question

How is organizational purpose determined? What is management role in organizational purpose?

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Organizational Purpose: aDetermined by the owner i. Purpose of community of non-profit is to provide healthcare services to the community ii. Purpose of for-profit is to provide profit for the owner b. Management team must communicate the purpose to employees, owners, customers, and other constituents.

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What is the purpose of Healthcare Finance Management?

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Purpose of Healthcare Finance Management: a. To provide accounting and finance information that assists health managers to accomplish the organization's purpose. b. Joint Commissions holds CEO (not financial managers) responsible for financial management

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What is the purpose of Financial Accounting?

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Purpose of Financial Accounting: is to provide accounting information to the external owners, lenders, suppliers, government, and insurers

question

What are the 4 common measurements monitored by healthcare financial managers?

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Healthcare financial managers monitor many measurements. Among the most common are: a. Admissions (number of patients accepted for inpatient) b. Average daily census= average number of inpatients excluding newborns getting care each day during the reporting period c. Average length of stay= derived by dividing the number of inpatient days by the number of admissions. d. Occupancy rate= ratio of average daily census to the average number of statistical beds.

question

Four basic financial statements that hospitals prepare for external users?

answer

5. Four basic financial statements that hospitals prepare for external users: a. Consolidated balance sheet b. Statement of changes in equity c. Statement of cash flows d. Statement of operations.

question

Purpose of managerial accounting? (3 things)

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Purpose of managerial accounting: a. To provide accounting information that supports the planning and control management functions. b. Prepared for internal users (so no need for GAAP or formality) c. Has no prescribed format and therefore varies greatly amongst organizations.

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Purpose of Finance?

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Purpose of Finance is: to analyze the information provided by managerial accounting to evaluate past decisions and make sound decisions about the future of the organization

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Define Cost-Accounting

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Cost accounting= study of costs, including methods of classifying, allocating, and identifying costs (subset of managerial accounting)

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What are the 2 types of analysis used by finance?

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Finance uses two techniques: a. Ratio analysis= financial analysis tool that compares various key financial indicators b. Capital analysis= process to determine how much a capital expenditure will cost and what return it will generate.

question

..Six objectives of Financial Management:

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Six objectives of Financial Management: 1. Generate income (most important objective) 2. Respond to regulations a. US, state, and local government pays 47% of all healthcare bills 3. Facilitate relationships with third-party payers a. Third-party payers account for over 88.1% of HCO's operating revenue 4. Influence methods and amounts of payment 5. Monitor Physicians 6. Protect Tax-status

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What is the role of financial management in influencing methods and amounts of payments?

answer

Role of Financial Management in Influencing methods and amounts of payment a. Prospective payment= HCO accepts a fixed, predetermined amount to treat the patient, regardless of the true ultimate cost of the treatment. i. DRG are one type of prospective payment ii. Medicare pays hospitals a fixed amount for a episode of treatment based on treatment's DRG b. Capitated payment= HCO accepts monthly payment from third-party payer for each individual covered by the payer's plan, regardless of whether a given individual is treated in a given month c. Provides financial incentive for the HCO to keep the population from using more healthcare service than necessary, because the organization only profits if the total cost of treating the specified population falls below the total capitation provided

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What is the role of financial management in monitoring physicians? (2 roles)

answer

Role of financial management in monitoring physicians? 1)Healthcare financial management must ensure through the utilization review process that physician ordering pattern are consistent with patient needs 2). Healthcare financial management must ensure through credentialing process and the risk management process that the HCO has minimized its exposure to legal liability for physician's potential negligent actions.

question

Define the 4 ways that financial management implement the reactive strategy for quality.

answer

Reactive Strategy= response to accrediting agencies & quality consultants: i. Ensuring quality by centralizing quality efforts in quality assurance department, then decentralizing quality efforts to clinical departments, an then decentralizing quality efforts to all departments ii. Ensuring quality by studying clinical outcomes, then studying clinical processes, then studying all outcomes and all processes, and finally studying key outcomes and key processes iii. Improving quality by continuous attention an total management iv. Assessing quality by identifying key processes and desired outcomes

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What are the 4 type of direct measures used in the Proactive strategy toward Quality?

answer

Direct measures used in Proactive strategy to Quality: 1. Goal-based measures ➢ Assesses quality by the progress made towards goals of the strategic and operating plan. ➢ Advantage: focuses on attention on success or failure 2. Responsive measures ➢ Assesses quality by customer opinion ➢ Advantage: quality is understood from customer point of view 3. Decision-making measures ➢ Assess quality by evaluating decisions ➢ Directs accountability to the decision maker 4. Connoisseurship measures ➢ Quality is assessed by expert opinion, such as accreditation. ➢ Advantage= inspires high creditability.

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What are the 4 Indirect Measures used in the Proactive strategy for Quality?

answer

Indirect Measures used in the Proactive strategy for Quality: 1. Resource Measures ➢ Assumes that price reflects quality ➢ Key advantage is that they provide qualitative data 2. Outcome Measures ➢ Assumes that results reflect quality ➢ Key advantage is the emphasis on results 3. Reputational measures ➢ Public perception reflects quality ➢ Key advantage is that it provide public ratings. 4. Value-added measures ➢ Assumes process reflects quality ➢ Key advantage is that they focus on processes that the organization can control (after adjusting the input & output)

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What are the 5 ways that National patient safety goals are used?

answer

National patient safety goals: i. Improve the accuracy of the patient identification by at least two ways of identifying patients ii. Improve the effectiveness of communication among caregivers iii. Improve the safety of using medications iv. Reduce the risk of healthcare-associated infections v. Reconcile medication across the continuum of care

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Why should Financial managers be concerned about quality initiatives?

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Financial managers should be concerned about quality initiative because improved quality leads to improved profitability.

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Define Sentinel Indicator

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Sentinal indicator: 1. Indicator that alerts the manager every time a particular event occurs 2. Eg. Alarm for cardiac arrest

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Define Rate-based indicator.

