CHFP Cards

Not-For-Profit

- 503(c)(3) organization is organized and operated exclusively for religious, charitable, scientific, literary or educational purposes. - Exempt from federal income tax - Obtain equity capital only through gifts and donations - Lower borrowing costs - Pays lower raters to lenders on bonds - Donations are tax deductible for donors

Accounts Payable Overview

- AP represents expenses incurred but not yet paid. - Maximizing this amount allows the clinic to use cash for other purposes rather than paying operating expenses. - Important to realize that the clinic must pay its expenses on a timely basis to avoid very expensive finance charges and penalties ***Increasing this item will increase cash available.

Merit-based Incentive Payment System (MIPS) - QPP

- Adjusts Part B physician payments as much as 4% up or down in 2019. - Rising to 9% in 2022 and beyond Based on four categories of performance: - Quality (replacing PQRS) - Improvement Activities (new category) - Advancing Care information (replacing EHR) - Cost (Replacing VM)

Health Plan Strategies (Consumerism)

- Attractive provider network design that appeals to consumers at prices they are willing to pay. - Transparency tools tat encourage the use of high-value providers. - Population health incentives that reward individuals for managing their health.

Drivers of Consumerism

- Availability of information about diseases, treatments, physicians and other health professionals. - Expectations of consumers for convenience and levels of services they have become accustomed to in other sectors of the economy. - Increased patient cost sharing (high deductible health plans) turns patients into "shoppers" that demand price transparency.

Payment Posting (Post-Visit)

- Best practice of the PFS dept is to verify that the payment received is correct in accordance to the contract with the health plan. - If no payment is received when the patient bill is due, the PFS dept staff should contact patient and attempt to collect remaining balance due.

Benchmarking

- Budget as a management toll can have some limitations - Those limitations is that a budget relates only to the one organization's unique operating characteristics - Manager's may want to see how the expectations generated within the organization through its strategic planning and budgeting processes compare with other organizations - The process of benchmarking can be a valuable exercise in gaining further insight to operational performance.

Bottom-up Budgeting

- Budgeting starts at lower levels of an organization, such as in the departments or service areas. - Assumption that persons at the "front lines" of providing services to patients and clients are better informed about the details that support a budget

Bundled Payment Model & An ACO

- Bundled payments are a viable alternative if providers and health plans that consider an ACO agreement see it to be too labor-intensive or require too much of a capital investment. - Single prospective rate for all involved providers involved in a patients care and the providers then divide the payment among themselves.

Medicare Access and CHIP Reauthorization Act of 2015 (MACRA)

- CMS's strategy to tie 50% of al Medicare provider payments to alternative payment models (APM) and 90% of all Medicare Fee-for-service payments to quality and value by 2018. - MACRA replaces Medicare Electronic Health Record (EHR) or "meaningful use," the physician Quality Reporting System (PQRS), and Value-Based Payment Modifier (VM - 2015). - The new physician payment metholodies by MACRA are know collectively as the Quality Payment Program (QPP).

Health plans and healthcare providers may take on some degree of risk in their pricing when setting fixed fee prices such as:

- Capitation Rates - Per Discharge Prices - Insurance premiums

Coordination of Patient Care (Pop Health)

- Challenges in population health management arise from management of chronic conditions and from coordination of a patient's care between providers. - Must be incentive for providers to change focus from volume of services to preventive health and health promotion. - Payment of preventive health services and bonuses for achievement of preventive health services and bonuses for achievement of preventive health objectives is a good step.

The Billing (post-visit) step entails compiling the following items from the medical record:

- Charge - Diagnosis - Procedure Data Formal claim should also include: - Demographic information - Payment information

Providers that bill federal programs must have a compliance program with the following features:

- Chief Compliance Officer - Hotline or other anonymous method to communicate complaints - Written compliance policies and procedures - Ongoing training for all personnel - Disciplinary guidelines and enforcement - Internal monitoring and auditing

Other important sources of cash (Working Capital Management)

- Collecting AR quickly and keeping receivable levels low - Paying employees, vendors and creditors no sooner than the due date - Minimizing Inventory

Days in Inventory

- Common metric for monitoring inventory levels. - Hospitals use this ratio frequently, as do large physician clinics. - May not be relevant to a small physician office or a health plan that maintains only limited minimum inventory. Days in Inventory = Inventory / Average Daily Supply Expense Managers should aim for this ratio to be close to the average time it takes to place and receive an order for supplies. Should not exceed 14 to 21 days.

Valuable for finance to present data to clinicians on reimbursement in the forms of:

- Complications - Readmission - Mortality Rates - Length-of-stay - Ancillary service usage

Bond indenture

- Contract between issuer and bondholders. - Describes amounts issued, the maturity dates, the property or revenue pledged as security, the coupon interest rate of the bonds and any convenants (promises) the issuer makes about maintaining financial ratios such as debt service coverage, debt to equity and days cash on hand at agreed-upon levels.

Five main types of prospective payments:

- DRG Hospital - Per Procedure - Case rate - hospital or physician - Per diem - hospital - Bundled payment - hospital, physicians and post-acute providers

Data Availability (Business Intelligence)

- Data must be available to decision-makers in time for them to take action on it. - Clincial measures indicating the quality of patient care should be reported as frequently as possible (real time). Other metrics, such as performance on a capitation contract or income, do not need to be reported as often. - A schedule of priorities for the BI function should be established so managers know when to expect information.

Short-Term Debt

- Debt with a maturity of one year or less - Generally consists of amounts owed to banks on revolving lines of credit

Coding process analyzes the medical record to assign codes that describe the diagnosis.

- Diagnosis codes are part of the International Classification of Diseases (ICD) published by World Health Organization. Inpatient settings. - Procedures performed in a physician office or outpatient setting are described by the Current Procedural Terminology (CPT) published by the American Medical Association.

Risk Adjustment (Pop Health)

- Difficulty for finance in the implementation of population health management program is determining how to adjust payments for risk, measure improvement performance and distribute shared savings. - Payments and bonus targets are based on improvement in performance on average. This average may be skewed by the mix of persons by age, gender, prior medical history, and current physical condition. - Understanding the care needs of population members is critical skills that clinical professionals bring to population health management.

Direct & Step-Down Approach are effective in:

- Estimating costs at a high level, such as within an entire clinic, hospital, or even a department within the organization. - Knowing the total costs of operation can be useful in setting prices if volumes are fairly predictable with a limited number of charge items or if the resource usage of each service is similar

Advanced Alternative Payment Models (APMs)

- Exempts providers participating in Advanced APMs such as Patient Centered Medical Home (PCMH), the CPC+ program, an MSSP Track 2 or 3 ACO or a Next Generation ACO from MIPS reporting requirements. - Pays 5% annual incentive from 2019 to 201. - The 5% bonus is tied to the percentage of patients a provider sees through an Advanced APM in a given year.

Medicaid eligibility

- Expanded under ACA by increasing the income limits of persons to qualify for this program. - Decision to expand Medicaid lies with each state. - Intent of increasing the number of persons eligible for Medicaid is to reduce the number of persons seeking care for healthcare emergencies who have no ability to pay. - With more of the population covered by Medicaid, providers no longer have to shift the costs of care for the uninsured to other patients and other insurance plans.

Two broad categories of payment for healthcare services

- Fee-for-Service - Capitation

Per the AICPA Audit and Accounting Guide the following payment methodologies are commonly utilized by third-party payers:

- Fee-for-service - Per Diem - Per Case - Episodic - Capitation - Risk-based contracts

Collaboration (Pop health)

- Finance and clinical professionals must collaborate on determining what data is reported to front-line caregivers and executives and how it is reported. - Finance and clinical professionals must also collaborate in determining the network of caregivers (therapists, pharmacies, clinics, and specialty providers) needed to meet the healthcare needs of an assigned population. - Strategy to monitor resource use of high-risk members to identify adverse trends (such as diabetic patients losing control over their blood sugar levels) and to intervene with corrective action before patients need an expensive hospitalization. - Investment in data management systems and communication tools to allow all involved caregivers access to the latest information on a patient.

Communication Strategies

- Finance can provide reliable data from BI to clinicians. - Clinicians can offer guidance on metrics to be tracked. - Finance and clinicians must understand the "what's in it for me"

Evolving Models of Payment - Capitation

- Flat amount per person per month, regardless of number of services - Reduces the incentive of fee-for-service reimbursement - Encourages providers to maximize efficiency in healthcare delivery - Does NOT provide incentives for providers to coordinate care decisions with other caregivers. - Capitation can create incentive to limit care to only those services needed to address current illness or injury.

