UNDERSTANDING HEALTHCARE FINANCIAL …

1 Photocopying and distributing this PDF is prohibited without the permission of Health Administration Press. For permission, please fax your request to (312) 424-0014 or e-mail UNDERSTANDING HEALTHCARE . FINANCIAL MANAGEMENT. Fifth Edition [First Page]. [-1], (1). Lines: 0 to 22.. * PgVar . Normal Page * PgEnds: PageBreak [-1], (1). BOOKCOMP, Inc. Health Administration Press / Page i / 3rd proof / UNDERSTANDING HEALTHCARE FINANCIAL Management 5th ed. / Gapenski Photocopying and distributing this PDF is prohibited without the permission of Health Administration Press. For permission, please fax your request to (312) 424-0014 or e-mail AUPHA. HAP. Editorial Board Leonard Friedman, , Chair Oregon State University G. Ross Baker, University of Toronto Caryl Carpenter, Widener University [-2], (2).

2 Barry Greene, University of Iowa Lines: 22 to 115. Richard S. Kurz, . Saint Louis University * PgVa . Sarah B. Laditka, Normal Page University of South Carolina * PgEnds: PageBreak Stephen S. Mick, , CHE. Virginia Commonwealth University [-2], (2). Michael A. Morrisey, University of Alabama-Birmingham Peter C. Olden, University of Scranton Janet E. Porter, Dana-Farber Cancer Institute Sandra Potthoff, University of Minnesota Lydia M. Reed AUPHA. Sharon B. Schweikhart, The Ohio State University Nancy H. Shanks, Metropolitan State College of Denver Dean G. Smith, University of Michigan BOOKCOMP, Inc. Health Administration Press / Page ii / 3rd proof / UNDERSTANDING HEALTHCARE FINANCIAL Management 5th ed. / Gapenski Photocopying and distributing this PDF is prohibited without the permission of Health Administration Press.

3 For permission, please fax your request to (312) 424-0014 or e-mail UNDERSTANDING . HEALTHCARE . FINANCIAL . MANAGEMENT [-3], (3). Fifth Edition Lines: 115 to 153.. * PgVar . Normal Page * PgEnds: Eject [-3], (3). Louis C. Gapenski In Collaboration with George H. Pink Health Administration Press, Chicago, Illinois AUPHA, Washington, DC. AUPHA. HAP. BOOKCOMP, Inc. Health Administration Press / Page iii / 3rd proof / UNDERSTANDING HEALTHCARE FINANCIAL Management 5th ed. / Gapenski Photocopying and distributing this PDF is prohibited without the permission of Health Administration Press. For permission, please fax your request to (312) 424-0014 or e-mail Your board, staff, or clients may also bene t from this book's insight. For more information on quantity discounts, contact the Health Administration Press Marketing Manager at (312) 424-9470.

4 This publication is intended to provide accurate and authoritative information in regard to the subject matter covered. It is sold, or otherwise provided, with the UNDERSTANDING that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought. The statements and opinions contained in this book are strictly those of the author(s) and [-4], (4). do not represent the of cial positions of the American College of HEALTHCARE Executives, of the Foundation of the American College of HEALTHCARE Executives, or of the Association of University Programs in Health Administration. Lines: 153 to 248. Copyright 2007 by the Foundation of the American College of HEALTHCARE Executives.

5 Printed in the United States of America. All rights reserved. This book or parts thereof may * PgVa not be reproduced in any form without written permission of the publisher. Opinions and . views expressed in this book are those of the author and do not necessarily re ect those Normal Page of the Foundation of the American College of HEALTHCARE Executives or the Association of University Programs in Health Administration. * PgEnds: Eject 11 10 09 08 07 5 4 3 2 1. [-4], (4). The paper used in this publication meets the minimum requirements of American National Standards for Information Sciences Permanence of Paper for Printed Library Materials, ANSI 1984.. Library of Congress Cataloging-in-Publication Data Gapenski, Louis C. UNDERSTANDING HEALTHCARE nancial management / Louis C.

