Healthcare Finance : An Introduction to Accounting and Financial Management

by Gapenski, Louis C.

• ISBN13: 9781567932805
• ISBN10: 1567932800
• Edition: 4th
• Format: Hardcover
• Copyright: 2007-11-23
• Publisher: Health Administration Pr

Table of Contents

Preface	p. xiii
The Healthcare Environment
Introduction to Healthcare Finance	p. 3
Defining Healthcare Finance	p. 3
Purpose of the Book	p. 5
The Role of Finance in Health Services Organizations	p. 6
The Structure of the Finance Department	p. 8
Health Services Settings	p. 9
Regulatory and Legal Issues	p. 15
Current Challenges	p. 17
Organization of the Book	p. 17
How to use this Book	p. 19
The Financial Environment	p. 25
Alternative Forms of Ownership	p. 30
Organization Goals	p. 34
Tax Laws	p. 36
Third-Party Payers	p. 38
Managed Care Plans	p. 42
Alternative Reimbursement Methods	p. 44
Financial Accounting
Financial Accounting Basics and the Income Statement	p. 59
Historical Foundations of Financial Accounting	p. 60
The Users of Financial Accounting Information	p. 61
Regulation and Standards in Financial Accounting	p. 62
Basic Concepts of Financial Accounting	p. 65
Accounting Methods: Cash Versus Accrual	p. 68
Recording and Compiling Accounting Data	p. 71
Income Statement Basics	p. 74
Revenues	p. 75
Expenses	p. 79
Net Income	p. 82
Net Income Versus Cash Flow	p. 84
Income Statements of Investor-Owned Firms	p. 85
A Look Ahead: Using Income Statement Data in Financial Statement Analysis	p. 86
The Balance Sheet and Statement of Cash Flows	p. 93
Balance Sheet Basics	p. 94
Assets	p. 96
Liabilities	p. 102
Equity	p. 104
Fund Accounting	p. 108
The Statement of Cash Flows	p. 108
Transactions	p. 112
Another Look Ahead: Using Balance Sheet Data in Financial Statement Analysis	p. 117
Managerial Accounting
Managerial Accounting Basics, Cost Behavior, and Profit Analysis	p. 127
The Basics of Managerial Accounting	p. 127
Cost Classifications: Fixed and Variable	p. 129
Cost Behavior	p. 130
Cost Classifications: Semi Fixed	p. 133
Profit (CVP) Analysis	p. 134
Breakeven Analysis	p. 139
Operating Leverage	p. 142
Profit Analysis in a Discounted Fee-for-Service Environment	p. 144
Profit Analysis in a Capitated Environment	p. 149
The Impact of Cost Structure on Financial Risk	p. 156
Cost Allocation	p. 163
Direct Versus Indirect (Overhead) Costs	p. 163
Introduction to Cost Allocation	p. 164
Cost Allocation Basics	p. 165
Cost Allocation Methods	p. 169
Direct Method Illustration	p. 171
Changing to a Better Cost Driver	p. 177
Step-Down Method Illustration	p. 180
Activity-Based Costing	p. 182
Final Thoughts on Cost Allocation	p. 186
Pricing and Service Decisions	p. 193
Healthcare Providers and the Power to Set Prices	p. 194
Price Setting Strategics	p. 195
Target Costing	p. 197
Setting Prices on Individual Services	p. 198
Setting Prices Under Capitation	p. 199
Setting Managed Care Plan Premium Rated	p. 207
Using Relative Value Unites (RVUs) to Set Prices	p. 212
Making Service Decisions (Contract Analysis)	p. 214
Planning and Budgeting	p. 225
The Planning Process	p. 226
Operational Planning	p. 229
Introduction to Budgeting	p. 231
Budget Types	p. 232
Budget Decisions	p. 235
Constructing a Simple Operating Budget	p. 237
Variance Analysis	p. 240
The Cash Budget	p. 248
Basic Financial Management Concepts
Time Value Analysis	p. 263
Time Lines	p. 264
Future Value of a Lump Sum (Compounding)	p. 265
Present Value of a Lump Sum (Discounting)	p. 270
Opportunity Costs	p. 273
Solving for Interest Rate and Time	p. 275
Annuities	p. 277
Perpetuities	p. 282
Uneven Cash Flow Streams	p. 283
Using Time Value Analysis to Measure Return on Investment (ROI)	p. 286
Semiannual and Other Compounding Periods	p. 290
Amortized Loans	p. 294
Financial Risk and Required Return	p. 301
The Many Faces of Financial Risk	p. 302
Introduction to Financial Risk	p. 303