Long-Term Debt

- Greater than one year - Smaller entities have mortgage debt; Larger entities have bonded debt - Capital lease greater than one year - Operating leases less than one year

Managing Population health

- Group of providers and health plan collaborating to improve performance on measures of overall health (such as hypertension, diabetes, or cancer screenings) for a specific group of patients. - This effort is improving health outcomes and ultimately reducing the amount spent on services for those patients.

For health plans and providers to succeed under outcomes-based payment, both must understand and engage patients in three ways:

- Health plans and providers, with the assistance of employers, must learn how to help patients change behaviors that drive adverse outcomes. - Health plans and providers must eliminate unnecessary utilization - Health plans and providers must learn how to attract patients and increase the number of lives under management.

Days in Payable

- Health plans typicaly have large amount of payables on hand in terms of claims awaiting adjudication (process). - Timely paying invoices is key - Same principle for purchasing supplies on credit - essential to pay timely, to allow the organization to use the supplies to provide care. Accounts Payable / (Cash Operating Expenses / # of pays in the period)

Managing Inventory

- Important to maintain the minimum level of inventory needed to address patient care needs. Two important ratios to consider: 1. Days in inventory ratio (beneficial for internal users) 2. Inventory Turnover (beneficial for external users)

Capitation Effects on Providers

- Incentive to decrease utilization of services - may adversely impact quality of care. - Incentive to keep patients healthy - Incentive to keep operating expenses under control

Entities obtain cash from:

- Income from operations (adjusted for items not using cash, such as depreciation) - Gifts and contributions - Proceeds from the sale of investments - Drawdowns of bank accounts - Debt borrowing - Proceeds from the disposal of PP&E

Duplicate Services (Pop Health)

- Inherent in volume based fee-for-service reimbursement is an incentive for physicians and hospitals to duplicate services provided by other caregivers - since duplicate services by different entities may be reimbursed. Bonuses for achieving cost reduction targets can help to reduce that incentive. - Communication technologies can allow physicians and hospitals to share patient test results and reduce costs from duplicate testing while improving patient outcomes.

Provider Strategies (Consumerism)

- Insight into how consumers want to access care and making it easy for them to choose the health system every time. - Price transparency tools, including cash prices for "shoppable" services and procedures

For-Profit

- Investor-owned entity - No tax deductible on donations & do not tax-exempt to lenders on debt - Able to raise capital through stock sales

Bonds

- Long-term promissory note issued by a debtor to a group of lenders. - Bonds in healthcare are issued by for-profit entities, not-for-profit entities or hospital taxing districts. - Proceeds are typically used to finance capital projects or to refinance older bonds as they mature. - Majority of healthcare bonds are owned by institutional investors such as insurance companies, pension funds, mutual funds or asset managers.

The cost driver should be closely related to the manner in which a revenue producing area consumes services or obtains benefit from a non-revenue area of the entity.

- Managers should perceive a cost driver as a fair allocation of costs to their area of responsibility in a revenue producing function in the organization. - This should create an incentive for the manager in a revenue producing area to limit the amount of services they use from overhead departments to reduce costs. - As pressures mount on healthcare entities to become more price competitive, a keen attention to all costs of providing services - direct and indirect - is essential.

Overview The Revenue Cycle

- Manner in which a hospital & physician is paid for services - Process for billing and collections - Three Different phases: Pre-Vist, During Visit, & Post-Visit Activities

ACO model of payment is currently used by:

- Medicare Part A & B - Pioneer ACOs - Shared Services Program (MSSP) Track 1, 2, & 3 ACOS - Next Generation ACOs - Some state Medicaid Programs - Some large commercial health plans

Accountable Care Organization (ACO) - Overview

- Network of healthcare providers that are organized together to share financial and clinical responsibility for the care of a group of patients. - Requires a group of primary care physicians who serve in lead roles managing care of a population of patients. - Makes provider groups accountable for the health of the patients under their care and creates financial incentives for providers to share data and avoid unnecessary tests or procedures. - Fee-for-service basis - the total cost incurred for patients covered by the ACO are tallied at the end of a year and incentives can be paid to providers for keeping the costs of care below targeted levels. ***ACO Model compensates providers who keep patients health and keep total patient-care costs lower.

Post-Visit Activities

- Once the patient has been discharged, the process goes from gathering data to using that data to compile a claim for payment. - Discharged but Not final Billed (DNFB) - The time between discharge of the patient and submission of that claim to a health plan. - Goal of managers in a physician or hospital setting to work with their health information management/medical records (HIM) and patient financial services (PFS) staff to minimize the amount of time a claim is in DNGF status.

Allocation - Step-Down Approach

- Overhead depts obtain benefits from other overhead depts. - Interrelationship between hospitals and nursing facilities - Required for preparing of Medicare cost reports for hospitals and nursing facilities

Criteria classifying a lease as a capital lease (finance lease) include:

- Ownership transfers to lessee at the end of the lease, or the lessee has the option of purchasing the asset and is reasonably certain to exercise it. - Lease term coincides with the expected economic life of the asset - Present value of the lease payments equals or exceeds the fair value of the asset. - Asset has no alternative use to the lessor at the end of the lease.

Four models of reimbursement that provide motivation for providers to work together to generate positive patient outcomes. These models are:

- Patient Centered Medical Homes (PCMHs) - Accountable Care Organizations (ACOs) - Bundled Payments - Quality Payment Program (QPP) under the Medicare Access and CHIP Reauthorization Act (MACRA)

Capitation

- Pays a fixed amount Per Member Per Month (PMPM) to a provider in advance as payment for all services necessary to the patient. - Relationship between primary care physicians and managed care plans such as health maintenance organizations. Also, used for specialty services. - Capitation is shown as Premium Revenue instead of patient revenue. - Charges incurred by patients under capitation arrangements are not recorded as AR but are written off at time of billing. Incentive of Capitation - Strong incentive for providers to decrease the utilization of services. - if taken to the extreme, limitations on utilization of service may adversely impact the quality of care. - Conversely, providers do have incentive to keep patients healthy to minimize the utilization of expensive treatments or services. - Strong inventive to maintain control over operating expenses, as capitation payments are stable month to month.

ACO Model risk to member providers:

- Penalties may have to be paid if cost and quality performance do not meet established targets. - Investment in resources to coordinate care and proactively manage the costs of care is needed. Investment Ex: Hiring additional staff such as nurse care managers and data analysis or purchasing electronic medical record technology. - If it does not generate income above the cost of such investments, the ACO could realize financial losses in addition to losses from the cost of care or penalties for missing quality benchmarks.

Per Diem

- Per Day payment system, used by hospitals and long-term care facilities - Health plan reimburses a facility a fixed amount - Payment may be higher or lower based on the type of service a patient receives. Ex: ICU would be more - Administratively easy - predictable rate which is useful in setting competitive premiums - Facilities have strong incentive to keep patient longer, which leads to a "concurrent review" where health plans monitor the stay of the patient.

Medical Record Analysis and Coding

- Physician may need to review all documentation contained in the medical record to prepare a final summary of care provided to the patient for use in the billing process. - Discharge Summary - Prep of this document is a common point of delay, which often are avoidable by close attention to ensure that physicians get the data they need as soon as it is available. - Once completed, the medical recorded is analyzed by a professional trained in the assignment of procedure and diagnosis codes to a patient record and coded for billing. - Person who performs this coding function is a specially trained professional with knowledge of anatomy and physiology, medical terminology, and basic medical procedures.

Data Integrity (Business Intelligence)

- Process for maintaining the integrity of data. - Accurate reporting of clinical data that could influence patient care - Evaluating the costs of care under fixed or prospective payment methodologies. - Amount of data is increasing rapidly due to healthcare information systems becoming more sophisticated. - BI personnel must monitor data accuracy, implement data integrity checks, and work with clinical administrative system users to address user error that could compromise data quality.

HIPAA (Health Insurance Portability and Accountability Act)

- Protects patients health and demographic information (protected health info) - Applies to "covered entities" (health plans, clearinghouses, and healthcare providers) - Requires signed authorization by the patient for any use or disclosure not explicitly required or permitted - Limits disclosures to "minimum necessary" information ***Set of federal compliance regulations to ensure standardization of billing, privacy and reporting as institutions convert to electronic systems.

How do health plans provide value by working with ACO entities?

- Referring patients - Assisting with the collection and analysis of cost and quality data - Resources to help resolve issues in cost and quality performance - Service infrastructure for patients that would otherwise have to be funded by the ACO

Operating Lease

- Rental agreement - At the end of lease term the lessee returns the asset to the lessor - In 2018, operating leases must be reported on the balance sheet as an asset and a liability, regardless of the size. - However, lessor may elect not to capitalize leases whose term is 12 months or less

Allocation - Direct Method

- Simplest approach to cost allocation - Provides a good idea of total cost of pricing service if the cost driver assumption is reasonable

Strategic Objectives

- Some clinicians may view organizational success very differently than finance staff and not consider the financial implications of clinical decisions. Examples: 1. Policy for all patients to be screened for antibiotic resistant infection may be good from a patient care perspective, but testing could be expensive. 2. Finance sources supplies from lowest-cost vendor without considering the usefulness of such supplies in delivering care. - Overall, there is great value in clinicians understanding the cost and revenue perspective of finance staff and in finance professionals understanding the objectives of their clinical partners.

