Financial Management of Healthcare Organizations

Financial Management of Healthcare Organizations

Introduction to the Financial Management of Healthcare Organizations is intended to be the primary textbook in introductory courses in healthcare financial management at both the undergraduate and graduate levels as well as a reference book for program graduates and other practicing healthcare managers. The purpose of this book is to introduce students and managers in positions other than finance to the fundamental concepts and skills nec- essary to succeed as managers in an increasingly competitive employment environment.

For instance, program graduates find employment in a variety of healthcare set- tings. Therefore, the focus of this book—as well as the title of the book—extends beyond the hospital. Program graduates consistently report a deficiency in quantitative skills; this book includes problems representing key concepts. Traditional-age students report a need to apply the quantitative skills introduced in financial management. To address both of these concerns, this book includes mini-case studies within chapters, practice problems at the ends of many chapters, and a comprehensive case study at the end of the book. Financial Management of Healthcare Organizations

Introduction to the Financial Management of Healthcare Organizations is part of Health Administration Press’s Gateway to Healthcare Management series. The textbooks in this series are geared specifically to students who are new to healthcare management.

In this edition, Part I includes an overview of financial management; the organization of financial management, including updated information on job responsibilities and salaries; financial analysis and management reporting; and the tax status of healthcare organizations, including the most recent court cases differentiating for-profit and not-for-profit hospitals. Financial Management of Healthcare Organizations

Part II includes information about third-party payers and payment methodologies; Medicare and Medicaid, including updated laws pertaining to these public programs as

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well as federal government settlements with providers on fraud and abuse allegations; cost accounting and analysis; and reimbursement, including charge setting.

Part III covers the management and financing of working capital; the management of the revenue cycle, including the distinction between the revenue cycle and accounts receivable; and materials management.

Part IV focuses on resource allocation and includes strategic, strategic financial, and operational planning; budgeting; and capital budgeting. Financial Management of Healthcare Organizations

Finally, Part V provides an analysis of trends that will affect healthcare organizations in the future, including healthcare cost projections and the need for entitlement reform. The Affordable Care Act (ACA) of 2010 and the Medicare Access and CHIPS Reauthori- zation Act (MACRA) of 2015 are discussed throughout the book but more prominently in Parts II and V.

Each part of the book includes its own recommended reading list. A running glos- sary of important terms accompanies each chapter and is compiled at the end of the book; a list of acronyms used in the text is also included at the end of the book. At the end of every chapter, important points and discussion questions encourage students to summarize what they are learning and put it into their own words. The chapters are modular to allow instructors to either delete specific chapters or assign the chapters in an order based on individual preference or classroom requirements. Financial Management of Healthcare Organizations


I hope you find Introduction to the Financial Management of Healthcare Organizations relevant, current, and easy to understand.

Acknowledgments I would like to gratefully acknowledge those who assisted me in this seventh edition: my wife, Tracey, and our kids, Hannah and David, who have often sacrificed time with Dad so that I could write; my many students over the years, who have challenged me to find a better way to explain, teach, and evaluate the understanding of difficult concepts; Thamarai Selvi Sundararajan, my graduate assistant, who helped proofread the book and provided the valuable supplemental materials; Texas State University for continuing to support faculty research efforts; and Dick Clarke, president emeritus of HFMA, who in ways too numer- ous to mention has always supported my academic career. Finally, special thanks to those at Health Administration Press who have made this seventh edition what it is

IntroductIon Successful organizations, whether for-profit, not-for-profit, or governmental, have two things in common: (1) a congruent and well-understood organizational purpose, and (2) a functional management team. The purpose of this introductory chapter is to describe financial management in healthcare organizations within the context of organizational purpose and a competent management team. Financial Management of Healthcare Organizations

orgAnIzAtIonAl PurPose

Organizational purpose is often determined by the owner. While a community-owned, not-for-profit healthcare organization’s purpose is to provide healthcare services to the com- munity, a corporate-owned (via stockholders) for-profit healthcare organization’s purpose is to provide profit for the owner.

By necessity, most organizations have more than one organizational purpose. For instance, even though a not-for-profit healthcare organization’s purpose is to provide health- care services to the community, the organization must survive economically—meaning that it must generate sufficient revenue to offset expenses and allow for growth. A for-profit healthcare organization’s purpose is to provide profit for the owner; however, the organi- zation must meet its customers’ needs—meaning it must keep the physicians, patients, employers, and insurance companies satisfied.

Most healthcare organizations also have secondary purposes—for example, many government-owned healthcare organizations provide large-scale medical education programs.

To maintain congruence, the management team must communicate the organiza- tional purpose or purposes not only to the employees but also to owners, customers, and other important constituents. When multiple purposes are present, the management team must prioritize the purposes.

HeAltHcAre mAnAgement teAm Financial Management of Healthcare Organizations

In its broadest context, the objective of healthcare management is to accomplish the organizational purposes. Doing so is not as simple as it sounds, especially if the health- care organization’s purposes are “to provide the community with the services it needs, at a clinically acceptable level of quality, at a publicly responsive level of amenity, at the least possible cost” (Berman, Kukla, and Weeks 1994, 5). Healthcare managers must identify, prioritize, and often resolve these sometimes contradictory purposes in a politi- cal environment that involves the organization’s governing board and medical staff; in a regulatory environment that involves licensing and accrediting agencies; and in an economic environment that involves increasing competition, resulting in demands for lower prices and higher quality Financial Management of Healthcare Organizations

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