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HCMN 415 Review for Exam 1

by: Amend

HCMN 415 Review for Exam 1 HCMN 415

Marketplace > Towson University > Health services > HCMN 415 > HCMN 415 Review for Exam 1
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About this Document

These notes cover the first exam.
Financing & Organization of Healthcare Services in the U.S.
Chuck Zorn
Study Guide
Healthcare, Management, Health finance
50 ?




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This 4 page Study Guide was uploaded by Amend on Wednesday August 24, 2016. The Study Guide belongs to HCMN 415 at Towson University taught by Chuck Zorn in Fall 2015. Since its upload, it has received 14 views. For similar materials see Financing & Organization of Healthcare Services in the U.S. in Health services at Towson University.


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Date Created: 08/24/16
Accounting­ measurement, in financial terms, of events that reflect resources, operations, & financing of an org. Financial management­ provides the theory, concepts, & tools to help managers make better financial decisions Role of Finance: health services need to plan for, acquire, & utilize resources to maximize the efficiency (value) of an org Activities include: ­ Plan & budget ­ Financial reporting ­ Financial risk management ­ Manage financial operations ­ Financial & operational analysis ­ Capital investment decisions ­ Contract management   o     Four Cs to Monitor Costs : 1. Costs­ monitored to ensure no excess amount of services provided 3. Capital ($)­ raised by businesses to buy facilities & equip. to offer services 2. Cash­ on hand and sufficient for businesses to meet payments 4. Control­ present for businesses’ resources to ensure they are used wisely 5. Health Service Setting: Hospital (inpatient), Ambulatory (outpatient), Long­term, & Integrated Delivery Systems 6. Regulatory Issues: Regulated by Licensure, Certificate of Need (CON), Cost containment & rate review 7. Legal Issues: Primarily: Professional liability, General liability, Antitrust, Right to die 8. Current Financial Challenges: Level of reimbursement, Bad debt losses, Revenue cycle, Capital acquisitions 9. Charity: Hospitals write off all/part of costs of treatment services & covered by government­assistance programs (Medicaid, Medicare, etc.) 10. Business­ raises $ in capital markets, invests funds in assets, uses assets to create product/service, & sells product/service for sustainment  11. Legal Forms of Business (4): 12. Proprietorship (sole) & Partnership 13. Advantages of Both: ­ No corporate income taxes ­ Difficult to transfer ownership ­ Ease of formation 14. Disadvantages of Both: ­ Unlimited liability ­ Subject to few regulations ­ Limited life 15. Difficult to raise capital 16. Corporation a. Advantages: ­ Limited liability c. Disadvantages: ­ Unlimited life ­ Ease of raising capital ­ Cost of formation & reporting ­ Easy transfer of ownership b. Double (or triple) taxation for investor­owned corporations d. Hybrid forms  ­          Limited Partnership (LP)  ­          Limited Liability Company (LLC) o General partners have control o Members taxed like partners o Limited partners liable only for initial contribution o Liability like stockholders o Not commonly used by healthcare providers  ­          Professional Corporation (PC)/Professional Association (PA)  ­          Limited Liability Partnership (LLP) o Owners have benefits of incorporation o Partners share general business liability o Liable for malpractice o Partners are liable only for own malpractice actions o Often used by individual clinics e.   Alternate Forms of Ownership: Zero for­profit hospitals in MD A. Investor­owned (for­profit): Goal­ Shareholder wealth (stock price) maximization: Must satisfy all stakeholders a. Primary market transactions: Initial public offerings (IPOs) & New common stock sales b. Secondary: On exchanges & In the over­the­counter market c. Stockholders have: Right of control and claim on residual earnings & residual liquidation proceeds B. Not­for­Profit: Large # of hospitals, meet requirements, Goal­ Mission statement: ensure viability, satisfy owners a. Generally NO shareholders c. Being owned by “the community” b. Receive tax exemptions­ Form 990: provides corp. governance info. &  Required to attach Schedule H­ provides charity care info, community benefit compensation e.  activities, & collection practices f. Tax Laws Influence: Finance decisions, operating $ flows to an investor­owned business, ability to raise contribution $ 1. Federal vs. State vs. Local 2. Personal vs. Corporate g. Personal­ pay federal (state) taxes on salaries, interest, & income that approach 50% a. Capital gains & dividends (in some years) taxed at lower rates b. Lower the amount of useable income (AT = BT x (1­T)) h. Corporate­  1. Investor­owned: pay federal & state taxes on corp. income at rates  2. Not­for­profit: most part­ not subject to taxation & benefits: issue tax­exempt  i. that can exceed 40% j. (municipal) bonds & receive tax­exempt contributions 3. Ordinary Income vs. Capital Gains k. Part A­ Hospital insurance: helps cover inpatient care in hospitals, skilled  o. Part C­ Medicare Advan. Plans (HMO or PPO) offered by private co.