PAD 5935-007 HEALTH CARE FINANCE
SPRING 2016
TUESDAYS: 2:00-4:45 PM
BEL 115
Instructor: Keon-Hyung Lee, PhD, MPH
Office: Bellamy 659
Office Hours: Tuesdays 1:00-2:00 PM
Thursdays 1:00-2:00 PM
or by appointment
Office Phone: 850-645-8210
Office Fax: 850-644-7617
E-Mail: klee2@fsu.edu
COURSE DESCRIPTION
The healthcare environment today places increased emphasis on the financial implications
of both managerial and clinical decisions. This emphasis, in turn, has created a need for
financial skills among many clinicians and managers that in the past have not been
required to have such skills. This course explores current issues, challenges and trends in the
financial management of health services organizations. The course includes an amalgamation
of information from the following disciplines: health economics, accounting, managed care,
health care finance, and risk management. The course content focuses on several interrelated
areas of concern including: understanding financial statements of health services organizations;
budgeting and business planning; managing current and long term assets and liabilities;
different ways to allocate cost, pricing and service decision-making; Resource-Based Relative
Value Scales (RBRVS); Diagnosis Related Groups (DRGs); Ambulatory Payment
Classifications (APCs); and assessing financial performance of health services organizations.
REQUIRED TEXTBOOKS
Louis C. Gapenski, Healthcare Finance: An Introduction to Accounting and Financial
Management, 5th Edition (Chicago, Health Administration Press, 2011).
Louis C. Gapenski & George H. Pink. Cases in Healthcare Finance, 5th Edition (Chicago,
Health Administration Press, 2013).
Financial Calculator (Required) – Texas Instruments BA II Plus is available from the
Bookstore (RECOMMENDED). I will use this calculator when presenting class examples. You
must have a financial calculator. Texas Instruments BA II Plus is simply my recommendation
based on cost and functionality.
P1
COURSE LEARNING OBJECTIVES
Upon completion of this course, a competent student shall demonstrate an expanded
understanding of the applications of financial management of health services organizations.
This shall include an ability to read, understand, and interpret the financial statement of a
healthcare organization and the ability to prepare and defend an analysis of an issue affecting
one or more health services organizations.
More specifically, each student should be able to:
1. Analyze the financial statements of a healthcare organization, draw definitive
conclusions as to its condition, and articulate the findings.
2. Explain the basic analytical and decision-making principles of healthcare financial
management
3. Explain the financial management process as it applies to for profit and not for
profit organizations.
4. Explain revenue and expense budgeting, capital expense budgeting, and cash
budgeting as well as the relationships existing between planning, directing,
budgeting, and establishing financial controls.
5. Utilize financial ratios as tools for the analysis of financial performance.
6. Articulate ethical practices & their significance in establishing a viable financial
management strategy.
7. Examine sources of revenue for healthcare services and the reimbursement
mechanisms for those services (FFS, DFFS, DRGs, RBRVS & APCs) and their
critical role in financing health care organizations.
8. Explain how to perform a cost analysis of services rendered.
9. Present computer modeling skills
10. Effectively communicate using financial information
COURSE REQUIREMENTS AND GRADING
Case Presentations (two (2) cases)
Midterm Exam (open book)
Comprehensive Final Exam (open book)
Class Participation and Case Summaries
30%
25%
35%
10%
Letter grades will be assigned according to the following point totals: A=93 or higher; A-=9092.99; B+=87-89.99; B=83-86.99; B-=80-82.99; C+=77-79.99; C=73-76.99; C-=70-72.99;
D+=67-69.99; D=63-66.99; D-=60-62.99; F= less than 60.
MAKEUP WORK AND EXAMS
Late case analysis is NOT accepted without an academically valid and approved FSU excuse.
The instructor will NOT give make-up exams.
P2
ATTENDANCE POLICY
Regular attendance is considered essential to achieving a successful course outcome. If
you miss a class, it is your responsibility to obtain complete information on that class from
another student in the course.