Lease Guidelines

- Starting in 2018, all leases (except those under a year) must be reported as an asset and a liability on the balance sheet whereas currently only capital leases are capitalized.

Operating budget typically contains components of:

- Statistical budget - Revenue budget - Expense budget

Cost Shifting

- Used in physician clinics and hospitals - Lower prices are received from government insurers (Medicare & Medicaid) - Negotiated from insurers that have large numbers of members that can generate large volumes of patient referrals - Lost revenues from discounts given to those large volume buyers is made up by higher prices charged to other customers. Discount prices to high volume buyers -> lost revenue -> shifted to other customers -> resulting in higher prices for them ***When providers try to get one payor to pay for costs that have not been covered by another payor.

Physician offices may monitor items through dashboards such as:

- Visits per day - Visits per provider - Revenues generated to date - Cash Collections - Days in receivables - Wait times - Customer satisfaction

Data Strategy (business intelligence)

- What data is gathered - What is measured - A process to protect the accuracy of such data Once established, management must decide what metrics will be monitored. In some cases, the metrics monitored will be dictated by government regulators or price health plans. Also, the organization may want to measure other metrics that indicate progress toward strategic objectives.

Required to produce financial statements

1. Balance sheet 2. Statement of operations 3. Statement of changes in equity 4. Statement of cash flows

Benefits of a budget

1. Budgets are useful in helping manager's better control operations in their clinic, hospital, or health plan. 2. Values in the budget can be used as benchmarks against which actual revenue and expense results can be compared. 3. Budgets are set up at the total organization level or for departments or service areas in similar organizations. 4. Comparing actual results with budget targets can help managers identify areas where improvement in performance is needed. If revenues are below expectation or expenses above budget targets, identifying differences can guide managers toward potential problem areas and help to focus corrective action where it is most needed.

CMS has launched three bundled payments programs (Voluntary or Mandatory):

1. Bundled Payments for Care Improvement (BPCI) (Voluntary) - initiative with four care models and approximately 1,600 participants (2013). Two most popular models are hospital plus post-acute care only. 2. Care for Joint Replacement (CJR) (Mandatory) - initiative with 800 hospital participants in 67 geographic areas (2016). 3. Oncology Care model (Voluntary) - more than 3,200 oncologists incentive to improve care coordination for chemo patients (2016).

Payment Methodologies: Risk from Lowest to Highest

1. Charge based payment 2. RBRVS 3. Per Procedure Payment 4. Bundled Payment 5. Capitation Payment

Payment Processing (Post-Visit)

1. Claims adjudication 2. Claims logging 3. Eligibility 4. Adjudication 5. Remittance

Benefits of benchmarking

1. Comparison of key performance measures, relative to the competition 2. Gaining further insight into operational performance ***Does NOT serve as a primary tool for managers to maintain the budget***

Considerations for implementing population health

1. Coordination of patient care 2. Duplicate services 3. Risk adjustment 4. Collaboration

Payment Methods lowest to highest risk

1. Cost-based payment 2. Charge-based payment 3. DRG payment 4. Case Rate payment 5. Bundled payment

Three components to implementing business intelligence

1. Data Strategy 2. Data Availability 3. Data Integrity

Process of completing an Activity Based Costing (ABC) analysis:

1. Gather total costs and activity statistics 2. Determine what drives costs (in healthcare cost are frequently driven by time) 3. Measure cost drivers 4. Convert cost drivers into costs and calculate total per-unit costs

Factors of Uninsured

1. Health insurance premiums becoming too costly 2. Individuals being screened out of insurance policies 3. Employers feeling they cannot afford to continue to provide health insurance as a benefit

Within a hospital or physician practice, the interaction between finance and clinical staff must focus on:

1. Improving operational efficiency 2. Quantifying the extent and benefits of clinical outcomes 3. Proactively projecting the impact of future payment system changes

Three types of financial ratios used to monitor financial performance:

1. Liquidity 2. Profitability 3. Capital Structure

Post-Visit Activities Include

1. Medical Record Analysis & Coding 2. Billing 3. Payment Processing (Claims adjudication) 4. Denial Management 5. Payment posting and follow up 6. Account Disclosure

Most hospitals and providers set retail prices significantly above rates actually paid by commercial insurers or the government. They do this for three reasons:

1. Not all insurers participate in provider networks that give them access to contracted payment rates. Ex: Auto insurers, liability, or travel insurers pay a provider's full charges. 2. Markets with little competition % of charge contracts is still common. The higher the price, the higher the % of charge payment, unless the contract limits a provider's annual price increases. 3. Outlier provision that entitles providers to an additional payment for particularly sick and high-cost patients.

Revenue Cycle Phases

1. Pre-Visit Activities: Beginning with activities prior to patient visit. 2. During Visit Activities: Activities during the patient visit when the patient receives care. 3. Post-Visit Activities: Activities that occur after the patient receives services.

During Visit Activities

1. Provide and Document Care to Patient 2. Utilization Review 3. Charge Capture 4. Discharge 5. Medical Record Completion

Direct Costs shown in a department manager's monthly operating report include:

1. Salaries of nurses or patient caregivers 2. Salaries of department managers and supervisors 3. Employee benefits, including paid time off (PTO) 4. Medications 5. Supplies 6. Purchased Services 7. Equipment maintenance contracts

Key factors that contribute to higher cost of health care include:

1. Technology 2. Aging Population 3. Chronic disease 4. Litigation

Health insurance plans have a greater focus on:

1. identifying providers that can render high quality care at the lowest price 2. Negotiating agreements with such providers to include them in provider networks 3. Determining the future cost impact of such relationships on prices charged to consumers

Under the ACA, health plans are permitted an underwriting profit of no more than:

15% for plans in the large group market 20% for plans in the individual & small groups Any excess must be rebated to patients

Average days for the provider to be paid

53

Two common formats of a claim submitted electronically through a standardized format developed by the American National Standards Institute (ANSI)

837 Record - Claim for payment (or bill) is referred to as the ANSI 837 Health Care Claim format. 835 Record - Remittance advice sent from the health plan to the provider explaining the payment decision is also a standard ANSI format, referred to as the ANSI 835 Health Care Claim Payment/Advice.

Activity Based Costing (ABC)

A bottom-up or micro costing approach, in contrast to an allocation driven, top-down costing method used on the Medicare Cost Report ***Situation where a manager needs to determine the costs of a specific service to determine a price of that service for the purposes of negotiating a specific payment rate.

Fee-for-service

A charge-based payment mechanism in which a provider is paid either list price (full charges) or a percentage of charges (full charges less a discount) for the specific services rendered. Incentive for fee-for-service = more units of service = more payments

FASB definition of a lease

A contract...that conveys the right to control the use of identified property, plant or equipment...for a period of time in exchange for consideration."

Medicaid

A federal and state assistance program that pays for health care services for people who cannot afford them. ***Joint program between federal government and states.

Medicare

A federal program of health insurance for persons 65 years of age and older, persons with disabilities, and persons with End Stage Renal Disease (ESRD).

Copayment

A flat amount that the patient pays at each time of service.

Bundled Payment

A form of episodic payment in which the health plan pays a single prospective rate for all services provided by physicians, the hospital, and acute providers. Aligns the incentives of hospitals and physicians, which lowers conflicts. Form of risk-based contracting

Carve-outs and Subcontracts

A health plan may pay a flat amount to "carve-out" a service and have another entity provide specific services to a health plan membership Ex: Behavioral health or chronic disease care

Current Ratio

A measure of the ability of an entity to pay its short-term debts as they come due, and is calculated using the following formula: Current Assets / Current Liabilities Target minimum level for this ratio should be approximately 2.0. A value less than 2.0 for the current ratio could indicate the organization's inability to timely pay its current obligations.

Diagnosis-Related Group (DRGs)

A payment base on the patient's diagnosis. Most widely used in hospitals. 750 different categories Amount paid is a flat rate per discharge and is adjusted based on: - Relative severity of the patient's condition - Resources used to treat the condition as determined by the DRG for that condition

Deductible

A pre-determined amount that the patient pays before the insurer begins to pay for services.

Care Mapping

A process that specifies in advance the preferred treatment regimen for patients with particular diagnoses. This is also referred to as a clinical pathway, clinical protocol, or practice guideline.