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Rate-based indicator: 1. Indicator that alerts the manager only when a measure reaches a particular tipping point. 2. Alarm for when number of beds filled falls below a set level.

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What are the 3 ethical issues concerning management responsibility?

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Ethical issues concerning management responsibility include: 1. Resource Allocation 2. Conflicts of Interest 3. Patient Billing practices

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Role of Finance manager in Patient billing practices?

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Role of Finance manager in Patient billing practices: i. How long to hold patient deposit after insurance pays in full? ii. Obligation to generate error-free billing iii. Obligation to release price to patients and assist with buying decision.

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What is the role of finance managers in resource allocation?

answer

Role of finance managers in Resource Allocation: i. Resource allocation decisions made by manager often conflict with the decisions made by physicians & other clinicians ii. Managers represent utilitarian view of ethics "greatest good for the greatest number". This view allows mangers to sacrifice the use of resources for one patient to maintain the resources for other patients. iii. Clinicians have deontological view of ethics governed by the duty to patients

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What are 2 examples of finance mangers involved in conflict of interest?

answer

Two examples of financial managers & Conflicts of Interest Definition=Conflicts of interest occur when a individual owes duties to two or more persons or organizations and when meeting a duty to one somehow harms the other. Two examples: ii. When mangers uses their position of authority for personal gain. iii. Vendors attempt to win managers with gifts

question

Which 5 functions benefit from healthcare financials?

answer

Healthcare Financial also has direct value to these functions: 1. Planning a. As board complete strategic plan and senior management complete the operating plan, financial mgmt competes the operating budget and capital budget. 2. Organizing- financial management identifies revenue centers and cost centers and holds department managers responsible for their revenues 3. Staffing- staffs departments with respect to billing 4. Directing- Financial mgmt give rewards/penalties for accomplishing the organizational purpose. 5. Controlling- takes corrective action when performance is unsatisfactory

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Define Management Connective Process

answer

Management Connective Process: Definition= management functions that connect elements of HCO, including communicating, coordinating, and decision making

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Why is decision making a direct measure of quality?

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Decision making is important to financial management as a direct measure of quality: a. Governing boards, CEO, and outside sources judge the quality of financial management based on the decisions and recommendations made by financial management b. Advantage of this view of quality is that it holds the decision maker accountable c. Disadvantage of this view of quality is that it assumes rationale decision making

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What are the 4 advantages of Corporate Status?

answer

Corporate status is granted by the state and provides HCO with the following advantages: i. Limited Liability= owners are not liable for contracts or negligence of the corporation ii. Continuity of existence= corporation continues even after death iii. Increase ability to raise capital iv. Shareholders are free to sell their shares at any time (nonprofits only)

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How the Governing board Monitors CEO's performance through committees

answer

How the Governing board Monitors CEO's performance through committees: i. Executive committee of the governing body monitors all other committees ii. Executive committee is composed of the chairs of all other committees iii. Finance committee monitors the CEO's performance in financial affairs 1. Audits are handled by either the audit committee or the finance committee. 2. CEO and CFO attend the finance committee as ex office and also serve as staff support to other committees.

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Define Fiduciary responsibility

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Fiduciary responsibility = duty to act as a person in a position of great trust and confidence. Fiduciary responsibility includes loyalty and responsibility 1. Loyalty requires fiduciaries to act in the best interest of HCO and to subordinate their personal interests to those of the organization. 2. Responsibility requires fiduciaries to act with reasonable skills, care, and diligence in accomplishing their duties as members of the governing board.

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5 Traits of CFO?

answer

Traits of CFO a. Strategic thinking b. Ability to adjust to change c. Personal integrity d. Vision e. Ability to be team player

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3 Characteristics of CFO?

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Characteristics of CFO: a. Case management= Fixed reimbursements will drive CFO into operations to lower costs via case management b. Sales= Lowering costs will necessitate CFO's selling new ways of doing things to hospital and medical staff c. Education= New ways of doing things will mean CFOs must educate the nonfinancial managers on how their operations affect the financial position of the organization.

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What are the Controller Duties?

answer

Controller Duties-→ financial accounting, managerial accounting, tax accounting, patient accounting, and internal auditing

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What are the Treasurer Duties?

answer

Treasurer Duties-→ managing working capital, HCO's investment portfolio, and the financing of capital expenditures.

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5 duties of the Corporate Compliance Officer?

answer

Corporate compliance officer Duties: 1. Conducting compliance reviews 2. Investigates potential fraud & abuse problems 3. Examines relationships and contracts for possible illegal provisions. 4. No certification, licensure, or education required 5. Final compliance program guidelines are issued by the Department of health & human services office of inspector general.

question

3 roles of Chief Information officer?

answer

Chief Information officer Role: 1. Provides management oversight to all information processing & telecommunications systems in the organization 2. Assists senior management in using information for management decision making. 3. Outsourcing of all or parts of the IT departm

question

Internal Auditor vs Independent Auditor: Compare Primary Concern

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Internal Auditor Duties Vs. Independent Auditor: 1. Primary concern: a. Independent auditor's primary concern is for reporting needs of external entities, b. Internal auditor primary concern is to protect the HCO's assets from fraud, error, and loss

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Internal Auditor vs Independent Auditor: Compare Responsibility

answer

Responsibility Internal Auditor vs. Independent Auditor: a. Independent auditor's responsibility is limited to primarily financial matters b. Internal auditor's responsibility includes both financial and operational matters

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Internal Auditor vs Independent Auditor: Compare Fraud Detection

answer

Internal Auditor vs Independent Auditor: Compare Fraud Detection a. Independent auditor Is not looking for fraud but is duty-bound to report fraud in the organization to the party engaged in auditor services. b. Internal auditor is directly concerned with finding fraud

question

Independent auditors use 4 types of opinions in rendering their report....List them

answer

3. Independent auditors use 4 types of opinions in rendering their report: 1. Unqualified opinion 2. Qualified Opinion 3. Adverse Opinion 4. Disclaimer of opinion

question

Define unqualified opinion.

answer

Unqualified opinion 1. Means that the financial statement fairly present the financial position, results of operations, and cash flows of the organization in conformance with GAAP 2. May have explanatory paragraph used when auditor's opinion is based in part on the work of a different external auditor, or when they need additional information to prevent the audit report from being misleading when uncertainties exist which cannot be resolved by the publication date of the audit report.

