Leasing Equipment Please respond to the followingSuggest one (1.docx

"Leasing Equipment" Please respond to the following:
Suggest one (1) key economic factor that motivates leasing as
an option in acquiring an asset. Explain the potential
asymmetries that may exist where leasing may be beneficial to
both the lessors and the lessee.
Determine one (1) significant benefit to an organization that
decides to lease an asset that conventional lease analysis
evaluation reveals has a negative Net Advantage to Leasing
(NAL). Provide a real-life scenario that supports your answer.
These are the scenarios that go with the discussion
HSA525 Week 9 Script: Understanding Investment Terms
Slide #
Scene/Interaction
Narration
Slide 1
Scene 1:
Professor Quan uses projector
HSA525_9_1_1_ProfQuan-1:
Greetings….welcome to our lecture on Investment Terms.
During this lecture, we will explore investment terminology and
related meanings for cash equivalents, long-term investments in
bonds, investments in stocks, and company ownership in the
context of investing. The healthcare industry is rapidly evolving
and without critical capital investment, many healthcare
organizations will find significant challenges with respect to
fully executing the organization’s strategic objectives.
Consequently, the need for effective, sound investment
decisions are more critical than ever.
HSA525_9_1_1_Sophia-1:
From an accounting standpoint….how are investments recorded?

Investments should be recorded as either current assets or long-
term assets on the balance sheet. Just to reiterate….current
assets are cash, cash equivalents, and short term securities. In
other words,
current assets include cash, accounts receivable, inventory,
marketable securities, prepaid expenses and other liquid assets
that can be readily converted to cash.
Current assets are very important to the organization because
they are the assets that are used to support the daily operations
and they also fund ongoing expenses. If there is a deficiency in
current assets, the organization will have to consider other
sources of short-term funding, either by taking on debt or
issuing additional stock. Neither would be ideal as additional
debt will result in interest payments and issuing additional
stock will result in a dilution of shareholder value.
HSA525_9_1_1_Tyler-1:
I can certainly appreciate what you have stated in terms of
neither being a good alternative. Can you explain marketable
securities?
Absolutely….. Marketable securities are liquid securities that
can quickly be converted to cash and at a reasonable price.
Marketable securities have durations of less than one year, have
high trading volumes and sustain very little price fluctuations.
Professor, can you provide examples of what would be

considered marketable securities?
Yes, marketable securities include
stocks, bonds,
short-term commercial paper and certificates of deposit. They
are cash equivalents often referred to as near cash.
HSA525_9_1_1_Lauren-1:
What are some reasons a healthcare organization may hold cash
and marketable securities?
Healthcare organizations hold marketable securities for three
reasons: First, to earn a higher rate of return than cash can earn.
Second, they are very liquid and can be converted cheaply into
cash, and third, they are passive investments that consume little
amounts of management’s attention.
Marketable securities play a role in deciding what securities to
buy and sell.
Marketable securities provide investors with the liquidity of
cash and the ability to earn a return when the assets are not
being used.
Slide 2
Check Your Understanding:
Investments are recorded as:
A. Liabilities on the balance sheet
B. Current Assets on the balance sheet
C. They are not recorded on financial statements
•

Incorrect…They are recorded as current assets on the balance
sheet.
•
Correct….Investments are recorded as current assets on the
balance sheet.
•
Incorrect…They are recorded on the balance sheet as current
assets.
Slide 3
Scene 2:
Professor Quan uses projector
There are basically two methods of long-term financing: debt
financing and equity financing.
In debt financing, interest payments made to bondholders arean
expense that reduces taxable income. In equity financing, on the
other hand, dividend payments are made from after tax net
income and retained earnings. A bond is a long-term debt
instrument under which a borrower agrees to make payment of
interest and principal on particular dates to the holder of the
bond. Because they are long term contracts….bonds typically
mature in twenty to thirty years…generally speaking. As part of
a portfolio, bonds provide both stability and income to the
healthcare organization.
There are four main types of bonds namely: treasury, corporate,
municipal, and foreign.

