1. Overview Finance 101

2. Topics Financial Statement Overview Report Examples Key Performance Indicators Responsibilities of a Finance Department

3. Healthcare Finance The primary role of finance in healthcare organizations is to plan for, acquire, and utilize resources to maximize the efficiency and value of the enterprise.

4. Financial Statements Balance Sheet Income Statement/ Profit and Loss Statement of Cash Flow

5. Balance Sheet Balance Sheet – also known as a Statement of Financial Position –It is a snap shot at a single point in time of an organization –It captures what the organization looks like at a particular point in time, usually the last day of the accounting period (i.e. quarter, half- year, fiscal year). –3 Components: Assets, Liabilities, Equity

6. Assets A resource with economic value that a company owns with the expectation that it will provide future benefit –Cash –Accounts Receivable –Property, furniture and equipment that the business owns

7. Healthcare Finance Accounting – recording of economic events that reflect the operations resources and financing of an organization. Measuring business performance in the healthcare industry. Financial management – based on results managers should come up with conclusions and make better financial decisions.

8. Liabilities Company's legal debts or obligations that arise during the course of business operations –Accounts Payables (amounts due to vendors for supplies purchases) –Accrued Expenses (employee wages, accrued utilities expenses) –Accrued Compensation

9. Net Assets Net worth of a company –Contributions –Grants Unrestricted Temporarily restricted Permanently restricted

10. Balance Sheet Formula that summarizes the balance sheet Assets = Liabilities + Net Assets

11. Balance Sheet * Assets ABC COMMUNITY HEALTH CENTER, INC. BALANCE SHEET AS OF DECEMBER 31, 2011 Current YearPrior Year Current Assets: Cash $ 55,500 $ 126,500 Accounts Receivable (Gross) $ 620,000 $ 820,000 Less Allowance for Doubtful Accounts and Contractual Adjustments $ 348,000 $ 644,600 Accounts Receivable, net 272,000 175,400 Contracts receivable 175,500 90,000 Prepaid expenses 25,000 50,000 Total current assets 528,000 441,900 Property and equipment, net 287,500 337,500 Security deposits 12,500 TOTAL ASSETS $ 828,000 $ 791,900

12. Balance Sheet Liabilities & Net Assets Current Liabilities: Current YearPrior Year Accounts payable and accrued expenses $ 225,500 $ 150,500 Accrued compensation 195,000 187,500 Refundable advance 125,000 25,000 Current portion of long-term debt 55,000 Total current liabilities 600,500 418,000 Long-term debt, less current portion 125,000 180,000 TOTAL LIABILITIES 725,500 598,000 Net assets: Unrestricted 102,500 122,500 Temporarily restricted 5,000 71,400 Total net assets 102,500 193,900 TOTAL LIABILITIES AND NET ASSETS $ 828,000 $ 791,900

13. Income Statement Statement of Revenue and Expense Is your business making money? Net Income = Revenues – Expenses –Measures an organization’s financial performance over a specific accounting period. –Has two sections: revenues and expenses

14. Income Statement * Revenue

15. Income Statement * Expenses

16. Statement of Cash Flow Biggest challenge is likely to be managing your cash flow Purpose of managing your cash flow is to make sure that you have enough cash to pay operating expenses Total cash received minus total cash spent

17. Balance Sheet Ratios Days cash on hand (Cash and Cash equivalents)/((total expense less depreciation)/365) –This tells if a health center stops generating revenue and how many days they can meet their obligations. *Minimum at least 30 days Current Ratio –Current assets/current liabilities –A high ratio indicates the health center can meet short term obligations and the Center is more liquid. * At a minimum 1.5; ideally 2.0

18. Balance Sheet Ratios cont. Days in Accounts Receivable (Gross Accounts Receivable less allowance for doubtful accounts and contractual)/((Revenue less contractual and bad debt)/365) –This tells how long it takes a health center to collect on a patient’s account. *Lower number is best, 45 days or less Days in Accounts Payable (Accounts Payable)/ ((Total expenses less salaries and benefits)*365) –This tells how long it takes the health center to pay outstanding invoices. *Standard is 30- 45 days

19. Income Statement Trends Trend and Relationships –Cost per Encounter –Net Revenue per Encounter –Shift in Payer Mix –Change in Reimbursement Rates

20. Ratio Calculations Lets calculate the current ratio Current Assets/Current Liabilities $528,000/$600,500 Current Ratio.87

21. Income Statement Calculation Net Revenue Per Encounter Net Revenue/Encounters $322,500/2,750 = $117.27 Cost Per Encounter Total Expenses/Encounters $337,250/2,750 = $122.63 See the problem?

22. Revenue Cycle Reporting Accounts Receivables Report Lost Visits Cash Collections

23. Aging Schedule for A/R

24. Lost Visit Report This report verifies that all patient visits are billed. Sign in sheet/stickers End of day reconciliation of encounters with sign in sheet

25. Cash Collections Front Office –Co-pays –Deductibles Back Office –Days in Accounts Receivable

26. Key Performance Indicators Responsible AreaBenchmark typeBenchmarkNotes Finance/Patient Accounting Cash on hand60-70 days operating cash on hand is considered appropriate Reflects ability to collect cash. Patient Accounting/BillingDays In accounts receivable (A/R) 45-55 days - best practice 55-65 days - average 65+ days - poor Reflects ability to bill and collect accurately and quickly. No more than 30% should be older than 90 days on AR aging. Assumes 30-40% Medicaid. Higher Medicaid should result in lower A/R as Medicaid often pays faster than other payers. Patient RegistrationPatients registered per hour New patient - 6- 10 Established patients -15- 20 Varies greatly depending on information system. These benchmarks assume collection of patient billing information during registration. Patient Accounting/BillingBill - date of service to date of claim submission 2-3 daysLonger than 5 days indicates backlogs in medical records, coding, etc.

27. Responsibilities of the Finance Department Safeguarding of Assets Accurate and Timely Preparation of Financial Reports Efficient Management of Cash Flow Contain Cost/Maximize Revenue Interact with Outside Agencies Comply with Regulatory Requirements

28. Questions? Gervean Williams gwilliams@nachc.com National Association of Community Health Centers