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Define Qualified opinion

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Qualified opinion 1. Means that the financial statement fairly present the financial position, results of operations, and cash flows of the organization in conformance with GAAP, except in matters identified in additional paragraphs of the report 2. Auditors use a qualified opinion when there is insufficient evidentiary matter, when the organization has placed restrictions on the scope of the audit, or when the financial statements depart in a material, though not substantial, manner from GAAP

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Define Adverse Opinon

answer

Adverse opinion: 1. Means that the financial statement does not fairly present the financial position, results of operations, and cash flows of the organization in conformance with GAAP 2. Additional paragraph used to describe the reasons for an adverse opinion

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Define Disclaimer of opinion

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Disclaimer of opinion: 1. Means that auditor does not express the opinion on the financial statements, usually because the scope of the audit was insufficient for the auditor to render an opinion

question

Purpose of corporate restructuring?

answer

Purpose of corporate restructuring: a. To maximize the economic position of the HCO by developing new corporation

question

4 reasons that HCO undergo corporate restructuring?

answer

4 reasons that HCO undergo corporate restructuring: 1. HCO that needs to facilitate development of a new service may develop wholly controlled subsidiary corporation (eg. Foundation) 2. HCO that needs to protect assets may develop a parent holding corporation 3. HCO that needs to maximize patient care and other operating revenue and even non-operating revenue may develop quasi-independent sister corporation. 4. HCO that needs to attract additional funds through philanthropy may develop a wholly independent corporation (eg. Foundation).

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Define Foundation

answer

Foundation= nonprofit corporation, usually a subsidiary of a for-profit organization, that facilitates education and research or otherwise undertakes charitable projects

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Advantage of becoming a foundation?

answer

Foundation allows the for-profit to shelter some income from taxes by using the income for tax-exempt purposes.

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Benefit of creating a parent holding corporation?

answer

HCO that needs to protect assets may develop a parent holding corporation: a. Used to layer the liability in the event of malpractice suits b. Courts allow only the assets of the organization, not the assets of the parent corporation, to be introduced into deliberations regarding damage awards.

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Benefits of creating a quasi-independent sister corporation?

answer

HCO that needs to maximize patient care and other operating revenue and even non-operating revenue may develop quasi-independent sister corporation. a. In this model, the HCO can control no more than 49% of the governing body of the sister corporation b. HCO believes that the perception of independence on the part of customers both in terms of who controls the organization and who controls the employees or volunteers, gives the subsidiary the advantage of generating revenue. c. Medicare position has been that the income generated by quasi-independent corporation should be deducted from the amount that Medicare owes the HCO under cost-based reimbursement.

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Benefits of creating a wholly independent corporation?

answer

HCO that needs to attract additional funds through philanthropy may develop a wholly independent corporation. a. In this model, the HCO cannot control any of the governing body. b. HCO may develop a foundation whose governing body raises money using relationships established by HCO c. Governing body of the foundation uses the income to benefit the HCO

question

3 types of organizations designed to integrate patient care include?

answer

Organizations designed to integrate patient care include: 1. Integrated healthcare systems 2. Accountable care organizations 3. Physician-hospital organizations.

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Define integrated delivery systems

answer

Integrated delivery systems i. A system of healthcare providers capable of accepting financial responsibility for and delivering a full range of clinical services

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Define Physician-hospital organization

answer

Physician-hospital organization i. Joint ventures between HCO and physicians that are capable of contracting with managed care organizations. Limited success in coordinating and integrating healthecare

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Define Accountable care organization.

answer

Accountable care organizations i. Organization that coordinates care among HCO and physicians ii. Key element of ACO is that some portion of its reimbursement is tied to its accountability.

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Rational for tax-exempt status?

answer

Rationale for tax-exempt status: 1. To relive the government of the burden of providing services itself 2. To reward corporations for performing services that enhance the community values and goals

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2 Benefits of tax-exempt status?

answer

2 Benefits of tax-exempt status: 1. In addition to elimination of tax liabilities for federal & state income taxes and real estate taxes, tax-exempt status exempts the organization from paying most business fees and licenses. 2. Value of tax-exempt bond markets---→Provides the benefit of being able to issue tax-exempt bonds, whose yields are 4-5% below the taxable bond yields.

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How to qualify for tax-exemption status

answer

Qualifying for tax-exemption: 1. Must operate exclusively for charitable, scientific, or educational reasons 2. Serve public rather than private interests, in that organization&s income does not benefit individuals 3. Not engage the following 8 prohibited transactions, including but not limited to: a. Participating in political campaigns b. Attempting to influence legislation c. Lending any part of the organizations' income without getting adequate security and interest d. Paying compensation in excess of reasonable salary levels e. Making investment for more than adequate consideration f. Selling an asset for less than adequate consideration g. Subverting in any other manner substantial portions of its income or assets or h. Making any part of its services available on preferential basis.

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2 Judicial challenges of tax-exemption status.

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Judicial challenges of tax-exemption status: 1. Under the court rationale, amount of community benefits provided by nonprofits should equal or excess the amount of tax-exemption. 2. The standard defined community benefits as: a. indigent care, b. community education and service, c. medical discounts, and d. donation of time, money, or services made by hospital employees acting as private individuals.