Each type differs with respect to expected return and degree of
risk.
HSA525_9_1_2_Tyler-1:
Can you explain each type?
Yes….
Treasury bonds
are issued by the Federal government and are not exposed to
default risk. Treasury bonds are sometimes called government
bonds.
They pay a fixed rate of interest every six months until
maturity.
Corporate bonds
are issued by corporations and are exposed to default risk.
Different corporate bonds have different levels of default risk,
depending on the issuing company’s characteristics and on the
terms of the specific bond. Also, c
orporate bonds offer a higher
yield
compared to some other investments, but for a price. Most
corporate bonds are
debentures
, meaning they are not secured by collateral.
Municipal bonds
are issued by state and local governments.

The interest earned on most municipal bonds is exempt from
federal taxes and state taxes if the holder is a resident of the
issuing state. They are available in two kinds: general
obligation bonds and revenue bonds.
Finally,
Foreign bonds
are issued by foreign governments or foreign corporations.
These bonds are not only exposed to default risk, but are also
exposed to an additional risk if the bonds are denominated in a
currency other than that of the investor’s home currency.
Foreign
bonds are regulated by the domestic market authorities and are
usually given nicknames that refer to the domestic market in
which they are being offered.
What determines bond prices?
Bond prices are determined by several factors…including the
current market interest rates. Bond prices will generally
increase when interest rates drop and decrease when interest
rates rise. In addition, bond prices are sensitive to
inflation…high inflation will tend to devalue bonds. Another
common factor is political uncertainty.
Organizations may not invest when the government seems
unstable. Yes, even political elections affect bond prices.

Finally, liquidity affects prices of bonds… the ease and cost of
trading a particular bond will affect the price.
Can you explain how political elections may affect bond prices?
Investors react favorably to policies that are seen as being
fiscally favorable. The prospect of lower spending, and in some
cases higher taxes, can be very favorable for the bond market.
Therefore, the perception of the political party’s financial
policies plays a key role in how the bond market reacts to
elections.
Slide 4
Scene 3:
Professor Quan uses chalkboard.
Municipal bonds
are typically used to finance capital projects. Municipal bonds
include general obligation and revenue bonds. To re-emphasize,
general obligation bonds are issued under the pretext that a
municipality will be able to repay its debt obligation through
taxation or revenue from projects. No assets are used as
collateral.
Revenue bonds
are backed or secured by revenues of their particular project.
Mortgage bonds
are another form of municipal bonds.
The mortgage bond is backed by certain real estate properties.

Would you say that a revenue bond carries significant risk?
Yes, for instance, a hospital revenue bond used to construct a
hospital is considered risky because the bond is secured by the
revenue the hospital receives from its operations. Remember,
hospitals tend to carry a significant amount of bad debt as a
result of uninsured or underinsured patients. Other factors that
challenge hospitals include shrinking reimbursement and
changes to pay structure from payers such as Medicare.
HSA525_9_1_3_Tyler-1:
Would you say that a mortgage bond is less risky than revenue
bonds?
Yes….I would agree…mortgage bonds are secured with real
property, making the bond less risky than the revenue bond.
Professor, you have described the revenue bond as risky….how
might it compare to debentures?
Well, remember that a
debenture

is an unsecured bond.
Bond buyers generally purchase debentures based on the belief
that the bond issuer is unlikely to default on the repayment.
Debentures are secured only by the general creditworthiness and
reputation of the bond issuer.
Is the debenture often used to secure capital?
As a matter of fact, they are….consider the government issued
T-Bills…these are considered pretty safe as the government has
options to pay the debts…such as raising taxes.
Slide 5
Scene 4:
Professor Quan uses projector.
Stocks are
a type of security that signifies ownership in an
organization and represents a claim on part of the organization's
assets and earnings. Stocks differ from bonds as stocks
represent equity, or net worth in a company. Generally, a
bondholder is a creditor, because bonds are liabilities to the
issuing company. Two types of stocks are common and
preferred stock. Common stockholders have voting rights at
stockholder meetings. Common stockholders are also entitled to
stockholder dividends. Preferred stockholders generally have no
voting rights; but, retain higher claims to assets and earnings.

