financial management in healthcare class

Consider the Ridgeland Heights Medical Center (RHMC) actions presented on pages 11 and 12 of your textbook. The medical center is trying to counter a dwindling inpatient census at the facility. What do you think of the three strategies proposed here? Can you think of any other strategies that RHMC should consider here?

200 words

Fundamentals
of

Health Care
Management

Chapter One

January

Learning Objectives

• Recite the amount of Dollars flowing through
the health care industry

• Describe the importance of health care
financial management

• Explain the role and objective of health care

• Describe the twofold purpose of financial
management

Learning Objectives continued

• Recognize the category of providers

• Identify how a hospital financial administrator
operates within an annual calendar of
financial events (we are starting with January)

• Build a hospital pro forma financial statement

Financial Management
• Has its own policies and procedures

• Generally Accepted Accounting Principles are
used (GAAP)

• Procedures require estimates and
approximations based on previous experience

• In the health industry—standards represent
the ability to properly report operating results
over time as well as net assets

• Price increase a function of change in volume,
severity, and expense

What is Health Care?

• Maintenance or restoration of health of the
body or mind

• $2.6 trillion dollar industry

• From 1966-2009, health care % of GDP grew
to 17.9 %

• 314 percent increase

• US GDP in health care leads the industrialized
world

• Projections for 2015=$3 trillion

What is Management?

• For profit—maximize owners/shareholder profit

• Not for profit—produce the best possible bottom
line

• For profit— “management must administer the
assets of the enterprise in order to obtain the
greatest wealth for the owner”

• Not for profit—produce the best possible
financial outcomes while minimizing risk to the
organization

What is Financial Management?

• Strategizing the organization’s financial
direction as well as the performance of its
day-to-day financial operations

• Dual purpose

• Determine the strategic financial direction

• Manage day to day financial operations

• Sound financial aids the general manager in
carrying out their responsibilities

Financial Highly Visible and Important
Matters

• Setting prices for services

• Producing and analyzing discounts

• Recording and analyzing cost information

• Preparing and reporting financial projections

Why is Financial Management
Important?

• Primary role—broker of information

• Secondary role—reporting financial results
periodically

• If applied properly it maximizes decision
making in uncertain times

Nowicki’s 6 Major Objectives of
Health Care Financial Management

• To generate income

• To respond to regulations

• To facilitate relationships with third party
payers

• To influence method and amount of payment

• To monitor physicians

• To protect the organization’s tax status

Ridgeland Heights Medical Center
• Fictional medium-sized medical center

• Primary statistics

• 11,000 inpatient admissions out paced by
180,000 outpatient services

• Managed care reduces access to care

• Declining inpatient leaves 3 alternatives

• Steal market share

• Grow market share by providing new services

• Grow market share by recruiting new doctors

Decision Time

• Pro forma developed has projected income

• It contains a series of assumptions

• These lead to a go or no go decision

• Decision based on net present value(NVP) or
internal rate of return (IRR)

• Organization may have a “hurdle rate”

• Reflects the minimum % return on its
investment