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What are the 4 things that IRS looks for during audit of tax-exemption hospital?

answer

IRS Audit will look for the following: a. Community benefit standard i. Auditors check composition of the governing board, amount of charity care provided, and complaints of patient dumping (denying or transferring patients based on inability to pay) b. Unreasonable compensation and private inurement i. Auditors check physician relationships to identify prohibited instances of private benefit, unreasonable compensation, improper disclosure, and inappropriate physician recruiting practices. c. Financial analysis i. Auditors check all affiliated entities to detect presence of prohibited proprietary purposes, inurement, serving of private interests, unrelated business income, or lobbying activities d. Joint Ventures i. Check to determine if the ventures violate prohibitions on private benefits, inurement, or kickbacks e. Independent contractors i. Check hospital contracts to determine whether contractors should be treated as contractors or employees for tax purposes.

question

According to Patient protection and affordable care act, what are the 4 criteria required of nonprofit hospitals?

answer

Patient Protection & Affordable Care Act of 2010 provides national criteria for nonprofit hospitals: a. Complete community health needs assessment and implementation strategy every 3 years, which is made available to the public. Needs that are identified and not addressed with resources must be explained. b. Develop, implement, and publicize financial assistance policies that include criteria for financial assistance, methods of applying for assistance, the basis for determining charges, permissible debt collection actions for patients on financial assistance, and availability of emergency care regardless of patient eligibility. c. Limit charges for patients eligible for assistance to no more than the lowest amount billed to insured patients d. Avoid extraordinary billing and collection activities until eligibility for financial assistance is determined.

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Define Direct Service Plans:

answer

Direct Service Plans: 1. Arrangement where an employer prepays specific hospitals and physicians to take care of employees extension of second-party payment, in that employer prepaid the provider on behalf of the employer

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Define Commercial Indemnity plans

answer

Commercial indemnity plans: i. arrangement whereby an employer pays an insurance company, which in turn reimburses hospitals and physicians chosen by the employees ii. These plans initiated the concept of the third party payer, because the insurance company was relatively independent from both the employer , employee, and the provider

question

Define Community rating

answer

Blue Cross set premiums using community rating: i. Community rating= premium setting method in which all groups covered by an insurance company pay essentially the same premiums

question

Define experience rating

answer

Commercial insurances had history of using experience rating to set premiums: i. Experience rating= premium-setting method in which different groups covered by an insurance company pay different premiums based on their risk.

question

What is the difference between Managed Care Organization, PPO, and HMO?

answer

What is the difference between Managed Care Organization, PPO, and HMO? i. MCO 1. organizations that manage the cost of healthcare, the quality of healthcare, and access to healthcare ii. PPO 1. Organizations that provide discounted healthcare services to insurance carriers and employers iii. HMO 1. Organizations that integrate the financing and delivery of healthcare into one organization. 2. Financial risk, and opportunity shifts from the employer/employee under the managed indemnity plans (ie. The employer/employee pays for inappropriate use through increased premiums) to the HMO's (under prepayment, the HMOs assumes the financial risk, and the opportunity for inappropriate use)

question

How have MCOs changed over the years? (2 ways they changed due to anti-managed care sentiment)

answer

How have MCO's changed over the years? i. In response to anti-managed care sentiment and the legal ramification aimed at MCO's preadmission authorizations and utilization review, new methods to finance healthcare include: 1. Evidence-based management a. Managed care companies partner with providers to determine the best, the most efficient way to manage a case based on evidence. 2. Consumer-driven plans a. Gives consumers choices in coverage and saves money b. Employers are passing the cost onto employees c. Humana was the first to try consumer-driven plans with its own employees

question

List the 3 cost-controlling method of MCOs

answer

iTo manage increased risk, MCOs cost controlling methods via: 1. Careful selection of subscribers and providers 2. Physician incentives 3. Subscriber/employer incentives

question

Define Point of Service payment plan

answer

POS (point of service) a. Minimum to no control over physicians b. Allow enrollees to seek care outside the contract. c. Requires enrollees to pay out-of-network providers larger deductibles and coinsurance. d. Higher premiums

question

What are the 4 traits of open-panel HMO?

answer

Open- Panel HMO i. HMO that exerts moderate control over physicians by contracting with them to provide care for enrollees. However, these physicians can see other patients and are not HMO employees. ii. Physicians reimbursed via capitation or fee-based service. iii. Physicians see their own patients and HMO patients iv. Two types: 1. Direct contract model- contract with individual physicians 2. Independent practice association (IPA)- contract with associations

question

Define Closed-Panel HMO

answer

Closed Panel HMO: i. HMO that contracts with or employs physicians to treat enrollees exclusively (id. Physicians do not treat other patients) ii. Physicians given incentives based on performance. iii. Two types: 1. Group model- contract with multi-specialty group of physicians to provide all care to enrollees based on capitation 2. Staff model= employ individual physicians to provide all care to enrollees

question

Define Network HMO

answer

Network HMO i. HMO that contracts with physician groups to provide care for enrollees. ii. May be open or closed iii. Reimburses based on capitation iv. Primary care groups are responsible for referring and reimbursing the specialty physician.

question

Define Defined Benefit Plans

answer

Defined Benefit Plans i. Health plan in which the employer pays the premium, or an established parts of the premium, regardless of the cost

question

Define Defined Contribution Plan

answer

Defined Contribution Plan i. Health plan in which the employer pays a set amount toward the cost of the premium and the employee pays the rest. Thus, if an employee chooses an expensive plan, he pays more than if he chooses a less expensive plan. ii. Employees chose from a variety of healthcare options, with a specified amount of the premium paid for the employers. Any health care costs above this amount are paid by the employee (compare with defined benefit plan) iii. Shifts more of the responsibility to the employee, who becomes more aware of the price and utilization.

