UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT …

[Pages:14]UNDERSTANDING HEALTHCARE

FINANCIAL MANAGEMENT

LOUIS C. GAPENSKI GEORGE H. PINK

Seventh Edition

MAP

AUPHA

Health Administration Press, Chicago, Illinois Association of University Programs in Health Administration, Arlington, Virginia

DETAILED CONTENTS

Preface

xxi

Part I The Healthcare Environment

Chapter 1. Introduction to Healthcare Financial Management

3

Learning Objectives

3

Introduction

3

How to Use This Book

4

The Role of Financial Management in the

Health Services Industry

6

Current Challenges

8

Organizational Goals

9

Tax Laws

13

Depreciation

21

Health Reform and Financial Management

25

Chapter Key Concepts

29

Chapter Models, Problems, and Mini-Cases

30

Selected Bibliography

31

Selected Websites

32

Notes

32

Supplement. Forms of Business Organization,

Ownership, and Structure

33

Supplement Learning Objectives

33

Forms of Business Organization

33

Alternative Forms of Ownership

38

Organizational Structures

42

Supplement Key Concepts

46

Supplement Bibliography

47

Supplement Websites

47

Supplement Notes

47

vii

viii Detailed Contents

Chapter 2. Health Insurance Learning Objectives Introduction Insurance Concepts Major Health Insurers (Third-Party Payers) Private Insurers Public Insurers Development of Premium Rates Consumer-Directed Health Plans Value-Based Benefit and Insurance Design Health Reform and Health Insurance Chapter Key Concepts Selected Case Selected Bibliography Selected Websites Notes

Chapter 3. Payments to Providers Learning Objectives Introduction Coding: The Foundation of Fee-for-Service Reimbursement Generic Reimbursement Methods Financial Incentives to Providers Financial Risks to Providers Reimbursement Methods Used by Medicare Pay for Performance Health Reform and Payments to Providers Chapter Key Concepts Chapter Models, Problems, and Mini-Cases Selected Case Selected Bibliography Selected Websites Note

Supplement. Risk Sharing Under Capitation Supplement Learning Objectives The Need for Risk Sharing Primary Care Withhold: Single Risk Pool Primary Care and Referral Withholds:

Two Risk Pools

49 49 50 57 57 61 63 71 75 76 79 81 81 81 82

83 83 83

83 85 89 93 95 100 109 112 114 114 115 116 116

117 117 117 118

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,, Detailed Contents ix

Supplement Key Concept Supplement Gase

Part II Basic Financial Management Concepts

Chapter 4. Time Value Analysis Learning Objectives Introduction Time Lines Future Value of a Lump Sum (Compounding) Present Value of a Lump Sum (Discounting) Opportunity Costs Solving for Interest Rate and Time Annuities Perpetuities Uneven Cash Flow Streams Using Time Value Analysis to Measure ROI Semiannual and Other Compounding Periods Amortized Loans A Review of Interest Rate Types Chapter Key Concepts Chapter Models, Problems, and Mini-Cases Selected Gase Selected Resources Selected Website Notes

Integrative Application The Problem The Analysis The Decision

Chapter 5. Financial Risk and Required Return Learning Objectives Introduction The Many Faces of Financial Risk Introduction to Financial Risk Risk Aversion Probability Distributions Expected and Realized Rates of Return Stand-Alone Risk

124 124

127 127 127 128 129 135 139 141 143 148 150 152 155 159 160 162 163 164 164 164 164

166 166 166 168

169 169 169 170 171 173 173 175 177

Detailed Contents

Portfolio Risk and Return Portfolio Risk of Business Investments Portfolio Risk of Stocks (Entire Businesses) Portfolio Betas Relevance of the Risk Measures Interpretation of the Risk Measures The Relationship Between Risk and Return Some Thoughts About Beta and the CAPM Chapter Key Concepts Chapter Models, Problems, and Mini-Cases Selected Case Selected Bibliography Selected Websites Notes

