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NPV and IBNR
Net present value analysis can be used with respect to IBNR in a real life investment situation where healthcare organizations are looking to decide where to invest revenues or capital for future expenditures. It may help healthcare organizations calculate the value of cash flows within the organization over varying time periods. Net present value analysis allows organizations to consider the difference in future cash flow values compared with the cost of raising capital for future investments. Organizations can use this analysis to decide whether or not to incorporate certain expenses into IBNR.
A healthcare organization can use net present value analysis for example to pick between varying investment projects for example. A hospital could for example decide whether to invest more of its resources in improved technology and security measures or whether to invest more resources in research geared to finding new treatments for cancer patients that may reduce the total costs incurred by cancer patients over time with more efficient treatment processes. NPV analysis will allow estimation of the NPV after tax cash flows, the value of working capital, the value of the initial investment and other key factors.
As another example a healthcare organization may present future estimations of claims by maximizing net present value....
An organization can develop claims models
Conclusions
IBNR is short for incurred but not reported expenses. As healthcare organizations continue to attempt to manage expenses IBNR becomes more and more of an issue.
IBNR is problematic because estimations of expenses are rarely accurate. Perhaps the best way for healthcare organizations to manage IBNR is to work more diligently on contract negotiations with insurers and methods for determining more exact estimations when calculating IBNR. NPV analysis may help healthcare organizations better determine where to invest capital and discover better methods for allocating treatment within a healthcare setting.
References
McLean, Robert A. Financial Management in Health Care Organizations. Canada:
Thompson Delmar Learning, 2002.
Ryan, Bruce and Clay, Scott B. "An Overview of IBNR - Incurred But Not Recorded
Expenses and Liabilities." Healthcare Financial Management, November 1994. 8, October 2005:
http://www.findarticles.com/p/articles/mi_m3257/is_n11_v48/ai_16443632
Healthcare Financial Management, November 1999. 8, October 2005: http://www.findarticles.com/p/articles/mi_m3257/is_11_53/ai_57795800
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