Financial Management in Health Care Organizations

by McLean, Robert

• ISBN13: 9780766835474
• ISBN10: 0766835472
• Edition: 2nd
• Format: Hardcover
• Copyright: 2002-11-11
• Publisher: CENGAGE Delmar Learning

Summary

Financing of health care organizations is increasingly important in today's society. Financial Management in Health Care Organizations provides discussion on the fundamental principles of finance, accounting, and budgeting for both short-term and long-term assets and programs. Managers of health care organizations and those aspiring to become managers will find this an invaluable tool in helping to increase their understanding of the financial aspects of running and managing their businesses.

Table of Contents

List of Figures and Tables	p. xv
Preface	p. xix
Acknowledgments	p. xx
Introduction: Health Care and Finance	p. 1
Health Care Is Different/Health Care Is The Same	p. 3
Plan of the Text	p. 5
Summary	p. 5
Continuing Cases	p. 6
Introduction to Health Care and Finance	p. 9
Financial Management In Health Care Organizations	p. 11
The Universal Concerns of Financial Management	p. 13
The Five Pillars of Financial Practice	p. 15
The Managed Care Challenge	p. 17
Summary	p. 18
Agency Problems and Agency Costs	p. 21
Types of Agency Problems	p. 23
Cost Control and Agency Problems	p. 24
Agency Problems in Health Care Finance	p. 24
Resolving Agency Problems	p. 26
Summary	p. 27
Tools	p. 33
Accounting and CashFlow Analysis	p. 35
Why Learn Accounting?	p. 37
Fields of Accounting Practice	p. 37
Accounting Principles: What Are They and Who Makes Them Up?	p. 39
The Accounting Cycle	p. 42
Some Basic Accounting Entries	p. 43
Cash Flow Accounting	p. 50
Fund Accounting	p. 51
The Special Case of Hospital Revenues	p. 53
Auditing: The Misunderstood Art	p. 54
Summary	p. 55
Organizational Diagnostics: Financial Statement Analysis	p. 59
Using Financial Statements	p. 60
Financial Statement Analysis: Its Power and Limitations	p. 61
A First Approach: Common-Size Statements	p. 67
The Power Approach: Ratio Analysis	p. 68
Liquidity Ratios	p. 70
Asset Utilization Ratios	p. 70
Leverage Ratios	p. 72
Profitability Ratios	p. 73
Summary	p. 75
The Time Value of Money	p. 81
Compounding: the Calculation of Future Value	p. 83
Discounting: The Calculation of Present Value	p. 88
Special Problems in Present Value	p. 91
Some Examples	p. 99
Summary	p. 104
Valuing Assets	p. 107
Value	p. 108
Approaches to Valuation	p. 109
The Logic of Discounted Cash Flow Valuation	p. 111
Some Applications	p. 113
A Case Study	p. 116
A Few Complications	p. 118
Summary	p. 119
Cost Behavior	p. 125
Costs	p. 126
Costs Classification	p. 128
Responsibility Centers	p. 130
Cost Allocation: Managerial Decisions Under Ambiguity	p. 130
Allocation Criterion	p. 134
The ABCs of ABC	p. 136
Separating Fixed and Variable Costs	p. 136
Cost-Volume-Profit Analysis, Traditional	p. 141
Cost-Volume-Profit Analysis, Capitation	p. 142
Summary	p. 142
Budgeting and Variance Analysis	p. 147
A Tool, Not a Trophy	p. 148
Some Budget Fables	p. 149
Components of the Budget	p. 150
People Behind the Budget	p. 152
Budgeting Choices	p. 152
An Example	p. 154
The Budget Cycle	p. 156
Variance Analysis	p. 156
Summary	p. 158
The Financial Market Environment	p. 163
Financial Markets: Institutions, Risk, and Return	p. 165
Financial Markets	p. 166
Financial Markets: Who and What?	p. 167
Roles in Financial Markets	p. 169
Rates of Return	p. 169
Risk in Financial Markets	p. 171
Equilibrium Pricing and Returns	p. 175
How Well Do Financial Markets Work?	p. 178
A Brief Note on Owners' Equity	p. 179
More on Yields	p. 180
Summary	p. 180
Selecting Long-Term Assets and Programs	p. 185
The Basics of Capital Budgeting	p. 187
Criteria and Constraints	p. 189
Multiple Steps	p. 189
Cash Flows Reconsidered	p. 190
A Note on Expected Inflation	p. 193
Decision Problems and Decision Rules	p. 193
What About Internal Rate of Return?	p. 198
Selecting the Discount Rate	p. 201
A Simple Example	p. 203
Capital Budgeting and Its Discontents	p. 204
Summary	p. 205
Special Topics in Capital Budgeting	p. 209
Capital Rationing: The General Case	p. 210
Adjusting for Project Risk	p. 216
Adjusting for Unequal Lives	p. 221
Lease or Buy?	p. 224
Strategic Options	p. 225
Summary	p. 226
Managing Long-Term Financial Assets: The Endowment	p. 231
Managing the Endowment	p. 233
The Endowment Concept	p. 234
Some Principles Remembered	p. 235
The Return Objective	p. 236
Constraints	p. 236
Inside or Outside Management	p. 239
Sample Investment Policy	p. 240
Summary	p. 240
Long-Term Financing	p. 247
External Financing: Sources	p. 249
External Financing: Key to Success	p. 250
External Financing: The Choices	p. 250
The Weighted Average Cost of Capital Once Again	p. 253
Debt and Equity Choices: The Capital Structure Decision in Theory	p. 254
The Capital Structure Decision in Practice	p. 258
Summary	p. 259
Procedures for Long-Term Financing	p. 263
Actors and Frictions	p. 264
Regulators and Regulation	p. 265
Middlemen	p. 266
Hangers-On	p. 268
A Financing Tale	p. 270
To Insure or Not To Insure: An NPV Problem	p. 272
Summary	p. 272
Access to Capital and Organizational Viability	p. 277
The Problems	p. 278
The Solutions	p. 279
Reimbursement Modes and Access to Capital	p. 280
Summary	p. 281
Managing Short-Term Assets and Liabilities	p. 285
Principles of Working Capital Management	p. 287
Current Assets	p. 288
Money and Credit: Bankers' Constraints	p. 290
The Cash Conversion Cycle	p. 291
Controlling Liquidity	p. 292
A Basic Principle	p. 294
Summary	p. 294
Cash, Marketable Securities, and Patient Accounts	p. 297
Cash and Cash Equivalents	p. 298
The Cash Budget	p. 298
Cash Management Services	p. 301
Managing Marketable Securities	p. 303
Patient Accounts	p. 303
Decisions on Patient Accounts	p. 305
Some Examples	p. 305
Summary	p. 307
Inventory Management: Mathematics and Judgement	p. 311
Why Bother?	p. 312
The Time Path of Inventory Use	p. 313
The ABCs of Good Judgement	p. 316
Opportunities for Value Enhancement	p. 316
Summary	p. 317
Current Liabilities: Short-Term Financing	p. 321
The Matching Principle	p. 322
A Note on Short-Term Interest Rates	p. 324
Sources of Short-Term Financing	p. 325
Summary	p. 326
Frontiers of Health Care Financial Management	p. 331
Beyond Bean Counting	p. 333
Strategic Financial Planning	p. 334
Financial Structure and Restructuring	p. 335
Mergers and Acquisitions	p. 338
At-Risk Contracting	p. 341
International Health Care Financial Management: The Frontier Beyond the Frontier	p. 344
Summary	p. 345
Glossary	p. 351
Answers to Selected Discussion Questions	p. 367
Index	p. 377
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