Gapenski’s Healthcare Finance: An Introduction to Accounting and Financial Management 7th Edition PDF by Kristin L. Reiter, Paula H. Song

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Gapenski’s Healthcare Finance: An Introduction to Accounting and Financial Management, Seventh Edition

By Kristin L. Reiter, Paula H. Song

Gapenskis healthcare finance _ an introduction to accounting and financial management

CONTENTS

Preface…………………………………………………………………………………………xix

Part I The Healthcare Environment

Chapter 1. Healthcare Finance Basics…………………………………………..3

Learning Objectives…………………………………………………..3

Introduction…………………………………………………………….3

Before You Begin………………………………………………………4

Defining Healthcare Finance……………………………………….8

The Concept of a Business………………………………………….9

The Role of Finance in Health Services Organizations…..10

The Structure of the Finance Department……………………13

Health Services Settings……………………………………………13

Current Managerial Challenges………………………………….14

Legal Forms of Businesses…………………………………………15

Corporate Ownership……………………………………………….17

Organizational Goals………………………………………………..21

Healthcare Reform and Finance…………………………………24

Key Trends Following the Affordable Care Act…………….25

Key Programs of the Affordable Care Act…………………….27

Key Concepts………………………………………………………….30

Questions……………………………………………………………….32

Notes…………………………………………………………………….33

Resources……………………………………………………………….34

Chapter 2. Healthcare Insurance and Reimbursement

Methodologies………………………………………………………..37

Learning Objectives…………………………………………………37

Introduction…………………………………………………………..37

Insurance Concepts………………………………………………….38

Third-Party Payers…………………………………………………..42

Healthcare Reform and Insurance………………………………47

General Reimbursement Methodologies………………………50

Provider Incentives Under Alternative Reimbursement

Methodologies……………………………………………………53

Medical Coding: The Foundation of Fee-for-Service

Reimbursement…………………………………………………..56

Specific Reimbursement Methods……………………………….58

Healthcare Reform and Reimbursement Methods…………60

Key Concepts………………………………………………………….64

Questions……………………………………………………………….66

Selected Cases…………………………………………………………66

Notes…………………………………………………………………….67

Resources……………………………………………………………….67

Part II Financial Accounting

Chapter 3. Financial Accounting Basics, the Income Statement,

and the Statement of Changes in Equity………………………71

Learning Objectives…………………………………………………71

Introduction…………………………………………………………..71

Historical Foundations of Financial Accounting……………73

The Users of Financial Accounting Information……………74

Regulation and Standards in Financial Accounting………..76

Conceptual Framework of Financial Reporting……………..79

Accounting Methods: Cash Versus Accrual…………………..84

Income Statement Basics…………………………………………..86

Revenues………………………………………………………………..89

Expenses………………………………………………………………..93

Operating Income……………………………………………………96

Nonoperating Income………………………………………………98

Net Income……………………………………………………………99

Net Income Versus Cash Flow…………………………………100

Income Statements of Investor-Owned Businesses……….102

Statement of Changes in Equity……………………………….105

A Look Ahead: Using Income Statement Data

in Financial Statement Analysis…………………………….106

Key Concepts………………………………………………………..108

Questions……………………………………………………………..110

Problems………………………………………………………………112

Notes…………………………………………………………………..115

Resources……………………………………………………………..116

Chapter 4. The Balance Sheet and Statement of Cash Flows…………117

Learning Objectives……………………………………………….117

Introduction…………………………………………………………117

Assets…………………………………………………………………..121

Liabilities……………………………………………………………..128

Net Assets (Equity)………………………………………………..132

Fund Accounting…………………………………………………..136

Statement of Cash Flows…………………………………………138

Another Look Ahead: Using Balance Sheet Data in

Financial Statement Analysis………………………………..143

Key Concepts………………………………………………………..144

Questions……………………………………………………………..146

Problems………………………………………………………………147

Resources……………………………………………………………..152

Supplement. Recording and Compiling Financial

Accounting Data…………………………………………………153

The Accounting Cycle…………………………………………….153