6 Gapenski. 5th ed. p. cm. Includes bibliographical references and index. ISBN-13: 978-1-56793-264-5. ISBN-10: 1-56793-264-9 (alk. paper). 1. Health facilities Business management. 2. Health facilities United States Business management. 3. Medical care United States Finance. 4. Health services administration Economic aspects United States. I. Title. 2006. '1 dc21 2006049050. Project Manager: Jane Calayag; Acquisition Editor: Janet Davis; Web Icon Designer: Robert Rush Health Administration Press Association of University Programs A division of the Foundation in Health Administration of the American College of 2000 14th Street North HEALTHCARE Executives Suite 780. 1 North Franklin Street, Suite 1700 Arlington, VA 22201. Chicago, IL 60606-3491 (703) 894-0940.

7 (312) 424-2800. BOOKCOMP, Inc. Health Administration Press / Page iv / 3rd proof / UNDERSTANDING HEALTHCARE FINANCIAL Management 5th ed. / Gapenski Photocopying and distributing this PDF is prohibited without the permission of Health Administration Press. For permission, please fax your request to (312) 424-0014 or e-mail BRIEF CONTENTS. [First Page]. Preface xiii [-5], (1). PART I The HEALTHCARE Environment Lines: 0 to 53. 1 Introduction to HEALTHCARE FINANCIAL Management .. 3 . * PgVar . 2 The Third-Party-Payer System .. 41 Normal Page * PgEnds: PageBreak PART II Basic FINANCIAL Management Concepts 3 Time Value Analysis .. 79 [-5], (1). 4 FINANCIAL Risk and Required Return .. 115. PART III Capital Acquisition 5 Debt Financing .. 153. 6 Equity Financing and Investment Banking.

8 191. 7 Securities Valuation, Market Ef ciency, and Debt Refunding .. 221. 8 Lease Financing .. 261. PART IV Cost of Capital and Capital Structure 9 Cost of Capital .. 293. 10 Capital Structure Decisions .. 333. BOOKCOMP, Inc. Health Administration Press / Page v / 3rd proof / UNDERSTANDING HEALTHCARE FINANCIAL Management 5th ed. / Gapenski Photocopying and distributing this PDF is prohibited without the permission of Health Administration Press. For permission, please fax your request to (312) 424-0014 or e-mail PART V Capital Allocation 11 The Basics of Capital Budgeting .. 377. 12 Project Risk Analysis .. 423. PART VI FINANCIAL Condition Analysis and Forecasting 13 FINANCIAL Condition Analysis .. 463. 14 FINANCIAL Forecasting .. 501. [-6], (2). PART VII Other Topics Lines: 53 to 88.

9 15 Working Capital Management .. 539.. * P. 16 Business Valuation, Mergers, and Acquisitions .. 575 . Normal Page 17 Capitation, Rate Setting, and Risk Sharing .. 613 PgEnds: PageBreak *. 18 FINANCIAL Risk Management .. 647 [-6], (2). Glossary 679. Index 697. About the Authors 715. BOOKCOMP, Inc. Health Administration Press / Page vi / 3rd proof / UNDERSTANDING HEALTHCARE FINANCIAL Management 5th ed. / Gapenski Photocopying and distributing this PDF is prohibited without the permission of Health Administration Press. For permission, please fax your request to (312) 424-0014 or e-mail DETAILED CONTENTS. [-7], (3). Preface xiii Lines: 88 to 154. PART I The HEALTHCARE Environment . PgVar 1 Introduction to HEALTHCARE FINANCIAL Management .. 3 . Normal Page The Role of FINANCIAL Management in the Health Services Industry, 6; PgEnds: TEX.

10 Current Challenges, 8; Alternative Forms of Business Organization, 8;. Hybrid Forms of Organization, 11; Alternative Forms of [-7], (3). Ownership, 13; Organizational Structures, 17; Organizational Goals, 20; Tax Laws, 24; Depreciation, 32. 2 The Third-Party-Payer System .. 41. Insurance Concepts, 42; Generic Reimbursement Methods, 49; Major Health Insurers (Third-Party Payers), 56; Other Issues, 69. PART II Basic FINANCIAL Management Concepts 3 Time Value Analysis .. 79. Time Lines, 80; Future Value of a Lump Sum (Compounding), 81;. Present Value of a Lump Sum (Discounting), 87; Opportunity Costs, 90; Solving for Interest Rate and Time, 92; Annuities, 94;. Perpetuities, 99; Uneven Cash Flow Streams, 100; Using Time Value Analysis to Measure ROI, 102; Semiannual and Other Compounding Periods, 105; A Review of Interest Rate Types, 110.