Intro to Finance€¦ · Presentation Objectives ... April 12, 2016. Presentation Agenda...
Transcript of Intro to Finance€¦ · Presentation Objectives ... April 12, 2016. Presentation Agenda...
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Intro to FinanceMissouri Health Care Association
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INTRODUCTION
Presenters
Al Jones, CPAHealthcare Consulting Manager for Mueller Prost LC
©2016| Mueller Prost | Slide 3‘How To” Facility Finances | April 12, 2016
Presentation Objectives
This presentation will provide the following:
Insight into what creates value within a facility
Tools and techniques for analyzing your current financial situation
Insight into financial data and the financial impact of changes
An understanding of the true cost of certain decisions
Tips for communicating the case for change in financial terms
Tips for involving the right people within the organization when making decisions with a financial impact
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Presentation Agenda
Organizational value Financial statement basics Financial statement analysis Communicating change Insight for managing revenue Insight for decreasing expenses BudgetingQuestions
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ORGANIZATIONAL VALUE
The Mindset
Think about the last time you started something significant in your lifelike a diet, workout program, or relationship…
• Did you start with what you knew?• Did you gain knowledge along the way?• Did the knowledge that you gained change your behavior?
Think about when you started your business or current job…• Did you start with what you knew?• Did you gain knowledge along the way?• Did the knowledge that you gained change your behavior?
Maya Angelou said:“I did then what I knew how to do. Now that I know better, I do better.”
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The Mindset
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Now that I know better, I can do
better.
FROM TO
The Mindset
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• Flat or declining revenue• Inconsistent, unpredictable cash
flow• Unmanaged receivables and
payables• Reactive inventory and supplies
management• Weak or unproven internal
controls• Inconsistent service quality• Extensive training time• High employee turnover• High dependence on a few
individuals• Limitations on the availability of
meaningful, timely financial information
• Planned revenue growth• Predictable and improved cash
flow• Managed working capital• Proactive inventory and supplies
management• Strong, tested internal controls• Consistent service quality• Streamlined and documented
processes and procedures• Happy, diversified, and skilled
workforce• Meaningful and timely
information available to manage the organization
• A succession plan• Increased organizational value
Where Can Value be Found or Lost?
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Your Organization
Financial & Tax Planning
Business Risk Management & Internal Controls
Cash Management and Access to
Capital
Management Goals & Strategy
Human Capital
Supply Inventory &
Care Management
Service Offerings & Marketing
ManagementInformation Systems & Reporting
Organization StructureFinancial & Tax
Planning
Business Risk Management & Internal Controls
Cash Management and Access to
Capital
Management Goals & Strategy
Human Capital
Supply Inventory &
Care Management
Service Offerings & Marketing
ManagementInformation Systems & Reporting
Organization Structure
Industry EnvironmentMacro Environment
Key Areas
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• Federal and state tax planning• Sales and use tax• Strategic planning• Tax credits and incentives• Benchmarking
Financial & Tax Planning
• Risk identification• Budgeting• Internal controls• Susceptibility to fraud
Risk Management
& Internal Controls
• Equity• Debt• Lender relationships• Cash management• Working capital• Forecasting
Cash Management and Access to Capital
• Planning procedures• Short- and long range planning• Markets to be served• Profitability• Growth• Continuity
Management Goals & Strategy
• Management• Communications• Recruiting / hiring / training• Compensation and benefits• Motivation• Planning and utilization• Environment
Human Capital
• Supplies and scheduling• Quality of care• Facilities• Logistics• Storage
Supply Inventory &
Care Management
Key Areas
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• Structure• Organizational chart• Policy manual• Executives and key employees• Authority and responsibility• Standard operating procedures
• Accounting system• Financial statements• Other system considerations• Management reports• Key performance indicators• Utilization of information
Management Information Systems & Reporting
Organization Structure
• Service development• Industry trends• Competition• Reporting on development• Diversification• Lease vs. buy
Service Offerings
• Marketing plan• Service planning• Pricing• Promotion• Delivery of service• Revenue development
Marketing
How do I Unlock Opportunities
Benchmarking Comparing expected performance to actual (&
understanding gaps) Reviewing key processes (continually) Assessing business and operational risks (impact vs.
likelihood) Collaborating with management team members Planning strategically and tactically Fostering relationships with key advisors (CPA, attorney,
banker, insurance, financial planner)
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FINANCIAL STATEMENT BASICS
Why Understand Financial Statement?
