HCMN 415 Review for Exam 2
HCMN 415 Review for Exam 2 HCMN 415
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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 9 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
Use of Managerial Accounting information: Set the prices (& discounts) on services offered under chargebased Identify the lowest feasible price when prices are negotiated reimbursement Cost & price info. can be combined to conduct profit analyses Determine financial impact of services offered when prices are dictated Price setter when a provider has market dominance and can set its own prices (within reason) Price taker providers; Perfectly competitive markets Many situations: providers are neither pure price takers nor setters Payer dominance Room for negotiation exists Government (take/leave it) program Price setting strategies: when a provider is price setter or negotiation exists 1. Full Cost Pricing: set to cover all costs o Economic (profit) o Direct (fixed & variable) 2. Marginal Cost Pricing: set to cover incremental or marginal costs Often means recovering only direct variable costs o Overhead (indirect) Crosssubsidization (price shifting) act of charging more than full costs to one set of patients to compensate for charging less to another set Target costing management strategy used to help providers offset the limitations imposed when they are price takers Revenues projected assuming prices as given in the marketplace Remainder= target cost level Required profits subtracted from revenues Profit/CVP Analysis used to assess the effects of alternative volume assumptions on costs & profits; Base Case= best guess volume forecast Variable Cost Rate (VCR) = Total variable costs (given)/ volume (given/estimated) 2,113,500/ 75,000 = 28.18 per visit Total Costs (TC) = Fixed costs (given) + Total variable costs (Computed VCR x volume) 4,967,462 + 2,113,500 = 7,080,962 & 4,967,462 + (28.18 x Volume) Contribution margin difference between per unit rev. & variable cost rate, amount of each visit’s rev. that is available to: First cover fixed costs & flow to profit when FC are covered. Total contribution margin selling price per unit minus variable cost per unit Total revenues ($100 × 75,000) $7,500,000 Total VC ($28.18 × 75,000) 2,113,500 Base Case Avg. (cost per Types of breakeven: Accounting (zero profit) visit)= Expected TC/Volume Total CM ($71.82 × 75,000) $ 5,386,500 & Economic (w/ profit) Fixed costs 4,967,462 Profit $ 419,038 Breakeven Analysis P&L Equation (Standard) P&L Equation (CM) volume needed for an org. Total revenues Total VC FC = Profit CM × V = Fixed costs to be financially self ($100 × V) ($28.18 × V) $4,967,462= $0 $71.82 × V = $4,967,462 sufficient $71.82 × V = $4,967,462 V = $4,967,462 ÷ $71.82 = 69,165 visits V = $4,967,462 ÷ $71.82 = 69,165 visits Planning process takes place nonstop throughout year, strategic plan is foundation & contains : Mission statement, values statement, vision statement, goals, & objectives Operating (5year) plan how org, expects to meet objectives, most detailed for 1 yr. & includes: Chapter 1: Mission, values, vision, & goals Chapter 26: Corporate objectives Chapter 7: Functional area plans A. Marketing C. Finance D. Administration & HR B. Operations E. Facilities o Budgets detailed plans, expressed in $ terms, specify how resources will be used over a period of time; managerial tool used for: Planning, Communication, & Control; Applied to any level; Most businesses have Revenue, Expense, or Operating budget All org. use annual budgets to set standards for coming yr. Most use quarterly to ensure timely feedback & control Not all budgets have to follow same timing pattern Outyear budgets are more for planning than control o Advantages of Budgeting: Define goals & objectives Coordinate activities Allocating resources Communicate plans Think of & plan for future Uncover potential bottlenecks Human Factors in Budgeting: 1. Top management must be enthusiastic & committed to budget process 2. Top management must not use budget to pressure employees or blame 3. Highly achievable budget targets 4. Control steps taken by management to increase likelihood that the objectives set down while planning are attained & all parts work together toward that goal 5. Revenue budget uses volume & payment data to forecast revenues; End result is a revenue forecast in aggregate, department, service, & diagnosis 6. Expense budget combines volume data w/detailed resource utilization data to forecast expenses, expenses must be broken down into fixed & variable 7. Operating budget for larger organizations, focuses on projected profitability, combines info. from revenue & expense budgets; cover 1year period corresponding to fiscal yr. 8. Zerobased budgeting each new budget starts from scratch; Disadvantage: more time consuming & costly, Advantage: produces more realistic & effective budget 9. Topdown budget: 10. Begins at fin. department w/Sr. management support 11. Bottomup budget: Sent to departments for review Begins at subunit (departmental) level Advantage: expeditious & reflects top manage. from start Reviewed & complied by the finance department Disadvantage: limits involvement & communication Approved by senior management 12. Variance difference between actual results & budgeted (standard) value or initial (beginning of year) 13. Variance analysis technique applied to budget data to: 1) Identify problem areas & 2) Enhance control; Important to managerial control process: help improve performance Applied to operating data: census, labor hours, # of outpatient visits on weekly or daily basis Cycle: Prepare standard cost performance report, analyze variances, identify questions, receive explanations, take corrective actions, conduct next period’s operations 14. Flexible budget based on all initial budget assumptions & then adjusted (flexed) to reflect actual (realized) volume 15. How a Flexible Budget Works: Total variable costs change in direct proportion to changes in activity & Total fixed costs remain unchanged within the relevant range 16. Characteristics of Flexible Budgets: May be prepared for any activity level in the relevant range Help managers control costs Show costs that should have been incurred at actual level of act. Improve performance evaluation Responsibility accounting managers should be held responsible for those items & only those items that they can actually control to a significant extent Perpetual (continuous) budget 12month budget that rolls forward 1 month (or quarter) as