Medicine and Business: A Practitioner's Guide

199 Pages·2014·2.865 MB·English

by  Ronald V. Bucci (auth.)

Ronald V. Bucci
Medicine
and Business
A Practitioner’s Guide
123
Medicine and Business

Ronald V. Bucci
Medicine and Business
A Practitioner’s Guide
Ronald V. Bucci, PhD, MBA
Administration
Akron Children’s Hospital
Akron , OH , USA
ISBN 978-3-319-04059-2 ISBN 978-3-319-04060-8 (eBook)
DOI 10.1007/978-3-319-04060-8
Springer Cham Heidelberg New York Dordrecht London
Library of Congress Control Number: 2014931368
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Pref ace
The purpose of this book is to provide a baseline knowledge set of business admin-
istration skills for physicians and individuals entering administrative positions in
the healthcare fi eld. More physicians are becoming leaders within the healthcare
system and a growing number of physicians lead organizations. However, many of
the physicians and nonphysicians entering administrative positions in hospitals and
health systems lack the basic business administration skills that are required to per-
form their duties in these positions.
P hysicians do not normally acquire business administration skills during their
medical training, and non-physicians may or may not receive business training dur-
ing their academic instruction. Even if healthcare professionals have acquired
advanced degrees in business administration, healthcare administration, nursing
administration, or other professional programs, they may lack many of the business
skills needed to operate a hospital or medical practice. Many of the abilities that are
lacking include, but are not limited to, fi nancial, organizational, and leadership exper-
tise; understanding of the revenue cycle; and the knowledge and implications of
healthcare policies, laws, and regulations that control the healthcare environment.
In developing this book, I have drawn on my work experience in different health-
care settings, including hospitals and outpatient care facilities, private and public
healthcare systems, and for-profi t and not-for-profi t businesses. Healthcare admin-
istrators need training in business administration skills to properly and effectively
perform their functions while providing “value” to their organization. While this
book is not an in-depth educational tool for achieving profi ciency in accounting,
fi nance, or organizational management, it does provide a basic set of business skills
that can be used in both the private and public healthcare sectors. It is tailored
expressly for physicians and other healthcare professionals who are assuming
administrative roles in these settings.
Medicine and Business: A Practitioner’s Guide begins with an introduction to the
relationships between business and healthcare and discusses the importance of lead-
ership, mission creation, and governance to the success of healthcare organizations.
Chapters 4 – 7 explain the purpose and interpretation of fi nancial and income
v
vi Preface
statements, balance sheets, and cash fl ows and detail the similarities and differences
in these tools in healthcare and non-healthcare sectors. Financial analysis, budgeting,
and business and strategic planning are described in Chapters 8 – 10 , followed by a
discussion about the types of health insurance, managed care, and payment methods
(Chapters 1 1 – 15 ). Chapters 1 4 and 1 5 review business and hospital organizations
and physician’s compensation structures. The book concludes with an overview of
medical business law and regulations and new government initiatives, such as the
Affordable Care Act. Features of the book include instructional details about and
illustrations of the development and analysis of fi nancial statements as well as situ-
ational life examples derived from healthcare businesses.
T he healthcare system and the roles of administrators in this system have changed
dramatically over time. Historically, these positions did not require administrators
to possess advanced business skills to be successful in their jobs. However, factors
such as cost controls, managed care, and government regulations and oversight have
permanently changed the healthcare system in the United States. These profession-
als need to be profi cient in applying business administration and management strat-
egies to their practice so as to insure the success, viability, and sustainability of their
organizations.
I n preparation for the actual development of this book, an advisory committee
consisting of physicians, healthcare professionals, and a fi nance specialist was
assembled. These individuals gave suggestions for content and reviewed portions of
the writing to validate that it fulfi lled the intentions of the author. This advisory
committee included Michael Rubin, M.D.; Joseph Iemma, M.D.; Ibrahim Farid,
M.D.; Russell Maroni; and Shana Locktish. I am grateful for these contributions to
the book and also appreciate the support of my family, including my wife Lynn; my
children Gina, Dominic, Angelo, and Maria; and our family dog Amber.
Akron , OH, USA Ronald V. Bucci, PhD, MBA
Contents
1 Healthcare and Business ......................................................................... 1
The US Healthcare Delivery System ........................................................ 2
Access and Financing ............................................................................... 2
US Healthcare System Characteristics ...................................................... 3
No Governing Bureau ........................................................................... 3
Unbalanced Access of Care .................................................................. 4
Unfree Market ....................................................................................... 4
Payers .................................................................................................... 5
Legal Risks ............................................................................................ 5
Technology and Quality ........................................................................ 6
Signifi cance of Healthcare Business Management ................................... 6
Further Reading ........................................................................................ 7
2 Leadership and Governance .................................................................. 9
Leadership Versus Management ............................................................... 9
Leadership ............................................................................................. 10
Physician Leadership ............................................................................ 11
Physician Leadership Skills .................................................................. 11
Non-physician Leadership Skills .......................................................... 11
Leadership: Functions, Traits, Skills, and Actions ................................... 12
Functions ............................................................................................... 12
Traits ..................................................................................................... 12
Skills ..................................................................................................... 13
Do’s and Don’ts ........................................................................................ 13
Leadership Styles ...................................................................................... 14
Governance ........................................................................................... 14
Establishment of Mission, Vision, and Goals ........................................... 15
Vision .................................................................................................... 16
Titles ...................................................................................................... 19
Further Reading ........................................................................................ 20
vii
viii Contents
3 Revenue Cycle ......................................................................................... 21
Revenue Cycle Steps ................................................................................. 22
Scheduling ............................................................................................. 22
