Basics in finance for Nurse practitioners

1. Where 1+1 x risk xtime = 15 Introduction to Healthcare Finance 47 6

2. The Basics of finance Part 1

3. When People hear Finance, they often think it means "keeping track of money”. In fact, keeping track of money is divided up into two disciplines. What does Finance mean?

4. There is Accounting: The discipline of figuring out where your money went A history book What you are doing when you ask yourself “where did all my money go?” And Finance The discipline of deciding where to spend the money A shopping list is finance in its most basic form Keeping Track of Money: Of course it is not that simple

6. Type B includes fee-for-service charges such as physician fees and a hodgepodge of other services

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.

10. Finance Discussion: Return On Investment When looking at a project from a finance perspective, the goal is to get the greatest value (in cash terms) for the smallest investment 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%) There are several tools that finance professionals use to help them choose an investment/project

11. Finance Discussion: Return on Investment - Tools to help select an investment All the tools use Cash Flow (money in vs. money out) Payback Period The simplest tool The faster the money is paid back, the better? Does not capture revenue after payback Internal Rate of Return Calculates the return of an investment Similar to an interest rate Does not incorporate risk Net Present Value Using the internal rate of return, compares an investment to investments with similar risk

12. Finance Example: Return on Investment

13. Up Your Sleeve: What you have over Finance professionals 1) Estimations of cash value are just that: estimations 2) Return on Investment uses projected cash flows. Projected cash flows are often simply guesses If you manipulate these projections you can manipulate Return On Investment; being a clinician, they may believe you

14. Finance Discussion: The Sad Truth of the Matter The Agency Dilemma 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. Many financial decisions are made to benefit the people making the decision This is another way of saying that it is really all about politics and power

15. Up Your Sleeve: What you have over Finance professionals Estimations of cash value are just that: estimations Return on Investment uses projected cash flows; they are often no better than guesses Influence and connections in the clinical arena affect financial decisions

16. Synopsis: Part 1 Finance is the discipline of deciding how to spend money Finance primarily uses CASH, TIME, and RISK to judge an investment It is based upon ESTIMATION Politics and Power (the agency dilemma) have a large impact on financial decision

17. How to make a financial Case Part 2

18. Making a financial case Basic Rules Keep it simple: include a ONE page summary Start by framing the argument in terms of “investment” and “return” Example: By investing in a second NP position we will be able to: Reduce lost admissions ($$) Shorten length of stay ($) Improve staff satisfaction ($) Discuss “value” When possible, “project” changes in cash flow

19. Making a financial case Basic Rules, continued When discussing cash flows, demonstrate return on investment: try using Internal Rate of Return and present an IRR greater than 5% Make the case to more than one person

20. Hospital-specific finance issues Part 3

21. Hospital-specific finance issues Hospital-specific finance About money in and money out, or revenue and expense

22. Hospital-specific finance issues Definitions Revenue: Comes from insurance providers using Medicare Part A regulations In some states, hospitals must negotiate with each insurance company In Maryland, the Health Services Cost Review Commission sets reimbursement rates

23. Hospital-specific finance issues HSCRC: What the hell? 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 Put simply, the state attempts to include the cost of people who don’t pay into the bill submitted to people who do pay

24. Hospital-specific finance issues HSCRC, continued This happens everywhere, but in Maryland, it is regulated rather than allowing the market to work it out Drawbacks Economists would say that the market is more “efficient” Benefits Gives small hospitals more leverage with insurance companies as they do not need to negotiate payment

25. Hospital-specific finance issues HSCRC details We get state mandated repayment unless: Less than 24-hour stay Very expensive bills are repaid at cost

26. Hospital-specific finance issues Costs If repayment is fixed per case,the goal should be to reduce the cost per case The cost of a patient stay is very complex Includes bed costs, supplies, and labor

27. Synopsis: Part 3 Hospitalrevenue is regulated by the Health Services Cost Review Commission This has benefits and drawbacks As revenue is fixed, we can impact hospital viability by making sure: We have volume We have acuity We reduce costs

28. QUESTIONS? THE END