the current month/quarter is completed Selfimposed Budget (participative) prepared w/ full cooperation & involvement of managers at all levels; should be reviewed by higher levels to prevent budgetary slack Advantages of Selfimposed budget: 1) Individuals at all levels are viewed as team members whose judgments are valued by top management 2) Budget estimates prepared by frontline managers are often more accurate than estimates prepared by top managers 3) Motivation is generally higher when individuals participate in setting own goals than when goals are imposed from above 4) A manager who is not able to meet a budget imposed from above can claim that it was unrealistic. Selfimposed budgets eliminate this excuse Financial operations daily oversight of tasks billing & collections (rev. cycle), cash management, & inventory management Specifics are highly dependent on type of provider Focus= fundamental concepts, opposed to details Revenue cycle all activities associated w/ billing & collecting for services; ensures: Patients properly categorized by payer Correct & timely billing takes place Correct & timely payment is received Beforeservice activities: Insurance verification, Certification of managed care patients, Patient financial counseling Atservice activities: Insurance status verification, Service documentation/claims production Afterservice activities: Claims submission, Thirdparty followup (if needed), Denials management, Payment receipt and posting Monitoring and reporting: Monitoring, Review and Improvement Revenue cycle monitors activities to ensure that: 2 Important keys to good RC: Info.technology & electronic claims processing Correct amount of reimbursement is collected Costs associated are minimized consistently w/ rapid & correct Reimbursements collected quickly as possible collections Receivables management falls under general of RC; extremely important to providers Receivables= Daily sales x Avg. Collection ShortTerm Securities (marketable) Management: (cash & shortterm securities managed simultaneously) Period As an interest earning substitute for cash Temporary repository for cash accumulated Chosen on the basis of safety: 1. Primary Protection of principal 2. Secondary Amount of Return Specific securities used depend on: Expected holding period & Size of business Examples: Shortterm treasury securities & money market funds Inventory (supply chain/materials) management important to providers because medical supplies are critical to patient services Consists of base stocks plus safety stocks Goal is to meet operational needs at the lowest cost Techniques: Justintime, stockless, & consigned inventory systems Some providers have contracts w/ suppliers that are priced on basis of amount of medical services provided/capitated Outpatient Revenue Percentage= Net outpatient revenue/ total revenue x 100 Measures percentage of total (net) High/low val. not bad measures Outpatient services are higher, then revenue due to outpatient patients outpatient reliance as source of rev. there is greater overall profitability Occupancy Rate= Average daily census/ # of beds x 100 Measures inpatient volume as % of the number beds Higher the rate, the better Raising occupancy rate: o Increase admissions o Increase length of stay o Decrease # of beds # of beds can be measures as licensed beds or staffed beds Length of Stay (LOS)= Total annual patient days/ Total discharges Measures avg. # days that an inpatient stays in the hospital (ALOS) Reimbursement independent of LOS, so shorter LOS= lower cost of treatment=greater profitability Price per Discharge= Net inpatient revenue/ Total discharges Measures amount of net revenue per discharge Measure of the market’s assessment of the value of inpatient services Allowances deducted, net price discharge measures actual amount of rev. (reimbursement) per discharge Cost per Discharge= Total inpatient operating expense/ Total discharges Measures avg. cost of each inpatient stay Adjusted for wage & case mix differentials: multiple denominator by Lower costs of service lead to higher profitability wage & allpatient case mix indexes FTEs per Occupied Bed= Inpatient FTEs/ Avg. daily census Measures productivity of labor devoted to inpatient services as a Labor productivity=important b/c provision of services is labor function of # of patients intensive Affects the requirement for labor resources Definition of Revenue Cycle: Scheduling & PreRegistration: Schedules are updated regularly for cancellations, noshows or rescheduled appointments The following should occur & documented in system: • Verification of Insurance coverage • Verification of patient demographic information • Identification of selfpay balances (including copays and deductibles) • Obtain needed preauthorization Registration: Regulated & restricted by EMTALA in the ER Obtain copies of insurance cards (primary, secondary, etc.) Request a form of photo ID to verify the patient’s identity Verify patient demographic information and document this info. Collect monies due (selfpay balances, copays & deductibles). Charge Capture & Coding: • Physician, nurse or physician assistant document all services • Charge slips/superbills/charge tickets are forwarded for HIS entry Outside MD hospital fees are unregulated (negotiated) • Codes are transferred from coding system to HIS by interfacing Percent of Charges fees paid based on a predetermined percentage Claim Edits: Capitation fees based on estimated # of service occurrences Sent through scrubbing system for editing errors identified & corrected Fixed Rate fees based on specific procedures performed (predefined) CSAs are calculated by system & posted to patient’s account DRG fees paid based upon diagnosis (predefined) CSA is based on individual payer & method of payment (contracts) Per Diem fees paid based upon the length of the patient’ s stay Claim Submission: Physician fees negotiated by payer: fee for service, % of charges, After edited, ready for submission to insurance carrier capitation, fixed rate Most payers require electronic claim submission Common Denials: Patient not covered, untimely filing, invalid ID #, no Methods of Payment: authorization on file, other insurance primary, preexisting condition Maryland hospital fees regulated by HSCRC/ all payer system Nonregulated services negotiated by payer via contracts Time Value of Money: As time goes on, the ability to pay decreases** 2 Months= 90¢ 12 Months= 30¢ 6 Months= 50¢ 24 Months= 5¢
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