Marginal Cost Pricing

A seller will offer a lower price to a customer that buys more of a service - essentially trading a lower price for higher volumes of sale. This requires a manager to make difficult decisions on how much cost can be included in the price charged to a customer based on a value judgment about how much customer volume will be gained for that lower price. If entities price some of their services using a marginal cost approach - they must change more than full cost elsewhere in order to turn a profit. ***Requires determining how much cost to include in pricing***

Key Definition of ACO

ACO is a payment and care delivery model, included in the Affordable Care Act that ties provider reimbursements based on quality metrics and expected cost reductions for the care of a defined population of patients.

Risk Contracting

ACO places hospitals and physicians at some risk of financial loss if the cost of care to patients exceeds target levels set by insurers.

Accounts Receivable

AR represents cash that could be usable by the clinic if received from insurers. ***Decreasing AR will increase cash (Payments to the organization)

Direct costs for health plans

Actual claim payments made by the plan on behalf of its members

Prospective Payment

Advantageous to the health plan by fixing the rate of payment per occasion of service at a predictable rate. Remember: Charge-based payment would be more predictable than cost-based payment, but still not as predictable as prospective payment.

Full-cost pricing

All direct and overhead costs and desired level of profit are included. The price for services covers all costs of the service plus desired profits. Byers in this situation have little leverage to entice a service provider to lower prices since they have few alternative sources for that service. In today's competitive healthcare market place - few entities - hospital, health plan, or physician - are able to use a full cost approach to set prices and may have to reduce prices in order to secure customer volumes. Little competition = Full-Cost Pricing = Direct & OH Costs + Desired Profit

Amortization

Allocation of the acquisition cost of debt to the period which it benefits

Benefit Payment

Amount paid by the insurer to the provider after the claim is determined as appropriate.

Break-Even Analysis

An application of the contribution margin concept to determine the number of units of service at which an entity breaks even and recovers its direct fixed cost. Revenue - Variable Cost (i.e., Contribution Margin) = Fixed Cost Break-Even Volume = Fixed Cost / Contribution Margin per UOS

Provider (WFBH)

An entity, organization, or individual that furnishes a healthcare service

Rate Variance (Price Variance)

An estimate of how much of a total budget variance is due to the rate per unit of revenue or expense being different than the budget estimate for the entity. - Rate variance tells how much of the total variance is a result of price - which is something that may not be controllable by managers - (Actual Rate or Price --- Budget Rate or price) x Actual Volume

Volume Variance

An estimate of the extent to which the total budget variance in a budget line item is a result of actual volumes being different from those used in the budget projection. When combined with the rate variance, volume variance can be very useful to a manager needing to know more about a budget variance.

Budget

An expression of the organizations strategic plan in numeric terms. Defines the organizations plans for earning revenues and using resources over a given time period.

Inventory Turnover

An external user of an entity's published FS, such as a rating agency, may not have access to supply expense. In that case they use the ratio called inventory turnover: Total Operating Revenue / Inventory Large numerator relative to the much smaller denominator will typically result in inventory turnovers for a hospital of about 50-60 times a year.

Accountable Care Organization (ACO)

An organization of healthcare providers accountable for the quality, cost, and overall care of Medicare beneficiaries who are assigned and enrolled in the traditional fee-for-service program. Triple Aim of: 1. Improving the individual experience of care 2. Improving the health of populations (population health) 3. Reducing the per capita cost of care of populations Triple Aim Reform: 1. Quality Outcomes 2. Reduced Cost 3. Increased Patient Safety and Satisfaction with Treatment Triple Aim 3rd Definition: 1. Healthy Population 2. Extraordinary patient care 3. Reasonable costs

Payer (BCBS, MedCost)

An organization that negotiates or sets rates for provider services, collects revenue through premium payments or tax dollars, processes provider claims for service, and pays provider claims using collected premium or tax revenues.

Net Present Value

Analysis estimates the present value of the future cash inflows and outflows associated with the asset (i.e., expresses them in today's dollars) and subtracts from it the asset's current acquisition cost. If the present value > the price of the item, the investment has an NPV and can be beneficial to the business

Cautionary Use of Interim FS

Analysis of interim financial statements using the ratios described should be interpreted with care as seasonal variations in patient volumes or service utilization may skew observed ratio values. Any analysis done on interim FS should include comparison with the same time period in the prior year (to account for seasonal swings) or with budgeted results.

Medical Record Completion (During)

Any information needed for medical record completion would be gathered in the final phase of the discharge process.

Revenue Budget

Application of expected collection rates or premium rates to estimated volumes to arrive. - Rate of collections for the items on the statistical budget, such as assuming a rate increase from prior years or the addition of new pricing modules such as capitation. - Changes in pricing for a hospital or physician office in contracts with insurers; conversely, insurers would integrate changes in premiums based on competition, government program changes, or implementation of new business lines. Provides a clear idea of resources coming into the organization in the coming year.

Technology Priorities

As pressures by care purchasers limit payment growth, healthcare providers must make new kinds of technology investments to help manage outcomes, quality, safety and cost.

Eligibility (Payment Processing - Post)

As the claim is being adjudicated, first step is to verify the patient was eligible for coverage on the date of service. Important because patient eligibility coverage may change, and record-keeping by the health plan may lag behind the actual transaction. Ex: A patient with insurance provided by an employer may lose coverage because of termination of employment, yet the health plan may not be advised of that event until after the patient has accessed services.

Not-For-Profit accounting equation

Assets = Liabilities + Net assets

Investor-owned organizations accounting equation

Assets = Liabilities + shareholders Equity

Hospitals use two common metrics based on utilization of inpatient capacity

Average Length of Stay (ALOS) & Occupancy Percentage

Referring Patients (Price Transparency)

Awareness of the needs of price-sensitive patients, helping them identify providers that offer the best price at the patient's desired level of quality.

Denial Management (post-visit)

Best process to denial management is to create a log of all denials received and determine trends and look for underlying causes for these denials. - Good practice to train new staff on trends to look for.

Group Rating

Breaks a community down into groups and determines the prices they pay based on the risk of that specific group needing services. Ex: Younger male is lower risk than childbearing or older women Some groups that have a higher proportion of low-risk individuals would be charged lower premiums than a group having a higher risk (older or female) demographic.

Expense Budget

Budget created by using results from the statistical budget. Managers can develop estimates of expenses by knowing operational relationships, such as the: - Number of labor hours per patient served - Average time to address a patient billing question - Average amount of medication per patient discharge - Salaries for executives and physicians employed in a hospital or clinic setting

Mortgage

Business borrows money from a bank to purchase real or personal property, typically a building or a piece of land, and pledges the asset as collateral to secure the debt. Banks can then package mortgages and sell them to investors as collateralize debt securities.

Strategic Capital

Capital investments made to expand capacity, capabilities, or enter new service lines. - Prioritize on availability of earnings - High priority on replacement of revenue-producing items or assets required to operate the business

Maintenance Capital

Capital investments made to replace existing capabilities or maintain current service levels

Difference between a case rate and the DRG

Case rate encompasses a group of similar procedures DRG can be specific to a unique diagnosis and may or may not include a procedure

False Claim Act

Chief enforcement vehicle of the federal government, which allows the U.S. Department of Health and Human Services to recover monetary damages of up to $11K per false claim.

Chargemaster

Compiled price listing by a hospital or physician.

Contribution Margin

Concept for analyzing the relationship between revenue, variable and fixed costs. Revenue - Variable Cost Contribution margin is the "contribution" that revenue makes to covering direct fixed costs and generating from a certain volume level on, a "margin" towards also paying for indirect costs

Compliance

Conformity with applicable laws and regulations Compliance is essential for the following federal healthcare programs: 1. Medicare 2. Medicaid 3. CHIP (Children's Health Insurance Programs) 4. TRICARE - health program for active duty and retired uniformed service members and their families. ***The need to abide by governmental regulations, whether they are for the provision of care, billing, privacy standards, or security.

Primary Care Physicians role is viewed as:

Coordinator of a patients care Assessing a patient's condition Referring a patient to a specialist physician

Variable Costs

Correlate directly with the volume of services provided. If # of patient visits increases, the cost of supplies used in patient care should increase as well. In a health plan, capitation payments are good illustration of variable costs, since those payments increase as membership increases.

Direct Costs

Costs incurred by the provider to provide healthcare services Key: Costs directly associated with providing services or products Can be variable or fixed

Indirect Costs

Costs necessary to operate the business that are not incurred in the provision of services to patients, customers, or clients. Referred to as "overhead" or "adminstrative" Examples of indirect costs are: - Salaries paid to executives - Support services such as laundry, cafeteria, business office, medical record, accounting or information systems - Facility operating costs such as maintenance, security or utilities

Indirect Costs Key Point

Costs of providing support or resources for the actual delivery of services but they have no direct relationship to the volume or type of services provided Can be variable or fixed

Utilization Review (During)

Data from the medical record to support any additional requirements of the health plan, such as certification of additional days or demonstration of the need for an additional surgical procedure.