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What are the two types of Consumer Driven Plans?

answer

Consumer Driven Plans 1. Teired model 2. Spending account model

question

Define Consumer-driven Plans

answer

Consumer- driven plans (fastest growing plan) i. Health plan that provides information and incentives to encourage enrollees to make wise healthcare choices.

question

Define Spending Account Model

answer

Spending account model a. Health savings fund to spend on healthcare. b. Once the account is depleted, expenses cannot be reimbursed c. High deductible

question

Define Tiered Model

answer

Tiered model: a. Customize cost-sharing parameters, such as amounts of deductible and coinsurance, commensurate adjustments to the amount of premiums paid by the consumer

question

Define Charges

answer

Charges: i. Amount patient are charged for services ii. If the third party or patient pays the charge, the HCO assumes no financial risk iii. Using set charges, the HCO provides no financial incentive to reduce costs.

question

Define Charge minus discount

answer

Charge minus discount: i. If HCO does not discount its charges below cost, it assumes little risk with this arrangement

question

Define Cost

answer

Cost: i. HCO receive the cost of care provided by patients of third-party payers, plus a small percentage that allows the HCO to develop new services and products ii. No incentive to contain costs. iii. HCO's assume financial risk

question

Define Per Diem

answer

Per Diem i. Method of paying for healthcare in which the hospital is paid a flat fee per day, regardless of the service delivered on any given day. ii. Assumes that costs are the same for each day (true for extended care HCO) iii. Acute care patients assume greater proportion of the costs during early days of admission.

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Define Per Diagnosis

answer

Per diagnosis: i. Method of paying for healthcare in which the hospital is paid a flat fee for each given diagnosis, regardless of the actual service provided ii. Better the HCO controls costs, the more profit it makes. iii. No way an HCO can "pad the bill" the way it can in per diem, since the third-payer is reimbursing per the diagnosis of per day.

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Define Capitation

answer

Capitation: i. Most financial risk because it is population-based ii. If the cost exceed the capitated amount, the HCO does not profit iii. Provides financial incentives to HCO to contain costs primarily before the patient seeks care by encouraging prevention. iv. Premiums are negotiated based on actuarial experience of the covered population. v. Whether HCO realizes a profit or incurs a loss depends on its ability to project demand for care and then by containing costs when patient seeks care.

question

2 impacts of Cost Shifting.

answer

Impact of Cost Shifting: i. The charges to private payers (including uninsured) increases to avoid loss to hospital ii. The increase is affected by the amount of payers available and the amount of operating margin desired by the hospital.

question

What are the 3 primary sources that finance Medicare?

answer

Medicare was financed from 3 primary sources: 1. General revenues (43%) 2. Payroll tax contributions (37%) 3. Beneficiary premiums (13%)

question

How is Medicare A, B, & D funded?

answer

Different parts of Medicare are funded as follows: i. Part A financed via tax on earning ii. Part B financed through general revenues (74%) and beneficiary premiums (25%) iii. Part D financed through general revenues (82%), beneficiary premiums (10%), and state payments for Medicare beneficiaries

question

How does Medicare reimburse providers?

answer

Medicare Reimbursements to Providers 1. Funded by federal government, Medicare Part A reimbursed hospitals based on retroactive, reasonable cost (cost-based reimbursement) 2. Medicare required hospitals to undergo Medicare certification visit or pass JAHCO accreditation visit (Deemed status)

question

How is the original Medicare different from Medicare Advantage?

answer

Original Medicare claims payments are processed through the Centers for Medicare and Medicaid Services ("CMS"). In contrast, Medicare Advantage is offered by commercial insurance companies and HMO and PPO corporations, who receive compensation from the federal government, but do not process claims through the CMS. -- Reduces out-of-pocket costs and expands the options -- Medicare Advantaged was established to replace Medicare+ Choice as Medicare's managed care product. Medicare Advantage had higher payments to healthcare providers and less cost and more choices of providers available to the enrollee

question

4 contribution made by the Tax Equity & Fiscal Responsibility Act?

answer

1. Tax Equity & Fiscal Responsibility Act- i. introduced cost limits per case and cost limits per year ii. Directed the HHS to develop prospective payment system for hospitals iii. Introduced the option of managed care plan to beneficiaries iv. Made Medicare the secondary when beneficiaries had additional insurance

question

2 Contribution of Social Security Amendment Act.

answer

Social Security Amendment Act: i. Provision for prospective payments applied to Part A only and it was intended to replace cost-based reimbursement . ii. Established Prospective payment rates for DRGs 1. Hospital specific data used to establish DRG 2. Medicare used DRG rate schedule to provide incentives and penalties for certain physician ordering patterns. 3. DRG= grouping of similar healthcare cases that should require similar resource consumptions. DRG are used by Medicare to calculate prospective payments 4. Prospective payment= system by which Medicare reimburses hospitals for the expected cost of a service, rather than the service's actual cost.

question

Define Omnibus Budget Reconciliation Act

answer

Omnibus Budget Reconciliation Act: i. Medicare restrictions to only reimburse buildings and equipment that were medically necessary and used for Medicare patients.

question

Balanced Budget Act of 1997

answer

Balanced Budget Act of 1997: i. Reduced Medicare reimbursement to providers and established sustainable growth rate (SGR) ii. SGR= method used by Medicare to control spending for physician services. (SGR=conversion factor that will change the payments for physician services for the next year in order to match the target SGR. If the expenditures for the previous year exceeded the target expenditures, then the conversion factor will decrease payments for the next year. If the expenditures were less than expected, the conversion factor would increase the payments to physicians for the next year.) iii. Added preventative benefits and reduced beneficiary cost-sharing under Medicare.

question

Healthcare Financing Administration resource-based relative system.

answer

Healthcare Financing Administration (HCFA) resource-based relative value system: i. Medicare reimbursement system that provides flat, per-visit fee to physicians rather than reimbursing them according to their customary charges.

question

How is Medicaid financed?