To better understand how your work contributes to the organization’s success
To help make informed, intelligent decisions affecting the success or failure of operations
To enable a company to prepare for the future
To lay the foundation for budgeting and controlling costs
To understand how others will measure your company (i.e. scorecard)
To identify issues, implement corrective actions and improve operations
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Basic Financial Statements
Balance Sheet(Statement of Net Position)
Income Statement (Statement of Activities/Operations)
Statement of Stockholders’ Equity
Statement of Cash Flows
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Basic Financial Statements12/31/15
Balance Sheet – a quantitative summary of an entity’s financial condition at a specific point in time. • Assets (1)• Liabilities (2a,2b,2c)• Equity (3)• Assets = Liabilities + Equity
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Balance Sheet – Assets12/31/15
Current Assets (4) – resources available for use within one year.• Cash, receivables, inventory, prepaid expenses, short term
investments.
Fixed Assets (5) – owned tangible property used for business and not expected to be consumed within one year.• Land, property, equipment, less accumulated depreciation
Long Term Investments – stocks, bonds, cash, etc., intended to be held for more than one year.
Intangible Assets (6) – Assets that are not physical in nature. • Goodwill, patents, copyrights
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Balance Sheet – Liabilities & Equity12/31/15
Current Liabilities (7) – amounts owed to others within one year.• Accounts payable, accrued payroll, line-of-credit, current portion
of debt
Long Term Debt (8) – financing obligations lasting more than one year. • Notes, mortgages, loans
Other Long Term Liabilities (9) – deferred expenses, pension obligations
Equity (10) – difference between total assets and total liabilities• Retained earning, current profit/loss, owner’s equity
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Basic Financial Statements1/1/15‐12/31/15
Income Statement (Statement of Activities/Operations) – a summary of revenues and expenses activity for a given period of time.• Monthly, Quarterly, Annually• Comparative, Consolidated, Combination• Revenues – Expenses = Profit/(Loss)
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Basic Financial Statements1/1/15‐12/31/15
Key components:
Revenue (11) – the income generated from the sale of goods an services associated with the main operations of an organization.
Expense (12) – the money spent or cost incurred to generate revenue (e.g. costs of doing business).
Operating Income (13) - the income resulting from primary business operations.
Pre-tax Net Income (14) – the total revenue in an accounting period minus all expenses, excluding income tax, during the same period.
EBITDA – the profit a company has before interest, taxes, depreciation and amortization are deducted from net income.
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Basic Financial Statements
Statement of Stockholders’ Equity – a statement showing the beginning balance, additions to and deductions from, and the ending balance of the equity account for a specific period.
