	(1)
Key Concepts	97	(1)
Suggested Readings	97	(2)
Analysis of Financial Statement Information	99	(22)
Chapter Goals	99	(1)
Introduction	99	(1)
The Independent Audit	100	(2)
Balance Sheets and Operating Statements	102	(1)
The Statement of Cash Flows	102	(2)
Statement of Changes in Net Assets or Equity	104	(2)
Notes to Financial Statements	106	(1)
Ratio Analysis	107	(10)
Common Size Ratios	108	(2)
Liquidity Ratios	110	(2)
Solvency Ratios	112	(3)
Efficiency Ratios	115	(1)
Profitability Ratios	116	(1)
Management Reports	117	(1)
Implications for Nurse Managers	118	(1)
Key Concepts	118	(1)
Suggested Readings	119	(2)
PART III COST ANALYSIS	121	(96)
Cost Management	123	(30)
Chapter Goals	123	(1)
Introduction	123	(1)
Basic Cost Concepts	124	(10)
Definitions	124	(2)
Fixed vs Variable Costs	126	(2)
Cost Graphs and the Relevant Range	128	(1)
The Impact of Volume on Cost per Patient	129	(2)
Marginal Cost Analysis	131	(2)
Relevant Cost Case Study	133	(1)
Cost Estimation Techniques	134	(9)
Adjusting Costs for Inflation	135	(2)
High-Low Cost Estimation	137	(1)
Regression Analysis	137	(2)
Mixed Costs and Regression Analysis	139	(3)
Multiple Regression Analysis	142	(1)
Break-even Analysis	143	(6)
Example of Break-even Analysis	144	(4)
Using Break-even Analysis for Decision Making	148	(1)
Break-even and Capitation	148	(1)
Break-even Analysis Cautions	149	(1)
Implications for Nurse Managers	149	(1)
Key Concepts	150	(2)
Suggested Readings	152	(1)
Determining Health Care Costs and Prices	153	(50)
Chapter Goals	153	(1)
Introduction	153	(2)
Costs for Reporting vs Costs for Management Control	155	(1)
Traditional Cost-Finding Methods	156	(7)
The Medicare Step-down Approach	156	(1)
A Detailed Look at the Cost-Finding Approach	157	(1)
Accumulate Direct Costs for Each Cost Center	157	(1)
Determine Bases for Allocation	157	(1)
Allocate from Cost Centers to Revenue Centers	158	(3)
Allocate Costs to Units of Service	161	(1)
Is Good-enough Cost Findng Good Enough?	162	(1)
Costing Out Nursing Services	163	(9)
Solutions to the Costing Problem	166	(3)
Why Change the Costing Approach?	169	(1)
Should Costing be Linked to DRGs?	169	(3)
Specific Approach to Costing Nursing Services	172	(2)
Limitations of the RVU Approach	174	(1)
Patient Classification vs Other Work-load Measurement	174	(1)
Indirect Nursing Costs	174	(1)
Staffing Mix	175	(1)
Measuring Productivity	175	(3)
Product-Line Costing	178	(4)
Direct Care Hours	179	(1)
Standard Costs	180	(2)
Activity-Based Costing	182	(2)
Setting Prices	184	(3)
Total Financial Requirements	184	(1)
Rate-setting Approaches	185	(1)
Cost-Based Prices	185	(1)
Negotiated Prices	186	(1)
Market Prices	186	(1)
Financial Reimbursement for Nursing Services	187	(1)
Implications for Nurse Managers	187	(2)
Key Concepts	189	(1)
Suggested Readings	190	(2)
Appendix: Institutional Cost Report	192	(11)
Costs and Other Issues Related to Recruiting and Retaining Staff	203	(14)
Chapter Goals	203	(1)
Introduction	203	(1)
Retaining Staff	204	(6)
Nurse Satisfaction	204	(1)
Fringe Benefits	205	(1)
Retention Programs	206	(2)
Clinical Ladders	208	(1)
Determining the Cost	209	(1)
Recruiting Staff	210	(2)
Marketing	210	(2)
Determining the Cost	212	(1)
Use of Alternative Health Care Employees	212	(2)
Foreign Nurse Recruitment	213	(1)
Alternative Care Givers	213	(1)
The Use of Computers	214	(1)
Implications for Nurse Managers	214	(1)
Key Concepts	215	(1)
Suggested Readings	215	(2)
PART IV PLANNING AND CONTROL	217	(120)
Strategic Management	219	(20)
Chapter Goals	219	(1)
Introduction	219	(2)
Total Quality Management	221	(1)