answer

Medicaid program has two categories of cost which are shared by state & federal: 1. Provider service cost 2. Administrative cost ii. Federal portion of cost is financed from general revenues. iii. State portion of costs for provider services is financed from local revenues iv. State portion of administrative costs comes from state revenues

question

What are the 2 methods used for medicaid reimbursement to physicians?

answer

Medicaid Reimbursement to physicians: 1. Fee schedules= flat fee for each service 2. Cost-Based Reimbursement (Reasonable charge method)=limit reimbursement to the lowest of the physician's actual charge, the physician's customary charge for similar services, or prevailing physicians charge in the area

question

What are the 3 methods of medicaid reimbursement to institutions?

answer

Medicaid Reimbursement to institutions: 1. Cost-based reimbursements initially 2. DRG (aka cost-mix) methodology later in 1980's 3. Prospective payments

question

What is the difference between fraud & abuse?

answer

1. Fraud= intentional misrepresentation designed to induce reliance by another 2. Abuse= unintentional misrepresentation of fact

question

Define allocation process

answer

Allocation process is a major factor in the determination of per-unit costs. i. Basically, all costs must be included in the costs of the revenue- producing services. ii. In the allocation process, variable costs cannot be traced directly to the output of the department, but fixed costs must be allocated to the output of the department. iii. It is important to stress that allocation is a subjective process.

question

List the 4 factors that cause organization to have different cost allocations?

answer

Organizations will have different cost allocations based on the following decisions: a. Allocation method b. Allocation base c. Responsibility centers d. Depreciation method

question

What are the 4 requirements of cost process?

answer

To summarize, the cost process requires that you: a. Define cost centers ( Identify who is responsible for each revenue and cost center for both support and services) b. Determine direct costs of support and service centers c. Allocate support center cost to service centers to determine total costs d. Determine unit costs by dividing total center costs by number of units provided

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How are cost for performance measurement categorized?

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Costs for performance measurement are categorized as following: a. Direct Costs ➢ Costs that can be traced to a service, organizational unit or individual provider/manager b. Indirect Costs ➢ Costs that must be allocated to services, organizational units or individual providers/managers

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What is the key aspect of effective performance measurement?

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A key aspect of effective performance measurement is to organize the activities of the provider in the responsibility centers

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What are the 4 responsibility centers?

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Basic responsibility centers: i. Cost (expense) center: inputs only measured ii. Revenue Center: outputs only measured iii. Profit Center: inputs and outputs measured iv. Investment center: input & outputs measured in relation to the investment

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What are the 5 ways of classifying costs?

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Cost can be classified by: i. Accounting function ii. Managerial function iii. Traceability iv. Behavior in relation to volume of products or services v. Relevance to control and management decision-making

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When Cost is classified by accounting function, what are the two type of costs?

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Cost classified by accounting function: i. Financial Accounting Costs ii. Managerial Accounting Costs

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Define Financial Accounting Costs.

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Financial Accounting Costs: a. Amount of money used for certain purpose b. Measurement of the amount of resources used for a certain purpose in monetary terms c. Cost is a value placed on goods or services. When the value expires, it is considered an expense. d. Example= cost derived from financial statements

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Define Managerial Accounting Costs

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Managerial Accounting Costs: a. Costs that help management make decisions b. Example=Cost derived from budget reports

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When costs are classified by management function, what are the two costs?

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Costs classified by management function i. Operating Costs ii. Non-operating costs

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Define Operating Costs

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Operating Costs a. Cost associated with producing the product or service. b. Example= supply costs associated with patients' ER visits

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Define Non-operating costs

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Non-operating costs: a. Cost association with supporting the production of a product or service. b. Example= cost associated with borrowing money for equipment in ER

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When costs are classified by traceability, what are the 4 types of costs?

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Cost classified by traceability 1. Direct cost 2. Indirect cost 3. Full Cost 4. Average cost

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Direct cost

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Direct Costs= costs that can be traced directly to a department , product, or service. Example= labor & supplies

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Indirect cost

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Indirect Costs= costs that cannot be traced directly to a department, product, or service. Example= heating & cooling.

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Full Cost

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Full costs=includes both direct and indirect costs

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Average cost

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Average costs= full costs divided by the number of products or services

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When Costs classified by behavior in relation to volume of products or reviews, what are the 4 types of costs?

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Cost classified by behavior in relation to volume of products or reviews: 1. Marginal 2. Variable 3. Fixed 4. Semi-Variable

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Variable cost

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Variable cost a. Cost that varies in proportion to volume b. Example= supply cost (supply cost varies with volume)

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Marginal

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Marginal cost: a. Cost of producing one more unit of something b. The variable cost of each additional unit. c. Example- Lab that performs 100 UA tests at a fixed cost plus variable costs divided by 100 is ---$10 per test. If 101 test done on a given day, the marginal cost of the additional test would be less than $10 since it would be a variable cost associated with one test.

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Fixed

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Fixed Cost a. Cost that remains constant in relation to changes in volumes b. Example= cost of heating & cooling

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Semi-Variable

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Semi-variable cost: a. Cost that vary incrementally to changes in volume b. Example= house-keeping staff costs (if there is 1% change in patient volume, then no change. 5% change in patient volume may cause additional hires)

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Primary purpose of cost allocation ?

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Primary purpose of cost allocation is to allocate the indirect costs and some direct cost in a way that ensures that patients are paying for only the cost of the services and products they received

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Function of Chart of Account

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Chart of accounts identifies cost centers and revenue centers that correspond to the organizational change

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Define Cost Center, Revenue center, Workload Statistic.

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a. Cost Center= a department; from an accounting perspective, a department that consumes money. b. Revenue center= department that generates revenue. c. Workload statistic= non-financial statistics that best reflects the work performed in each department

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List 6 facts about Direct apportionment

answer

Direct apportionment (NR--->R) a. Easiest method of allocation b. One-time allocation of all costs from non-revenue generating department that have costs but to revenue-generating cost centers. c. Example housekeeping costs are allocated to cardiology department d. Fails to account for the costs of non-revenue departments doing work for other non-revenue departments e. Most third-party payers do not accept direct apportionment as method of cost allocation.

