7/12/2007

Michelle Williams-Davis

HS 6200

Class 9 Notes

*Handout that breaks down the point allocation for the final paper and presentation.

BUDGETING

Zero-based budgeting-manager starts from scratch for each cycle and you have to justify everything that you have on the budget. No one does this in reality

Incremental- Asks what changes are in place, in increments

Bottom Up/Top Down- No pure bottom up or top down approach to budgeting. Iterative cycle of putting the budget together together.

Cash Budget- knowing how the money is going in and is going out of the organization.

Fixed Budget- more commonly used, what you are planning to do in a fixed time period.

Variable Budget- adjust expense and revenue depending on expectation changes. Putting in standards for costs in this type of budgeting.

Discrete Budget- one budget year set in stone.

Continuous- build principles and as activities changes it gets built into the budget.

FTE Budget- run 45-55% of expenses, how we budget the people is critical, position control (defines positions within the system)

Capital Budget- money that you set aside to buy more expensive (major) equipment.

Variance Reporting- you have to explain specific variances in reports.

BUDGET CYCLE

Objectives- set based on margins, politically driven, 4-7% operating margins as a tax-exempt organization.

Third Party Payer Contracts- have annual inflators; adjust charges on a yearly basis

Budgeted margin compared to goals, 4-7 months to put together a budget in a hospital

STRATEGIC PLANNING- Reflect a 5-7 year horizon, the big picture

Master Facility Plan- most hospitals do not have a good plan, goes into the building and major equipment (5-20 year plan).

Mission/Vision- fluff in strategy, need to know role of organization, big picture,

Markets, Market Share- relate to a geographical and service area

Primary/Core Services-

Services Lines- different fields

SWOT- method of planning analysis, (Strengths Weaknesses Opportunities and Threats)

Patient Migration- patients moving around

Physician Profiles, Medical Staff Profile- need to know how doctors are changing their practices, need to know the age component of doctors

Critical Success Factors- key metrics to measure when benchmarking, know what % of market share to sustain.

MBO- Management By Objectives, most effective methods of gaining most results from organizations.

TABLE AND STRATEGIC PLAN IN BOOK-will be posted on the website

CAPITAL MANAGEMENT

All about money, how to bring it in, spend it and maximize the value

BUILD THE CONTEXT

70% Occupancy- 85% overcapacity, 60-65% is average, 75-80% maximizing use of beds

****Difference between gross revenue and net revenues (less contractual obligations)

Payroll= 4.8 x 50k (cost per FTE) x 280 (inpatients) [280=(200 beds x 70% occupancy) / 50 k] = $67.2 million

Data for above payroll calculation: 70% occupancy, 200 beds, 50k/FTE, 4.8 FTE/AOB

DOCTOR’S OFFICE

Hill Burton Act- the government will aid the building of a hospital in every county, 1946

Certificate of Need- established in 1976?

DRG- took capital out of reimbursement and took the need for CON away

How does a doctor’s office generate money?

  • Patient Visit
  • Procedures (Lab, X-Ray, Therapy, EKG, ect…)
  • Hospital Visit
  • Research: clinical trials
  • Stark Anti-Kickback Law-can not get money for referring to another doctor, hospital, medications

Expenses in a doctor’s office

  • Salaries
  • Supplies
  • Insurance
  • Facilities (rent, mortgage)
  • Equipment

Gross = net - contractual adjustments

Profit Margin = Revenue - Expenses

Presentation By Molly Freeman: Retail Health Clinics

  • Online transactions- might have to pay in cash if not covered by insurance
  • Can induce more income to the store in which the clinics are in.
  • Not as much overhead costs to run clinics.
  • These clinics will not be able to track the long term well being of children.

Questions:

  1. Have studies been done on companies that have their own clinics?
  2. Yes
  3. Do corporate medical clinics have the same clinicians as the minute clinics?
  4. Yes, if they can not treat you for something they will send you elsewhere.
  5. Can you get chronic disease care at the clinics?
  6. No

BACK TO LECUTRE

Increase Revenue- renegotiate with insurance companies

Borrow Money- short term capital lease, tax-exempt bond money- % less than prime (4.5% currently)

Days in Accounts Receivable- current assets

Cash Flow- bad when you do not have cash to pay bills

Accounts Payable- what the vendors charge the organization, try to push back these payments

Engineering Economy-take the class

Average Age of Plant (9.7 years old)

Using data from about calculations:

1989 - $50 (original value) / 30 (years average useful life of a building)) = 1.67

1996 - $100 mill / 30 = 3.33

2000 - $30 million / 30 = 1

1.67 + 3.33 + 1 = 6.00

1.67 x 27 + 3.33 x 17 + 7 x 1 = 108

108 / 6 (depreciation per year) = 18.1 (average life of building)

2007 build $150 million facility

108/11 = 9.7 average age of plant

GAAP – generally accepted accounting principles, standards generated by CPAs of America.

**Need 20 days cash on hand to survive and have 30 to do ok. If you have more then you are not investing money well.

Opportunity Cost- money not invested like it could be, look at things that take a long time (buildings)

**Know ratios that are in the book

Operating Lease - value after years of lease

Capital Lease- after five years there is no value in return

Arbitrage- is the practice of taking advantage of a price differential between two or more markets