Introduction to Financial Management

1
Introduction to Financial Management

• What is financial management?
• Applications of financial management
• Organizational effectiveness evaluations
• Capital budgeting applications
• Cost of capital/financing applications
• Working capital management apps
• Management of financial risk

2
Introduction to Financial Management

• Managerial responsibilities
• Healthcare financial management challenges (NFPs
  and Third Party Payment)
• Sub-disciplines of financial management
• Accounting
• Corporate finance

3
Introduction to Financial Management

• Historical evolution of financial management
  within HSOs
• Cost accounting era
• Contemporary financial management era
• The role of TEFRA/PPS
• Prospective payment methodologies
• Shifting financial risk to providers
• Lack of ability to shift risk by providers
• Increased need for financial management focus

4
Introduction to Financial Management

• The Environment of Financial Management
• Organizational forms
• Proprietorships (advantages, disadvantages)
• Partnerships (advantages, disadvantages)
• Corporations (advantages, disadvantages)
• Hybrids (LLP, LLC, PC)
• Ownership forms
• For-profits (investor owned)
• Not-for-profits (community owned)

5
Introduction to Financial Management

• For-profit organizations
• Who are they?
• Vesting of ownership rights (stock)
• Public vs. private ownership
• Ownership rights
• Right to control operations
• Right to residual earnings
• Right to proceeds from liquidation (after
  creditors)

6
Introduction to Financial Management

• Not-for-profit organizations
• Who are they?
• Economic rationale for existence
• Vesting of ownership rights
• Characteristics
• Tax exempt
• Eligible for tax exempt financing (munis)
• Qualify for tax-exempt charitable contributions

7
Introduction to Financial Management

• FP vs. NFP organizations
• Ownership does matter
• FP - shareholder wealth maximization
• NFP - accomplish charitable mission(s)
• Financial management approaches do not differ
  appreciably between the two in reality

8
Introduction to Financial Management

• Taxation Issues
• The imperative of death AND taxes
• Impact of taxation
• Organizational performance/value
• Financial management objectives
• Levels of taxation
• Proprietorships/partnerships -- ordinary income
  and capital gains
• Corporations - ordinary income and capital gains

9
Introduction to Financial Management

• Corporate taxation (contd)
• Operating income
• Interest income from investments
• Dividend income from investments
• Capital gains income from investments
• Not-for-profit taxation issues
• Tax exempt organizations - 501(c)(3)/501(c)(4)
• Unrelated business income (UBI)

10
Introduction to Financial Management

• Not-for-profit taxation issues
• NFP investment sources of income
• Use of temporary cash surpluses
• Private inurement risks with excessive surplus
  funds and/or longer term investments
• Miscellaneous taxation issues
• The use of financial leverage (debt)
• Double taxation of corporate dividends

11
Introduction to Financial Management

• Miscellaneous taxation issues
• Carry-back/carry-forward provisions
• Tax benefits with each provision
• Reimbursement Issues
• Impact of reimbursement on organizational
  financial performance
• The U.S. system of 3rd party payers
• Market power among 3rd party payers

12
Introduction to Financial Management

• Reimbursement Issues
• Generic methods of 3rd party reimbursement
• Fee for service -- cost-based, charge-based,
  prospective forms (DRGs, APCs)
• Capitation
• Non-payment
• Financial management implications with different
  forms of 3rd party reimbursement

13
Introduction to Financial Management

• Financial Management Implications of 3rd party
  reimbursement
• Accounting for reimbursement revenues
• Elements of financial risk
• Provision of provider incentives
• Fee for service
• Capitation