The Double Entry Accounting System………………………156

Transactions………………………………………………………….158

Part III Managerial Accounting

Chapter 5. Cost Behavior, Organizational Costing,

and Profit Analysis…………………………………………………167

Learning Objectives……………………………………………….167

Introduction…………………………………………………………167

The Basics of Managerial Accounting………………………..167

Cost Behavior: Fixed Versus Variable Costs………………..169

Underlying Cost Structure………………………………………171

Profit Analysis……………………………………………………….174

Breakeven Analysis…………………………………………………180

Profit Analysis in a Discounted Fee-for-Service

Environment…………………………………………………….184

Profit Analysis in a Capitated Environment………………..189

The Impact of Cost Structure on Financial Risk………….196

Key Concepts………………………………………………………..198

Questions……………………………………………………………..199

Problems………………………………………………………………200

Selected Cases……………………………………………………….204

Resources……………………………………………………………..204

Supplement. Semi-fixed Costs and Operating Leverage…..207

Semi-fixed Costs……………………………………………………207

Operating Leverage………………………………………………..209

Chapter 6. Departmental Costing and Cost Allocation………………….213

Learning Objectives……………………………………………….213

Introduction…………………………………………………………213

Direct Versus Indirect (Overhead) Costs……………………214

Introduction to Cost Allocation……………………………….215

Cost Allocation Basics…………………………………………….216

Cost Allocation Methods…………………………………………220

Direct Method Illustration………………………………………223

Cost Allocation and Departmental Profitability ………….230

Changing to a More Effective Cost Driver…………………232

Final Thoughts on Cost Allocation……………………………235

Key Concepts………………………………………………………..236

Questions……………………………………………………………..238

Problems………………………………………………………………238

Selected Cases……………………………………………………….242

Resources……………………………………………………………..242

Supplement. Step-Down Method Illustration………………..245

Chapter 7. Service Line Costing and Pricing……………………………….249

Learning Objectives……………………………………………….249

Introduction…………………………………………………………249

Service Line Costing………………………………………………250

Healthcare Providers and the Power to Set Prices………..260

Price-Setting Strategies……………………………………………262

Price-Taking Strategies……………………………………………264

Setting Fee-for-Service Prices on Individual Services……265

Setting Prices Under Capitation……………………………….267

Key Concepts………………………………………………………..272

Questions……………………………………………………………..273

Problems ……………………………………………………………..274

Selected Case………………………………………………………..279

Resources……………………………………………………………..279

Supplement. Making Service Decisions……………………….281

Chapter 8. Financial Planning and Budgeting…………………………….287

Learning Objectives……………………………………………….287

Introduction…………………………………………………………287

Strategic and Operational Planning…………………………..288

Financial Planning………………………………………………….289

Introduction to Budgeting………………………………………292

Initial Budgeting Decisions……………………………………..293

Budget Types………………………………………………………..295

Constructing a Simple Operating Budget…………………..298

Variance Analysis……………………………………………………301

Key Concepts………………………………………………………..311

Questions……………………………………………………………..313

Problems………………………………………………………………313

Selected Case………………………………………………………..319

Resources……………………………………………………………..319

Part IV Basic Financial Management Concepts

Chapter 9. Time Value Analysis……………………………………………….323

Learning Objectives……………………………………………….323

Introduction…………………………………………………………323

Time Lines……………………………………………………………324

Future Value of a Lump Sum: Compounding……………..325

Present Value of a Lump Sum: Discounting……………….330

Opportunity Costs…………………………………………………333

Annuities………………………………………………………………336

Perpetuities…………………………………………………………..341

Uneven Cash Flow Streams……………………………………..343

Using Time Value Analysis to Measure Return on

Investment……………………………………………………….345

Semiannual and Other Compounding Periods…………….349

Key Concepts………………………………………………………..354

Questions……………………………………………………………..354

Problems………………………………………………………………355

Selected Case………………………………………………………..359

Notes…………………………………………………………………..359

Resources……………………………………………………………..359

Supplement. Interest Rate and Time Calculations and

Amortization……………………………………………………..361

Solving for Interest Rate and Time……………………………361