Strategic Planning	222	(6)
The Element of a Strategic Plan	223	(1)
The Mission Statement or Philosophy	223	(1)
Statement of Long-term Goals	224	(1)
Statement of Competitive Strategy	224	(2)
Statement of Organizational Policies	226	(1)
Statement of Needed Resources	226	(1)
Statement of Key Assumptions	226	(1)
Benefits of the Strategic Planning Process	227	(1)
Implementing a Strategic Management Process	228	(1)
Long-range Planning	228	(1)
Program Budgeting and Zero-base Budgeting	229	(5)
Zero-base Budgeting	230	(1)
ZBB Case Study: Hemodialysis	231	(3)
Ranking Decision Packages	234	(1)
Business Plans	234	(1)
What Is a Business Plan?	234	(1)
Implications for Nurse Managers	235	(1)
Key Concepts	236	(1)
Suggested Readings	237	(2)
Budgeting Concepts	239	(23)
Chapter Goals	239	(1)
Introduction	239	(1)
Types of Budgets	240	(10)
Operating Budget	241	(1)
Long-range Budgets	241	(1)
Program Budgets	241	(1)
Capital Budgets	242	(1)
Generation of Capital Budget Proposals	243	(1)
Justification of Capital Requests	243	(2)
Evaluation of Capital Budget Proposals	245	(2)
Product-line Budgets	247	(1)
Cash Budgets	247	(1)
Cash Budget Preparation	248	(1)
Cash Budget Example	248	(1)
Special Purpose Budgets	249	(1)
The Budget Process	250	(4)
Budget Timetable	250	(2)
Statement of Environmental Position	252	(1)
General Goals, Objectives, and Policies	252	(1)
Organization-wide Assumptions	253	(1)
Specification of Program Priorities	253	(1)
Specific, Measurable Operating Objectives	253	(1)
Budget Preparation	253	(1)
Budget Negotiation and Revision	254	(1)
Control and Feedback	254	(1)
Implications for Nurse Managers	254	(1)
Key Concepts	255	(1)
Suggested Readings	256	(1)
Appendix: Time Value of Money	257	(5)
Introduction	257	(1)
Time-Value-of-Money Calculation Mechanics	257	(1)
The Present Cost Approach	258	(1)
The Net Present Value Approach	258	(2)
The Internal Rate of Return Approach	260	(1)
Summary	260	(1)
Key Concepts	260	(2)
Operating Budgets	262	(25)
Chapter Goals	262	(1)
Introduction	262	(1)
Workload Budget	263	(3)
Activity Report	264	(1)
Adjusting Units of Service	265	(1)
Calculating Workload	265	(1)
Expense Budget: Personnel Services	266	(12)
Average Daily Census and Occupancy Rate	267	(1)
Staffing Requirements and Full-time Equivalents	267	(1)
Productive vs Nonproductive Hours	268	(1)
Assignment of Staff by Type and Shift	268	(2)
Fixed Staff	270	(1)
Converting Staff and FTEs to Positions	271	(1)
Calculating FTEs by Type and Shift	271	(1)
Establishing Positions	272	(2)
Calculating Labor Cost	274	(1)
Straight-time and Overtime Salaries	274	(2)
Differentials and Premiums	276	(1)
Fringe Benefits	277	(1)
Special Situations	277	(1)
Expense Budget: Other-than-Personnel Services	278	(2)
Revenue Budget	280	(2)
Calculation of Budgeted Revenue	281	(1)
Variable Billing	282	(1)
Budget Submission, Negotiation, and Approval	282	(1)
Implementing the Approved Budget	283	(1)
Implications for Nurse Managers	284	(1)
Key Concepts	285	(1)
Suggested Readings	286	(1)
Controlling Operating Results	287	(34)
Chapter Goals	287	(1)
Introduction	287	(1)
The Budget as a Tool for Motivation	287	(2)
Motivation and Incentives	289	(1)
Motivation and Unrealistic Expectations	290	(1)
Communication and Control	291	(1)
Using Budgets for Interim Evaluation	291	(1)
Variance Analysis	291	(1)
Causes of Variances	292	(1)
Justification of Variances	292	(1)
Traditional Variance Analysis	292	(3)
Unit and Department Variances	293	(1)
Line-item Variances	294	(1)
Understanding Variances	294	(1)
Flexible Budget Variance Analysis	295	(2)
The Volume Variance	296	(1)
