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Financial Management of Health Care Organizations. An Introduction to Fundamental Tools, Concepts and Applications. Edition No. 5

  • Book

  • 704 Pages
  • September 2020
  • John Wiley and Sons Ltd
  • ID: 5836977

This thoroughly revised and updated Fifth Edition of Financial Management of Health Care Organizations offers an introduction to the tools and techniques of health care financial management. The book covers a wide range of topics, including information on the health care system and evolving reimbursement methodologies; health care accounting and financial statements; managing cash, billings, and collections; the time value of money and analyzing and financing major capital investments; determining cost and using cost information in decision-making; budgeting and performance measurement; and pricing.

The revised edition covers new accounting changes for nonprofit hospitals with respect to net asset accounts, and includes an array of new financial statement problem sets for nonprofit hospitals. These changes also required major changes to the recording of financial transactions and implementing the latest financial ratio benchmarks.  

With the newest payment developments in the health care landscape, this new edition updates changes to  Medicare and commercial payment systems. The passage of the new tax law also impacted hospital capital markets and for-profit hospital tax rates. This latest edition explains the impact of this tax law change on tax-exempt hospital bonds purchased by banks, as well as presenting problem sets featuring the new taxes law. Finally, changes in lease financing reporting are also addressed in this edition.  


Table of Contents

Preface xiii

Acknowledgments xix

The Authors xxi

Chapter 1 The Context of Health Care Financial Management 1

Changing Methods of Health Care Financing and Delivery 3

Addressing the High Cost of Care 9

Value‐Based Payment Mechanisms 19

Summary 22

Key Terms 23

Review Questions 23

Notes 24

Chapter 2 Health Care Financial Statements 25

The Balance Sheet 27

The Statement of Operations 49

The Statement of Changes in Net Assets 64

The Statement of Cash Flows 66

Summary 71

Key Terms 73

Key Equations   73

Review Questions and Problems 74

Appendix A: Financial Statements for Sample Not‐for‐Profit and For‐Profit Hospitals, and Notes to Financial Statements 84

Note 99

Chapter 3 Principles and Practices of Health Care Accounting 101

The Books 101

An Example of the Effects of Cash Flows on Profit Reporting under Cash and Accrual Accounting 106

Recording Transactions 108

Developing the Financial Statements 118

Summary 125

Key Terms 126

Review Questions and Problems 126

Chapter 4 Financial Statement Analysis 137

Horizontal Analysis 138

Trend Analysis 144

Vertical (Common‐Size) Analysis 144

Ratio Analysis   146

Liquidity Ratios   152

Revenue, Expense, and Profitability Ratios 161

Activity Ratios 169

Capital Structure Ratios 175

Summary 183

Key Equations   186

Key Terms 187

Review Questions and Problems 187

Chapter 5 Working Capital Management 209

Working Capital Cycle 209

Working Capital Management Strategies 211

Cash Management 215

Sources of Temporary Cash 216

Revenue Cycle Management 221

Collecting Cash Payments 225

Investing Cash on a Short‐Term Basis 228

Forecasting Cash Surpluses and Deficits: The Cash Budget 230

Accounts Receivable Management 233

Methods to Monitor Revenue Cycle Performance 237

Fraud and Abuse 239

Summary 243

Key Terms 246

Key Equations   246

Review Questions and Problems 246

Notes 257

Chapter 6 The Time Value of Money 259

Future Value of a Dollar Invested Today 260

Present Value of an Amount to Be Received in the Future 267

Future and Present Values of Annuities 270

Future and Present Value Calculations and Excel Functions for Special Situations 276

Summary 284

Key Terms 285

Key Equations   286

Review Questions and Problems 287

Appendix B: Future and Present Value Tables 292

Note 301

Chapter 7 The Investment Decision 303

Objectives of Capital Investment Analysis 304

Analytical Methods 307

Using an NPV Analysis for a Replacement Decision 321

Summary 326

Key Terms 328

Key Equation   328

Review Questions and Problems 328

Appendix C: Technical Concerns in Calculating Net Present Value 336

Appendix D: Adjustments for Net Working Capital 342

Appendix E: Tax Implications for For‐Profit Entities in a Capital Budgeting Decision and the Adjustment for Interest Expense 345

Appendix F: Comprehensive Capital Budgeting Replacement Cost Example 349

Chapter 8 Capital Financing for Health Care Providers 361

Equity Financing 364

Debt Financing 365

Bond Issuance Process 377

Lease Financing 389

Summary 396

Key Terms 397

Key Equations 398

Review Questions and Problems 398

Appendix G: Bond Valuation, Loan Amortization, and Debt Borrowing Capacity 402

Notes 411

Chapter 9 Using Cost Information to Make Special Decisions 413

Break‐Even Analysis 414

Product Margin 437

Applying the Product Margin Paradigm to Making Special Decisions 441

Summary 448

Key Terms 449

Key Equations   450

Review Questions and Problems 450

Appendix H: Break‐Even Analysis for Practice Acquisition 461

Chapter 10 Budgeting 467

The Planning‐and‐Control Cycle 467

Organizational Approaches to Budgeting 472

Types of Budgets 483

Monitoring Variances to Budget 490

Group Purchasing Organizations 492

Summary 494

Key Terms 496

Key Equation 497

Review Questions and Problems 497

Appendix I: An Extended Example of How to Develop a Budget 499

Chapter 11 Responsibility Accounting 523

Decentralization   523

Types of Responsibility Centers 526

Measuring the Performance of Responsibility Centers 531

Budget Variances 533

Summary 545

Key Terms 547

Key Equations   548

Review Questions and Problems 548

Chapter 12 Provider Cost‐Finding Methods 553

Cost‐to‐Charge Ratio 553

Step‐Down Method 554

Activity‐Based Costing   561

Summary 573

Key Terms 573

Review Questions and Problems 574

Chapter 13 Provider Payment Systems 579

Evolution of the Payment System 583

Risk Sharing and the Principles of Insurance 607

Evolving Issues 612

Technology 614

Summary 616

Key Terms 616

Review Questions and Problems 617

Appendix J: Cost‐Based Payment Systems 619

Notes 624

Glossary 627

Useful Websites 653

Index 657


William N. Zelman University of North Carolina at Chapel Hill. Michael J. McCue Virginia Commonwealth University. Noah D. Glick Integrated Healthcare Information Services, Inc. Marci S. Thomas University of North Carolina School of Medicine.