Excused absences include documented illnesses, deaths in the immediate family and other
documented crises, call to active military or jury duty, religious holy days, and official
University activities. Accommodations for these excused absences will be made and will do so
in a way that does not penalize students who have a valid excuse. Consideration will also be
given to students whose dependent children experience serious illness.
ACADEMIC HONOR CODE
The Florida State University Academic Honor Policy outlines the University’s expectations for
the integrity of students academic work, the procedures for resolving alleged violations of those
expectations, and the rights and responsibilities of students and faculty members throughout the
process. Students are responsible for reading the Academic Honor Policy and for living up to
their pledge to ….. be honest and truthful and . . . [to] strive for personal and institutional
integrity at Florida State University. (Florida State University Academic Honor Policy, found at
http://dof.fsu.edu/honorpolicy.htm.)
AMERICANS WITH DISABILITIES ACT
Students with disabilities needing academic accommodation should: (1) register with and
provide documentation to the Student Disability Resource Center; and (2) bring a letter to the
instructor indicating the need for accommodation and what type. This should be done during
the first week of class.
P3
COURSE OUTLINE AND TENTATIVE SCHEDULE (based on the 5th edition textbook)
Class
1
2
3
4
Date
1/12
Topics
Course Introduction
Healthcare Environment
- What is healthcare finance?
- Major players in the health industry?
- Third-party payer system
- Major trends in the healthcare sector
1/19 The Financial Environment
- Forms of business organization
- Tax
- Organizational goals
- Different forms of payments
1/26 Financial Accounting Basics
Income Statement (IS)
- What are the components of IS?
- Why are financial accounting statements
important?
Balance Sheet (BS)
- Purpose of BS?
- What are the contents of the BS and how is
it related to the IS?
Statement of Cash Flow
- Purpose of the statement of cash flow
- What are the contents of the statement of
cash flow?
2/2 Managerial Accounting Basics (Differences
between financial and managerial accounting)
- Cost behavior (How costs are classified
according to their relationship with
volume?)
- Profit analysis (to analyze the impact of
input value changes on both profitability
and BEP; FFS vs. Capitation)
Chapters/Cases
Chapter 1
Chapter 2
Extra Readings
Chapters 3, 4
Homework #1:
3.1 (p.104)
3.2 (p.104)
4.3 (p.140)
4.4 (p.140)
Chapter 5
Case 6: Tulsa Memorial
Hospital: Break-even
Analysis
Homework #2:
5.1
5.2
5.4
P4
5
2/9 Group Presentation (Case 6)
Cost Allocation
- Why proper cost allocation is important?
- Define a cost driver and explain the
characteristics of a good driver.
- Primary cost allocation methods
- Activity based costing (ABC)
Chapter 6
cost allocation (extra
handout)
Case 4: Eagan Family
Practice: Cost Allocation
Methods
Case 10: Dallas Health
Network: ABC Analysis
6
2/16 Group Presentation (Case 4)
Group Presentation (Case 10)
Pricing and Service Decision
- Providers as price setters vs. price takers
- Difference among full, marginal, and direct
cost pricing
- How accounting and actuarial information
are used to make pricing and service
decisions?
- Conduct basic analyses to set prices and
determine services offerings under both FFS
and capitation
7
2/23 Group Presentation (Case 9)
Group Presentation (Case 32)
Planning and Budgeting
- Planning process and the key components of
the financial plan
- What are the formats and uses of budgets?
- Static budget vs. flexible budget
- How to create a simple operating budget?
Homework #3: Cost
Allocation (extra
handout)
Chapter 7
Case 9: Cambridge
Transplant Center:
Marginal Cost Pricing
Analysis
Case 32: Santa Fe
Healthcare: Capitation
and Risk Sharing
Homework #4:
7.1 a, b, c
7.4 a, b
Chapter 8
Case 7: Cascades Mental
Health: Variance
Analysis
Case 8: Mt. Village
Clinic: Cash Budgeting
Homework #5:
8.1
8
3/1
Midterm Exam (covers Chapters 1 through 8)
P5
9
10
3/8
Spring Break
3/15 Group Presentation (Case 7)
Group Presentation (Case 8)
Chapter 9
Case 12: Gulf Shore
Surgery Centers:
Time Value Analysis
11
12
Time Value Analysis
- Why time value analysis is so important to
healthcare financial management?
