Expert answer:Government Insurance Revenue Discussion
Answer & Explanation:Government Insurance RevenueReferencing Chapters 1 and 2 in the text, 01CH_Smith_Healthcare.pdf 02CH_Smith_Healthcare.pdf create a discussion on the following:Identify three sources of governmental insurance plans.In your opinion, are these sources of health care resourceful?How do you think they can be improved?Use at least one scholarly source to support your points. Cite and reference your source(s) in APA format as outlined in the Ashford Writing Center.Initial post must contain a minimum of 250 to 300 words.
01ch_smith_healthcare.pdf
02ch_smith_healthcare.pdf
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Financial Management
in Healthcare
1
©Andrea Gingerich/iStock/Thinkstock
Learning Outcomes
By the end of this chapter, you will be able to:
• Describe the major components of finance: financial accounting, managerial accounting,
and corporate finance
• Describe the key features that make healthcare finance unique
• Discuss the importance of finance in the healthcare industry
• List the key financial challenges facing healthcare leaders
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Introduction
Introduction
Hendrickson Memorial Hospital is a typical general medical and surgical hospital. It has 285
inpatient beds with an adjoining 62-bed hospital-based nursing facility and three primary
care health centers. The financial statements of Hendrickson Memorial list over $250 million
in assets at the end of 2012 and net patient services revenue of over $320 million for the year.
Government payers (Medicare, Medicaid, and others) paid half of its net patient services revenue. After all expenses associated with providing patient services and tallying other sources
of revenues and expenses, net income for the year was nearly $8 million in 2012, which was a
good improvement over the $4 million earned in 2011. Management feels prepared to enter
2013 and the new era marked by the Patient Protection and Affordable Care Act (PPACA) to
begin in 2014. But is the hospital ready? With changes in government payments for services,
new expectations of service delivery, requirements for improving electronic health records,
and an intensive care unit in need of replacement, Hendrickson Memorial’s management
team recognizes that they must watch every dollar closely.
Sound financial management is a cornerstone to managing any organization. Development
and adherence to processes for planning, tracking, reporting, and analyzing the flows of money
are essential to managing an organization. Knowing where all the money is at all points in
time and how it is being used is important to assure the appropriate use of resources. Healthcare organizations are no exception to this rule. In fact, given the public’s interest in having
accessible, high-quality, affordable healthcare services, it is all the more important to have
sound financial management of healthcare organizations. Healthcare spending in the United
States has increased from $148 per person in 1960 to more than $8,500 per person in 2011,
as shown in Figure 1.1. With $2.7 trillion dollars spent on healthcare every year (317 million
people multiplied by $8,500 per person), there is a large amount of money to be managed,
and it must be managed well. Sound financial management is more than watching every dollar. Financial management, as a component of the overall management of an organization,
must assure that dollars are being spent wisely.
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Introduction
Figure 1.1: Healthcare spending per person, United States 1960–2011
$9,000
Money spent on healthcare ($)
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
1960
1965
1970
1975
1980
1985
Year
1990
1995
2000
2005
2010
Source: Data from OECD Health Statistics 2013—Frequently Requested Data, retrieved from http://www.oecd.org/els/health
-systems/oecdhealthdata2013-frequentlyrequesteddata.htm
Overall management of a healthcare organization starts with an understanding of the healthcare goals it wishes to accomplish, often expressed in a mission statement. For example,
a rural hospital may define its healthcare goals as providing a broad range of healthcare
services. Jersey Shore Hospital’s mission statement (presented in Exhibit 1.1) includes providing quality health services through the usual components of a hospital: inpatient care
(treatments that require overnight stays in the hospital), outpatient care (treatments that
permit the patient to return home the same day), primary care (routine visits with physicians
and nurse practitioners), and outreach services (health screenings, health fairs, conferences,
workshops, and lectures). In contrast, a private physician practice in dermatology may focus
its mission on a much more narrow set of services.
There are a variety of healthcare organizations in the healthcare industry (Shi & Singh, 2012).
Different types of organizations will define their missions differently. And there may even be
differences in the missions among the same types of organizations. As a component of the
overall management of an organization, it is important for those involved with financial management to understand the mission and to determine if dollars are being spent on the most
appropriate things.
