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In the area of auditing, the change in payment systems from a cost-based retrospective reimbursement system to PPS has forced the independent auditor and the hospital financial manager to focus on tight administrative and accounting controls. Overall, the key for the auditor under PPS seems to be development of a strategic, comprehensive audit plan. It can provide both control and structure while not producing restrictions.
A real and often overlooked concern created by the Deficit Reduction Act of 1984 is the effect these amendments have on the cash flow generated by an acquisition. Financial managers, therefore, should be aware of the accounting issues created by the act--depreciation and its effect on appraised values, reevaluation to the present value of assumed indebtness, and capitalization of acquisition costs--to accurately evaluate the feasibility of an acquisition.
The problem of empty beds does not have to remain a problem. Empty beds can be converted into services or programs that produce revenue for the institution and contribute to the bottom line. In a roundtable discussion sponsored by the Healthcare Financial Management Association and HBO & Company Industry Group, eight individuals met to discuss the problem of empty beds and explore the solutions that are possible. They concluded that hospitals must respond to the marketplace, offer services consumers need, evaluate programs carefully, and pull out when a program no longer is acceptable.
Seemingly minor provisions included in leases of major equipment can substantially increase a healthcare organization's expenses. When reviewing lease bids, financial managers should beware of commitment fees, progress payment interest, residual value, and other variables in the agreement. On the whole, the costs of leasing options should be viewed for their effects on a hospital's cash flow at various points during the rental period.
Many not-for-profit hospitals are facing a severe capital shortage. Their traditional sources of funding--government grants, philanthropy, and appropriations--have dramatically declined. Increasingly, these hospitals are turning to the tax-exempt bond market for their capital. It is important for the financial manager to understand the elements and the process of tax-exempt financing. One crucial element is the investment banker who handles the project's financing. This article focuses on the financing services investment banking firms provide to hospitals and explains how much these services will cost.
In an environment of limited resources and increased risk and competition, financial managers must determine which new technologies will have the most benefit for a healthcare organization's long-term interests. Adapting a 12-step business planning approach to the evaluation process for new technologies offers organizations a comprehensive method that ensures accountability, confidence, and support for the acquisition.
A look into the past helps to understand and face the challenges of the future. By reviewing past Healthcare Financial Management articles, the evolution of the CFO is explored and a definite trend can be seen. With economic, social, and government issues changing the ways in which a healthcare institution operates, the functions of a CFO also change. And as health care continues to grow and develop into a more complex business, the CFO's role wil also grow in responsibility and complexity.
Breakeven analysis gives healthcare financial managers a tool for weighing the potential profitability of adding a new service. The method estimates profit or loss at various usage levels, showing at what level costs and profits meet. The analysis also lends itself to evaluating alternate courses of action, which may be compared to determine the best route to follow under various expansion proposals.
Financial managers are discovering that one key to economic viability is controlling labor costs. To control these costs, many labor reporting systems are available. These systems are all grouped into four main categories: nonvariable, single indicator, composite indicator, and multiple indicator systems. By evaluating and implementing the labor reporting system that is best for them, hospitals can track key labor indicators to aid in controlling a significant part of total hospital expenditures.
As competition increases and patient utilization and reimbursement decline, financial managers are faced with exhausted debt capacity and increasing needs for capital. It appears to be an impossible situation. However, techniques that create underlying value can be used to raise needed capital without jeopardizing a hospital's debt capacity and credit rating. These techniques--off-balance sheet financing, sale/leaseback of undervalued assets, sale or lease of existing services, and debt restructuring--create additional sources of capital without threatening future debt capacity.
For a full day, seven individuals representing varied backgrounds and viewpoints within the healthcare industry discussed the issues confronting capital financing for healthcare institutions--capital requirements and investment, tax reform, capital costs under PPS, and alternative methods of financing. This discussion, sponsored by the Healthcare Financial Management Association and Smith Barney, Harris Upham & Co., Inc., provided a public forum for discussion of upcoming capital financing issues and concerns. The article presented here, taken from that discussion, focuses on the need for a capital policy that matches need with payment. It serves no public policy purpose to pay an institution more than it is going to use for capital improvement. If capital payment is for capital improvement, then do not underpay or overpay.