Employers (Price Transparency)

Data to help shape their benefit design and understand their healthcare spending, transparency tools for employees.

Types of out-of-pocket payments by patients that can be required as part of a health insurance plan are:

Deductibles Co-payments Coinsurance

Charge Capture (During)

Documenting services in the medical record may assist staff in completing charge capture - where the individual items making up the total charges on a patient account are completed. Hospital Claim Charges: - Room & Board - Diagnostic Testing - Supplies - Medications - Therapy Services Physician Office Claim Charges: - Evaluation & management of the patient condition (Emergency Medical Treatment (E&M Charges)) - Procedure fees - Diagnostic Testing - Limited Medications

New Technology Priorities include

Electronic Medical Records Physician and Post-Acute Care Integration Patient Engagement Technologies Decision Support

Planning

Entails preparing the business for future operation in a "big picture" sense.

Essential Relational Elements

Essential elements of the cooperative relationship between clinical and financial staff include: - A common set of objectives - Agreement on communication strategies - A sense of trust and transparency between the two diciplines Common objectives + Communication Strategies + Trust & Transparency = Cooperative Relationship

Patient Scheduling (Pre-visit)

Essential that managers pay particular attention to the accuracy of data gathering and processing at these early stages of a patient visit. - Basic demographic data about the patient and the payment resources is collected - Data should be recorded as part of creating the patient account

Step One of ABC - Gathering total data

Establishes a rate per unit of service for the activities that are used in a service, such as in a clinic visit. Ex: The manager needs to understand the cost per visit for medicine and for behavioral health in a clinic that has both medicine and behavioral health services. Using either a direct or step-down method, the analysis would result in a cost per visit that is blend of both the medicine and behavioral health services. If the actual number of resources used in a service is different, then an analysis using direct or step-down methods could be misleading.

Uninsured & Out-of-network Patients (Price Transparency)

Estimated price of standard procedure without complications, understanding the complications and unforeseen circumstances may increase the price, clarity on what services are - and are not - included in the estimate.

Certain activities occur both before the revenue cycle begins and after the cycle has completed.

Ex: Initial negotiation of contract between a hospital or physician and a health plan and ongoing follow-up of that contract relationship that should occur separately from the processing of patient transactions within the revenue cycle.

Healthcare Technology

Exerts significant upward pressure on the operating expenses in this industry. While technological innovation in some areas such as computers or consumer electronics usually yields reductions in price to the buyer, such is not the case in health care.

Primary Care Physicians - Usually trained in:

Family Practice General Practice General Internal Medicine Pediatrics

Sarbanes Oxley Act

Federal legislation designed to tighten accounting standards in financial reporting and that holds top executives personally liable as to the accuracy and fairness of their financial statements.

Current Liabilities

Financial obligations that will be repaid within one year. Estimated third party payor settlements

Statement of Cash Flows

Financial statement used to determine the sources and uses of cash for a healthcare entity using the accrual basis of accounting. Three broad areas: 1. Operating Activities 2. Investing Activities 3. Financing Activities

Co-payment

Flat amount that the patient pays at each time of service

Revenue Cycle

Flow of money between the patient, the insurer, and the provider of healthcare services.

Specialists

Focus on in-depth training in special diseases, body systems, or types of healthcare services.

Risk Pools

Generally a large population of individuals who are all insured under the same arrangement, regardless of working status.

Days Cash on Hand

Gives an indication of how many days of operating expenses the entity could pay with the cash it has on hand - assuming no other cash was collected during that time. (Cash + Cash Equivalents) / (Cash Operating Expenses / Number of days in the period)

Information systems are vital for formation of an ACO

Gives the ability to share clinical data among providers and analyze data in an essential part of operating a successful ACO.

Value, Quality, & Payment

HFMA Value project defines values as: "quality in relation to the total payment for care." Quality - Composite of clinical outcomes, safety and patient experiences with healthcare services. Payment - Amount paid by all purchasers of health care, including the insurer and patient. Clinical professionals have greater insight on quality elements of value, while finance has an understanding of payments and has access to analytical tools and data.

Balance Sheet is composed of:

Heading, body and notes Top of the balance sheet includes three-line heading: - Organization - Name of statement - Two dates Two dates often shown so that reader can compare two successive periods, called "comparative balance sheet"

Allowance for uncollectibles

Health care organizations also present an estimate of how much their patient accounts receivables they will likely will not be able to collect

Benefits "Cap" on reimbursement amounts

Health plan incentive for the patient to use insurance only when needed

Per-procedure

Health plan pays a specified fee for each procedure performed on a patient in a hospital or ambulatory care facility, or by a physician. Two per-procedure payment approaches are used: - Ambulatory Payment Classification (APC) - Resource-Based Relative Value Scale (RBRVS)

Medical loss ratio

Health plans must spend 80% to 85% of premiums on clinical services and quality. The amount remaining after medical expenses is used to pay admin expenses and profit for the health plan.

Higher the DRG weight

Higher the payment is to providers

Since the majority of their work is done within a hospital facility, specialties of radiology, anesthesiology, and pathology - along with emergency room physicians and hospitalits are referred to as?

Hospital-based Physicians

Facility Providers

Hospitals Skilled Nursing Facilities Assisted Living Facilities Home Health Agencies Ambulatory Surgery Center

Key Difference between traditional health plan-provider relationships and the ACO

In an ACO, the health plan does not have as much responsibility to for the care decisions made by ACO providers. Instead, the health plan delegates most of that responsibility to the ACO, but holds the ACO accountable for cost and quality.

Price Transparency

In health care, readily available information on the price of healthcare services that, together with other information, helps define the value of those services and enables patients and other care purchasers to identify, compare, and choose providers that offer the desired level of value.

Accounts Payable

Increase = source of cash Decrease = Use of cash

Receivables

Increase in receivable represents a use of cash and would be shown as a negative number. Receivable goes up = Use of Cash

Providers sometimes have to pay insurers to cover the cost of defending against lawsuits and paying large jury awards.

Increased Insurance Premiums

Medicare Part A Covers

Inpatient hospital services, certain organ transplants, ESRD treatment , inpatient skilled nursing facility care, home health care and hospice care.

Insurer to ACO

Insurer pays a fee for service claim to the ACO provider if the patient receives care from the ACO.

Insurer to Non-ACO Provider

Insurer pays claim to the non-ACO provider if the patient receives care from a non-ACO provider.

integrated health systems

Integrate all care under the umbrella of a central organization, and often include inpatient/acute care, primary care/outpatient care, long-term care, home care, and other patient-care settings

Pre-Visit Activities

Intended to facilitate the gathering of information necessary for serving the patient during the visit and for billing and collection for services after the visit. Include: - Patient Scheduling - Eligibility Verification - Pre-certification - Registration - Point-of-service collection Activites: 1. Gather demographic data from patient. 2. Verify that the patient's information in the system is updated and complete. 3. Contact the insurer to verify insurance benefits and determine co-pay, deductible, etc. 4. Educate the patient about their financial responsibility (co-pay, etc). 5. Ask the patient how they would like to make payment. 6. Collect any co-payment, deductible, or patient amount due.

Inventory

Inventory represents cash spent on supplies not yet used. ***Decreasing inventory will increase cash available ***Minimizing inventory is the most difficult to manage in working capital management

Income Statement

Investors-Owned: - Operating Income - Non-Operating Income - Income for taxes Not-for-profit: - Operating Income - Net Income - Excess of revenues

Concurrent Review

Involves staff from the facility working with the health plan to review the medical justification and obtaining a certification of necessity for the patient's continued stay. - Resource intensive for both health plan and provider - Facility bears the risk of the cost of care possibly exceeding per diem payment - Consequently, facility can limit costs and services provided to the patient to only those services deemed necessary for care during that occasion of service. ***Monitors appropriateness and medical necessity of a hospital stay WHILE the patient is in the hospital and implementing discharge panning.

Strategic Plan

Looks at a long-term view of the view (often 5 years) Describes the current state of the business, including its strengths and weaknesses, opportunities and threats, as well as any specific organizational objectives and action steps for achieving those objectives. Becomes the foundation for budgeting

Anti-Kickback Statute

Makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or in return, for referral

Zero-Based Budgeting

Managers start each budget projection as if there were no past experience and each line item is justified as it its reasonableness each year. - Tightly controlled budget, which may be appropriate in a physician clinic, hospital, or health plan in financial difficulty - Tedious and very labor intensive - Results in realistic and effective budget target

Depreciation & Accumulated Depreciation

Measure of how much a tangible asset (such as plant or equipment) has been used up or consumed. Accumulated Depreciation = Total amount of depreciation taken on asset since it was put to use.

