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HCMN 415 Review for Exam 2

by: Amend

HCMN 415 Review for Exam 2 HCMN 415

Marketplace > Towson University > Health services > HCMN 415 > HCMN 415 Review for Exam 2
GPA 3.12

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About this Document

These notes cover the second 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 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: & 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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