The primary objective of this article is to present a method of risk analysis that can be taught by instructors of health service financial management as part of the discussion of the concepts of risk. First, the implications of risk and the need for risk analysis are discussed. Based on the theory of cumulative probability distributions, two criteria for capital investment decision making under risk are presented, and practical examples of how the criteria can be applied are provided. The paper concludes with a discussion of the limitations of the method of risk analysis and the educational implications of the method.
Financial managers are now being asked to evaluate new investment opportunities, such as acquisitions. To do a thorough evaluation, however, it is important to have a plan of action to follow. Strategies such as establishing a framework for evaluating acquisitions based on strategic compatibility with the existing organization, establishing suitable risk-adjusted discount rates for assessing investments, and selecting the proper type of capital allocation method are all necessary steps to ensure a successful acquisition.
While hospitals are implementing case-mix accounting systems, they also may be negotiating prices with health maintenance organizations (HMOs) and preferred provider organizations (PPOs). To aid decision makers in their evaluation of HMO/PPO bids, a matrix that projects the bottom-line effect of various rate and volume options may be useful. Identifying incremental cost--the additional cost incurred if one patient day were added--is the key to this type of matrix analysis. Knowing incremental cost, financial managers can project the effect of a potential loss of current patient volume if a bid is rejected, as well as the effect of a potential shift of patients to HMO/PPO status if a bid is accepted. Although the incremental per diem cost is of chief importance in evaluating bid alternatives, other factors, such as the hospital's potential for growth, opportunity to increase its competitive position, and the impact on community relations and on the medical staff, also must be considered.
For a full day, seven individuals representing varied backgrounds and viewpoints within the healthcare industry discussed the issues confronting capital financing for healthcare institutions--capital requirements and investment, tax reform, capital costs under PPS, and alternative methods of financing. This discussion, sponsored by the Healthcare Financial Management Association and Smith Barney, Harris Upham & Co., Inc., provided a public forum for discussion of upcoming capital financing issues and concerns. The article presented here, taken from that discussion, focuses on the upcoming capital needs of the industry. A "redeployment" of capital in the healthcare industry is going to occur because the industry is moving away from the acute care setting into long-term and ambulatory care. The mainstay of the healthcare industry--acute care--will be broken down into different components, requiring a significant redeployment of capital.
In practice management, general practice falls into the category of small business with all its attendant generic problems. Disciplined planning and good financial management are not often seen in small business. These are required if general practitioners are to continue (or return to) the provision of high quality medical services. An effective budget process, especially cash-flow budgeting, is the key to successful planning and financial management. Budgeting will bring Control, Co-ordination, and Credibility to your practice. It will enable you to set goals and to achieve them.
OBJECTIVE: To evaluate young ophthalmologists' perceptions of how well residency training prepared them for various aspects of their clinical practice. DESIGN: Self-administered survey. PARTICIPANTS: Two hundred sixty-nine United States ophthalmologists who have been in practice for < or =5 years. METHODS: A 4-page questionnaire was mailed to a randomly selected sample of 900 U.S. members and fellows of the American Academy of Ophthalmology who had been in practice for < or =5 years. MAIN OUTCOME MEASURES: Comparison of perceived preparedness in clinical and nonclinical areas of ophthalmology practice. RESULTS: Two hundred sixty-nine surveys were completed and returned (margin of error, +/-5%). Analysis of tabulated results indicated that 86% said they were extremely or very well prepared to practice comprehensive ophthalmology after residency training. Even so, about half of those respondents also desired some additional clinical training, and two thirds felt the need for some additional training in surgical areas (refractive, oculoplastics/orbital, glaucoma, retina, and pediatric ophthalmic surgery). At least 60% reported being not very or not at all well prepared in 6 of the nonclinical areas explored (business operations and finance, personal financial management, practice management skills, coding and reimbursement, political advocacy, and exposure to practice setting models). With the exception of personal financial management, most ophthalmologists thought training in all of these nonclinical areas was the responsibility of the residency training program. CONCLUSION: The transition from residency training to successful, efficient, ethical, high-quality ophthalmic practice demands a number of skills in addition to diagnostic acumen and surgical ability. In general, the U.S. residency program graduates surveyed are comfortable with their clinical training, but less so with their training in nonclinical areas. Opportunities to help ophthalmologists prepare better for the transition to clinical practice after training appear to exist and might be addressed by training programs, professional organizations, informal physician networks, and other stakeholders.
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