Which age group will consume the greatest per capita healthcare resources in the 21st century?

 

1. 75 years and older

2. 65-74 years

3. 45-65 years

4. 0-1 year

Answer: 1) The fastest growing agegroup that will consume the most healthcare resources are those that are over the age of 75. Source: ACHE Refence Manual for BOG Exam

FASB and GAAP

Use of FASB is needed because of its importance and influence in the improvement of financial reporting and accounting practices for the purpose of regulation and standards in financial accounting.  FASB issues statements of financial accounting standards that represent authoritative expressions of generally accepted accounting principles.  It is because financial accounting as represented by the numbers does get complicated that Generally Accepted Accounting Principles (GAAP) are established so that there is uniformity about how accounting is organized, operationalized, and regulated.  Audits, both internal and external, provide support for how well the organization adheres to accounting principles and insight into the benefits of improvement.  Keep in mind that in today’s business world in general, and in the healthcare industry in particularly, the financial staff must be able to provide analyses to support contract negotiations, partnership or joint venture decisions, and, in summary, help lead the organization towards future visions.

How has your organization been able to mitigate uncompensated care spending/losses, while maintaing (or improving) the quality of patient care?  What changes or interventions have been useful in reducing bad debt and ensuring that charity care is offset by State support (to the extent possible) and provided in the most efficient manner possible?  Has your organization been able to establish key metrics for assessing the performance of its revenue cycle?  Are your organization's documentation, charge capture, billing, and collection processes supporting optimal revenue cycle results; if so, how has your organization succeeded in this regard?  How has your organization been able to reduce the number of patients in the ED that do not require emergent care or the number of inpatients that do not require inpatient care?  Has your organization fully leveraged its hard assests (e.g., beds, ORs, SPAs, etc) by recruiting physicians and building programs, in part, intended to shift the organization's mix of patients toward higher margin cases to offset programmatic loss leaders and uncompensated care, or have financial considerations been less of an influence on program building decisions?  Thoughts on any or all of these questions would be greatly appreciated!  If you're not in the delivery sector, but have a perspective on this issue, please add your comments as well!  Thanks.

With the financial market crisis,  many healthcare organizations have had to put implement a capital freeze. This occurs to maintain an A bond rating, it was necessary to increase cash on hand, decrease days in AR and stop as many capital improvements until the economy corrects itself.

How does the time value of money influence financial decisions made by your organization?

 

Evans (2006) explained that financial management recognizes the time value of money because:

 

1. Inflation reduces values over time; i.e. $1,000 today will have less value five years from now due to rising prices (inflation).
2. Uncertainty in the future; i.e. we think we will receive $1,000 five years from now, but a lot can happen over the next five years.
3. Opportunity Costs of money; $1,000 today is worth more to us than $1,000 five years from now because we can invest $1,000 today and earn a return.(Discounted Cash Flows section, ¶ 3)

 

What are the purposes of capital budgeting?

 

Capital budgeting is the course of action by which an organization chooses which long-term investments to pursue. Prospective long-term ventures are projected to produce cash flows over numerous years. Depending on the cash flows generated by the project and its cost will determine whether the capital budgeting project is accepted or rejected. Purposes:

 

1.      To identify, assess, and plan for the capital needs of the organization.

2.      To provide a basis for determining alternative sources of funding for capital needs.

3.      To provide a basis for the assessment of the impact of new capital expenditures on the operating budget.

4.      To provide a system for accounting for the capital resources of the institution.

 

What factors influence a capital budgeting analysis, and how do they influence it?

 

Cash Flows

           

The information needed to calculate an investment prospect is the anticipated cash flows related to the investment. Many projects have a hefty preliminary cash outflow as plant and equipment, and start-up costs are incurred. In the years that follow, there will be receipt of cash from sale of the service, and there will be cash outflow related to the expenses of services provided. The variation between each year’s cash receipts and cash expenditures is the net cash flow for the year.

 

Time Value of Money

           

The time value of money is the idea that a dollar today is worth more than a dollar in the future, because the dollar received today can earn interest up until the time the future dollar is received (Venture Line, 2004). Systsma (2004) provides an easy to understand example of the time value of money:

Consider putting money into a bank that pays a 10 percent return ‘compounded annually.’ The term compounded annually means that the bank calculates interest at the end of each year and adds the interest onto the initial amount deposited. In future years, interest is earned not only on the initial deposit, but also on interest earned in prior years. If we put $400 in the bank at 10 percent compounded annually, we would earn $40 of interest in the first year. At the beginning of the second year, we would have $440. The interest on the $440 would be $44. At the beginning of the third year, we would have $484 (the $400 initial deposit plus the $40 interest from the first year, plus the $44 interest from the second year). The interest for the third year would be $48.40. We would have a total of $532.40 at the end of three years. (p. 5)

 

Payback Period / NPV / IRR

Payback Period

           

The payback period signifies the sum of time that it takes for a capital budgeting project to recuperate its primary expenditures. All independent projects with a payback period less than a specified number of years should be accepted under the capital budgeting decision rule.

 

Net Present Value of Money (NPV)

           

The NPV technique of analysis establishes whether a project earns more or less than a stated desired rate of return. Projects with an optimistic NPV are likely to increase the value of the organization. Mathis (2004) proclaimed, “Thus, the NPV decision rule specifies that all independent projects with a positive NPV should be accepted” (p. 3).

 

Internal Rate of Return (IRR)

 

Mathis (2004) declared, “The IRR of a capital budgeting project is the discount rate at which the NPV of a project equals zero. The IRR decision rule indicates that all independent projects with an IRR larger than the cost of capital should be accepted” (p. 1). 