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Define Step-down Apportionment

answer

Step-down Apportionment (NR-->NR--> R) a. Two-time allocation method. b. Cost allocation method that allocates costs from non-revenue generating cost center to other non-revenue cost centers and then to revenue-generating centers c. Fails to consider revenue-generating departments doing work for other revenue-genrating departments (grant-writing department doing work for the fund-raising department) d. Can be done by hand and does take into consider NR--> NR cost allocation.

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Two key advantages of Step-down Apportionment? Key drawback

answer

Two key advantages of Step-down Apportionment: 1. It consider the cost of nonrevenue departments doing work for other nonrevenue departments before the final allocation to revenue departments 2. It can be performed by hand without computer Drawback= Does not consider revenue departments doing work for other revenue departments.

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Define Double Apportionment

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Double Apportionment: a. Most practical Two-time allocation that takes into account the disadvantage of step-down apportionment; Requires computer. b. Involves one-time allocation of all costs from cost centers of departments that do not generate revenue to cost center of other departments that do not generate revenue and then it conducts a simultaneous one-time allocation of costs between cost centers that do no generate revenue to cost centers. Last step, it allocates non-revenue generating costs centers to revenue generating cost centers.

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Define Multiple Apportionment

answer

Multiple Apportionment: a. Two-step allocation where many apportionment allocations made in the first step, the more accurate the costs will be reflected in patient's bill. b. Most accurate method c. Drawback= needs lot of computer memory

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Three Methods of Assembling cost:

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Three Methods of Assembling cost: 1. Responsibility costing 2. Full Costing 3.Differential Costing

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Responsibility Costing:

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Responsibility Costing: i. Method of assembling cost by cost center or department ii. In this way, HCO can hold managers responsible for controllable cost of the organization

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Full Costing

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Full Costing i. Method of assembling direct and indirect costs to a product or service to determine its profitability

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Differential Costing

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3. Differential Costing i. Method of assembling costs and sometimes revenues to alternative decisions. Net change in the total cost (both fixed and variable) resulting from a variation in production.

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5 Methods of determining product costs include?

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Methods of determining product costs include: i. Ratio of cost to charges ii. Process Costing iii. Job- order costing iv. Activity -based costing v. Standard costing

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Define Product costs

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1. Product cost cut across the functional lines of responsibility 2. Product costs are important at determining profitability in the prospective payment arrangement such as Medicare and managed care

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Define Ratio of Cost to Charges:

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Ratio of Cost to Charges: i. Method of determining product cost by relating its cost to its charge. ii. Calculated by dividing an organization's total operating expenses by the gross patient revenue. Resulting percentage is then applied to any product's charge in HCO to then calculate the product's cost. iii. Serious flaw-it assumes a consistent relationship between cost and charge that simply does not exist because of the numerous ways that HCO have set charges iv. Used in the past for cost-based reimbursements.

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Define Process Costing:

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Process Costing: i. Method of determining product cost by dividing the full costs of the organization or department during a given accounting period by the number of products or services produced during the given accounting period. ii. Best used in department that produces products similar resource consumption (inappropriate in healthcare to assume that there similar resource consumption)

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Define Job-order costing:

answer

Job-order costing: i. Method of determining cost by sampling the product's actual direct costs and developing a relative value unit (RVU)----measure or resources consumed by each product---in varying amounts for each product ii. Total direct and indirect costs are assigned to the product based on relationship established by the RVU.

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Define Activity-based costing:

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Activity-based costing: i. Method of determining product cost by using cost drivers to assign indirect cost to products proportionate to direct costs and volumes ii. Cost drivers are activities that pertain to each procedure in varying volumes

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Define Standard Costing:

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Standard Costing: i. Not a true method of determining costs ii. Method of establishing benchmark costs or budgeted ones for the purpose of comparing actual costs. iii. This method of comparing standard costs to actual costs produces variances, or differences, that are useful to the manager in controlling costs.

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What is the Relationship of Costs to Volumes and Revenue?

answer

Relationship of Costs to Volumes and Revenue: 1. Used to determine profit and loss 2. Profit equation: i. Profit = (Revenues)- (Expenses) ii. Must understand the relationship between costs and expense to understand profit and loss iii. Cost is the amount that is spent to acquire an asset iv. Expense is an expired cost

question

Breakeven point Definition ; how is it graphed?

answer

Breakeven point Related to costs per period, the breakeven point is is the volume at which the total revenue line intersects the total cost line, or where total costs equal total revenues. 1. Break-even point on the Cost per unit graph is where the Total revenue line meets the Total cost 2. Using cost per unit, the breakeven point is the point at which fixed costs have been covered. Before that point, each unit sold has not only covered its variable costs, but has also contributed to fixed costs.

question

Breakeven point for capitated revenue graph:

answer

Breakeven point for capitated revenue graph: a. In capitated revenue environment, revenue is fixed and what becomes important is controlling volume and variable costs. b. Equation for determining profit at different levels of volume and determining profit if variable cost per unit can be reduced: Profit= Revenues- Expenses Where Revenues- (Charge X Volume) and Where Revenues= (Fixed costs) + (Variable cost per unit X Volume)

question

Breakeven quantity Formula

answer

Breakeven quantity= (Total fixed costs)/ [(charge)- (Variable cost per unit)]

question

Formula for Contribution margin ; Formula for Contribution margin percent?

answer

Contribution margin= Charge - Variable cost per unit Contribution margin percent= Charge- Variable cost per unit/ Charge