Registration/Authorization ........................................................................ 23
Clinical Services ....................................................................................... 24
Charge Capture ......................................................................................... 24
Claims Processing ..................................................................................... 25
Denial Management .................................................................................. 25
Payment Processing .................................................................................. 25
Bad Debt and Collections ......................................................................... 26
Revenue Cycle Options and Monitoring ................................................... 26
Key Indicators ....................................................................................... 26
Internal Safeguards and Controls .............................................................. 28
Internal Cash Controls .............................................................................. 28
Funds Entering the Business ................................................................. 28
Warning Signs of Unauthorized Use of Funds...................................... 29
Tips to Internal Control ......................................................................... 30
Petty Cash ............................................................................................. 31
Bank Accounts ...................................................................................... 31
Control of Expense Payments ................................................................... 32
Summary ................................................................................................... 32
Further Reading ........................................................................................ 33
4 Financial Defi nitions and Variances ...................................................... 35
Defi nitions ................................................................................................. 35
Variances ................................................................................................... 37
Cash Basis Versus Accrual Accounting ................................................ 37
Date of Posting Versus Date of Service .................................................... 38
Expenses: Fixed Versus Variable Cost and Direct Versus
Indirect Costs ............................................................................................ 39
Further Reading ........................................................................................ 39
5 Income Statement .................................................................................... 41
Revenue ..................................................................................................... 43
Operating Revenue or Medical Services Revenue ................................ 43
Nonoperating Gains and Losses ............................................................ 44
Expenses ................................................................................................... 45
Importance of Income Statements ............................................................ 47
Further Reading ........................................................................................ 48
6 Balance Sheet ........................................................................................... 49
Assets ........................................................................................................ 49
Allowances ............................................................................................ 50
Fixed Assets .............................................................................................. 51
Liabilities .................................................................................................. 53
Current Liabilities ..................................................................................... 53
Contents ix
Long-Term Liabilities ............................................................................... 54
Net Assets or Shareholders Equity ........................................................... 54
Further Reading ........................................................................................ 57
7 Statement of Cash Flows ........................................................................ 59
About This Statement ............................................................................... 59
Typical Cash Flow Statement.................................................................... 60
Statement of Cash Flows Activities .......................................................... 61
Operating Activities .............................................................................. 61
Investing Activities ............................................................................... 61
Financing Activities .............................................................................. 61
Increases and Decreases in Cash Flow ..................................................... 61
Direct Versus Indirect Statements of Cash Flow ...................................... 63
Direct Statement of Cash Flow ................................................................. 63
Indirect Statement of Cash Flow ............................................................... 63
Cash Flows from Investing Activities ....................................................... 64
Cash Flows from Financing Activities ...................................................... 64
Further Reading ........................................................................................ 67
8 Financial Ratios ....................................................................................... 69
Profi tability Ratios .................................................................................... 69
Total Margin or Profi t Margin ............................................................... 70
Operating Margin .................................................................................. 70
Return on Assets (ROA) ....................................................................... 70
Return on Equity (ROE) ....................................................................... 71
Return on Funds .................................................................................... 71
Liquidity Ratios ........................................................................................ 71
Current Ratio ......................................................................................... 71
Days in Accounts Receivable, Average Collection Period,
and Days Sales Outstanding .................................................................. 72
Days Cash on Hand ............................................................................... 72
Quick Ratio ........................................................................................... 73
Return on Assets Ratio .......................................................................... 73
Debt Ratios ................................................................................................ 73
Debt Ratio ............................................................................................. 73
Debt to Equity Ratio ............................................................................. 74
Equity Financing Ratio ......................................................................... 74
Working Capital .................................................................................... 74
Asset Management Ratios ......................................................................... 75
Fixed Asset Turnover Cash Ratio or Fixed Asset
Utilization Ratio .................................................................................... 75
Other Ratios .............................................................................................. 75
Net Price per Discharge ........................................................................ 75
Outpatient Revenue Percentage ............................................................ 75
Occupancy Percentage .......................................................................... 76