Post on 02-Jan-2016
Overview
Strategic Cost and Financial
Management
Session Objectives
• Recognize how to control fixed and variable costs
• Understand the importance of financial statements
• Be familiar with financial ratios and what they mean
• Insert a polling question:
• Do you track fixed costs?
• Do you track variable costs?
Four Steps to Cutting Cost
1). Know your fixed and variable costs
2). Identify benchmarks
3). Get buy-in from staff
4). Determine when to take action
Concepts
• Numbers Don’t Lie!!!
• Benchmarking
• Report Preparation– Frequency of report preparation– Review of practice management and
financials should be the first agenda item in management meetings
Development of the Financial Reporting System
Step 3: Tailor / customizethe system to
meet your needs.
Step 2: Develop reports to meet the needs
of the various users.
Step 1: Identify the needs of the users of the information.
Step 5: Continually re-evaluate systemneeds vs. output.
Step 4: Develop standard processing list of reports,
timing and distribution.
Financial Statement Interpretation
• Balance Sheet– Snapshot of the health center’s finances taken
at a single point in time
– Also known as a statement of financial position
• Income Statement– Measure of a health center’s financial
performance over a specific accounting period
– Also known as the statement of revenue and expenses
Tips on Analyzing the Balance Sheet
• Current Ratio
• Days in Accounts Receivable
• Days in Accounts Payable
• Days in working Capital
Tips on Analyzing the Balance Sheet
• Current Ratio = current assets divided by current liabilities.
Want this ratio to be at least 1:1 and do not want to decrease over time.
–$528,000/$600,500 = 0.88
Tips on Analyzing the Balance Sheet
• Days in Accounts Receivable = net patient accounts receivable, divided by average daily patient revenue
([Patient revenue, net of adjustments and bad debt, excluding managed care capitation] divided by # of days in period)
Increase in ratio indicates potential billing problem and could hurt cash flow.
($272,000/(($900,000-$230,370)/365) = 148 days
Tips on Analyzing the Balance Sheet (cont.)
• Days in Accounts Payable = Trade accounts payable and accrued expenses divided by average daily trade expenses
([Total expenses less salaries and wages, donated services, bad debt and depreciation] divided by # of days in period)
An increase indicates that the health center is paying vendors more slowly, indicating a cash flow problem.
$225,500/(($2,004,500 - $1,216,475 - $47,500)/365) = 111 days
Tips on Analyzing the Balance Sheet (cont.)
• Days in Working Capital = Working capital (current assets minus current liabilities) divided by average daily operating expenses (Total expenses divided by # of days in period)
This is a reserve ratio indicating the financial condition of the health center; goal is to be greater than 30 days.
($528,000-$600,500)/(($2,004,500 + $25,000)/365) = (13) days
Income Statement Analysis
• Trend and Relationships– Cost per encounter– Net revenue per encounter– Shift in payor mix– Change in reimbursement rates
Tips on Analyzing the Statement of Operations
Trends and Relationships:
• Analyze changes in patient revenue as compared to changes in patient volume (i.e., visits), prior year vs. current year and current year vs. budget.
• Any unusual trends should be researched:
Change in reimbursement rates
Shifts in payor mix
What to Look for …
• Balance Sheet– Accounts payable– Excessive debt
• Income Statement– Proper presentation– Comparing revenue to payment posting– How to analyze overhead
What to Look for … (cont.)
• Sudden change in A/R tendencies
• Failing to reach benchmarks
• Sudden changes in production by Clinician( or other staff)
• Escalating overhead costs
• Inability to pay vendors in timely fashion
• Borrowing money
Things to Consider
• Flex- Time
• Volunteers/Interns
• New Revenue Streams
• Low Cost Incentives for Productivity
Questions?
Gervean Williams
Director of Finance and Operations
NACHCNational Association Community Health Care Centers