Health Plans Common Metrics

Measure operations based on the number of services or payment per member, per month or PMPM or in units per 1,000 members. Common Metrics: PMPM Cost PMPM Patient days per 1,000 members (days per thousands) Total cost or volume for the time period / (Average # of members for the period X months in the period)

Liquidity Ratios

Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash. Most common: o Current Ratio o Days cash on hand o Days in receivables o Days in payables ***Measures the ability of an entity to pay its current obligations as they come due.

Occupancy Percentage

Measures the amount of available inpatient bed capacity used during a given period. Patient days / (beds in operation X days in period) X 100 Useful in understanding if the hospital has sufficient capacity available to meet patient care needs. Below 80% - Excess capacity available Above 80% - hospital is being over-utilized Depending on how a hospital is paid or if it participates in a population health initiative such as with an ACO, over utilization of inpatient capacity may actually cause financial losses.

Other provisions of the Affordable Care Act include:

Medicaid Eligibility Accountable Care Organizations (ACOs) Value-Based Purchasing Bundled Payments

Fee for Service Claims

Medical expenses for a health plan are the payments for claims for service during the period.

Health plans limit the volume of services to those that are:

Medically necessary

Lifetime Reserve

Medicare Part A after 180 days per spell of illness, the patient has a one-time bank of days to cover long stays.

Cost-based Payment

Medicare program began with a payment mechanism to hospitals that since nearly eliminated the healthcare industry. Calls for the insurer to pay the hospital based on the costs of providing services, with a nominal allowance for margin Hospitals benefit the most from the cost-payment method - Advantageous because it is a higher likelihood that all costs will be paid, and there is no incentive to be efficient in providing care, since costs will be reimbursed by the insurer.

Operating Budget

Most common component in the financial plan for a healthcare business. Provides a benchmark for the normal day-to-day operation of the business and serves as the future projection of the income statement Includes estimates of service volumes, revenues, and expenses

Monitoring Revenue Cycle Performance

Net days in receivables calculation - good measure of how effective the organization is in collecting amounts due from patients and health plans. Balance Billing - Provider cannot bill patient for any services paid or denied by the plan. However, an additional charge like a deductible or coinsurance may be billed based on the provisions of the contract.

Bundled Payments (ACA)***Fundamental of Affordable Care Act

New payment mechanism introduced by the Affordable Care Act that pays a single amount for an episode of care.

Balance Billing

Occurs when a healthcare provider bills a patient for charges (other than co-payments, co-insurance, or any other amounts that may remain on the patient's annual deductible) that exceed the health plan's payment for a covered service. - In-network providers are contractually prohibited from balance billing health plan members, but balance billing by out-of-network providers is common.

Reimbursement

Older term used to describe payment by an insurer to a hospital or physician. - Term is used because a physician or hospital provider renders services to a patient and then submits a claim to an insurer. - The hospital or physician waits for processing of that claim by the insurers, and ultimately receives payment, a determination of payment, or a denial by the insurer. - Today it is more common to use the term PAYMENT.

Remittance (Payment Processing - Post)

Once payment amount has been determined, the remittance is prepared and queued for release on a specified future date. - Normally payment is made through EFT to bank of physician or hospital submitting claim. - 835 record remittance advice is also sent with payment.

Business Intelligence Refinement

Once the business intelligence process is in place, financial staff and clinicians must refine the analyses used in contemporary healthcare management and collaborate to improve patient care.

Adjudication (Payment Processing - Post)

Once the claim has been checked for eligibility, the billed services are checked against the insurance plan's list of covered services. Ex: Elective cosmetic surgery not covered by health insurance plans are denied for payment as a non-covered service. After determination that the service is covered, then adjudication process moves into calculation of the payment due.

Provide and Document Care to Patient (During)

Once the patient is registed, a medical record should be prepared for documenting the services provided to the patient and the findings regarding the patient's medical conditions. - The medical record is the key source to support a claim for payment as the data gathered there contains all clinical evidence of the patient visit.

Account Closure (Post-Visit)

Once the total payments received from the health plan and patient equal the amount specified in the contract with the health plan, the hospital or physician office can close the account.

Billing & Collection Function

One of the most important resource management challenges in today's healthcare industry.

Semi-Fixed

Operate like a variable cost, increasing the volume, over time over a range of service volumes; however, semi-fixed costs start a level above zero where variable cost start at zero. Ex: Equipment maintenance contract where the vendor is paid a fixed base amount plus an additional amount per unit of service.

Current Liabilties

Other forms of short-term "debt," such as invoices for goods and services already delivered and provided (AP) and other obligations to lenders or contractual agencies.

Major difference of the balance sheet for an investor-owned and a non-profit health care organization is:

Owners' equity section

Point-of-service collection (Pre-visit)

Patient has deductible, co-payment, or co-insurance amount payable in accordance with their contract with the health plan, the provider should collect that amount at time of service. - difficult to collect after services has been rendered, essential to make an effort to collect from patient at this point.

Patients (ACO)

Patients may seek services from an ACO or a non-ACO provider

Part B Only

Patients who are covered by Medicare Part B but not Medicare Part A.

Cost Saving Goal (ACO)

Payments are made to ACO (physicians in group) if goals are met. A penalty is paid to the insurer if the goals are not met.

Quality Goal Payments (ACO)

Payments are made to ACO (physicians in group) if goals are met. A penalty is paid to the insurer if the goals are not met.

Accounts Payable Distribution

Payments to vendor's detail

Co-insurance

Percentage of the insurance payment amount that is paid by the patient, along with the amount paid by the insurer.

Categorical eligibility

Persons who have paid Medicare wage taxes for at least 40 calendar quarters. Part of only Medicare Part A.

Common Operational Metrics for each type of facilities

Physician Clinics - Visits per day & Visits per provider Hospitals - ALOS & Occupancy Percentage Health Plans - PMPM

Clean Claim

Physician or hospital has provided all information needed by the health plan to make a payment determination.

Professional Providers

Physicians Pharmacists Nurses Allied Professional Providers (APPs) - PT, clinical social work, & others

Value Based Purchasing (VBP)***Fundamental of Affordable Care Act

Places a portion of the payments to the provider at risk of loss if specified quality objectives are not met or exceeded. The amount of risk has been increasing year-to-year since implementation of the ACA and is applied to hospital and physician provider entities.

Population Health Key Notes

Population health management includes the intention to improve the overall health of the assigned group of patients through the cooperation of providers and health plans. Most of the challenges in population health management come from managing: 1. Chronic Diseases 2. Duplicate Services 3. Risk adjustment 4. Collaboration

Out-of-pocket Payment

Portion of the total amount for medical services and treatment for which the patient is responsible, including co-payments, co-insurance, and deductibles. Also includes: - Amounts for services not included in the patient's benefit design - Amounts for services balance billed by out-of-network providers

Case Rate

Predetermined amount paid to a healthcare provider for a specified service or range of services.

Contribution Margin (health plan)

Premiums - Medical Expenses

Goal of a Compliance Program is to:

Prevent fraud and abuse. Fraud - Intentional deception or misrepresentation of facts for gains. Criminal penalties. The burden of proof is high ("beyond reasonable doubt") Abuse - Unintentional actions (errors) that are consistent with accepted, sound medical, business or fiscal practices. Carries civil monetary penalties. The burden of proof is lower ("preponderance of evidence")

Billed Charges

Price set by hospital or physician for their services.

Medical Home

Primary care delivery model intended to organize providers into a coordinated team to meet a patient's healthcare needs. Includes: Primary care physicians, nurse practitioners, PA's, nutritionists, health educators, and social workers. This team of providers is organized to: - Treat medical conditions - Promote preventive health and wellness - Manage chronic illnesses such as: - Diabetes - Asthma - Hypertension ***Partnership between primary care providers (PCPs), patients and their families to deliver comprehensive care over the long-term in a variety of settings.

Business Intelligence (BI)

Process to which organizational data is analyzed and converted into information usable by decision-makers. Finance and clinical professionals must collaborate to understand the data generated by the business intelligence function and make well-informed management decisions based on that data.

Audit Trail Report

Procides variable details on transactions entered into a financial system and can be analyzed for answers to many questions not identifiable with the other reports.

Spend-down program

Program that allows patients to pay a portion of their medical expenses each month with Medicaid available to assist with the remaining medical expenses. This program is for persons who are at or below the state income level. Medicaid eligibility is then determined month to month.

Stark I and II

Prohibits physician self-referrals for health services to entities with which the physician or their family has a financial relationship.