You stated that the preferred stockholder has the advantage of
higher claims to assets and earnings. Does this advantage hold
true if the organization becomes bankrupt and has to liquidate?
Preferred stockholders automatically receive a fixed dividend
with their stock ownership. If a business goes bankrupt and has
to liquidate its assets, it will pay off its creditors, bondholders,
preferred shareholders … and only after all of stakeholders have
received funds will common shareholders get their ownership
stake.
HSA525_9_1_4_Tyler-1:
The fixed dividend received by the preferred stockholder seems
to be very beneficial as the preferred stockholder will have the
knowledge of what to expect in terms of payout. Is this the case
for the common stockholder as well?
Not necessarily….Before dividends are distributed…the board
of directors will have to declare a dividend. The organization’s
board of directors will determine when dividends are paid to
common stockholders. The board of directors will also decide
the method of payment…whether cash dividends or additional
stock.

How are dividends reported on the income statement?
Dividends on common stock are not reported on the income
statement because they are not considered expenses. However,
dividends on preferred stock are deducted from net income in
order to report the earnings available for common stock on the
income statement.
Slide 6
Characteristics of Preferred Stockholders are:
A. They have the right to vote on corporate issues such as board
elections and corporate policy.
B. The dividends paid generally fluctuate.
C. They have a greater claim to the company’s assets.
•
Incorrect…common stockholder’s have voting rights; preferred
stockholders do not
•
Incorrect…the dividends paid to preferred stockholders are
fixed
•
Correct….Stockholders do have a greater claim to the
company’s assets.
Slide 7
Scene 5:

Summary
Today’s lecture included a discussion on key terms in investing.
Healthcare organizations invest in order to remain competitively
viable. Analyzing the political and economic climates is
essential for the current healthcare organizations and should be
a key consideration for all investment decisions. Major
investments must be based on clearly defined strategies, due
diligence and investment decisions approved in the context of
corporate governance. Are there any questions?
HSA525_9_1_5_Tyler-1:
Professor, how can healthcare organizations be assured that
their investments have paid off?
First, investments must be based on a clearly formulated
strategy and a predefined, required return on investment.
Transparency is key. Data from previous investments must be
available and reviewed in order to determine the success of
current and future investment decisions. It is important to note
that prior investment decisions should not be considered as the
determining factor for current decisions, but may be used as a
means of establishing reasonable expectations. Analysis of
investment decisions should include a structured evaluation and
discussion of investment performance on a periodic basis. Such
analysis should include a quantification of whether returns are
meeting targeted goals. A willingness to make modifications to
investment policies is also important in ensuring that the
organization’s investments pay off.
Are there any other questions?

No questions….
…Not at this time…
Thanks for another great class…..this concludes our lecture…I
will see you all next time…
HSA525 Week 10 Lecture 1 Script: Business Loans and
Financing Costs
Slide #
Scene/Interaction
Narration
Slide 1
Scene 1
Professor Quan uses chalkboard.
Hello everyone….welcome to our lecture on business loans and
financing costs. Business loans represent debts incurred to
assist in running a business. Healthcare managers must consider
whether to take on debt and how much debt should be taken
on….these are two very common and necessary components of
financial planning.
Rising healthcare costs, lower reimbursement rates, and higher
levels of charitable care and bad debt, are creating challenges
with respect to the financing options for the healthcare
organization. The healthcare organization’s traditional sources