The Price or Rate Variance	296	(1)
The Quantity or Use Variance	297	(1)
The Mechanics of Flexible Budget Variance Analysis	297	(7)
Flexible Budget Notation	299	(1)
An Example of Volume, Price, and Quantity Variances	300	(4)
Determination of the Causes of Variances	304	(3)
Aggregation Problems	307	(1)
Exception Reporting	307	(1)
Revenue Variances	308	(2)
Implications for Nurse Managers	310	(2)
Key Concepts	312	(1)
Suggested Readings	312	(2)
Appendix: Variance Analysis, Part I	314	(7)
Performance Budgeting	321	(16)
Chapter Goals	321	(1)
Introduction	321	(1)
When Is Performance Budgeting Appropriate?	322	(1)
The Performance Budgeting Technique	322	(2)
Determining Key Performance Areas	322	(1)
Technical Steps in Performance Budgeting	323	(1)
Performance Budget Example	324	(5)
Developing Performance Area Measures	329	(4)
Quality of Care	329	(1)
Staffing	330	(1)
Cost Control	330	(1)
Increased Productivity	331	(1)
Patient and Staff Satisfaction	332	(1)
Innovation and Planning	332	(1)
Direct Care	332	(1)
Indirect Care	333	(1)
Other	333	(1)
Multiple Measures	333	(1)
Implications for Nurse Managers	334	(1)
Key Concepts	334	(1)
Suggested Readings	335	(2)
PART V MANAGING FINANCIAL RESOURCES	337	(34)
Short-Term Financial Resources	339	(15)
Chapter Goals	339	(1)
Introduction	339	(1)
Current Assets	340	(9)
Cash and Marketable Securities	341	(1)
Short-term Cash Investment	341	(1)
Cash Flow vs Revenue and Expense	342	(1)
Cash Budgets	343	(1)
Maintaining Security over Cash	344	(1)
Accounts Receivable	344	(1)
Preadmission Data Collection	345	(1)
Credit Policies	345	(1)
Ongoing Data Collection	345	(1)
Discharge Review and Billing	346	(1)
Aging of Receivables	347	(1)
Cash Receipt and Lock Boxes	348	(1)
Inventory	348	(1)
Perpetual Inventory	348	(1)
Economic Order Quantity	349	(1)
Current Liabilities	349	(3)
Accounts Payable	349	(1)
Payroll Payable	350	(1)
Short-term Debt	351	(1)
Taxes Payable	352	(1)
Implications for Nurse Managers	352	(1)
Key Concepts	352	(1)
Suggested Readings	353	(1)
Long-Term Financial Resources	354	(17)
Chapter Goals	354	(1)
Introduction	354	(1)
Equity Sources of Financing	355	(3)
Philanthropy	355	(1)
Corporate Stock Issuance	356	(1)
Government Grants	357	(1)
Retained Earnings	357	(1)
Debt Sources of Financing	358	(9)
Mortgages and Long-term Notes	358	(1)
Leases	359	(2)
Bonds	361	(1)
Taxable vs Tax-free Bonds	362	(2)
Bond Ratings and Insurance	364	(1)
Zero-coupon Bonds	365	(1)
Debt Refinancing	366	(1)
Feasibility Studies	367	(1)
The Future of Health Care Financing	367	(1)
Implications for Nurse Managers	368	(1)
Key Concepts	369	(1)
Suggested Readings	370	(1)
PART VI ADDITIONAL MANAGEMENT TOOLS	371	(102)
The Use of Computers in Financial Management	373	(23)
Chapter Goals	373	(1)
Introduction	373	(1)
Computer Hardware and Software	373	(1)
Types of Computers	373	(1)
Telling Computers What to Do	374	(1)
Uses of Computers	374	(11)
General Information Management	374	(1)
Clinical Care	375	(1)
Financial Management	375	(1)
Mainframes and Financial Management Information	375	(1)
Microcomputers and Financial Management Information	376	(3)
Special Purpose Software	379	(1)
Forecasting	379	(1)
Costing	379	(1)
Personnel Management	380	(1)
Budgeting	381	(1)
Acuity Systems	382	(3)
The Future	385	(1)
Implications for Nurse Managers	385	(1)
Key Concepts	386	(1)
Suggested Readings	387	(2)
Appendix: Variance Analysis, Part II	389	(7)
Forecasting and Other Methods for Decision Making	396	(37)
Chapter Goals	396	(1)
Introduction	396	(1)
Probability Theory: Foundation for Forecasting and Decision Making	397	(1)