Capitation: Pros & Cons

Pros: - Reduces incentive of fee-for-service - Encourages providers to maximize efficiency Cons: - Creates an incentive to limit care - No extra monthly payment for coordinating care - No financial rewards for meeting quality of care goals

Eligibility Verification (Pre-visit)

Provider can contact the patient's health plan, to verify the patient's eligibility for health benefits with the health plan.

Three Key Notes on Bundled Payments

Providers - The bundled payment model provides autonomy over how finances are organized. Health Plan - The bundled payment model has a predictable cost structure for complex and expensive services. Bundled payments are payments for specific healthcare services that are intended to be shared among treatment care teams (fixed rate).

Statistical Budget

Provides a foundation for other elements in the operating budget through defining the volume and nature of units of service expected to be provided. Profitability - If the strategic plan includes profitability as a goal, then statistical targets must be set at levels that produce profits. Expand access to the uninsured - If strategic objectives include expanding access to the uninsured, then statistical targets should demonstrate growth in visits from uninsured patients. Price Competitive in Health Insurance Exchanges - Health plans that seek to be price competitive in health insurance exchanges may set statistical goals of increased membership and fewer providers to leverage greater discounts on contracted fees.

Dashboard

Provides a summary of key performance indicators (or KPI) for the physician office, hospital, or health plan for shorter time periods within a fiscal year. Summary of items that can predict future results o Visit or utilization stats o Important Financial Ratios o Patient or customer satisfaction results

Labor Distribution

Provides details on the payments made for employee labor. Example of using he LD arises when a manager is trying to understand an increase in salary expense for a given time period.

Medicare Part A (aka Hospital Insurance or HI)

Provides hospital insurance automatically @ age 65 (if FICA qualified) @ no fee but may have deductible & co-pay.

Management Reporting

Provides information to managers to help them understand their financial position

General Ledger

Provides managers with details on the items making up each line of a FS, including any accruals or estimates included in that part of the statement. These details can be useful to managers that are investigating the difference between a value seen in the FS and an expected or budgeted value.

Reinsurance

Purchase of insurance to limit how much the health plan pays in claims for members above a certain limit per member, per year. Also known as stop-loss coverage

Capital Expenditures

Purchase of land, buildings, or equipment for use in providing services to patients or clients. Items should have an expected useful life of more than one year and exceed a minimum cost threshold (usually $1k or more, depending on the size and nature of the business)

Noncurrent assets

Relatively costly item that allow the organization to deliver service over time. Include: - Assets limited to use - Long-term investments - Property and equipment

Fixed Costs

Remain constant within a range of operational volumes, regardless of the volume of services provided. Examples include: - Lease paid on a physician office - Loan repayment on a piece of equipment - Basic monthly support fees for a computer system Fixed cost may increase as volumes go above a relevant range, such as if a hospital added a wing with additional beds or a clinic added another location. However, within the 'normal' range of operational volumes, fixed cost is assumed to remain a constant level.

Patients Accounts Receivable

Remains after subtracting contractual allowances and charity care discounts from gross patient accounts receivables

Aligning Organizations and Professionals to Drive Value`

Remains constant: Finance professionals may have limited training in clinical science, and clinical professionals may have limited training and experience in financial management.

Step Variable Cost

Remains fixed over a finite level of volume and then increases incrementally at higher volume levels. Ex: Nurse with zero, one, or two patients. Then the patients increase to three or four, and another nurse is needed. The additional nurse would increase cost.

Productive collaboration

Requires clear objectives, communication, and trust/transparency for the business nature of the relationship.

Employer Mandate (ACA)

Requires employers with more than 50 employees to provide health insurance benefits to employees.

Certificate of need

Requiring providers to have their capital expenditures pre-approved by an independent state agency to avoid unnecessary duplication of services.

Capitation is referred to as:

Risk transfer mechanism, where cost of care to a select group of patients is transferred from the health plan to the provider entity.

Contribution margin per unit

Selling price - Variable Cost Per Unit

Top-Down Budgeting

Senior manager's work with finance to prepare a budget and then the budget is passed on to staff or department managers to implement. An authoritarian way to budget where input from employees and their ability to influence the organization's goals are limited. Little input from employees who may be able to influence the organization's actual performance

Productivity Standard

Setting standard for the amount of labor per unit of service - Can be a valuable control tool for managers in healthcare businesses

All discussions of cost behavior assume:

Short-term time frame

Ambulatory Payment Classification (APC) - Hospitals

Similar to DRG, in that the amount paid is based on the specific procedure or service provided to the patient. Change in the basis of payment for hospital outpatient services from a flat fee for individual services to fixed reimbursement for bundled services.

Operational Metrics

Simple ratios that describe the volume of services provided to patients or members or the resources used to provide services.

Payback Period

Simply estimates the net cash taken in by the business by an investment (either though increased revenues or reduced expenses) over future years and determines how long it will take for the business to collect the same amount of cash it spent on the investment. All other things equal, the investment with shortest payback period receives the highest priority for acquisition.

Whistleblower

Someone who discloses information he or she reasonably believe evidences: - A violation of any law, rule or regulation - Gross mismanagement - Gross waste of funds - Abuse of authority - Substantial and specific danger to public health - Substantial and specific danger to public safety

Strategic Planning

Starts with fundamental steps that include a mission statement and vision statement and the overarching strategic plan.

Claims Adjudication (Payment Processing - Post)

Steps required by the health plan to process the claim for payment.

Stockholders equity for investors-owned organizations represents:

Stock and Retained Earnings

Budgeting

Subset of the planning process and is intended to express the organization's plans in financial terms. ***Budgeting is the process of quantifying an organization's strategic plan***

Total Cost

Sum of variable and fixed costs in a healthcare organization. Total costs starts at zero and increases at a constant rate as volume increases, while fixed cost remains constant across the range of increasing volume. However, total cost starts at a zero volume at the amount of fixed cost. Total cost then increases at a rate of variable cost increase as volume increases.

Cost Centers

Support areas that usually do not generate revenues tend to incur indirect costs. o Generally do not generate revenues o Tend to incur indirect costs o Managers control expenses that are not directly tied to revenue generation

Capitation

System of payment used by managed care plans in which physicians and hospitals are paid a fixed, per capita amount for each patient enrolled over a stated period regardless of the type and number of services provided; reimbursement to the hospital on a per-member/per-month basis to cover costs for the members of the plan. ***System that pays providers a specific amount in advance to care for defined health care needs of a population over a specific period of time.

Global Payment

System to pay providers whereby the fees for all providers are included in a single negotiated amount.

individual mandate (ACA)

The Affordable Care Act requires nearly everyone to have health insurance that meets minimum standards. With some exceptions, people who do not maintain health insurance coverage will have to pay a tax penalty

Net Revenue

The actual payment received from an insurer, net of any discounts. Depending on circumstances for a specific provider in a healthcare marketplace, net revenue may be as little as 50% of billed charges. NR = Price - Discounts to insurers, Medicare, or Medicaid

Cost Pool

The amount of indirect or overhead cost to be allocated

Cost - To the Patient

The amount payable out of pocket for healthcare services, which may include deductibles, copayments, coinsurance, amounts payable by the patient for services that are not included in the patient's benefit design, and amounts "balance billed" by out-of-network providers. Health insurance premiums constitute a separate category of healthcare costs for patients, independent of healthcare utilization.

Cost - To the Insurer

The amount payable to the provider (or reimbursable to the patient) for services rendered.

Days in Net Accounts Receivable ("Days in AR")

The average time it takes for a hospital or physician to be paid for services by a health plan is measured. NPSR / (NPSR/# of days in period)

Cost Driver

The basis upon which a cost pool is allocated among different revenue producing functions

Population Health Management

The concept that the health of all individuals is improved when the health of the entire population is improved - Providers and Payers May conflict with reducing payments for diagnostics and treatment services that make up the income for physicians and hospitals. Helps better align the interests of physicians, hospitals, and health plans. ACO model is one such way that managers outside of health plans are getting involved with management of population health. ***Improve performance on measures of overall health for a specific group of patients***

Target Cost

The cost that will provide the desired profit on a product when the seller does not have control over the product's price. In order to generate profit when prices are pre-established or fixed, an entity must keep costs at a below level known as target cost. This pricing strategy, when applied to capitation rates or by health plans in setting premiums, should be used only with the assistance of an actuary to ensure that the cost targets are realistic and achievable. ***Practice of making the assumption that some customers will be profitable and others may not - but in the aggregate a price offered to all buyers will be profitable***

Working Capital

The difference current assets (cash, receivables, short-term investments and inventory) and current liabilities (salaries and benefits payable and accounts payable): Working capital = current assets - current liabilities Working capital is not the same as cash, but is the surplus of cash, near-cash items such as AR and liquid short-term investments, over current obligations. Helps day-to-day operations but maximizing available cash.