of capital include borrowing from lending institutions,
borrowing from investors, retaining the excess of revenues over
expenses and selling an additional interest in the organization.
Healthcare organizations require significant financial resources
in order to remain competitively viable. Investments in new
facilities and technologies can place an enormous financial
strain on today’s healthcare organizations.
HSA525_10_1_1_Lauren-1:
Professor, would you say that the challenge of securing finance
is similar for both the for-profit and the non-profit healthcare
organization?
Yes….both the non-profit as well as the for-profit healthcare
organization faces significant challenges in securing appropriate
financing. Non-profit healthcare organizations generally access
the tax-exempt debt market to generate new capital and
refinance existing debt, while for-profit healthcare
organizations pursue financing through public and private
equity and debt financing transactions.
HSA525_10_1_1_Sophia-1:
You mentioned the practice of borrowing from
investors…..would this type of borrowing commonly include the
selling of bonds?
That is correct….bonds represent the company’s promise to pay
at a future date. It’s similar to an I-O-U. A bond is a loan
between the borrower or issuer, and the lender or investor
.

HSA525_10_1_1_Tyler-1:
Why would a healthcare organization choose to issue a bond as
opposed to securing bank financing?
Some organizations choose to issue bonds rather than borrow
from banks because the bond process is perceived as less
prohibitive, and is generally considered a cheaper option than
the traditional bank loan.
HSA525_10_1_1_Tyler-2:
Can you explain why issuing bonds are considered less
prohibitive?
Bank loans often are accompanied by bank covenants;
rules….which tend to limit the borrower’s spending flexibility.
Slide 2
Scene 2:
Financing costs generally involves interest rates and loan costs.
Interest rates represent the prices paid to borrow funds.
Simply put…an interest rate is the price of money. Loan costs
may include the expenses necessary to close the loan, or closing
costs.
HSA525_10_1_2_Tyler-1:
How do interest rates affect bond prices?
It is actually an inverse relationship…when interest rates rise,

bond prices fall…when interest rates drop, bond prices tend to
rise.
HSA525_10_1_2_Sophia-1:
I understand that there is usually an interest on loans, but….I
am not sure of bonds. Is there an interest on bonds?
Consider that bonds are generally what we call an interest-only
loan. This simply means that the borrower pays the interest
every period, but none of the principal is repaid until the end of
the loan. As you can see, there is an interest associated with
bonds. There are bonds that do not pay interest during the life
of the security….these bonds are referred to as zero coupon
bonds. The interest on a zero coupon bond is paid in one lump
sum at maturity.
HSA525_10_1_2_Tyler-2:
What would be the advantage of a zero coupon?
The advantage to the issuer is the delay of interest payments.
HSA525_10_1_2_Lauren-1:
In your view, what types of bond would you say carries higher
interest rate risks?
The amount of interest risk that a bond has really depends on
how sensitive its price is to interest rate changes. This
sensitivity directly depends on two things: the time to maturity
and the coupon rate. So, there are really two main factors to
consider….the time to maturity and the coupon rate. Long term

bonds are subjected to more volatility.
HSA525_10_1_2_Sophia-2:
Can you explain what is meant by the coupon rate?
Certainly…..the coupon rate is the interest rate on a bond at the
time of issuance. You may also hear it referred to as the yield
rate. This is the rate that the issuer promises to pay during the
terms of the loan.
Slide 3
Scene 3:
The interest rate is the fee for using money, expressed in annual
percentage terms. The interest rate is determined by the supply
and demand for money. The demand for money is created by
organizations seeking funds. The supply of money comes from
those with a surplus of funds. The nominal interest rate is the
interest rate reported at the time that the loan is made. This rate
does not account for the effects of inflation. The real interest
rate, on the other hand, is not usually reported when a loan is
made. This rate takes into account the effects of inflation on the
purchasing power of money repaid from a loan.
HSA525_10_1_3_Lauren-1:
What decisions can the healthcare manager make as a result of
knowing the real interest rate?
Knowing the real interest rate can give the manager a more
realistic idea of the total value of the investment over time.
Real interest rates can also shed light on the realistic cost of a
loan over the repayment term. Real interest rates can help the

