Healthcare Finance: An Introduction To Accounting And Financial Management

by Gapenski, Louis C.

• ISBN13: 9781567932324
• ISBN10: 1567932320
• Edition: 3rd
• Format: Hardcover
• Copyright: 2004-09-01
• Publisher: HEALTH ADMINISTRATION PRESS

Table of Contents

Preface	xiii
PART I The Healthcare Environment
Introduction to Healthcare Finance	3	(18)
Defining Healthcare Finance	3	(2)
Purpose of the Book	5	(1)
The Role of Finance in Health Services Organizations	6	(2)
Health Services Settings	8	(6)
Regulatory and Legal Issues	14	(2)
Organization of the Book	16	(1)
How to Use This Book	17	(4)
The Financial Environment	21	(32)
Alternative Forms of Business Organization	21	(5)
Alternative Forms of Ownership	26	(3)
Organizational Goals	29	(3)
Tax Laws	32	(2)
Third-Party Payers	34	(3)
Managed Care Plans	37	(2)
Alternative Reimbursement Methods	39	(14)
PART II Financial Accounting
Financial Accounting Basics and the Income Statement	53	(34)
Historical Foundations of Financial Accounting	54	(1)
The Users of Financial Accounting Information	55	(1)
Regulation and Standards in Financial Accounting	56	(3)
Basic Concepts of Financial Accounting	59	(3)
Accounting Methods: Cash Versus Accrual	62	(3)
Recording and Compiling Accounting Data	65	(2)
Income Statement Basics	67	(2)
Revenues	69	(4)
Expenses	73	(3)
Net Income	76	(2)
Net Income Versus Cash Flow	78	(1)
Income Statements of Investor-Owned Firms	79	(1)
A Look Ahead: Using Income Statement Data in Financial Statement Analysis	80	(7)
The Balance Sheet and Statement of Cash Flows	87	(34)
Balance Sheet Basics	88	(2)
Assets	90	(6)
Liabilities	96	(2)
Equity	98	(4)
Fund Accounting	102	(1)
The Statement of Cash Flows	102	(4)
Transactions	106	(5)
Another Look Ahead: Using Balance Sheet Data in Financial Statement Analysis	111	(10)
PART III Managerial Accounting
Managerial Accounting Basics, Cost Behavior, and Profit Analysis	121	(36)
The Basics of Managerial Accounting	121	(2)
Cost Classifications: Fixed and Variable	123	(1)
Cost Behavior	124	(3)
Cost Classifications: Semi-Fixed	127	(1)
Profit (CVP) Analysis	128	(5)
Breakeven Analysis	133	(3)
Operating Leverage	136	(2)
Profit Analysis in a Discounted Fee-for-Service Environment	138	(5)
Profit Analysis in a Capitated Environment	143	(7)
The Impact of Cost Structure on Financial Risk	150	(7)
Cost Allocation	157	(30)
Direct Versus Indirect (Overhead) Costs	157	(1)
Introduction to Cost Allocation	158	(1)
Cost Allocation Basics	159	(3)
Cost Allocation Methods	162	(2)
Direct Method Illustration	164	(7)
The Impact of Changing Cost Drivers	171	(3)
Step-Down Method Illustration	174	(2)
Activity Based Costing	176	(4)
Final Thoughts on Cost Allocation	180	(7)
Pricing and Service Decisions	187	(32)
Healthcare Providers and the Power to Set Prices	188	(1)
Price Setting Strategies	189	(2)
Target Costing	191	(1)
Setting Prices on Individual Services	192	(1)
Setting Prices Under Capitation	193	(8)
Setting Managed Care Plan Premium Rates	201	(5)
Using Relative Value Units (RVUs) to Set Prices	206	(2)
Making the Service Decision (Contract Analysis)	208	(11)
Planning and Budgeting	219	(34)
The Planning Process	220	(3)
Introduction to Budgeting	223	(1)
Budget Types	223	(3)
Budget Decisions	226	(2)
Constructing a Simple Operating Budget	228	(3)
Variance Analysis	231	(8)
The Cash Budget	239	(14)
PART IV Basic Financial Management Concepts
Time Value Analysis	253	(34)
Time Lines	254	(1)
Future Value of a Lump Sum (Compounding)	255	(4)
Present Value of a Lump Sum (Discounting)	259	(2)
Opportunity Costs	261	(2)
Solving for Interest Rate and Time	263	(2)
Annuities	265	(3)
Perpetuities	268	(1)
Uneven Cash Flow Streams	269	(3)
Using Time Value Analysis to Measure Financial Returns	272	(4)
Semiannual and Other Compounding Periods	276	(3)
Amortized Loans	279	(8)
Financial Risk and Required Return	287	(38)