Charge

The dollar amount a provider sets for services rendered before negotiating any discounts. The charge can be different from the amount paid.

Registration (Pre-visit)

The eligibility verification step can also advise the provider of any out-of-pocket amounts to be collected from the patient when the patient comes for registration at the time of service.

Cost - To the Provider

The expense (direct and indirect) incurred to deliver healthcare services to patients.

Cost - To the Employer

The expense related to providing health benefits (premiums or claims paid)

Discharge (During)

The items added to a patient account at charge capture are recorded at the Chargemaster price so that the compiled claim is prepared using billed charges. - Good practice to verify charges on the patient account against data in the medical record to verify that the items claimed for payment were documented as provided to the patient. - Ideally this is done at the time the patient visit ends, at discharge.

Positive Use of Interim FS

The more timely feedback provided financial statement allows managers to identify and react to potential adverse trends before they can manifest themselves in a poor fiscal year's financial performance or in impaired financial health for the entity.

Change from not-for-profit TO for-profit

The organization would experience a decrease in its cost of borrowing - because not-for-profit can issue debt (bonds) at a lower interest rate because the lender does not have to pay taxes on the interest it receives.

Risk-based Contracts

The payer (government or commercial) and the provider share financially in both the risk and rewards of providing healthcare services at a negotiated price, giving all parties a financial stake in the contract's performance. Overlays conventional payment methodology with a retrospective settlement mechanism that shares savings (upside risk) or losses (downside risk) from the negotiated target. May also include provisions that reward providers for certain non-cost-related metrics - quality goals or punish them for not meeting them. Examples: - Medicare Shared Savings Accountable Care Organization (MSSP ACOs) - Established by Affordable Care Act - Quality Payment Program (QPP) - Established by Medicare and CHIP Re-authorization Act

Resource-Based Relative Value Scale (RBRVS) - Physicians

The physician payment per procedure or service varies based on the amount of resources (time and effort) needed by the patient.

Value

The quality of a healthcare service in relation to the total price for the service by care purchasers.

Covered benefit

The services for which the insurer will pay.

Average length of stay (ALOS)

The sum of the patient days of all inpatient discharged over a given period divided by the number of discharges in the same period. Patient Days / Total Discharges ALOS metrics is used as an indicator of efficiency in containing inpatient service costs since longer lengths of stay for patients may result in losses on care provided to patients that are paid a fixed fee per discharge. Shorter ALOS is usually better - as long as the length of stay does not reduce the quality of patient care and cause the patient to be readmitted to the hospital

Price

The total amount a provider expects to be paid by payers and patients for healthcare services.

Group Purchasing Organizations

Third party entities that contract with multiple hospitals to offer cost savings in the purchase of supplies and equipment by negotiating large-volume discounted contract with vendors.

Price Transparency (Consumerism)

To be effective, price transparency must offer clear information that is readily accessible to patients and enables them to make meaningful comparisons among providers. - Should empower patients and other care purchasers to make meaningful price comparisons prior to receiving care. - Information should be paired with other information that defines the value of services for the care purchaser. - Provide patients with the information they need to understand the total price of their care and what is included in the price.

Insured Patients (Price Transparency)

Total estimated price, provider in or out of network, estimated out-of-pocket payment responsibility, and other relevant information (clinical outcomes, safety, patient satisfaction).

Pre-Certification (Pre-visit)

Type of services expected during the visit can be communicated to the health plan and the provider can learn if any pre-certification is required. - If so, the provider can provide information to health plan to obtain authorization for services. - Pre-certification does not guarantee the plan will cover the service once billed. Based on eligibility at time of service. - Evidence during submission of a claim may be different than the data provided to the health plan - which may cause claim denial. Important for provider to communicate accurately with the health plan to avoid denials.

Claim Logging (Payment Processing - Post)

Upon receipt of the claim, the health plan will record the claim in its inventory of claims pending processing. Customary to use electronic billing for the health plan to send an electronic acknowledgement of the claim to the provider.

Vision Statement

Used closely with the mission statement, to concisely express the organization's aspirations. "To be the leading source of care to the medically vulnerable and undeserved"

Ratio Analysis

Used for understanding relationships between elements in the FS

Community Rating

Used to set prices based on the costs incurred to provide services to members of a local market area. Everyone pays the same rate.

Statement of operations

Uses the accrual basis of accounting, which summarizes how much the organization earned and the resources it used to generate that income during a period time.

Simple Budget Variance

Uses the budget as prepared before the beginning of the fiscal period and computes the variance between the budget projection and the actual results. Actual - Budgeted = Variance

Flexible Budget

Variance requires the manager to adjust the budget for changes in volume by applying revenue and expense-per-unit standards to the actual volume. - Analysis then determines the variance between actual results and a budget projection that has been "flexed" to the actual service volume experienced - Prepared after actual volumes are known Actual Results - Budgeted Projection (Flexed) = Variance

Physician clinics use these type of common operational metrics

Visits per day Visits per provider

Visits per day

Visits per day = Total patient visits during the period / Total days in operation during the period Gives insight into how busy the clinic was during the given period of time

Visits per provider

Visits per provider = Total patient visits by provider during the period / Total days in operation during the period Average level of activity for individuals in the clinic during a given time period. Management need only break out its utilization counts by physician or provider in order to calculate this ratio at an individual level. Can be used in ambulatory setting such as a hospital emergency room or an ambulatory care center

Medicare Part B

Voluntary program where a patient that meets the age or medical condition requirements for Medicare Part A (but not the requirement to pay taxes for 40 calendar quarters) may participate in the insurance benefit. Funded by a combination of premiums paid by the beneficiary and general tax revenues from the federal government.

Quality Payment Program (QPP)

Will reform Medicare payments for more than 600K clinicians across the country. Two tracks: 1. Merit- Based Incentive Payment Systems (MIPS) 2. Advanced Alternative Payment Models (APMs)

Medicare Part D Prescription Drug Coverage

a United States federal-government program to subsidize the costs of prescription drugs and prescription drug insurance premiums for Medicare beneficiaries. ***Prescription drug coverage for Medicare enrollees, which offsets some of the out-of-pocket costs for medications.

Coinsurance

a percentage of the insurance payment amount that is paid by the patient, along with the amount paid by the insurer.

Deductible

a predetermined amount that insured must pay each year before the insurance company will pay

Incurred but not reported (IBNR)

a reserve that must be established for claims that have already occurred but that have not yet been reported

Mission Statement

a statement of the organization's purpose - what it wants to accomplish in the larger environment "The mission of University Hospital is to provide high quality care in a state-of-the-art facility that emphasizes the human element of health care"

Incremental Budgeting

allocates increased or decreased funds to a department by using the last budget period as a reference point; only incremental changes in the budget request are reviewed - Useful for a business that believes that past results are reasonably predictive of future activity and consistent with the goals of the business - Effective if managers assess each area of the budget for adjustment based on the needs of the business and known changes (such as reimbursement changes, market competition, or regulatory changes) - This approach can preserve operation inefficiencies if projections are not critically assessed from time to time.

Capital Budget

budget for major capital, or investment, expenditures

Operational Metrics

describes "what happened" in a defined time period

Revenue Producing Departments incur:

direct costs

Non-Revenue Producing Departments incur:

indirect costs

Medicare Part A Coverage for Hospital Stays

o Cost of days 2 - 60 of a spell of illness or hospitalization o Days 61-180 - the patient pays a coinsurance amount per day o After 180 days, Medicare Part A stops & lifetime reserve may kick in

Statement of Activities

o Covers a specified time period o Format of the statement is: Revenue - Expenses = Income o Describes the revenues earned and expenses incurred to earn revenues during that time period

Managing cost is important at all levels of an organization, from the executive office to the individuals taking care of patients or maintaining a healthcare facility. An executive can certainly have influence on operating costs through:

o Decisions to hire additional staff o Setting pay rates o Acquiring new technology

Variable Costs

o Non-exempt staff salaries o Medications o Supplies

Direct Fixed Costs

o Salaries of exempt staff (supervisors and managers) o Equipment costs that do not vary with volume

Ratio Analysis

o Used in businesses to assist managers in understanding the relationships between elements in the financial statements. o Useful in comparing an organization's performance with others o Used by lenders to assess the creditworthiness of a business. Important for managers to understand the most common financial ratios.

Accounts Receivable Aging

provides details on the unpaid accounts owing to the clinic or hospital

hospital acquired conditions (HAC)

reasonably preventable conditions for which hospitals do not receive additional payment when one of the conditions was not present on admission

Medicare Part C (Medicare Advantage)

•Replaces and covers expenses found in Part A and B •Medicare private fee-for-service plans (PFFS) •Medicare managed care plans (HMOs and PPOs) •Medicare specialty plans