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Copyright 2015 Health Administration Press

This is a sample of the instructor materials for Michael Nowicki, Introduction to the Financial Management of Healthcare Organizations, sixth edition. The complete instructor matierals include

answers to the end-of-chapter discussion questions, PowerPoint slides, and a test bank.

This sample includes the answers to the end-of-chapter discussion questions and PowerPoint slides for Chapter 1. If you adopt this text, you will be given access to the complete materials. To obtain access, e-mail your request to [email protected] and include the following information in your message:

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Part I Discussion Questions Chapter 1 1. Why is financial management important to the organization? It helps managers accomplish the purpose of the organization. 2. Distinguish between the purpose of healthcare management and the purpose of healthcare financial management.

The purpose of healthcare management is to survive economically. The purpose of healthcare financial management is to provide accounting and finance information necessary for healthcare managers to survive economically.

3. Prioritize the major objectives of healthcare financial management. • To generate a reasonable net income • To respond to regulation • To facilitate regulations with third-party payers • To influence methods and amounts of payments • To monitor physicians and their potential liability • To protect the tax status 4. Describe the major ethical theories and how they apply to the role of a healthcare manager. The utilitarian view of managers allows resource allocation decisions based on "the greatest good for the greatest number." The deontological view of clinicians allows clinical decision making to follow certain duties to patients. 5. Describe why financial managers should be concerned with quality initiatives.

Quality initiatives not only keep patients and accreditation organizations like the Joint Commission satisfied, but also contribute to the profitability of the organization by reducing liability and cost and thereby increasing profitability.

6. Predict how financial management and the management functions will be important as healthcare changes in the future. Financial management and management functions, if performed well, will keep organizations in business in the turbulent economic environment predicted for the future.

Chapter 1


Financial Management in Context



Learning Objectives

• Understand the purpose of healthcare organizations.• Relate the purpose of healthcare financial management to the purpose

of the organization.• Understand the objectives of healthcare financial management.• Apply quality assessment to healthcare financial management.• Apply organizational ethics to healthcare financial management.• Examine the value of healthcare financial management to the

management functions and the changing face of healthcare.• Review background accounting, economics, and statistics information.


Organizational Purpose



• Economic survival



• Economic survival

– Nonprofit—provide services to the community



• Economic survival– Nonprofit—provide services to the community

– For-profit—provide profit for the owner



• Economic survival– Nonprofit—provide services to the community

– For-profit—provide profit for the owner• To be successful, both must identify and meet the needs of their

customers.


Purpose of Healthcare Management



• “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”



• By planning, organizing, staffing, directing, and controlling – while communicating, coordinating, and making decisions



• By obtaining organizational accreditation– Joint Commission



• By obtaining basic educational requirements– BHA from an Association of University Programs in Health

Administration (AUPHA)—approved baccalaureate program– MHA/MBA from a Commission on Accreditation of

Healthcare Management Education (CAHME)—accredited graduate program



• By obtaining certification and continuing education– Certified as Fellows (FACHE) from the American College of

Healthcare Executives (more than 9,000 Fellows from more than 36,000 members)


Purpose of Healthcare Financial Management



• To provide both accounting and finance information that assists healthcare managers in accomplishing the purposes of the organization



• By delegating authority for financial matters from the governing body and CEO to the CFO.



• By obtaining basic educational requirements



• By obtaining basic educational requirements– BBA/MBA



• By obtaining certification and continuing education– BBA/MBA

– CPA



• By obtaining certification and continuing education– BBA/MBA

– CPA

– Healthcare Financial Management Association (HFMA): Certified Healthcare Financial Professional (1,034 CHFP) and Fellows (1,845 FHFMA) of more than 40,000 members


Accounting and Healthcare Financial Management



• Financial accounting—provides accounting information, generally historical in nature, to external users.



• Financial accounting– 1996 American Institute of Certified Public Accountants

(AICPA) Audit Guide establishes the following four financial reports for external users: consolidated balance sheet, statement of operations, statement of changes in equity, and statement of cash flows.



• Managerial accounting—provides accounting information, generally current or prospective in nature, to internal users.



• Cost accounting—the study of costs, including methods for classifying, allocating, and identifying costs.


Finance


Finance

• Borrows and invests the money necessary for the organization to accomplish its purpose.