 

Risk

 

Risk is another factor that influences a capital budgeting analysis. For example, some factors to consider include (a) compensating for different levels of risks between projects, (b) recognizing risks that are specific to foreign projects, and (c) making adjustments to capital budgeting analysis by looking at the actual results (Evans, 2006).

 

How is capital budgeting used in your organization?

 

Based in Phoenix, Banner Health is one of the largest, nonprofit health care systems in the country. Banner has 20+ facilities that offer an array of services including hospital care, home care, hospice care, nursing registries, surgery centers, laboratories, rehabilitation services. These facilities are located in seven states - Alaska, Arizona, California, Colorado, Nebraska, Nevada, and Wyoming. Banner employs nearly 25,000 employees, making it one of the country's largest employers, as well. The company's Arizona Region, alone, employs nearly 17,000 people. The company has annual revenue of about $2.6 billion and assets totaling $3.1 billion. Banner’s preferred vehicle for financing via long-term debt is to issue tax-exempt revenue bonds.

 

Long Term Investments/Projects

           

Good Samaritan Regional Medical Center. Good Samaritan is a selection decision type investment made by Banner Health. The hospital is located in Phoenix, AZ. The expansion of the facility will add 117 new beds, surgical capacity, a new ambulatory services building, and a new multi-story parking garage at the cost of $90 million (Kohn and Henderson, 2003, ¶ 4).

           

Banner Estrella Medical Center. Banner Estrella is another selection type investment made by Banner Health. The facility was constructed on 50 acres in west Phoenix. This new 164-bed hospital comes with a price tag of $155 million (Kohn and Henderson, 2003, ¶ 4).

           

Mckee Medical Center. McKee, another selection type investment, is located in Loveland, CO. McKee is a 145-bed facility that specializes in neurosurgery, cardiac, and trauma care. Persons (2004) proclaims, “The $40 million expansion will add a children’s cancer center. The facility will provide health care to children in low-income families that cannot afford health care” (p 2).

           

To fund these projects, Banner Health successfully sold $325 million of hospital revenue bonds. Persons (2004) asserts, “The variable rate bonds, insured by Ambac, were sold through UBS Paine Webber, Inc., ($81,250,000 Auction Rate Series 2202A), Salomon Smith Barney ($81,250,000 Auction Rate series 2002B), and Salomon Smith Barney ($162,500,000 Non-Putable Remarketed Series 2002C)” (¶ 8).

 

 

Evans, M. (2006). Capital budgeting analysis. Retrieved September 14, 2009, from Bell Globemedia Publishing Inc. website: https://secure.globeadvisor.com/education/gigcourses/article.html?/education/gigcourses/exinfm/course03.html

 

Kohn, C., & Henderson, C. (2003, February 10) Banner health systems $325 million bond sale to pay for expansion. Managed Care Weekly Digest, 14.

 

Mathis, R. (2004, February 19). Capital budgeting. Corporate Finance Live, 1-6.

 

Persons, D. (2004) Larimer county and windsor’s best in the business. Coloradoan Online, 1-3.

Systsma, S. (2004, February 19). Capital budgeting and cash flow. Financial Management, 1-13.

 

Venture Line (2004, March 3). Where everyone has an MBA. Retrieved September 14, 2009, from http://www.ventureline.com/default.asp

Which of the following is not a step in the capital budgeting process?
a. Identify and prioritize all of the requests
b. Projecting bad debt for the year
c. Project cash flows
d. Perform financial analysis

Managerial Accounting focuses primarily on all of the following except:
a. Routine budgeting processes
b. Allocation of bonuses
c. Historical Events
d. Needs of managers

 

Which method of payment provides the least incentive for the healthcare organization to provide only what is medically appropriate?
a. Per Diem
b. Per Diagnosis
c. Capitation
d. Charges

The capital budget:
a. Is completed prior to the operating budget
b. Is completed after the operating budget
c. Is completed simultaneously with the
operating budget
d. Is part of the strategic plan and therefore
completed every 5 years.

“What’s the use of running if you are not on the right road?” This is how the attached article, “Strategic Decision Making: It’s Time for Healthcare Organizations to Get Serious”, by David Young, begins. Hitting on many of the points reviewed in the assigned readings about strategic planning, the particular component that I feel was not covered in our literature, and I want to focus on, is Trade-Offs.

 

Within the article, Young points out that a high-quality strategy requires the organization to decide what it does not want to be, in addition to what it intends to be, involving having to make trade-offs. According to Young, most Healthcare organizations have not made trade-offs, and instead try to be all things to all people.  He also emphasizes that to be successful in today’s environment, healthcare providers need to determine which services they want to provide, for which types of patients, and in which areas. They then should eliminate programs that do not fit. Young also points out the importance of not being held captive by the medical staff in making trade-off decisions.

 

While pointing out increased difficulties, Young fails to focus on the inherent challenges for small non-profit hospitals to make trade-offs in strategy formulation. Young alludes to non-profits using their community service missions as a crutch; however, it is a delicate balancing act for these facilities to weigh the performance of services provided with the needs/expectations of the community being served. Cutting services is a last-resort for most community hospitals, and one that is not made lightly. However, not making these strategic trade-offs will ultimately lead to a non-profit’s demise.  My organization has made these mistakes, but it is easier to theorize about making strategic trade-offs than it is to have a narrow strategic focus in a community that expects all of its needs to be met.

 

http://www.redorbit.com/news/health/306646/strategic_decision_making_its_time_for_healthcare_organizations_to_get/index.html?source=r_health