Amortized Loans…………………………………………………..363

Chapter 10. Financial Risk and Required Return…………………………..367

Learning Objectives……………………………………………….367

Introduction…………………………………………………………367

The Many Faces of Financial Risk……………………………..368

Returns on Investments………………………………………….369

Risk Aversion………………………………………………………..372

Probability Distributions…………………………………………372

Expected and Realized Rates of Return……………………..374

Stand-Alone Risk…………………………………………………..376

Portfolio Risk and Return……………………………………….378

The Relevant Risk of a Stock……………………………………388

Estimating Beta……………………………………………………..390

The Relationship Between Risk and Return

and the Capital Asset Pricing Model……………………..392

Required Return and Changes in Expected Inflation

or Risk Aversion………………………………………………..396

Comparison of Required Return to Expected Return…..397

Some Final Thoughts About Beta and the Capital

Asset Pricing Model……………………………………………398

Key Concepts………………………………………………………..399

Questions……………………………………………………………..401

Problems………………………………………………………………402

Selected Case………………………………………………………..405

Notes…………………………………………………………………..405

Resources……………………………………………………………..405

Part V Long-Term Financing

Chapter 11. Long-Term Debt Financing……………………………………….409

Learning Objectives……………………………………………….409

Introduction…………………………………………………………409

The Cost of Money………………………………………………..410

Common Long-Term Debt Instruments……………………411

Debt Contracts……………………………………………………..418

Credit Ratings……………………………………………………….420

Interest Rate Components………………………………………422

Debt Valuation………………………………………………………426

Key Concepts………………………………………………………..439

Questions……………………………………………………………..441

Problems………………………………………………………………442

Selected Cases……………………………………………………….444

Notes…………………………………………………………………..444

Resources……………………………………………………………..445

Supplement. Credit Enhancement, Term Structure

of Interest Rates, and Economic Factors that

Influence Interest Rate Levels……………………………….447

Credit Enhancement………………………………………………447

The Term Structure of Interest Rates………………………..448

Economic Factors That Influence Interest Rate Levels…..451

Chapter 12. Equity Financing and Securities Markets……………………453

Learning Objectives……………………………………………….453

Introduction…………………………………………………………453

Equity in For-Profit Businesses…………………………………454

Types of Common Stock…………………………………………458

Procedures for Selling New Common Stock……………….458

Equity in Not-for-Profit Corporations……………………….461

Common Stock Valuation……………………………………….463

Security Market Equilibrium……………………………………472

Informational Efficiency………………………………………….473

The Risk/Return Trade-Off…………………………………….477

Key Concepts………………………………………………………..479

Questions……………………………………………………………..480

Problems………………………………………………………………481

Selected Case………………………………………………………..483

Notes…………………………………………………………………..483

Resources……………………………………………………………..484

Supplement. The Market for Common Stock,

Securities Markets Regulation, and the Investment

Banking Process…………………………………………………485

The Market for Common Stock……………………………….485

Securities Market Regulation……………………………………487

The Investment Banking Process………………………………489

Chapter 13. Capital Structure and the Cost of Capital……………………493

Learning Objectives……………………………………………….493

Introduction…………………………………………………………493

Capital Structure Basics…………………………………………..494

Impact of Debt Financing on Accounting Risk

and Return……………………………………………………….494

Capital Structure Theory…………………………………………498

Identifying the Optimal Capital Structure in Practice…..501

Not-for-Profit Businesses…………………………………………504

Using the Target Capital Structure……………………………505

Cost-of-Capital Basics…………………………………………….506

Cost of Debt Capital………………………………………………508

Cost of Equity Capital…………………………………………….510

Corporate Cost of Capital……………………………………….521

Cost-of-Capital Estimation for Small Businesses………….523

An Economic Interpretation of the Corporate

Cost of Capital………………………………………………….526

Key Concepts………………………………………………………..529

Questions……………………………………………………………..531

Problems………………………………………………………………532

Selected Cases……………………………………………………….535

Notes…………………………………………………………………..535

