Exam #1 - Healthcare Budget & Finance

What is the application of financial management principles to health services organizations to ensure financial sustainability while supporting access, quality, and efficiency care?

healthcare finance

What are the 4 key characteristics of a business?

• provides goods or services

• seeks financial sustainability

• uses resources efficiently

• operates within a competitive and regulated environment

What is the difference between accounting and financial management?

• accounting focuses on recording and reporting past financial data

• financial management focuses on decision-making and future financial planning

What are the 4 C’s of financial management?

• cost

• cash

• capital

• control

What are the 5 main divisions within a healthcare finance department?

• CFO

• controllers

• budgeting staff

• billing and reimbursement staff

• financial analysts

Who are the 7 major players in the health services sector?

• providers

• insurers

• patients

• employers

• government agencies

• suppliers

• regulators

What are the 4 main forms of business organization and ownership in healthcare?

• proprietorship

• partnership

• corporation

• nonprofit/not-for-profit

What are the organizational goals of nonprofit vs for-profit healthcare organizations?

• Nonprofits focus on mission fulfillment and financial break-even

• For-profits aim to maximize share holder wealth

What emphasizes access, quality, cost control, value-based care, and payment reform to increase accountability and efficiency?

healthcare reform

What is the basic concept of insurance?

To pool risk among many individuals to protect against large unpredictable financial losses

What occurs when individuals with higher health risks are more likely to purchase insurance rather than healthier individual?

adverse selection

What occurs when insured individuals consume more healthcare services because they do not bear the full cost?

moral hazard

In what system do insurers pay providers on behalf of patients?

third-party payer system

What are the 5 general types of payment methods?

• Fee-for-service

• prospective payment

• cost-based

• DRG

• capitation

How does fee-for-service affect provider incentives and risk?

rewards volume and shifts risk to payers

How does prospective payment, bundled payments, and capitation affect provider incentives and risk?

They reward efficiency and shift risk to providers

What aims to control costs, manage utilization, and improve quality?

managed care plans

How has healthcare reform affected insurance and reimbursement?

Increased the number of insured individuals but later policy changes increased the uninsured numbers by 14.2 million

What links clinical services to reimbursement and ensures accurate payment from third-party payers?

medical coding

What are the main types of medical coding system?

• ICD codes for diagnoses

• CPT/HCPCS codes for procedures and services

What is OBBBA?

Omnibus Budget Reconciliation Act that introduced Medicare payment reforms

What recent Medicaid changes affect coverage?

Reenrollment requirements and work requirements

What 4 financial statements make up financial reporting?

• income statement

• balance sheet

• statement of cash flows

• statement of changes in equity (net assets)

What are the 5 account types used in financial accounting?

• assets

• liabilities

• equity (net assets)

• revenues

• expenses

What is the expense matching principle?

expenses should be matched with the revenues they help generate

What is depreciation?

non-cash expense that allocates the cost of an asset over its useful life

How is net income calculated?

Revenues - Expenses = Net Income

Why are financial statements important to managers and outsiders?

• Managers use them for decision-making and planning

• Outsiders use them to assess financial performance, risk, and stability

What is the standard-setting process for financial accounting?

Financial information is prepared according to GAAP to ensure consistency, comparability, and reliability

What 4 principles underlie financial accounting?

• Consistency

• objectivity

• matching revenues with expenses

• conservatism

What are the 3 main components of the income statement?

• revenues

• expenses

• profitability

What is the difference between operating income and net income?

• Operating income reflects core operations

• Net income includes non-operating gains and losses

What is the difference between net income and cash flow?

• Net income is accounting-based

• Cash flow reflects actual cash received and spent

What is the purpose of the statement of changes in equity?

it shows how equity or net assets change over time due to income, losses, and contributions

What shows a snapshot of the organization’s financial position at a single point in time?

balance sheet

What 3 things are included on the balance sheet?

• assets

• liabilities

• equity

What is the balance sheet equation?

Assets = Liabilities + Equity

What are resources owned by the organization?

assets

What are obligations owned to creditors?

liabilities

What is the difference between current and long-term liabilities?

current liabilities are due within one year

What are the 3 cost flow sections?

• operating

• investing

• financing activities

What is the purpose of the statement of cash flows?

to show actual cash inflows and outflows

How does cash flow statement differ from income statement?

cash flows focuses on cash not profitability

What does the debt ratio measure?

the proportion of assets financed by debt

How are the balance sheet, income statement, and statement of changes in equity related?

Net income from the income statement flows into equity on the balance sheet through the statement of changes in equity

What is the purpose of the statement of cash flows?

It explains changes in cash and assesses liquidity

What are the 3 sections of the statement of cash flows?

• operating

• investing

• financing activities

How does the statement of cash flows differ from the income statement?

The income statement measures profitability while the cash flow statement measures liquidity