Key components• Beginning balance• Net income• Additional paid-in capital• Proceeds from shares sold• Distributions• Ending balance (15)
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Basic Financial Statements
Statement of Cash Flows – a summary of the sources and uses of cash for a given period
Key components of a statement of cash flows• Cash flows from operating activities• Cash flows from investing activities• Cash flows from financing activities
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Basic Financial Statements
Cash Flows from Operating Activities (16) Represents the money the company received from its actual business
operations Excludes cash received from other sources, such as investments Starts with net income (from the income statement), then adds back in any
depreciation expenses, deferred taxes, accounts payable and accounts receivables, and one-time charges
Cash Flows from Investing Activities (17) Represents the money the company has received (or lost) from its investing
activities Includes money that the company has made (or lost) by investing its excess
cash in different investments (stocks, bonds, etc.); money the company has made (or lost) from buying or selling subsidiaries; and all the money the company has spent on its physical property, such as plants and equipment
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Basic Financial Statements
Cash Flow from Financing Activities (18) Represents the money the company took in and paid out in
order to finance its activities Calculates how much money the company spent or
received from its stocks and bonds Includes any dividend payments that the company made to
its shareholders; any money that it made by selling new shares of stock; any money it spent buying back shares of its stock; any money it borrowed; and any money it used to repay money it had previously borrowed
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SNF INCOME STATEMENT
SNF Financial Statements
Key components of a SNF income statement• Revenue
o Room & boardo Ancillaryo Other revenueso Contractual allowanceo Bad debts
• Expenseso Patient careo Ancillaryo Capitalo Administrationo Shared expenseso Other expenses
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Income Statement ‐ Revenues1/1/15 – 12/31/15
Room & Board – includes routine care $191.94ppd (2014), $189.43ppd (2013)
Ancillary – therapy, lab, x-ray, billable supplies and drugs $32.01ppd (2014), $30.28ppd (2013)
Other Revenues – meals, barber, interest income, donations
Contractual Allowance Bad Debts (deduction from revenue for MO Medicaid)
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Income Statement – Expenses1/1/15 – 12/31/15
Patient Care – nursing, social services, activities, dietary, routine supplies - $88.91(2014), $88.06(2013)
Ancillary – therapy, lab, x-ray, medical supplies & drugs sold, laundry, housekeeping, barber - $20.26 (2014), $20.07 (2013)
Capital – rent, amortization, depreciation, capital interest, real estate taxes, capital insurance - $15.57 (2014), $15.09 (2013)
Administration – maintenance, administration, utilities, management fees, advertising, travel, entertainment, legal, accounting, loss on disposals - $35.58 (2014), $34.59 (2013)
Shared expenses – payroll taxes, workers compensation, employee benefits
Other expenses – bed tax, income tax, contributions, penalties
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FINANCIAL STATEMENT ANALYSIS
Financial Statement Analysis
Internal• Trend analysis• Budget-to-actual• Ratio analysis
External• Benchmarking• Ratio analysis
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What is Benchmarking?
The process of identifying and capturing data and evaluating this data against oneself or an outside party (internal or external).
Types of benchmarking
• Performance (e.g. financial)• Process (e.g. best practices)• Strategic (e.g. comparison to competitors)
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Why is Benchmarking Important?
During a 2008 survey conducted by Deloitte Development LLC, organizations were asked, “How best could benchmarking potentially help your organization?”
46.1% responded that it could help identify and quantify potential improvement opportunities (i.e. lower costs, improved efficiencies)
21.8% responded that it could help set reasonable, attainable performance goals and analyze trends from one year to the next
13.0% responded that it could help establish targets that make sense and evaluate the accuracy of forecasts
19.2% responded that it could help perform competitive analysis that leads to fast, meaningful improvement
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Why is Benchmarking Important?
Benchmarking assists organizations: Identify opportunities to reduce costs Identify opportunities to increase quality of service Gain insight into relative strengths and weaknesses compared
to other organizations Combat organizational complacency and the perception that
current performance is acceptable Change the way it views its performance by providing both
qualitative and quantitative measures of effectiveness Move beyond an assessment that is based solely on opinion Support the need for a transformation of processes or even an
entire organization
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Financial Ratio Analysis
Current ratio = current assets/current liabilities
Working Capital = current assets – current liabilities
AR Days = (avg AR/revenue)*365
Debt to Equity ratio = total liabilities/total equity
Profit margin = profits/sales
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Understanding Profitability
Revenue sources – goal is to increase/maximize• Patient days• Pricing• Reimbursement rate
Expense – goal is to decrease/minimize• Cost drivers• Wages• Supplies• Services• Other• Variable vs Fixed• Expense vs Investment
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Medicaid Reimbursement2012
Average PPD Expense Missouri $160.07 Kansas $160.23 Illinois $155.55 Iowa $188.27 Kentucky $192.38 Wisconsin $196.34
Average MCD Reimbursement Missouri $141.31 Kansas $150.41 Illinois $132.49 Iowa $154.31 Kentucky $178.03 Wisconsin $156.23
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COMMUNICATING CHANGE
Communicate Change
Where are we now? Where are we going? Where do we want to go?