Quantitative Methods for Forecasting	398	(21)
Data Collection	399	(1)
Appropriate Data Time Periods	400	(1)
What Data Should Be Collected?	401	(1)
Graphing Historical Data	402	(1)
Analysis of Graphed Data	403	(1)
Random Fluctuations	403	(2)
Seasonality	405	(1)
Trend	405	(2)
Seasonality and Trend	407	(1)
Forecasting Formulas	407	(1)
Random Fluctuations	408	(1)
Seasonality	408	(1)
Trend	409	(2)
Seasonality and Trend	411	(2)
Using Computers for Forecasting	413	(6)
Qualitative Methods for Forecasting	419	(1)
Nominal Group Technique	419	(1)
Delphi Technique	419	(1)
Other Decision-Making Tools	420	(7)
Expected Value	420	(1)
Linear Programming	421	(3)
Inventory Control	424	(3)
Planning and Tracking a Project	427	(3)
Gantt Chart	427	(1)
Critical Path Method and PERT	427	(3)
Implications for Nurse Managers	430	(1)
Key Concepts	431	(1)
Suggested Readings	432	(1)
Marketing	433	(26)
Chapter Goals	433	(1)
Introduction	433	(1)
The Essence of Marketing: Assessing Customer Needs	434	(1)
Understanding Customers	435	(1)
Why Is Marketing Important for Nurse Managers?	436	(3)
Keeping the Organization Current	436	(1)
Marketing the Importance of Nursing	437	(2)
Marketing Concepts	439	(5)
Understanding the Market	439	(1)
Market Segmentation	440	(1)
Customer Behavior	440	(1)
Market Measurement	441	(1)
Market Share	442	(1)
Market Research	442	(1)
Advertising	443	(1)
Marketing Plans	444	(11)
Organizational Mission/Goals	444	(1)
Internal-External Analysis	444	(4)
Strategic Marketing Plan	448	(1)
The BCG Matrix	449	(1)
Life-cycle Analysis	450	(1)
Choice of Strategy	451	(1)
Tactics	452	(1)
Product	452	(1)
Price	453	(1)
Place	453	(2)
Promotion	455	(1)
Marketing Failures	455	(1)
The Role of Marketing in Nurse Recruitment	456	(1)
Implications for Nurse Managers	456	(1)
Key Concepts	457	(1)
Suggested Readings	458	(1)
The Nurse as Entrepreneur	459	(14)
Chapter Goals	459	(1)
Introduction	459	(1)
Characteristics of Nurse Entrepreneurs	460	(1)
Opportunities for Nurse Entrepreneurs	460	(2)
Starting Your Own Business	460	(2)
Legal and Financial Issues	462	(1)
Business Plan	463	(5)
The Steps in Developing a Business Plan	463	(1)
Project Proposal	463	(1)
Product Definition	464	(1)
Market Analysis	464	(1)
Rough Financial Plan	464	(1)
Detailed Operations Plan	465	(1)
Detailed Financial Plan	465	(1)
Pro Forma Financial Statements	466	(1)
Forecasting and Capital Budgeting	466	(1)
Sensitivity Analysis	467	(1)
Examination of Alternatives	467	(1)
The Elements of a Business Plan Package	467	(1)
Examples of Entrepreneurs	468	(2)
Key Concepts	470	(1)
Suggested Readings	470	(3)
PART VII THE FUTURE	473	(12)
Nursing and Financial Management: Current Issues and Future Directions	475	(10)
Chapter Goals	475	(1)
Introduction	475	(1)
Nursing Financial Management Research	475	(1)
Research Taxonomies for Nursing Financial Management	476	(1)
Current Issues in Financial Management in Nursing	476	(1)
The Developing Role of the Chief Nurse Executive in Financial Management	477	(1)
Setting Organizational Policy	477	(3)
Intraorganizational Responsibility for Expenses	478	(1)
Intraorganizational Responsibility for Revenues	479	(1)
Intraorganizational Role in New Ventures	479	(1)
Extraorganizational Changes	479	(1)
Government Relations	479	(1)
Payer Relations	480	(1)
Future Role of the Midlevel Nurse Manager in Financial Management	480	(1)
The Nurse as a Policymaker for Financing Health Care	481	(1)
Lobbyist	481	(1)
Policymaker	481	(1)
Implications for Nurse Managers	482	(1)
Key Concepts	482	(1)
Suggested Readings	483	(1)
Other Resource	484	(1)
Glossary	485	(26)
Index	511