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Introduction
Exhibit 1.1 Jersey Shore Hospital mission statement
Jersey Shore Hospital is a rural healthcare facility committed to providing quality health services
with an efficient balance of outpatient care, acute and sub-acute inpatient care, primary care and
outreach services. The Hospital maximizes the effectiveness of its program through integration with
other healthcare providers to assure the community access to a broad array of healthcare services.
Source: Jersey Shore Hospital, Jersey Shore, PA, http://www.JSH.org (June 4, 2013)
Developing an operational plan is one way of communicating and assigning resources
regarding how the mission is to be accomplished. Based upon the mission statement, the
operational plan includes listing the specific goals, objectives, and activities that will be undertaken by the organization. For a healthcare organization, a good operational plan requires a
keen understanding of patients’ healthcare needs and the healthcare delivery process that
addresses those needs. For many hospitals, achieving part of their mission requires provision
of inpatient hospital services and outpatient services. The starting point for the operational
plan is a forecast of the number of patients to be treated. An example of a patient forecast is
provided in Exhibit 1.2. In this example, elective hospital admissions and outpatient visits
have been quite stable over time. The number of older people presenting for emergency care
has followed demographic trends. The proportion of outpatient surgeries (admission and discharge on the same day) is forecasted to increase from 70% in 2011 to 80% in 2013.
Exhibit 1.2 Hospital patient volume forecast
Actual
2011
2,000
8,000
8,800
80,100
Volume Measures
Planned care (elective) admissions
Nonelective admissions
Outpatient surgery admissions
Outpatient visits
Actual
2012
1,980
8,200
9,100
81,000
Plan
2013
2,010
8,800
9,800
81,400
After projections of patient volume, the operational plan includes the use of personnel (medical, operational, and administrative) and physical resources (buildings, equipment, and supplies). An example of a personnel plan is provided in Exhibit 1.3. For this example, despite
increases in admissions and outpatient visits, there were fewer full-time equivalent employees in 2012 than in 2011. A continuation of this trend toward providing more services with
fewer personnel is planned for 2013. Not presented, but following along these same lines, are
plans for the buildings, equipment, and supplies that will be used to treat patients.
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Understanding Finance
Exhibit 1.3 Hospital personnel plan (full-time equivalent employees)
Actual
2011
60
342
132
146
198
878
Hospital Personnel
Physicians
Nursing and allied health
Other clinical staff
Scientific, therapeutic, & technical
Nonclinical staff
Total
Actual
2012
60
322
131
145
181
839
Plan
2013
60
313
130
144
169
816
The financial aspects involved with acquiring and using the personnel and physical resources
are presented in a business plan. The essence of a business plan is tying the personnel and
physical resources in the operational plan to financial (dollar) resources. Business plans and
budgets will be described more fully in Chapter 7. Sound financial management follows operational management—assuring that the goals and objectives are met by efficiently undertaking planned activities—with an emphasis on the finances involved.
Because sound financial management follows operational management, many finance personnel develop expertise in the operations whose dollars they are planning, tracking, reporting, and analyzing. Some of the best finance personnel are those who learn which aspects of
the organization need to be watched, improved, or generally managed to achieve the organization’s heath care goals (Miller, Brunssona, & Lapsley, 1998). Anyone aspiring to become a
general or financial manager of a healthcare organization is well advised to be attentive to the
clinical concerns and patient concerns of operations, as well as financial concerns.
1.1 Understanding Finance
Finance is a commonly used term that describes an array of fields of study and practice where
money is concerned. In the popular press, finance often refers to banking and government
systems. Banks and government agencies, like the Federal Reserve, have a substantial role
in the economy. Banks are institutions licensed to receive deposits, make loans, and provide
for an orderly movement of money in the economy. The Federal Reserve is an agency with
responsibility for banking information and regulation, payment systems (working with banks
to process checks), and monetary policy (setting money supply and interest rates). Clearly
banks and government agencies serve important roles in finance for the economy.
