1. Module 1: Introduction to health care finance Student notes

2. Introduction to the US health care system

3. Describe common characteristics of the US health care system
3 major issues
Access, cost, quality
Access = Limited by insurance
Cost
Grows faster than inflation; spend more $ than any other nation
Spending (2015 estimates)
Quality = Racial and economic disparities

4. Continued More integrated delivery systems Private/public payer mix
Medical bills due to bankruptcy
High number of malpractice lawsuits
Paradox of excess and deprivation

5. The business of health care

6. How do we know health care is a business
A business needs to have sufficient revenue to pay all the costs associated with creating and selling its goods or services

7. Understand the similarities and differences in health care to other businesses
Enough revenue to cover expenses (Revenue – expenses = profit)
CEOs make a lot of money

8. Understand cont. Different Abundance of agency relationship
Mixture of government, NFP, FP
Highly regulatory environment

9. Understand continued Different Wider range of financing options
Revenue mainly comes from 3rd party payers
Rapidly growing
Many organizations are NFP

10. Understand the common ownership forms of HCO, be able to list examples in the local area, discuss advantages of each, disadvantages of each (Lecture)

11. Understand ownership/examples in local area
Public vs. Private
Public = owned by the public (people) ran by the government
Private = owned/ran by a non-government entity

12. Ownership NFP vs. FP Do NFP make a lot of residuals?
Revenue – Expenses = Profit
Do NFP make a lot of residuals?
Government will never be classified as for-profit

13. Understand ownership Public-held vs. Private-held
Multiple types within one organization
Terminology
Shareholder/Stockholder = owns company through stock
Stakeholder = interested in the company but may not have any financial ties (Patients, community, nurses, doctors)

14. Advantages of each NFP = Tax-exempt status FP = Get equity
Private = Avoid bureaucracy
Public = Financial security through the government
Private-held = Maintain ownership
Public-held = Get money from stocks

15. Disadvantages of each NFP = Restrictions on what you can and cannot do
FP = Answering to owners and their needs
Private = Limitations on funding
Public = Government controls you (Bureaucracy)
Private-held = Can’t issue stock for $$
Public-held = Major changes have to be sent to stockholders

16. Understand the NFP organization and explain the importance of community benefits of tax-exempt status
Describe NFP
IRS form 1099
501(c) = 1-29 = most common in HCO = 3 (other kinds as well 501(d)
Exempt from paying taxes
Have to provide some community benefits (importance)

17. Continued New rules under the ACA Community health needs assessment
Financial assistance
Limitation on charges
Billing and collecting

18. Continued Type of hospitals
Hospitals in 2011, received 24.6 billion in tax breaks due to NFP status
Most think that’s charity care

19. Understand how health care is different from a charity
Health care is NOT a charity.  
Charity - Type of NFP (sells goods/services).  
NFP/FP oftentimes have charities within the organization (charity care) 
Pure charity = does not sell goods or services ($ = soliciting contributions).  
Non-operating charity = Grants to others
Operating charity = some type of services 
Other
Rely heavily on volunteers
Availability vs. a defined need 

20. Introduction to health care finance

21. What is financial management
Why do I need to study finance?
Because everyone is involved
Most decisions you make involve $$

22. Continued
What is financial management (how it different from accounting?)
Accounting and financial functions
Accountants = gives us the information
Finances = understand the information

23. Continued
What is health care finance = plan for, acquire, and use resources to maximize the efficiency and value of the enterprise within a healthcare organization
What does a financial manager do
Get $$ from financial markets
Decide how to use the $$ to run the organization
Manage revenue

24. 3b. Describe 4 C’s of finance
The measurement and minimization of costs are vital activities to the financial success of all healthcare organizations.
A business might be profitable but still face a crisis because of a shortage of cash.
Capital represents the funds (money) used to acquire land, buildings, and equipment.
Finally, a business must control its financial and physical resources to ensure that they are being wisely employed and protected for future use - conservation.

25. Key positions in finance
CFO
Comptroller
Treasurer
CIO
Auditor = internal/independent
Board of directors

26. Describe the 5 pillars of financial practice
Understanding of Cash flows
Recognition Maximizing behavior
Risk aversion = degree to which a person is willing or unwilling to take on a risky venture 
Time-value-of-money
Control of Opportunity cost

27. Reimbursement mechanisms

28. Understand common reimbursement mechanisms/risk/incentives
Retrospective payment = Third-party payers making payments after the provider has rendered a service, based on what the provider charges for the service rendered. 
Prospective payment = Method for reimbursing based on a predetermined rate for the treatment of specific illnesses

29. Continued
Capitation payment = It pays a physician or group of physicians a set amount for each enrolled person assigned to them, per period of time, whether or not that person seeks care.
Discounted payment = Pays based on an discounts through a pre-established contract with a provider