The Many Faces of Financial Risk	288	(1)
Introduction to Financial Risk	289	(1)
Risk Aversion	290	(1)
Probability Distributions	291	(1)
Expected and Realized Rates of Return	292	(1)
Stand-Alone Risk	293	(2)
Portfolio Risk and Return	295	(9)
Measuring the Risk of Investments Held in Portfolios	304	(5)
Portfolio Betas	309	(1)
Relevance of the Risk Measures	310	(2)
Interpretation of the Risk Measures	312	(1)
The Relationship Between Risk and Required Return	312	(13)
PART V Long-Term Financing
Long-Term Debt Financing	325	(34)
The Cost of Money	325	(2)
Common Long-Term Debt Instruments	327	(4)
Debt Contracts	331	(2)
Bond Ratings	333	(2)
Credit Enhancement	335	(1)
Interest Rate Components	335	(4)
The Term Structure of Interest Rates	339	(2)
Debt Valuation	341	(18)
Equity Financing	359	(30)
Equity in For-Profit Businesses	359	(3)
Types of Common Stock	362	(1)
Procedures for Selling New Common Stock	363	(2)
The Market for Common Stock	365	(2)
Regulation of Securities Markets	367	(2)
The Investment Banking Process	369	(2)
Equity in Not-for-Profit Businesses	371	(2)
Common Stock Valuation	373	(6)
Security Market Equilibrium	379	(1)
Informational Efficiency	380	(3)
The Risk/Return Trade-Off	383	(6)
Capital Structure and the Cost of Capital	389	(36)
Capital Structure Basics	389	(1)
Impact of Debt Financing on Accounting Risk and Return	390	(3)
Capital Structure Theory	393	(3)
Identifying the Optimal Capital Structure in Practice	396	(2)
Not-for-Profit Businesses	398	(1)
Cost of Capital Basics	399	(2)
Cost of Debt Capital	401	(2)
Cost of Equity Capital	403	(9)
The Corporate Cost of Capital	412	(2)
An Economic Interpretation of the Corporate Cost of Capital	414	(11)
PART VI Capital Investment Decisions
The Basics of Capital Budgeting	425	(36)
Importance of Capital Budgeting	425	(1)
Project Classifications	426	(1)
The Role of Financial Analysis in Healthcare Capital Budgeting	427	(1)
Overview of Capital Budgeting Financial Analysis	428	(1)
Cash Flow Estimation	428	(7)
Cash Flow Estimation Example	435	(7)
Breakeven Analysis	442	(1)
Profitability (Return on Investment) Analysis	443	(3)
Some Final Thoughts on Breakeven and Profitability Analyses	446	(1)
Capital Budgeting in Not-for-Profit Businesses	446	(3)
The Post Audit	449	(1)
Using Capital Budgeting Techniques in Other Contexts	450	(11)
Project Risk Assessment and Incorporation	461	(30)
Types of Project Risk	462	(2)
Relationships Among Stand-Alone, Corporate, and Market Risk	464	(1)
Risk Analysis Illustration	464	(1)
Sensitivity Analysis	465	(4)
Scenario Analysis	469	(3)
A Subjective Approach to Risk Assessment	472	(1)
Incorporating Risk Into the Decision Process	472	(3)
Making the Final Decision	475	(1)
Adjusting Cash Outflows for Risk	476	(2)
Subsidiary Costs of Capital	478	(1)
An Overview of the Capital Budgeting Decision Process	479	(2)
Capital Rationing	481	(10)
PART VII Other Topics
Current Asset Management and Financing	491	(36)
An Overview of Short-Term Financial Management	491	(2)
Current Asset Investment and Financing Policies	493	(5)
Cash Management	498	(3)
Marketable Securities Management	501	(1)
Long-Term Securities Management	502	(1)
Receivables Management	503	(5)
Supply Chain Management	508	(2)
Short-Term Financing	510	(17)
Analyzing Financial Performance	527	(34)
The Statement of Cash Flows	528	(3)
Ratio Analysis	531	(11)
Tying the Ratios Together: Du Pont Analysis	542	(2)
Other Analytical Techniques	544	(1)
Market Value Added and Economic Value Added	545	(2)
Benchmarking	547	(2)
Operating Indicator Analysis	549	(2)
Limitations of Financial Performance Analysis	551	(10)
Lease Financing and Business Valuation	561	(30)
Leasing Basics	561	(2)
Tax Effects	563	(2)
Balance Sheet Effects	565	(2)
Lease Evaluation	567	(7)
Motivations for Leasing	574	(4)
Business Valuation	578	(13)
Index	591	(12)
About the Author	603