For patients at healthcare organizations, finance refers to the management of billing, payments, and interactions with insurance companies. An office of Patient Financial Services
is generally available to answer patients’ questions about their bills and provide financial
assistance, when appropriate. Financial services representatives may work with patients to
determine all possible assistance options, including private insurance, Medicare, Medicaid,
and other programs.
5
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Section 1.1
Understanding Finance
For healthcare organizations and managers, finance also refers to accounting, the process
of preparing financial statements and additional analyses of interest to an organization’s
management. More specifically, finance is the management of assets, liabilities, revenues,
and expenses, which will be discussed in greater detail in Chapter 2. Assets are the items
controlled by the organization and include money (checking accounts), supplies, equipment,
buildings, and a host of other items. Liabilities, or debts, are the amounts owed to other individuals or companies. Revenues are the monies earned for providing patient services, selling
pharmaceuticals and medical supplies, and other activities. Expenses are the monies associated with paying personnel, purchasing pharmaceuticals and medical supplies, and using
equipment and buildings. This last definition of finance, or planning, tracking, reporting, and
analyzing the flows of money, is the focus of this book.
There are three components of finance for managers: financial accounting, managerial
accounting, and corporate finance. Each of these components refers to an area of activity
that managers must control for sound financial management of an organization.
Financial Accounting
Financial accounting is the practice of “keeping track” of resources. It involves recording and
compiling business and financial transactions, assuring the accuracy of transactions, and preparing reports of the results. With this definition, financial accounting functions are present
in almost every part of an organization. Given the complex activities that occur in healthcare
organizations, keeping track of resources can be a challenging task.
Tracking Costs
Imagine that a child is brought to the emergency department after falling on the playground.
Where does financial accounting occur in this case? Accounting for the emergency department begins long before the first patient arrives with the tracking of resources that were
acquired to build the department. The building and equipment were purchased and financial
accounting recognized both the purchase and how it is being paid for, perhaps by borrowing
money. Accounting also recognizes how much of the purchase price is allocated to each year
of its useful life. (This allocation is an expense called depreciation that will be considered in
Chapter 3.) Next, accounting keeps track of how much it costs to keep the lights on, even if zero
patients are present at any given time. In addition to the explicit electricity needed to keep
the lights on, inventories of supplies and resources must be available, waiting for patients to
arrive. Based upon forecasts of patient volume, personnel are hired, hours tallied, and paychecks issued. Human resources and accounting work hand in hand to assure that wages and
salaries are reported and paid properly.
6
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Section 1.1
Understanding Finance
Similarly, documentation of diagnoses and treatments requires clinical departments to work
with accounting. Tracking patient care is where the most substantial financial accounting
activity (in terms of the number of entries in an information system) occurs in healthcare
organizations. After a careful patient history and physical examination, the child is diagnosed
as having a scraped elbow with treatment consisting of cleansing the wound and applying a
bandage. For proper medical documentation, as well as payment and financial reporting purposes, at least three different coding structures are involved in this case. The use of proper
codes is important because they are the basis upon which healthcare providers and insurance
companies communicate. If providers want to be paid promptly and correctly, they must use
the right codes.
First, the diagnosis is clarified with an International Classification of Diseases—9th Clinical Modification (ICD-9-CM) code of 913.0 “abrasion or friction burn of elbow, forearm, and
wrist, without mention of infection.” On October 1, 2014, the ICD-9-CM codes used to report
medical diagnoses will be replaced by the ICD-10-CM codes. ICD-10 is more detailed and is
the system used through most of the world. The new ICD-10 code will be S50.0 “contusion
of elbow” and W09.8 “external cause of injuries, fall, falling (accidental), playground equipment.” The movement from ICD-9 to ICD-10 will be complex, as it means moving from a system that healthcare organizations have used for a number of years, with approximately 4,500
codes, to a new system with approximately 70,000 codes.
Second, after the diagnosis, treatment by the medical provider is clarified with a Current Procedural Terminology®, Fourth Edition (CPT-4) code of 99282 “Emergency department visit
with expanded problem focused history and examination with medical decision making of
low complexity.” And third, the use of the hospital emergency department as the site of the
diagnosis and treatment is clarified with an Ambulatory Payment Classification (APC) code of
613 “Level 2 type A emergency visit.” (More detail on the use of CPT-4 and APC codes will be
provided in Chapter 5.) Beyond the coding systems presented in this example, several other
coding systems may be employed, based upon the diagnoses, underlying causes of the need
for medical treatments, treatments, and disposition.