healthcare manager to decide whether it is in the organization’s
best interest to repay a loan early or to sell a bond rather than
holding it to maturity.
HSA525_10_1_3_Tyler-1:
Is there a specific relationship between the real interest rate and
the nominal interest rate?
Yes, the real interest rate is basically the nominal interest rate
minus the inflation rate. Since the inflation rate over the course
of a loan is not known initially, volatility in inflation represents
a risk to both the lender and the borrower. Two other very
important interest concepts are simple interest and compounding
interest.
The simple interest is interest paid on the original principal
only…while compounding interest is the interest earned not
only on the original principal, but also on all interests earned
previously.
HSA525_10_1_3_Sophia-1:
So, essentially….compound interest is interest paid on interest.
Exactly….. compound interest refers to the idea that when
interest is earned on an investment, that interest is rolled back
into the investment and starts to build on itself. For
example…suppose the organization has fifty thousand dollars in
an interest bearing account that earns five percent each year,
compounded annually. At the end of the year, the organization
earns twenty five hundred dollars and that is put back into the
account. The next year, the organization is earning five percent
on the new balance of fifty two thousand-five hundred dollars.
Note that the earning has increased although no action was

taken besides leaving the funds in place. That is considered the
power of compound interest.
Slide 4
The relationship between nominal and real interest rates is:
A. The real interest rate is the nominal interest rate minus the
inflation rate.
B. The real interest rate is the nominal interest rate plus the
inflation rate.
C. There is no relationship between nominal and real interest
rate.
•
Correct! The relationship between the nominal and real interest
rates is that the real interest rate i s the nominal interest rate
mine the inflation rate.
•
Incorrect….the real interest rate is the nominal interest rate less
the inflation rate.
•
Incorrect….the real interest rate is the nominal interest rate less
the inflation rate
Slide 5
Scene 4:
Summary
During today’s lecture, we discussed financing and some of the
financial tools used to secure funding for capital for the
healthcare organization. Access to capital is critical to keep

facilities current, add major information technology systems
and strengthen quality initiatives. Healthcare organizations are
experiencing unprecedented challenges in terms of raising the
funds necessary to achieve its goals. We have concluded today’s
lecture….are there any questions?
HSA525_10_1_4_Tyler-1:
Yes, professor….can you explain amortization?
Yes….amortization refers to the gradual process of paying off
debt through a series of equal periodic payments. We often hear
the terms amortization and depreciation used interchangeably;
however, the concepts are different. Amortization refers
specifically to intangible assets, while….depreciation refers to
tangible assets.
Are there any other questions?
HSA525_10_1_4_Sophia-1:
No questions….thanks
HSA525_10_1_4_Lauren-1:
No questions……
If there are no further questions, we will adjourn at this time. I
look forward to our next lecture where we will discuss purchase
versus leasing decisions…….
HSA525 Week 10, Lecture 2 Script: Owning Versus Leasing

Equipment
Slide #
Scene/Interaction
Narration
Slide 1
Scene 1:
Hello Everyone…..welcome to today’s lecture. We will discuss
the all-important financial decision of owning versus leasing.
When comparing an asset lease versus an asset purchase, the
financial manager must assess the needs of the organization and
make prudent financial decisions. Healthcare organizations have
significant needs for assets, but generally have limited
resources available for which to acquire the necessary assets.
As such, financial managers must consider the best way to
allocate resources effectively and efficiently.
HSA525_10_2_1_Sophia-1:
I think that the purchase
versus lease
decision is more complex today than ever before.
I think that is an interesting perspective….can you provide
insights into why you think the decision is more complex now?
HSA525_10_2_1_Sophia-2:
I believe that the advances we see in technology and the rate at
which technology becomes obsolete has to be a primary concern
for healthcare organizations.