& cover  l. nursing facilities, hospice & home health care Part A & B/may  m. Part B­ Medical insurance: helps cover medical necessary services­doctors’  cover services such as vision, dental, & drug plans n. services & outpatient care q. Part D­ Medicare Prescription Plan r. Taxable vs. Muni Bonds: Not­for­profit businesses generally are exempt from local property taxes and state and federal income taxes s. Assume FP Healthcare must offer a 10% interest rate on its new bonds. z. Assume NFP Healthcare can issue similar­risk municipal bonds with an 8% interest  t.Jane Green, an individual investor with a 28% tax rate, buys one $1,000 bond.   rate.  u. What is the effective (after­tax) annual interest? aa. Should Jane buy the NFP bond rather than the FP bond? v.          AT$ = (0.10 × $1,000) x (1 ­ 0.28) ab. At what rate on the FP bond would Jane be indifferent between the two bonds? w.                   = $100 × 0.72 = $72. ac.           AT% = BT% × (1 ­ T)                                x.          AT% = 10% × (1 ­ 0.28)= 10% × 0.72 ad.               8% = BT% × (1 ­ 0.28) = BT% × 0.72 y.                   = 7.2%. ae.            BT% = 8% / 0.72 = 11.1% af.             Hospital Reimbursement: Except for MD ­   Fee for service    Federal Programs  ­                % of bill  ­   Bill Payers using UB­04    Other insurers negotiate: diem, case rates, DRG,     No one pays 100% of bill ­ Part B Physician Billing: ­ Bill Payers by using form HCFA 1500 ­ services from a medical practitioner) ­ Most providers bill electronically using clearinghouses ­ Use ICD­9­CM (International Classification of Disease, Clinical Modification­ Assigned ­ Use CPT codes (Current Procedural Terminology­ Assigned tasks/ to diagnoses associated w/ inpatient/outpatient/physician office utilization) ­ System Complexity: ­ 16% of all U.S. Personal Consumption ­ MANY different healthcare providers: for profit, not for profit, government, service providers­ physicians, suppliers­ medical equipment etc. ­ No standardization for bills or payments ­ Payment System: ­ Third party payers (insurance  ­ Government sets rates (Feds PPS, States) Medicaid­ Could be HUGE differences between charges & payments  companies/government) ­ Insurers negotiate discounts & payment methods (contractual allowance, charity care, bed debt) ­ Variety of Insurance Products: ­ HMO, PPO, High deductible, etc. ­ Deductibles: amount paid by insurer before insurance kicks in ­ Co­pays: amount insurer pays for service ­ Health Savings Accounts: used to pay deductibles ­ Health Care Reform: June 28, 2012; Goals: Decrease individuals without health insurance; improve coverage for those with pre­existing conditions; improve prescription  ­ drug coverage for Medicare beneficiaries ­ Major Components of Patient Protection and Affordable Care Act (PPACA) 1. Eliminates annual & lifetime coverage caps for patients 5. State exchanges established= customers compare premiums & plans  2. Eliminates co­pays for essential services 6. Creates ACOs to be accountable for members’ health care 3. Must have insurance or pay penalty 7. Shifts some Medicare payment from fee­for­services to payment for bundled service 4. Eliminates pre­existing condition exclusions ­ ICD­10 Compliance: ­ Providers: Hospitals, Physicians ­ Federal & State Agencies: State Medicaid  ­ Health Plans & Payers: Third Party  facilities, Home Health Agencies, Home Medical  (going to have most problems), Center for Disease  Administrators Equipment, Reference Labs  Control ­ Maryland System: HSCRC­ Ensure equity/fairness/stability, maximize access to care, contain hospital costs/total costs are reasonable, & provide  accountability ­ Pre­HSCRC (Late 60s­ Early 70s)= Over utilization, length of stay exceeded national avg., excess capacity ­ Weak financial performance for MD  ­ Inconsistent access to hospital care for the Cost per case in MD exceeded national average by 25% ­ Hospitals ­  poor & uninsured ­ Formation of HSCRC: Law enacted by general assembly regulates inpatient/ outpatient services at the hospital­ 1977: MD became All­payer state ­ Waiver test: cumulative rate of growth in Medicare payments to hospitals is no > the cumulative rate of growth in Medicare payments to nation over the same time period ­ Unit Rates: HSCRC establish & approve rates for each unit of service (Room & Board, imaging, lab, etc.) ­ Reasonably related to underlying costs (including social costs of uncompensated care­ bad debt/ charity) ­ Payers required to pay hospitals based on each hospitals approved unit rates ­ New Waiver: New Model includes Provisions­­ ­ Annual all­payer, per capita, total $ growth limited to 3.58% ­ Reduce 30­day Medicare readmission rate to national avg. in 5 yrs. ­ Medicare per beneficiary total $ growth must be below national avg. ­ Annual Potentially Preventable Compliance (PPC)­ 30% reduction ­ 80% of hospital rev. shifted into global payment models by yr. 5 ­ Propose a model extension at the start of year 4 ­ Cannot exceed national avg. by >1% pt. & must break even w/ national  ­ Waives Sec. 1814(b)(3) of the SSA: Waiver Test ­ avg. by yr. 4 ­ Not extended/terminated, transition national Medicare payment systems ­ Insurance “to work” Characteristics: 3. Risk transfer ­  