A Primer on Hospital Accounting and Finance, Third Edition

Healthcare Financial Management, June, 2005

Felix Kaufman Kaufman, Hall & Associates Northfield, Ill, 2005 36 pages www.kaufmanhall.com

A Primer on Hospital Accounting and Finance is a brief guide designed to give hospital trustees, physicians, and other healthcare leaders a glimpse at basic financial and accounting operations that occur in a hospital setting. The primer is particularly relevant today, given recent accounting scandals and the Sarbanes-Oxley Act of 2002, which calls for corporate boards to meet stringent self-auditing and other governance requirements. Today's healthcare boards need to be more knowledgeable and sophisticated in their understanding of financial operations, as many not-for-profit hospitals have started to use the Sarbanes Oxley guidelines to reshape their audit committees, enhance compliance with ethical codes, and demonstrate commitment to fiduciary responsibilities.

Trustees will appreciate the primer's brevity (36 pages), easy-to-follow descriptions supplemented with frequent illustrations, and logical organization. The first section introduces key accounting principles and concepts, such as accrual accounting, revenue allocation and recognition, and depreciation. The second section describes how healthcare organizations are paid, including challenges such as retrospective review.

Author Felix Kaufman, PhD, CPA, provides an example of Medicare and Medicaid prior payment adjustments that stemmed from cost-reporting activities many years earlier. Trustees should understand the challenges posed by retrospective payment review. "This is a disturbing process that is not likely to go away," says Kaufman. "And the basis for the adjustments are something that even some of the most sophisticated boards don't entirely understand."

In the primer's third section, readers find a step-by-step guide to reading financial statements for the purpose of monitoring organizational performance. Kaufman's experience as a trustee for the Hospital for Joint Diseases Orthopaedic Institute in New York City and New York University Health Center is helpful in this regard. He is able to offer a practical, insider's view of what occurs during finance committee meetings--the statistics reviewed, challenges faced, and analyses commonly conducted. The last section, "Monitoring Performance Using the Monthly Financial Package," ties the discussion together by looking at overall trends evident in the statement of operations and changes in net assets, balance sheet, and statement of cash flows that answer the question, "How are we doing?"

A Primer on Hospital Accounting and Finance provides a solid introduction to healthcare financial operations. With clear definitions and numerous accompanying visuals, it is well suited to those desiring greater familiarity with acute care hospital finance and accounting practices.

Felix Kaufman, PhD, CPA, 83, is a retired partner with the firm of Coopers & Lybrand, which merged in 1998 with Price Waterhouse to form PricewaterhouseCoopers. Kaufman wrote A Primer on Hospital Accounting in 1993, followed up with a second edition in 1996. He says he has always enjoyed teaching financial information to those with a limited background in the area and credits completion of his latest effort to a need to respond to inquiries from readers regarding current trends, particularly in relation to payment--as well as a personal constitution of having "difficulty being idle."