Financial Management


Financial Management

• Analyzes the information provided by financial accounting, cost accounting, managerial accounting, and finance, as well as other disciplines, in order to evaluate past decisions and make better decisions in the future.


Objectives of Healthcare Financial Management



• To generate a reasonable net income (difference between collected revenues and expenses) by investing in assets and putting the assets to work.



• To respond to the myriad of regulations in a timely and cost-effective manner.



• To facilitate the organization’s relationship with third-party payers, who account for about 79 percent of a healthcare organization’s revenues.



• To influence the method and amount of payment third-party payers choose.



• To monitor physicians and their potential financial liability to the organization in terms of their ordering patterns and possible negligence.– Utilization review

– Credentialing and risk management



• To protect the organization’s tax status.


Case Study

• You were recently hired to manage a new primary care physician’s office. The physician’s office will be located downtown in a major metropolitan area with significant competition. You need to establish the organization’s purpose and financial objectives.– What items should you consider in establishing the

organization’s purpose?

– What organizational purpose should you suggest to the physician owners?

– What would be the financial objectives of the organization?


Quality Assessment and Healthcare Financial Management



• Direct measures of quality



• Direct measures of quality– Goal-based measures

– Responsive measures

– Decision-making measures

– Connoisseurship measures



• Indirect measures of quality



• Indirect measures of quality– Resource measures

– Outcome measures

– Reputational measures

– Value-added measures



• Joint Commission—“the [healthcare organization] has a planned, systematic, [organization]-wide approach to process design and performance measurement, assessment, and improvement.”



Goals Outcomes& Indicators

KeyProcesses

Assessment

Improvement



• Joint Commission– Sentinel indicators measure processes so important that

every time they occur, the manager initiates a case review.



• Joint Commission– Rate-based indicators measure processes and allow for an

error rate.



• Joint Commission– In response to a 1999 IOM report that as many as 98,000

Americans die each year in hospitals as a direct result of hospital errors, Joint Commission adopted initial patient safety goals that went into effect on July 1, 2001, and Joint Commission has added patient safety goals almost every year since 2001.




• Joint Commission Patient Safety Goals for Hospitals as of January 2014

1—Improve the accuracy of patient identification2—Improve the effectiveness of communication among

caregivers3—Improve the safety of using medications4—Reduce the risk of healthcare-associated infections5—Improve the safety of clinical alarm systems


Effects of Quality on Profitability


Effects of Quality on Profitability

• Deming argues that quality improvements lead to higher profitability

• Chain reaction– Improved quality & productivity

– Lower costs & prices

– Improved market position

– Increased volume and profitability


Case Study

• You are the administrator of a nursing home owned by a for-profit parent corporation that owns 30 nursing homes. You have been asked by the board of directors of the parent corporation to explain how your quality initiative will improve profitability.– What is your presentation?


Organizational Ethics and Healthcare Financial Management



• Utilitarianism—greatest good for the greatest number



• Deontology—decisions are governed by duties to one another that take precedence over ends-based thinking of utilitarians.



• Conflicts of interest—owing duties to two or more parties and fulfilling a duty to one somehow harms the other.


Case Study

• You manage a four-physician office practice in a competitive neighborhood. Vendors often bring lunches and gifts for your staff and samples of prescription medications that the physicians give to patients..– Could this be a problem?


Value of Healthcare Financial Management



• Supports the management functions and connective processes.



• Predicts which organizations will survive the competition starting in the 1990s– Falling prices

– Restrictions on credit

– Reduced production

– Bankruptcies, mergers, acquisitions


Review Appendices

• 1-1 on Financial Accounting

• 1-2 on Economics

• 1-3 on Statistics which includes the AHA definitions of statistical terms


Chapter Key Points

• The difference between the organizational purpose and the financial purpose of the organization is important.

• The major objectives of financial management, & which one is most important, is relevant to any healthcare manager..

• Quality is important and understanding its impact on profitability makes good managers great managers.

• Sound ethical reasoning should affect every decision, even financial decision making.


Discussion Questions

1. Why is financial management important to the organization?

2. Distinguish between the purpose of healthcare management and the purpose of health care financial management.

3. Prioritize the major objectives of healthcare financial management.

4. Describe the major ethical theories and how they apply to the role of a healthcare manager.

5. Describe why financial managers should be concerned with quality initiatives in the healthcare organization.

6. Predict how financial management and the management functions will be important as healthcare changes in the future.


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