Integrative Application The Problem The Analysis The Decision

Part III Capital Acquisition

Chapter 6. Debt Financing Learning Objectives Introduction The Cost of Money Long-Term Debt Term Loans Bonds Short-Term Debt Credit Ratings Interest Rate Components Term Structure of Interest Rates Advantages and Disadvantages of Debt Financing Securities Valuation The General Valuation Model Debt Valuation Chapter Key Concepts Chapter Models, Problems, and Mini-Cases Selected Cases

180 190 196 197 198 200 201 204 205 207 207 207 208 208

210 210 210 211

215 215 215 216 217 217 219 223 224 227 232 234 235 236 238 251 253 253

Detailed Contents xi

Selected Bibliography

254

Selected Websites

254

Notes

255

Integrative Application

256

The Problem

256

The Analysis

256

The Decision

258

Supplement. Interest Rate Levels, Types of Short-

Term Debt, Debt Contracts, Bond Insurance, Debt

Refunding, and Economic Factors That Influence

Interest Rate Levels

259

Supplement Learning Objectives

259

Interest Rate Levels

259

Types of Short-Term Debt

261

Debt Contracts

266

Bond Insurance

268

Debt Refunding

269

Economic Factors That Influence Interest

Rate Levels

275

Supplement Key Concepts

276

Chapter 7. Equity Financing

279

Learning Objectives

279

Introduction

279

Rights and Privileges of Common Stockholders

280

Selling New Common Stock

283

The Market for Common Stock

286

The Decision to Go Public

288

Advantages and Disadvantages of Common

Stock Financing

291

Equity in Not-for-Profit Corporations

292

Common Stock Valuation

294

Security Market Equilibrium

306

Informational Efficiency

307

The Risk/Return Trade-Off

311

Chapter Key Concepts

312

Chapter Models, Problems, and Mini-Gases

313

Selected Gase

313

xii Detailed Contents

Selected Bibliography

313

Selected Websites

314

Notes

314

Integrative Application

316

The Problem

316

The Analysis

316

The Decision

317

Supplement. Classified Stock, Preferred Stock, Securities

Regulation, and the Investment Banking Process 318

Supplement Learning Objectives

318

Classified Stock

318

Preferred Stock

319

Securities Regulation

323

The Investment Banking Process

325

Supplement Key Concepts

330

Supplement Websites

331

Chapter 8. Lease Financing Learning Objective Introduction Lease Parties and Types Per Procedure Versus Fixed Payment Leases Tax Effects Balance Sheet Effects Evaluation by the Lessee Evaluation by the Lessor Lease Analysis Symmetry Setting the Lease Payment Leveraged Leases Motivations for Leasing Chapter Key Concepts Chapter Models, Problems, and Mini-Cases Selected Case Selected Bibliography Selected Websites Notes

333 333 333 333 335 336 339 342 351 353 354 354 356 361 362 362 362 363 363

Integrative Application

364

The Problem

364

Detailed Contents xiii

The Analysis

364

The Decision

365

Part IV Cost of Capital and Capital Structure

Chapter 9. Cost of Capital

369

Learning Objectives

369

Introduction

369

Overview of the Cost-of-Capital Estimation Process 369

Estimating the Cost of Debt

371

Estimating the Cost of Equity to Large Investor-

Owned Businesses

374

Estimating the Cost of Equity to Not-for-Profit

Businesses

389

Estimating the Corporate Cost of Capital

392

An Economic Interpretation of the Corporate Cost

of Capital

394

Flotation Costs

397

Divisional Costs of Capital

398

Warning! Warning! Warning!

399

Cost-of-Capital Estimation for Small Businesses

400

Factors That Influence a Business's Cost of Capital 403

Chapter Key Concepts

404

Chapter Models, Problems, and Mini-Cases

406

Selected Case

406

Selected Bibliography

407

Selected Websites

407

Notes

408

Integrative Application

410

The Problem

410

The Analysis

410

The Decision

411

Supplement. Measuring the Cost of Fund Capital

412

Supplement Learning Objectives

412

Measuring the Cost of Fund Capital

412

Supplement Key Concepts

415

Chapter 10. Capital Structure

417

Learning Objectives

417

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