Finance presentation

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Basics in finance for Nurse practitioners

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Finance presentation

  1. 1. Where 1+1 x risk xtime = 15<br />Introduction to Healthcare Finance<br />47<br />6<br />
  2. 2. The Basics of finance<br />Part 1<br />
  3. 3. When People hear Finance, they often think it means "keeping track of money”. <br />In fact, keeping track of money is divided up into two disciplines.<br />What does Finance mean?<br />
  4. 4. There is Accounting:<br />The discipline of figuring out where your money went<br />A history book<br />What you are doing when you ask yourself “where did all my money go?”<br />And Finance<br />The discipline of deciding where to spend the money<br />A shopping list is finance in its most basic form<br />Keeping Track of Money:<br />Of course it is not that simple<br />
  5. 5. Accounting <br />Example: the cost of a nurse practitioner providing care and documenting in the medical record; simplify this further by assuming the NP works for a private group (not the hospital)<br />What are theassociated costs?<br />Nurse Practitioner Time/Salary<br />Office Space for the NP<br />Computer for the NP<br />Office supplies<br />Lab coats<br />Continuing education<br />Physician Time/Salary<br />All the costs listed above<br />Coders<br />Billing/Collections<br />A perfect example of why<br /> “I bill my salary” <br />does not equal return on investment<br />Factoid 1: Reimbursement is divided up into 2 types, identified in Medicare as Type A andB<br /><ul><li>Type A includeshospital reimbursement, room charges, charges for most nursing services, facility fees, etc.
  6. 6. Type B includes fee-for-service charges such as physician fees and a hodgepodge of other services
  7. 7. Often, the services of NPs who are employed by hospitals are indirectly billed through Medicare Type A. NP services are bundled into a larger room cost.
  8. 8. NPs who do not work for hospitals typically bill under Medicare Type B, or fee for service</li></li></ul><li>Finance<br />Function: one of the major functions of finance is to decide between possible ways of spending money; we are looking at ways to maximize Return On Investment<br />There are basically 3 components that must be determined when calculating Return On Investment<br />Cash<br />Time: Money is worth more now than later<br />If I have a dollar now, I can invest it and have 1.05 in a year. So I would rather have a dollar now then in one year. It is therefore worth 0.05 more now than next year…<br />Risk: You expect more return with greater risk<br />If I put money in a risky venture, I hope that if it pays off, it pays big<br />Factoid 2: Cash is King<br /><ul><li>In the real world we measure Return On Investment in vague ways; for example, some people are willing to buy designer clothes because they value the materials/fit/status
  9. 9. In Finance, however, things are only measured in CASH value; we attempt to apply a cash value to all sorts of returns on investment</li></li></ul><li>Up Your Sleeve:What you have over Finance professionals<br />1) Estimations of cash value are just that: estimations<br />You can make a case by showing how your idea (e.g., hiring more NPs) has greater value, and being a clinician, they may believe you<br />
  10. 10. Finance<br />Discussion: Return On Investment<br />When looking at a project from a finance perspective, the goal is to get the greatest value (in cash terms) for the smallest investment<br />I would rather hire a NP that bills for 150k a year on a salary of 100k (rate of return 50%) than a hospitalist that bills 250k on a salary of 200k (rate of return 25%)<br />There are several tools that finance professionals use to help them choose an investment/project<br />
  11. 11. Finance<br />Discussion: Return on Investment<br />- Tools to help select an investment<br />All the tools use Cash Flow (money in vs. money out)<br />Payback Period<br />The simplest tool<br />The faster the money is paid back, the better?<br />Does not capture revenue after payback<br />Internal Rate of Return<br />Calculates the return of an investment<br />Similar to an interest rate<br />Does not incorporate risk<br />Net Present Value<br />Using the internal rate of return, compares an investment to investments with similar risk<br />
  12. 12. Finance<br />Example: Return on Investment<br />
  13. 13. Up Your Sleeve: What you have over Finance professionals<br />1) Estimations of cash value are just that: estimations<br />2) Return on Investment uses projected cash flows. Projected cash flows are often simply guesses<br />If you manipulate these projections you can manipulate Return On Investment; being a clinician, they may believe you<br />
  14. 14. Finance<br />Discussion: The Sad Truth of the Matter<br />The Agency Dilemma<br />Finance rules work IF the managers of a company are working for the betterment of the company AND they coincide with company strategy/mission/etc.<br />Many financial decisions are made to benefit the people making the decision <br />This is another way of saying that it is really all about politics and power<br />
  15. 15. Up Your Sleeve: What you have over Finance professionals<br />Estimations of cash value are just that: estimations <br />Return on Investment uses projected cash flows; they are often no better than guesses<br />Influence and connections in the clinical arena affect financial decisions<br />
  16. 16. Synopsis: Part 1<br />Finance is the discipline of deciding how to spend money<br />Finance primarily uses CASH, TIME, and RISK to judge an investment<br />It is based upon ESTIMATION<br />Politics and Power (the agency dilemma) have a large impact on financial decision<br />
  17. 17. How to make a financial Case<br />Part 2<br />
  18. 18. Making a financial case<br />Basic Rules<br />Keep it simple: include a ONE page summary<br />Start by framing the argument in terms of “investment” and “return”<br />Example: By investing in a second NP position we will be able to:<br />Reduce lost admissions ($$)<br />Shorten length of stay ($)<br />Improve staff satisfaction ($)<br />Discuss “value”<br />When possible, “project” changes in cash flow<br />
  19. 19. Making a financial case<br />Basic Rules, continued<br />When discussing cash flows, demonstrate return on investment: try using Internal Rate of Return and present an IRR greater than 5%<br />Make the case to more than one person<br />
  20. 20. Hospital-specific finance issues<br />Part 3<br />
  21. 21. Hospital-specific finance issues<br />Hospital-specific finance <br />About money in and money out, or revenue and expense<br />
  22. 22. Hospital-specific finance issues<br />Definitions<br />Revenue: <br />Comes from insurance providers using Medicare Part A regulations<br />In some states, hospitals must negotiate with each insurance company<br />In Maryland, the Health Services Cost Review Commission sets reimbursement rates<br />
  23. 23. Hospital-specific finance issues<br />HSCRC: What the hell?<br />As Maryland healthcare costs have been below national average, Medicare allowed a “waver” from individual negotiation with insurance companies and a waver from accepting standard Medicare reimbursement<br />Put simply, the state attempts to include the cost of people who don’t pay into the bill submitted to people who do pay<br />
  24. 24. Hospital-specific finance issues<br />HSCRC, continued<br />This happens everywhere, but in Maryland, it is regulated rather than allowing the market to work it out<br />Drawbacks<br />Economists would say that the market is more “efficient”<br />Benefits<br />Gives small hospitals more leverage with insurance companies as they do not need to negotiate payment<br />
  25. 25. Hospital-specific finance issues<br />HSCRC details<br />We get state mandated repayment unless:<br />Less than 24-hour stay<br />Very expensive bills are repaid at cost <br />
  26. 26. Hospital-specific finance issues<br />Costs<br />If repayment is fixed per case,the goal should be to reduce the cost per case<br />The cost of a patient stay is very complex<br />Includes bed costs, supplies, and labor<br />
  27. 27. Synopsis: Part 3<br />Hospitalrevenue is regulated by the Health Services Cost Review Commission<br />This has benefits and drawbacks<br />As revenue is fixed, we can impact hospital viability by making sure:<br />We have volume<br />We have acuity<br />We reduce costs<br />
  28. 28. QUESTIONS?<br />THE END<br />

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