• Goal setting (SMART)o Specifico Measurableo Attainableo Relevanto Timely
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Communicating Change
Increase Revenue
Decrease Expenses
Track performance for improved results
Cost vs Benefit analysis
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REVENUE AND EXPENSE MANAGEMENT
Managing costs to increase reimbursement
Front office operations – Where do you start? Billing• Identify patient/resident pay source: Medicare,
Medicaid, Commercial Insurance, LTC insurance• What are you billing for? Skilled care? Room and
Board? • Are you capturing all the ancillaries? Labs, therapy
services, x-rays, medications?• Are the ancillaries part of a per diem rate for Medicare,
commercial insurance (Medicare Advantage)
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Managing costs to increase reimbursement
Correct classification –Putting expenses where they belong • Accounts payable are more than just paying bills – they
affect your cost report!• Are you coding expenses to the right accounts? Or just
the accounts where you have a budget?• Who is actually responsible for coding your invoices –
the department manager or the AP clerk?• Who SHOULD be coding your invoices – the
department manager or the AP clerk?• Are you “robbing Peter to pay Paul?
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Managing costs to increase reimbursement
Record keeping and documentation• For patients/residents, where does record keeping
start? Before or after the admission?• Pre-admission fact gathering – CWF, insurance
prior authorization, verifying the pay source• Validation and Triple Check – why just getting it
billed is NOT enough!
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Managing costs to increase reimbursement
Collections – A necessary evil• Sometimes, bad debt happens! How are you prepared
to deal with it?• Asking for money is hard! If we do it on the front end, it
will help avoid negative outcomes.(SS/ADM)• Even when you do everything right, you can still get
burned.• How does that happen? Pay source changes,
unexpected issues with Medicaid application?• Is your AR manager comfortable asking for the money –
up front or past due when needed?
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Managing costs to increase reimbursement
Track performance – Everyone on the same page• First things first – have YOU really looked at your
budget? Do you know what’s in there?• Are expenses “controllable” or “non-controllable”
and do you understand the difference?• Have you communicated the need for cost
management with your team? • Do they understand their expense accounts and
labor accounts? Are they proactive in expense control?
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Increase Revenue – Strategies$179.48 (2014), $177.49 (2013)
Differentiation Value leadership Cost leadership Referrals Readmissions Billing Consultant
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Decrease expenses – Patient Care $88.91ppd (2014) ,$88.06ppd (2013) 56%
Nursing Wages - $53.26 (2014), $53.19ppd (2013) Nursing wages (RN, LPN, CNA) are the largest operating expense in any facility department. Labor, in general, accounts for about _____% of every dollar paid. 30% of revenue
Nursing Supplies & other – $4.08 (2014), $3.95ppd (2013)These expenses include medical supplies, OTC medications, incontinent supplies, IV supplies, patient personal items and any item/supplies required to care for or provide for a patient.
Dietary – $15.72 (2014), $15.35ppd (2013)Raw food is the second largest operating expense in a facility. The dietary department is likely the second largest department in the facility. Other expenses include labor, supplies and utensils.
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Patient Care (continued)
Activities - $2.05 (2014), $2.02ppd (2013)Labor is the biggest expense, but this department can account for “unintended” waste that can go largely unnoted and uncontrolled.
Social Services - $1.79 (2014), $1.72ppd (2013)Cost in this department is primarily labor driven and determined by the wage paid and tenure of the staff. OT is a possible consideration if processes are not monitored for efficiency.
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Decrease Expenses – Ancillary $20.26ppd (2014), $20.07ppd (2013) 13%
Laundry/Housekeeping - $7.55ppd (2014), $6.01ppd (2013)
Supply cost and potential for waste drive this expense. Chemicals for cleaning, laundry, floor care are expensive and easy to waste. Labor is also a consideration
Therapy Labor cost is the greatest consideration, contract or in-house. Productivity is the key to controlling this expense, generating revenue, and offsetting the cost of providing this service.