That is a great point…..keeping pace with the emerging
technologies and the costs of acquiring new technologies does
complicate the purchase versus leasing decisions quite
significantly.
HSA525_10_2_1_Tyler-1:
Wouldn’t those issues favor leasing over purchasing?
Making the lease versus purchase decision requires
consideration of many factors….including protection against
obsolescence. While it is true that healthcare financial managers
often view leasing as a hedge against obsolescence, it would be
a mistake to consider leasing based solely on this notion. The
financial manager must consider the financial risk as well as the
productive life of an asset associated with that asset’s
acquisition.
An important factor to be considered is the type of lease…It
could be a capital lease which is often referred to as a finance
lease, or it could be an operating lease.
HSA525_10_2_1_Lauren-1:
Professor, how does a capital lease differ from an operating
lease?
Capital leases and operating leases are each used for different
purposes and are also treated differently on the organization’s
financial statements. The primary difference between capital
leases and operating leases is that capital leases transfer
ownership of leased assets while operating leases only transfers
the right of use as opposed to ownership.

Scene 2:
Professor Quan uses the chalkboard.
Let’s take a closer look at the capital lease. A lease is
considered a capital lease if the life of the lease is seventy five
percent or greater than the assets useful life; the lease contains
a purchase agreement for less than market value; the lessee
gains ownership at the end of the lease period; or if the present
value of lease payments is greater than ninety percent of the
asset’s market value.
If the lease is classified as a capital lease, an asset and
corresponding liability are recognized on the balance sheet
based upon the present value of the minimum lease payments…
the lessee depreciates the asset, and lease payments are
apportioned between interest expense and a reduction of the
lease liability.
HSA525_10_2_2_Sophia-1:
You stated that the capital lease is recorded on the balance
sheet…can you explain what the entry would reflect? How
specifically does a capital lease appear on the company’s
balance sheet?
A capital lease is recorded on the balance sheet as both an asset
and a liability.
As payments are made against the lease, they are recorded as a
reduction to the lease liability.
HSA525_10_2_2_Lauren-1:
How is depreciation recognized under capital leases on the

financial statement?
The leased asset incurs a depreciation expense on the income
statement which is tax deductible, just as any acquired asset
would.
HSA525_10_2_2_Tyler-1:
If the asset is leased, how is it that the organization can report
the depreciation?
Keep in mind that under capital leases, the lessee is essentially
treated as the owner… Because the lessee is treated as the
owner, the lessee can claim depreciation on the asset each year.
Consider the lease as a sale….the commitment to the lessor is a
debt and therefore, should be treated as any other debt. The
asset gets depreciated just as if it were purchased.
Slide 3
Scene 3:
Professor Quan uses the chalkboard.
If the lease does not meet the criteria for classification as a
capital lease, then it shall be classified as an operating lease.
The operating lease keeps the equipment cost off the balance
sheet, improving critical financial ratios.
HSA525_10_2_3_Lauren-1:
How does this affect the way that the company is viewed by
investors and possibly outside analysts?

Since operating leases are not represented on the balance sheet,
the financial obligations they represent may go undetected by
investors and analysts. This can make the organization appear
stronger in terms of its financial ratios, particularly the debt to
equity ratio.
HSA525_10_2_3_Tyler-1:
Professor, can an operating lease have a buyout price?
No….According to accounting rules, an operating lease cannot
have a specific buyout amount. If such an amount is stated, then
the lease would automatically be classified as a capital lease.
HSA525_10_2_3_Sophia-1:
You indicated that the lessee is able to claim depreciation,
which is an advantage for capital leases. What are some
advantages to the healthcare organization in terms of
operational leases?
Lease payments are operational expenses, so they are fully tax
deductible and the operating lease provides improved Return On
Asset or ROA without capital budgeting restraints.
Slide 4
Each of the following statements is true EXCEPT:
A. A capital lease is a contract to purchase.
B. An operating lease is recorded on the balance sheet as both
an asset and a liability.
C. Operating lease payments are operational expenses, so they
are fully tax deductible.
•

Incorrect.
This statement is true.
•
Correct!
A capital lease is recorded on the balance sheet as both an asset
and a liability. The operating lease is not reflected on the
balance sheet.
•
Incorrect.
This statement is true.
Slide 5
Scene 4:
Professor Quan uses the projector.

