Healthcare Accounting Principles and Ethics Essay
Health care managers have many responsibilities, which support their roles in creating and maintaining successful organizations. A key responsibility managers undertake is the ability to manage financials appropriately. “First and foremost, financial management is a decision science. Whereas accounting provides decision makers with a rational means by which to budget for and measure a business’s financial performance, financial management provides the theory, concepts, and tools necessary to make better decisions” (Gapenski, 2007).
For leaders to manage finances successfully, they employ four key managerial elements. The four elements include: (1) planning, (2) controlling, (3) organizing and directing, and (4) decision making. Through these managerial processes, managers may identify objectives and develop plans to meet objectives. In addition, management may decide the best courses of action to take and the resources needed to execute action plans. Should managers not execute these elements effectively, the organization is likely to miss target goals and struggle financially.
Management not only must understand how to employ the elements of financial success but also uphold appropriate practices. The following will detail generally accepted accounting principles and ethical standards involved in health care finance. In addition, the significance of ethical standards of conduct and financial reporting practices will be outlined. Generally Accepted Accounting Principles Generally accepted accounting principles (GAAP) are the regularly followed accounting guidelines and standards for financial reporting.
“GAAP specifications include definitions of concepts and principles, as well as industry-specific rules. The purpose of GAAP is to ensure that financial reporting is transparent and consistent from one organization to another. There is no universal GAAP standard and the specifics vary from one geographic location or industry to another” (Rouse, 2010). According to an online article, commonly practiced principles aligned with GAAP compliance are as follows: Principle of Regularity: This requires the organization to adhere to enforced rules and laws.
Principle of Consistency:
This requires accountants to use the same reporting methods and procedures across reporting periods. Principle of Sincerity: The accounting entity’s reporting should mirror the organization’s true financial status. Principle of the Permanence of Methods: This principle intends for reports to be logically consistent and allow for the comparison of the published financial information. Principle of Non-Compensation: Precise details of the financial information should be represented, and auditors should not attempt to compensate a debt with an asset, a revenue with an expense, etc.
Principle of Prudence: Prudence is an accounting principle that ensures assets and income are not exaggerated and that liabilities and expenses are not underreported. Principle of Continuity: One should assume while reporting financial information, business will not be interrupted. This principle accepts that assets may be accounted for at their historical value versus their disposable value. Principle of Periodicity: Each accounting entry should be allocated to a specific period, and divided accordingly if it covers numerous periods.
Principle of Full Disclosure/Materiality: Complete records of information and values pertaining to the financial position of a business must be disclosed (Best-Practice. com, 2013). The fore mentioned reporting principles are required because they force organizations to adhere to ethical reporting methods. Financial reports must be reported fairly and factually to ensure all parties receive reliable and unbiased information. A perfect example of this is the Principle of Prudence.
If a department manager receives a report that understates previous expenses and exaggerates department revenues, the manager would not have a valid budget to work with. Not possessing a correct budget could affect wages, hiring, supply orders, decisions, and multiple other operational areas. This could lead to a lack of resources and poor decisions that ultimately reduce patient care objectives. In terms of revenue, multiple medical facilities rely heavily on government funding. To receive government funding, these facilities must adhere to outlined reporting practices.
Facilities that fail to do so will lose a substantial amount of government revenue. In addition, fines may be imposed for compliance failures. Although the most significant downfalls of false reporting are false expectations and possible bankruptcy. If organizations do not control expenses and drive revenues, they will not remain in business. By keeping managers in the dark, one could not expect them to drive positive outcomes. These are just a few examples of why reporting standards are so important. Ethical Conduct of Health Care Accounting Practices
Not only must financial managers adhere to ethical accounting principles but also ethical conduct when following such principles. “According to the American Institute of CPAs, ethics are made up of three components: independence, integrity and objectivity” (Gallup). Gallup notes that the ethics part of independence requires medical accountants to avoid conflicts of interest. Conflicts of interest with vendors and other medical parties can lead to exaggerated pricing of products and services in an effort to maximize profits of outside interests.
A prime example of how such a conflict could affect a patient occurs with prescription drug incentives. A hospital or an anesthesiologist might use a certain drug not because it is the best choice for the patient but because an incentive is offered for prescribing that product. The concepts of integrity and objectivity imply that one should not operate businesses or act as a freelance consultant for competitors or vendors because it might seem that costs passed on to the patients could be inflated for personal gains.
In addition, accountants should not receive gifts from involved parties as it may appear they are being bribed (Gallup). Overall, financial managers must remain objective and honest. This includes honest reporting practices. In addition, under no circumstance should health care personnel attempt to defraud patients or their employer through dishonest practices. There have been cases were financial managers have defrauded patients through billing practices. This type of dishonesty can lead to health care organizations facing large lawsuits.
In short, financial managers should be accountable for honorably servicing solely the patient and their employer (Gallup). Conclusion Managing the financial aspects of health care can be quite an extensive process. In order to do so successfully one must understand managerial practices and financial reporting methods. In addition, one must uphold ethical conduct in regard to financial reporting. Without proper practices and regulations, patients, employers, and employees may all suffer negative consequences.