How will the child or other responsible party pay for the visit to the emergency department?
To start, a schedule of fees (called a chargemaster in hospitals) is prepared based upon
historical or estimated costs; see Exhibit 1.4. All of the services provided to the patient are
collected and placed on the patient bill and aligned with the schedule of fees. Some sets of
services may be bundled into groups for payment purposes. In our hurt child example, the
chargemaster for the emergency department might include a line item for each product provided to the child, including antibiotics, pain relievers, and bandages. By placing each product
on the patient bill, the emergency department can determine the expenses associated with
each patient’s care and track the use of supplies.
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Section 1.1
Understanding Finance
Exhibit 1.4 Ronald Reagan UCLA Medical Center charge description master
file, June 1, 2012 (selected entries)
Evaluation and Management Services
Emergency Room Visit, Level 2 (low to moderate severity)
Emergency Room Visit, Level 3 (moderate severity)
Emergency Room Visit, Level 4 (high severity)
Outpatient Visit, established patient, 15 minutes
Laboratory and Pathology Services
Basic Metabolic Panel
Blood Gas Analysis, including 02 saturation
Complete Blood Count, automated
Complete Blood Count, with differential WBC, automated
Radiology Services
CT Scan, Abdomen, with contrast
Mammography, Screening, Bilateral
MRI, Head or Brain, without contrast, followed by contrast
X-Ray, Chest, two views
Medicine Services
Cardiac Catheterization, Left Heart, percutaneous
Echocardiography, complete
Electrocardiogram, routine, with interpretation and report
Inhalation Treatment, pressurized or nonpressurized
Surgery Services
Arthroscopy, Knee, with meniscectomy (medial or lateral)
Arthroscopy, Shoulder, with partial acromioplasty
Carpal Tunnel Surgery
Cataract Removal with Insertion of Intraocular Lens, 1 Stage
2012 CPT Code
99282
99283
99284
99213
Average Charge
$300
$470
$750
$183
74160
77057
70553
71020
$2,070
$336
$6,270
$230
80048
82805
85027
85025
93452
93307
93000
94640
29881
29826
64721
66984
$200
$140
$30
$40
$17,847
$906
$289
$115
$9,018
$12,382
$5,481
$6,730
Source: State of California, Office of Statewide Health Planning and Development, Annual Financial Data Hospital Chargemasters,
http://www.oshpd.ca.gov/Chargemaster/default.aspx
After determining the charges on the patient bill, the payment status of the patient is evaluated. All hospitals, some clinics, and other healthcare settings have procedures to determine
whether a patient will qualify for charity care (and thus no charge is made to the patient)
or whether the patient directly or an insurance company will be presented with a bill. If an
insurance company is responsible for payment, the hospital must determine the amount that
will be paid, which is often specified in a contract between the hospital and the insurance
company. The display from the chargemaster in Exhibit 1.4 provides only the services and
the charge. Beyond these two elements, a complete chargemaster would include information
on all insurance contracts and payment policies of payers. Chargemasters are under constant
revision, as contract with insurance companies and payment policies change often.
Finally, a bill will be sent to the insurance company, and accounting will keep track of the
bill’s status, including the receipt of payment and the deposit of funds into the hospital’s bank
account. There are a great many ways in which insurance companies may pay providers, each
of which may require unique information to be included on the bill to assure correct payment
(Casto & Forrestal, 2013).
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Section 1.1
Understanding Finance
As this example demonstrates, even for the simplest patient visit, a substantial amount of
information is collected and used in financial accounting, and nonaccountants collect much
of it. Since the mission of healthcare organizations is the delivery of healthcare services, effective accountants learn to work closely with clinical and other administrative personnel to
track resources.
With the visit example replicated hundreds or thousands of times, financial accounting systems capture data that permit the tracking of all funds, allowing for reporting and analysis.
The most visible product of financial ac …
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