Financial Information and the Decision Making Process

Decision Making

Selection of course of action from list of feasible actions  

Action and inaction policy decsions 

Quality of data important as well

Data should be

accurate, timely, relevant

Financial Condition

1. Viability capacity to pursue its stated goals at consistent activity levels 

2. Solvency - ability of individual org to meet long term financial obligations and continue operations for future; more assets than liabilities 

3. Consider Short Run versus Long- Run Effects

Stewardship

1. Accounting and Financial Information Systems 

2. Prevent the loss of assets or resources 

3. More featured in mission statements, values, direcational strategies

Efficiency of Operations

1. Ratio of outputs to inputs, not the quality of outputs ( good or bad)

2. Maximizing outcome with least resources 

3. Examples: Physician Compensation Per Worked Relative Value Unit or Nursing Hours per patients

Effectiveness of Operations

1. Attainment of objectives through production of outputs not relationship of outputs to cost 

2. More difficult to measure bc objectives or not state quantitatively 

3. Changing with Net Operation Incoming or Earnings Before Interest Depreciation and Amortization are being priortized in HCO goals 

4. Less emphasis on effectiveness and more on efficiency 

5. Value based care initiatives such as reimbursement tied to outcomes: Readmissions, return to emergency department, over utilized of ED, underutilization of primary care could focus on effectiveness

Compliance of Operations

1. Budget - best ex of internal directions: an agreement between two management levels regarding use of resources 

2. Clear plan on what can be accomplished 

3. Long range financial plan 

4. Extenral parties can impose directives Ex: Rate setting or set limits on rates determined within an organization 

5. Hospitals required to provide pricing info to public on annual basis or face penalties

Controllership

• Controlling Money 

• Planning for control

• Reporting and interpreting 

• Evaluating and Consulting 

• Administrative Taxes 

• Reporting to Governments 

• Protecting Assets 

• Appraising Economic Health

Treasurership

• Providing Money 

• Maintaining investor relations 

• Providing Short Term Finance 

• Providing Banking and Custody 

• Overseeing Credits and Collections 

• Choosing Investments 

• Providing Insurance

HCOs

• Not for profit 

• For Profit 

  • Investor Owned 

  • Professional Corporations 

  • Sole Proprietorships 

  • Limited Partnerships

  • Limited Liability Partnerships/Limited Liability Companies

• Governmental Healthcare Organizations 

Not for Profits 

• Exempt from federal income taxes and property taxes

• Can be funded by tax-exempt debt, grants, donations, and investments by other non profits 

• Primary Advantage is tax advantage 

• Expected to provide community benefit ( more uncompensated care, setting lower prices, services that may not be viable) 

• 58% of hospitals are not for profit

For Profit Hospital

• Goal to earn profits that are distributed to investors and have long term benefits to owners 

• 24% of hospitals are 

• Strike balance between health servicces and financial return 

• Publicly traded firms - sell stocks on open market

Investor Owned Firms

Owned by risk based equity investors who expect the managers of the corporation to maximize shareholder wealth 

Can raise capital with risk based equity capital 

Limited liability but earnings taxed at corporate and shareholder level

Profesional Corporation (PC)

corporate form for professionals who wanted to have the advantages of incorporation.

does not shield its owners from professional liability.

PCs and PAs widely used by health professionals

Sole Proprietorships

unincorporated business owned by single individual. They don not necessarily have to be small businesses. Solo practioner often are sole proprietors

Advantages: easy and inexpensive setup, no sharing of profits, total control, few gov regulations, no special income taxes, easy and inexpensive to dissolve

Disadvantages: unlimited liability and limited access to capital

Partnerships

unincorporated businesses with two or more owners. Group practices of physicians sometimes use this form. Wide variety of forms.

Advantages: Easy to form, subject to few government regulations, and are not subject to double taxation.

Disadvantages: unlimited liability, difficult to dissolve, and create potential for conflict among the partners

Limited Partnership (LP)

there is at least one general partner who has unlimited liability for the LP’s debts and obligations.

Advantages: LPs offer liability to limited parteners along w tax flow treatment.

Disadvantages: General partner who is fully liable for the LP’s debts and obligations.

Limited Liability Company (LLC)

business entity that combines the tax flow through treatment characteristics of a partnership ( no double taxation) w liability protection of a corporation.

Advantages: The liability of the general partner is limited. Permit owners to structure allocations of incomes and losses in anyway so long as part

Governmental HCOs

• Public corporations owned by state or local governments 

• 19% of hospitals 

• Variation is Public Benefit Orgaizations 

  • Assets belong to public or charitable beneficiaries the trust was organized to serve