Risk Aversion	p. 305
Probability Distributions	p. 305
Expected and Realized Rated of Return	p. 307
Stand-Alone Risk	p. 308
Portfolio Risk and Return	p. 311
Measuring the Risk of Investments Held in Portfolios	p. 319
Portfolio Betas	p. 325
Relevance of the Risk Measures	p. 326
Interpretation of the Risk Measures	p. 327
The Relationship Between Risk and Required Return	p. 328
Long-Tern Financing
Long-Term Debt Financing	p. 341
The Cost of Money	p. 341
Common Long-Term Debt Instruments	p. 343
Debt contracts	p. 348
Bond Ratings	p. 350
Credit Enhancement	p. 352
Interest Rate Components	p. 352
The Term Structure of Interest Rates	p. 356
Economic Factors That Influence Interest Rate Levels	p. 358
Debt Valuation	p. 359
Equity Financing	p. 379
Equity in For-Profit Business	p. 379
Types of Common Stock	p. 383
Procedures for Selling New Common Stock	p. 383
The Market for Common Stock	p. 386
Regulation of Securities Markers	p. 387
The Investment Banking Process	p. 389
Equity in Not-for-Profit Business	p. 391
Common Stock Valuation	p. 393
Security Market Equilibrium	p. 400
Informational Efficiency	p. 401
The Risk/Return Trade-Off	p. 404
Capital Structure and the Cost of Capital	p. 411
Capital Structure Basics	p. 411
Impact of Debt Financing on Accounting Risk and Return	p. 412
Capital Structure Theory	p. 415
Identifying the Optimal Capital Structure in Practice	p. 418
Not-for-Profit Businesses	p. 420
Cost of Capital Basics	p. 422
Cost of Debt Capital	p. 423
Cost of Equity Capital	p. 425
The Corporate Cost of Capital	p. 434
Cost of Capital Estimation for Small Businesses	p. 436
An Economic Interpretation of the Corporate Cost of Capital	p. 439
Capital Investment Decisions
The Basics of Capital Budgeting	p. 451
Project Classification	p. 452
The Role of Financial Analysis in Healthcare Capital Budgeting	p. 453
Overview of Capital Budgeting Financial Analysis	p. 454
Cash Flow Estimation	p. 454
Cash Flow Estimation Example	p. 461
Breakeven Analysis	p. 468
Return on Investment (Profitability) Analysis	p. 469
Some Final Thoughts on Breakeven and Profitability Analyses	p. 475
Capital Budgeting in Not-for-Profit Businesses	p. 475
The Post-Audit	p. 478
Using Capital Budgeting Techniques in Other Contexts	p. 479
Project Risk Assessment and Incorporation	p. 491
Types of Project Risk	p. 492
Relationships Among Stand-Alone, Corporate, and Market Risk	p. 493
Risk Analysis Illustration	p. 494
Sensitivity Analysis	p. 496
Scenario Analysis	p. 499
Qualitative Risk Assessment	p. 502
Incorporating Risk into the Decision Process	p. 503
Marking the Final Decision	p. 506
Adjusting Cash Outflows for Risk	p. 507
Divisional Costs of Capital	p. 509
An Overview of the Capital Budgeting Decision Process	p. 510
Capital Rationing	p. 512
Other Topics
Current Asset Management and Financing	p. 523
An Overview of Short-Tern Financial Management	p. 523
Current Asset Investment and Financing Policies	p. 525
Cash Management	p. 530
Marketable Securities Management	p. 534
Long-Tern Securities Management	p. 535
Receivables Management	p. 536
Supply Chain Management	p. 541
Short-Term Financing	p. 544
Financial Condition Analysis	p. 561
Financial Statements	p. 562
Financial Ratio Analysis	p. 565
Tying the Financial Ratios Together: Du Pont Analysis	p. 577
Other Analytical Techniques	p. 579
Operating Indicator Analysis	p. 580
Limitations of Financial Ratio and Operating Indicator Analysis	p. 583
Economic Value Added (EVA)	p. 584
Benchmarking	p. 585
Key Performance Indicators and Dashboards	p. 586
Lease Financing and Business Valuation	p. 597
Leasing Basics	p. 597
Tax Effects	p. 599
Financial Statement Effects	p. 601
Lease Evaluation	p. 603
Motivations for Leasing	p. 611
Business Valuation	p. 615
Glossary	p. 627
Index	p. 647
About the Author	p. 659
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