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Summary of HPI4007 Financial Management of Healthcare Week 4
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This document includes a summary of week 4 and includes relevant cases and lectures. I followed this course in and passes with a 8.3 out of 10.
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Financial Management HPI4007- Case 4 Lecture & LearningGoals + Workshop
Owners of a healthcare organization:
State
National or international agencies
Charitable trusts or foundations
Medical insurance companies
Institutional investors (e.g. large pension companies)
Private investors
People who manage these organizations are held accountable to the owners for
stewardship of the funds (capital) with which they have been entrusted
In addition, organizations may have other interested parties or stakeholders who
wish to reassure themselves that the organization is managed according to their best
interests.
For example: the CEO may be accountable to a board of directors, a public health
authority, patients, charities & other sponsors etc
Stakeholders: an individual or group with a substantive interest in an issue (i.e. interest group),
including those with some role in making a decision or its execution
1.What is meant by financial statement? (Gruen & Howarth, 2005)
Annual financial statement: Financial statement is a formal organizational document. Through this
document, the management of the organization accounts for its financial policy. Organizational
processes are no longer visible in the financial statement because the focus is on the end-
performance of the organization. There are generally accepted standards, which are applied by all
organizations when preparing their financial statements. This makes the financial statements
comparable to a certain extent.
To inform relevant stakeholders about financial position and viability (=continuity of
operations in the future) of the firm/organization
This is provided every year to the stakeholders
External auditors: most health care organizations are required by law to have their financial
statements checked by independent auditors who are qualified to give an opinion on whether the
accounts present a true and fair view of the state of affairs of the organization and comply with the
accounting conventions as stated.
Agency theory: the relationship between
shareholders, directors and auditors (Atrill &
McLaney, 2014)
-Shareholders: appoint the directors and
auditors (accountants)
-Directors: account to stakeholders
-Auditors: review financial statement of
directors and report to shareholders
Principles underpinning a framework of rules
(IAS):
1. Disclosure: full disclosure of risk etc.
2. Accountability: auditors and directors should be accountable for financial statement
1
, 3. Fairness: should be done fairly and truthfully
These rules have been set to prevent accountancy fraud what used to happen frequently in the
past. However, these frauds called these methods, creative accounting methods.
Examples: stating high profits, when in fact there were high losses
(=misleading shareholders), concealing bad news or expenses (e.g. made
by board members personally), misstating assets (e.g. higher value of
assets than is true), inadequate disclosure
Therefore, accounting rules have been made more strict since 1990’s.
2.Who needs the financial statement and why? (Gruen & Howarth, 2005 and Zelman Ch 2)
Relevant stakeholders:
1. Owners of organization (main stakeholders)
2. Employees (am I still able to work here in the future?)
3. Customers (continue to do business with organization?)
4. Suppliers
5. Stakeholders how provide funding (e.g. banks)
6. Society at large (also has interest, in particular for healthcare organization which are funded
by public means and have a public role to play in society)
Managers also need the statement to see how the organization changes in the following years.
Therefore, it is also important in internal decision making.
In this lecture, the focus will be on the annual financial statements of hospitals.
Therefore, it is important to know whether and what regulates how new healthcare
institutions are allowed to the market
In the Netherlands this is organized by the law: Wet toelating zorginstellingen (Wtzi)
Only providers who are allowed can provide care financed by Zvw or Wlz
Application is decided upon by the CIBG (an executive department within the
Ministry of Health) -> if this is approved, you can start your own hospital in the
Netherlands
Approval requires: no criminal record, admitted legal entity, appropriate organization
of hospital (e.g. supervisor and executive board).
However, in-patients care (with beds) are not allowed to make profit (=non for
profit) whereas out-patient care (with no beds) are allowed to make profit (=for
profit organizations)
As a result, in the Netherlands there is a hybrid system between non-profit and for
profit organizations.
Owners of hospitals in the Netherlands (e.g. have beds so must be non-for profit):
Hospitals are foundations (stichtingen)
Hospital license not-for profit (foundation), however hospital activities can be for profit
(partnership between medical specialists)
Who is the owner of a foundation: non-executive board (= raad van toezicht) which appoints
the executive board (= raad van bestuur). Non-executive board can fire and devide tasks
between executive board. Executive board is responsible for daily activities, strategy of
hospital and accounting for activities to non-executive board (through annual financial
statement). However, most hospitals have also more frequent reporting of activities (e.g.
quarterly statement).
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