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Decrease Expense – Capital $15.57ppd (2014), $15.09ppd (2013)
Capital vs. Operational expenses – What’s the difference?
A Capital Expenditure is money used to purchase, upgrade, improve, or extend the life of long-term assets. Long-term assets are typically property, infrastructure, or equipment with a useful life of more than one year. Generally, if the purchase price of an individual item is $500 or more, it will be considered a capital expenditure.
An Operating Expense is a day-to-day expense incurred in the normal course of running a business’s core operations. Examples include labor, purchasing supplies, utilities, repairs. These expenses appear on the income statement.
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Decrease Expenses – Administration $35.58ppd (2014), $34.59ppd (2013) 22%
Plant Operations - $5.16 (2014), $4.96ppd (2013)Equipment maintenance, repairs and supplies are key drivers. A well-maintained physical plant and equipment saves money in the long-run. Contract services can be a underlying cause of excess expense.
Utilities - $4.81ppd (2014), $5.30ppd (2013)Well-maintained equipment is important to controlling these costs. Keeping a close watch on your utility bills can quickly identify an issue.
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Decrease Expenses – Administration
Administration salaries - $8.70 (2014), $8.32ppd (2013)Salaries equal labor. Do you have the right people and are they managing time and resources effectively?
Other Admin $12.62ppd (2014), $12.70ppd (2013)Licenses, vehicle costs, telephone, other miscellaneous expenses. Know what you’re paying for! Are paying for pagers that haven’t been used in years?
Home office/Management feesThese are the cost for your consultants, support services etc. While these are usually allocated based on a pre-determined fee schedule, make sure you are getting the services you are being charged for.
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Cost of Turnover $5,000 RN $3,500 Aides
Lowered productivity Overworked remaining staff Overtime Lost knowledge Training costs Interviewing costs Recruiting
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Managing Turnover – Best Practices
Performance appraisals
Motivation
Leadership
Corrective actions
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YOU CAN MAKE A DIFFERENCE
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PPD 2016(goal) 2015(est) 2014 2013Room & Board 195.00 194.11 191.94 189.43 Ancillary 34.00 33.50 32.01 30.28 Other/Deductions (46.00) (46.93) (44.47) (42.22) Total Revenue 183.00 180.68 179.48 177.49
Patient Care 89.00 89.76 88.91 88.06 Ancillary 20.00 20.45 20.26 20.07 Capital 16.00 16.05 15.57 15.09 Admin/Other 52.00 52.97 51.98 50.99 Total Expenses 177.00 179.23 176.72 174.21
Profit 6.00 1.45 2.76 3.28
Annual Profit 166,326 40,195 76,510 90,925
Business Value 1,164,282 722,825 849,926 900,378
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BUDGETING
Budgeting
Annual PPD Expense
Monthly projected patient days
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NEXT STEPS
Next Steps
Performance Tracking
Financial Analysis
Cost vs Benefit Analysis
Budgeting
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Agenda in Review
• Organizational value and growth
• Financial statement basics
• Financial statement analysis
• Communicating change
• Insights for managing revenue
• Insights for decreasing expenses
• Managing turnover
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Questions?
IRS Circular 230 Notice & Disclaimer
To ensure compliance with the requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
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© 2015 Mueller Prost. All rights reserved. Not for further distribution without the permission of Mueller Prost. This publication has been prepared for general guidance on matters ofinterest only, ,and does not constitute professional advice. You should not act upon the information contained in this publication with obtaining specific professional advice related to yourspecific situation. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extentpermitted by law, Mueller Prost does not accept or assume any liability, responsibility or duty of care for any consequences of your or anyone else acting, or refraining to act, in reliance onthe information contained in this publication or for any decision based on it.
Thank You!
Al
(314)480‐1264
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