- Find the present and future values for lump
Homework #6:
sums, annuities, and uneven cash flow
9.1
streams
9.2 a
- Solve for interest rate and number of periods
9.6
- Measure the financial return on an
investment in both $ and % terms
- Create an amortization table
3/22 No Class – American Society for Public Administration National Conference
3/29 Group Presentation (Case 12)
Chapter 10
Financial Risk and Required Return
- The concept of financial risk
- Stand-alone risk vs. portfolio risk
- Corporate risk vs. market risk
- Capital Asset Pricing Model (CAPM)
13
4/5 Group Presentation (Case 1)
Group Presentation (Case 13)
Capital Structure and the Cost of Capital
- Capital Structure Basics & Theory
- Identifying the Optimal Capital Structure in
Practice
- Cost of Capital Basics
- Cost of Debt Capital
- Cost of Equity Capital
- An Economic Interpretation of the
Corporate Cost of Capital
Case 13: Mid-Atlantic
Specialty, Inc.: Financial
Risk
Case 1: River
Community Hospital
(A): Assessing Hospital
Performance
Homework #7:
10.1
10.2
Chapter 13
Case 18: Southeastern
Homecare: Cost of
Capital
Case 19: RN Temps,
Inc.: Capital Structure
Analysis
Homework #8:
13.1
P6
14
4/12 Group Presentation (Case 18)
Group Presentation (Case 19)
Basics of Capital Budgeting
- What is the role of financial analysis in
health services capital budgeting decisions
- What are key elements of cash flow
estimation, breakeven analysis, and
profitability analysis
Chapter 14
Case 20: Coral Bay
Hospital: Traditional
Project Analysis
Homework #9:
14.3
Chapter 18
Lease Financing
- Lease vs. Purchase
- Two primary types of leases
- Conduct a basic lease analysis
- Factors that create value in lease
transactions
15
4/19 Group Presentation (Case 17)
Group Presentation (Case 20)
Financial Condition Analysis
- What is the purpose of financial statement
and operating analyses?
- What are primary techniques used in
financial statement and operating analyses?
- Assessment of the financial condition of a
business
- What are the problems associated with
financial statement and operating analyses
- Market Value Added (MVA) vs. Economic
Value Added (EVA) performance measures
4/26
Case 17: Seattle Cancer
Center: Leasing
Decisions
Homework #10:
18.2
Chapter 17
Homework #11:
17.3
Comprehensive Final Exam (covers all lectures)
P7
Guidelines for Case Presentations:
Most cases require spreadsheet analysis. However, a starting model containing the base
case is provided in the Cases in Health Care Finance text, and hence the cases will not require
an inordinate amount of modeling time. Case analyses are intended to develop decision-making
skills. Although computer analysis is an important element of this course, the primary emphasis
should be on health care financial management decisions.
You should form a 4-member group in this class and make two presentations. You
should form a group by the end of the second session. If you cannot find any group members
by the end of the second session, please let me know. Group work is an excellent experience
for students because almost all decision making in businesses is done in a group environment,
and people who cannot work in groups are doomed to failure. Case presentations should
include the use of PowerPoint and all members of the groups are to be involved in the
presentation.
For those students who are presenting on a given night, a group should submit a 10page written report (double-spaced) on the assigned case and prepare appropriate handouts
(e.g., powerpoint handouts) to the audiences. You should limit your presentation in 20
minutes and take questions for 5-10 minutes after the presentation.
For those students who are not presenting on a given night, please submit a one-page
(single-spaced) summary about the case including questions to the presenters. This is due in
the beginning of the class that the case is presented. No email submission, please. Your role on
those evenings is to serve as Board Members whom the presenters will be addressing.
P8