Problems that Arise: 1. Pooling of losses 4. Indemnification 1. Adverse Selection 2. Payment only for random losses ­ 2. Moral Hazard ­ Insurance co. use underwriting provisions for minimization  ­ Adverse Selection­ those w/> risk are more likely to buy insurance ­ Problem exists due to asymmetric information ­ Cross­subsidies may exist among different group ­ Underwriting Provisions­ Opposing Positions of Insurers: Community & Experience rating ­ HIPAA & ACA set national standards: ­ Preexisting condition clauses banned by  ­ Rights to purchase insurance 2014 ­ Consumer protection ­ Moral hazard­ the overuse of health services/forgoing of prevention because individuals do not bear the full $ of the consequences  ­ Insurers Protected by: Policy restrictions (ACA placed limits on ability of insurers to include unreasonable restrictions), Deductibles, Copayment, Coinsurance ­ Reimbursement Approaches: Regardless of the payer­ only limited # of approaches (payment for services) ­ Fee­for­service (FFS): payment is tied to the amount of services provided ­ Cost based: Payer pays all allowable $ incurred in providing services & Medicare used for hospital payment in early yrs. ­ Charge based: Payer pays billed charges for services rendered to covered patients & third­party paid for services on the basis of charges (charge­master prices) ­ Prospective payment: Fixed amount determined beforehand­ unrelated to either costs/charges o May be: per procedure, diagnosis (DRG), diem (per day), or global pricing (bundling, episode of care) ­ Capitation: payment is tied to the patient population (# of enrollees) ­ Managed Care­ system of healthcare delivery that tries to control the $ of services & regulating access to services & maintain/improve their quality ­ Achieved through contracts w/ selected providers to furnish comprehensive set of services ­ Managed Care Organizations (MCOs): Combine insurance & provider functions ­ Why Need for Change: ­ Cost shifting­ government programs to  ­ Unrealistic public expectations ­ Inefficient use by providers & consumers ­ privately insured ­ Defensive medicine ­ Proliferation of new, expensive technology ­ Fraud & waste ­ Building Blocks: (Base to Top) ­ Hospitals, PCPs, Specialty Physicians ­ Home Health, TCUs & SNFs, Ambulatory Facilities ­ PCP Gatekeepers, Utilization controls, Fin.controls ­ Lab & Image + Rehab Providers, Allied Health Pro. ­ DME & Ambulance, Orthotics & Prosthetics ­ Third Party Payer Models ­ PPOs/POS/EPOs ­ Consumer Health Saving Accounts/ Driven ­ HMO ­ Government Programs ­ Healthcare Exchanges (new to the marke ­ Self Funded Insurers ­ MCO in MD: ­ Aetna ­ CIGNA United HealthCare: MAMSI: MD­IPA/ Optimum  ­ CareFirst ­ Kaiser Choice ­ Financial accounting­ creation of financial statements (used by managers & outsiders) that report the financial status of the overall business ­ Managerial accounting­ creation of subunit information used internally for managerial decision­making­ Cost measurement is a critical part ­ Costs are classified by relationship to volume & to subunit being analyzed ­ Underlying cost structure­ relationship between costs & the volume of services provided­ if known, managers can forecast costs at diff. levels ­ Fixed Cost= independent of volume & Variable Cost= dependent on volume ­ Costs classified by relationship to unit of activity: DIRECT­ unique & exclusive to subunit; INDIRECT (overhead)­ assoc. w/ shared resources used by entire org. ­ Purpose of Cost Allocation: assign all overhead costs to departments that create need for such costs (Patient service­ Rev. producing­ depart.) ­ Cost pool­ overhead amount to be allocated, consists of direct costs of one support depart. & multiple are used if $ of single support differs majorly ­ Cost driver­ basis on which the cost pool is allocated/ might be amount of space used by each patient service department (depreciation, utilities) o Critical to cost allocation process o Create an allocation highly correlated w/ actual amout of  Good cost driver attributes: perceived as fair &  overhead services consumed o promotion of org. cost reduction o Traditional Allocation Process: 1) Identify Cost Pool: $ of overhead activity to be allocated (ex. Direct cost of Housekeeping Department­ $100,000) 2) Determine Cost Driver (ex. Department occupy 200,000 sq. ft. of space) 3) Calculate Allocation Rate: # value used to make allocation­ $ in cost pool/ total volume of cost driver ($100,000/ 200,000= $.50) 4) Determine the Allocation Amount: Each user department allocates some portion (ex. Critical Care occupies 10,000 sq. ft.­ .50 x 10,000= $5,000) 5) Allocation Methods: 1. Direct: costs of each support department are allocated directly to, & only to, the patient services departments (example above) 2. Step­down: some (not all) of the intra­support department relationships are recognized; more complex, but manageable 3. Reciprocal: recognizes all support department interrelationships, but requires system of simultaneous equations/ complex set of iterative calc. 4. Unlike traditional cost allocation= top­down system, Activity­based Costing (ABC): begins w/ individual activities that comprise the services provided 5. 6. T 8. 9. 10.


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