Resources……………………………………………………………..535

Part VI Capital Investment Decisions

Chapter 14. The Basics of Capital Budgeting……………………………….539

Learning Objectives……………………………………………….539

Introduction…………………………………………………………539

Project Classifications……………………………………………..540

The Role of Financial Analysis in Healthcare Capital

Budgeting………………………………………………………..541

Overview of Capital Budgeting Financial Analysis……….542

Cash Flow Estimation…………………………………………….543

Cash Flow Estimation Example………………………………..550

Breakeven Analysis…………………………………………………558

Return on Investment (Profitability) Analysis……………..560

Some Final Thoughts on Breakeven and Profitability

Analyses……………………………………………………………566

Capital Budgeting in Not-for-Profit Businesses……………567

The Post-audit………………………………………………………571

Using Capital Budgeting Techniques in

Other Contexts…………………………………………………572

Key Concepts………………………………………………………..573

Questions……………………………………………………………..575

Problems………………………………………………………………576

Selected Case………………………………………………………..582

Notes…………………………………………………………………..582

Resources……………………………………………………………..583

Chapter 15. Project Risk Analysis………………………………………………585

Learning Objectives……………………………………………….585

Introduction…………………………………………………………585

Types of Project Risk……………………………………………..586

Relationships Among Stand-Alone, Corporate,

and Market Risk………………………………………………..588

Risk Analysis Illustration…………………………………………589

Sensitivity Analysis………………………………………………….591

Scenario Analysis……………………………………………………594

Monte Carlo Simulation………………………………………….597

Qualitative Risk Assessment……………………………………..601

Incorporating Risk into the Decision Process……………..602

Making the Final Decision………………………………………605

Adjusting Cash Outflows for Risk…………………………….607

Divisional Costs of Capital………………………………………609

An Overview of the Capital Budgeting

Decision Process………………………………………………..611

Capital Rationing…………………………………………………..613

Key Concepts………………………………………………………..614

Questions……………………………………………………………..616

Problems………………………………………………………………617

Selected Cases……………………………………………………….621

Notes…………………………………………………………………..621

Resources……………………………………………………………..622

Part VII Other Topics

Chapter 16. Revenue Cycle and Current Accounts Management……….625

Learning Objectives……………………………………………….625

Introduction…………………………………………………………625

An Overview of Current Accounts Management…………626

Cash Management…………………………………………………628

The Cash Budget…………………………………………………..632

Marketable Securities Management…………………………..637

Revenue Cycle Management……………………………………638

Supply Chain Management……………………………………..648

Current Liability Management…………………………………651

Key Concepts………………………………………………………..659

Questions……………………………………………………………..661

Problems………………………………………………………………662

Selected Cases……………………………………………………….665

Notes…………………………………………………………………..665

Resources……………………………………………………………..666

Chapter 17. Financial Condition Analysis…………………………………….669

Learning Objectives……………………………………………….669

Introduction…………………………………………………………669

Financial Statement Analysis…………………………………….670

Financial Ratio Analysis…………………………………………..673

Tying the Financial Ratios Together:

Du Pont Analysis……………………………………………….687

Other Analytical Techniques…………………………………….690

Operating Indicator Analysis……………………………………690

Limitations of Financial Ratio and Operating

Indicator Analyses………………………………………………695

Benchmarking……………………………………………………….696

Key Performance Indicators and Dashboards………………698

Key Concepts………………………………………………………..699

Questions……………………………………………………………..700

Problems………………………………………………………………701

Selected Cases……………………………………………………….708

Note……………………………………………………………………708

Resources……………………………………………………………..708

Supplement. Market Value Ratios, Common Size

Analysis, Percentage Change Analysis,

and Economic Value Added…………………………………..711

Market Value Ratios……………………………………………….711

Common Size Analysis……………………………………………712

Percentage Change Analysis…………………………………….714

Economic Value Added…………………………………………..716

Glossary……………………………………………………………………………………..719

Index…………………………………………………………………………………………737

About the Authors………………………………………………………………………..785

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