NAL = Present Value of Purchasing – Present Value of Leasing
Lease versus purchase decisions are made after the decision to
acquire the equipment; therefore, the lease versus purchase
decision is in fact a financing decision. The decision to
purchase has some advantages, which include adding assets to
the business, tax depreciation benefits, and the outright
ownership of the asset.
Leasing also has its advantages. Leasing can provide the
organization with more flexibility and financial protection from
risks associated with changes in technology. In addition, leasing
allows the organization to maintain its cash since very little, if
any, upfront cash is required. Moreover, the lease contract
contains fewer covenants or restrictions than a lender’s contract
if the organization decides to borrow funds to purchase assets.
Acquiring assets for the healthcare organization involves a
decision making process that must take into account the factors
that support the organization’s short and long term goals. The
financial manager should carefully weigh the advantages and
disadvantages of the option to purchase as well as the option to
lease assets.

Looks like we are just about out of time.
Let’s go over what we covered.
Today’s lecture focused on the various aspects of leasing,
including the tax advantages and the financial reporting of
acquired assets. We learned that choosing between owning and
leasing equipment is a very important and challenging decision
that a manager must make.
Are there any questions?
HSA525_10_2_4_Lauren-1:
What is a typical analysis that a financial manager may use to
make such a determination…whether to purchase or lease an
asset?
Net advantage to leasing or NAL is a standard financial analysis
used to determine if it is financially better to lease something
rather than borrowing money to purchase the asset. The result of
the financial analysis is the amount of money an organization
will save or lose if the organization leases as opposed to
purchasing an asset. In general, organizations will choose to
lease rather than purchase if the net advantage to leasing is
positive.
The formula used is
NAL equals Present Value of Purchasing minus Present Value
of Leasing
.
As you see, the healthcare financial manager must make

important financial decisions that have significant implications
for the healthcare organizations. Historically, the purpose of
finance has been to borrow and invest the funds needed to
enable the organization to meet its goals. Today, the purpose
has expanded and now includes the need for the healthcare
financial manager to analyze the data provided by managerial
accounting to evaluate past decisions in order to make sound
decisions regarding future needs of the organization. The
financial data gathered by the healthcare financial manager is
used to facilitate the process of generating income, responding
to regulatory pressures, balance and maintain relationships with
third party payers and meet the challenges of the external
environment in which the healthcare organization operates.
Another very important aspect of healthcare finance is to
evaluate the sources of healthcare revenue.
Primarily, healthcare organizations are paid by governmental
Medicare and Medicaid programs, commercial insurance,
including managed care organizations, and directly by the
patient.
Revenues from governmental payers, such as Medicare and
Medicaid, are controlled by complex rules and regulations that
control reimbursement rates. Compliance with these rules and
regulations is essential for the organization’s ability to maintain
this important source of revenue. In addition, these rules and
regulations are subject to frequent changes as a result of
legislative and administrative action on both the federal and the
state levels. For these reasons, revenues from governmental
programs change frequently and require regular monitoring by
the healthcare organization.
Revenues from managed care organizations and other private

insurers are subject to contracts and various arrangements that
often require discounting customary charge for healthcare
services. These discounted arrangements can limit the
organization’s ability to increase charges in response to
increasing costs. Therefore, active negotiations with these
payers are necessary to maintain or increase the pricing of
healthcare services relative to costs.
An additional source of revenue is the self-pay patient. This
source is particularly challenging as self-pay patients often
include those that are either uninsured or underinsured.
Healthcare finance will continue to evolve as organizations seek
to improve its revenue cycle management process. As the
healthcare environment changes, healthcare managers must be
competent and capable of creating policies that can be adjusted
and are adaptive to such changes. The revenue management
process is, and will likely forever be the lifeblood of the
healthcare organization.
This concludes our lecture….
: Are there any other questions?
HSA525_10_2_4_Lauren-2:
No ….thanks Professor
HSA525_10_2_4_Tyler-1:
I have no further questions….
HSA525_10_2_4_Sophia-1:

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