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Legislation Authorized price controls in the healthcare industry

answer

Social Security Amendment of 1972

question

Eliminated prior hospitalization requirement for home health services reimbursement and eliminated the limitation on total number of home health service visits

answer

Omnibus Budget Reconciliation Act of 1980

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Legislation directed the Department of Health, Education, and Welfare to develop prospective payment method of reimbursement

answer

Social Security Amendment of 1972

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Legislation that Established peer-review program to determine appropriateness and quality of care delivered to patients of federal programs

answer

Professional Standards Review Organizations of 1972

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Legislation requiring hospital get approval for capital expenditures and increased the control that planning agencies had over hospital expansion and services---an attempt to regulate the supply of services.

answer

National Health Planning and Resource Development Act of 1974 (Hill-Burton Act)

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Legislation that moved the reimbursement for inpatient hospital costs from cost-based reimbursement to prospective payment based on DRG

answer

Omnibus Budget Reconciliation ACt 1990

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3 changes created by Tax Equity & Fiscal Responsibility ACT

answer

Tax Equity Fiscal Responsibility ACT (TEFRA): 1. Replaced PSROs with peer review organizations 2. Extended Medicare coverage to hospice care 3. Made Medicare the secondary payer for working beneficiaries covered by employers. 4. Established prospective payment for hospitals

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Deficit Reduction Act of 1984

answer

Congress directed the Secretary of Health and Human Services to study the extent to which the DEFRA hospital rates should be adjusted for the extra costs incurred by hospitals in treating low-income patients. This legislation lead to Medicare Disproportionate Share (DSH) payment adjustment, which compensated hospitals for the higher operating costs they incurred in treating a large share of low-income patients. It also allowed physicians to accept Medicare approved charges as full payment.

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Government initiative that limits liability for HCO that discover, identify, and correct billing errors

answer

Voluntary Disclosure

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Identifies payment practices to physicians that are safe from federal prosecution under the Anti-kick back law

answer

Safe Harbors

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Medicare Prescription Drug, Improvement and Modernization Act

answer

Medicare Prescription Drug, Improvement and Modernization Act: 1. Introduced prescription drug benefits 2. Incentivized hospitals to report quality data for underserved areas 3. Created the Health saving accounts (HSA)

question

Adams Smiths Theory on Captialism

answer

Adam Smith& Theory on Captialism: "Invisible hand" guides the free market economy Individuals who pursue their own self-intersts produce economic results beneficial to society as whole.

question

Accounting concept that accounting records must be based on information that is verifiable from an independent source

answer

Reliability

question

Accounting principle that means Revenue is recorded when it is realized ;expenses is recorded when it contributes to operations

answer

Accrual Accounting

question

Accounting principle that means Revenue and expenses are recorded when cash is received or paid

answer

Cash Accounting

question

Accounting principle that guides how to record uncertain events or estimates. It dictates that revenues ,assets, and gains should be understated and liabilities, expenses and losses should be overstated when there is uncertainty.

answer

Conservatism

question

Accounting principle that means that all economic transaction should be recorded

answer

Full Disclosure

question

Accounting principle that means related revenue and expense should be reported in the same accounting period

answer

Matching

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Ethics & Resource Allocation

answer

Ethics & Resource Allocation: Managers have utilitarian view of resource allocation where the greatest good is for the greatest numbers. Physicians have deontological view and are obligated to their duty to the patient. They must do all they can for every patient. So conflicts arise.

question

This is derived from dividing the number of inpatient days equivalent by the number of days in the reporting period

answer

Adjusted average daily census

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This is derived by removing expenses incurred fro the provision of outpatient care from total expenses and then diving by the total admissions in the reporting period

answer

Adjusted expenses per admission

question

Average number of patients getting care each day during the reporting period

answer

Average daily census

question

Ratio of average daily census to the average number of statical beds

answer

Occupancy rate

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Resource Based Relative Value System

answer

Resource Based Relative Value System (RBRVS): Federal regulations that changed Medicare method of reimbursement from reasonable and customary charges to prospective, flat fee per visit

question

DRG

answer

Diagnosis-related Group Prospective payment methods. Adjusts fro variables per day costs; Cannot extend the length of stay to recover excessive per day costs.

question

Cost-based Reimbursement

answer

Cost-based Reimbursement: HCO bills third party which reimburses the organization the projected cost often expressed as percentage of charge. At the end of the year, the third party audit the HCO to determine the actual cost, and adjust the reimbursements. Little financial risk to HCO Retroactive, inflationary , and little incentive to control costs.

question

Ranking reimbursements based on financial risk (low to high)

answer

Ranking reimbursements based on financial risk (low to high): 1. Charge (lowest risk 2. Charge minus Discount 3. Cost plus percentage for growth 4. Cost 5. Per diem 6. Per diagnosis 7. Capitation.

question

Direct Apportionment

answer

Direct Apportionment: One-time allocation of all costs from cost centers of departments that do not generate revenue to cost center of departments that do generate revenue

question

Direct Apportionment: Pros & Cons

answer

Direction Apportionment: Simple Fails to factor in non-revenue departments doing work for non-revenue departments (housekeeping working in IT dept). For this reason, it is not accepted as a method of allocation by third party payers

question

Double Apportionment: Pros & Cons

answer

Double Apportionment: Cons-- needs computer Pros= Most practical method of cost allocation, considering value or accuracy over cost. 2) Accounts for cost of non-revenue departments doing work for non-revenue departments and revenue-generaging departments working for revenue-generating departments.

question

Multiple Apportionment : pros & cons

answer

Multiple Apportionment : More accurate but needs lot of computer memory and computer time.

question

Legislation that added Pact C to Medicare, which expand the types of health plans from which Medicare patients may choice from. Choices included fee-for-service, coordinated care plans, provider service organizations, and medical savings accounts.

answer

Balanced Budget Act of 1997

question

Define Medicaid

answer

Medicaid is a state-federal cost-sharing program that pays for certainn health services of people who meet income eligibility criteria set by the state

question

Legislation that established the prospective payment system to address the problem of cost increases in hospitals

answer

Tax Equity & Fiscal Responsibility Act of 1982 & Social Security of 1983

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