Assignment: Health Care Finance

Assignment: Health Care Finance ORDER NOW FOR CUSTOMIZED AND ORIGINAL ESSAY PAPERS ON Assignment: Health Care Finance Review the organizational charts presented in your reading materials. The sample organization chart lists major areas of responsibility. Select one area under the CFO and indicate the additional levels of management that would fall under this area. Assignment: Health Care Finance Think about the positions in the organization that you believe would be directly involved with capital investment decisions and explain why you chose these positions. Choose a health care facility that you are currently working with or one that you would like to work for in the future. This facility will be used throughout the course as you plan your capital investment budget. Should be one to two pages in length in APA format ch_smith_healthcare.pdf Financial Management in Healthcare 1 ©Andrea Gingerich/iStock/Thinkstock Learning Outcomes By the end of this chapter, you will be able to: • Describe the major components of finance: financial accounting, managerial accounting, and corporate finance • Describe the key features that make healthcare finance unique • Discuss the importance of finance in the healthcare industry • List the key financial challenges facing healthcare leaders smi81240_01_c01_001-024.indd 1 3/7/14 9:23 AM Introduction Introduction Hendrickson Memorial Hospital is a typical general medical and surgical hospital. It has 285 inpatient beds with an adjoining 62-bed hospital-based nursing facility and three primary care health centers. The financial statements of Hendrickson Memorial list over $250 million in assets at the end of 2012 and net patient services revenue of over $320 million for the year. Government payers (Medicare, Medicaid, and others) paid half of its net patient services revenue. After all expenses associated with providing patient services and tallying other sources of revenues and expenses, net income for the year was nearly $8 million in 2012, which was a good improvement over the $4 million earned in 2011. Management feels prepared to enter 2013 and the new era marked by the Patient Protection and Affordable Care Act (PPACA) to begin in 2014. But is the hospital ready? With changes in government payments for services, new expectations of service delivery, requirements for improving electronic health records, and an intensive care unit in need of replacement, Hendrickson Memorial’s management team recognizes that they must watch every dollar closely. Sound financial management is a cornerstone to managing any organization. Development and adherence to processes for planning, tracking, reporting, and analyzing the flows of money are essential to managing an organization. Knowing where all the money is at all points in time and how it is being used is important to assure the appropriate use of resources. Healthcare organizations are no exception to this rule. In fact, given the public’s interest in having accessible, high-quality, affordable healthcare services, it is all the more important to have sound financial management of healthcare organizations. Healthcare spending in the United States has increased from $148 per person in 1960 to more than $8,500 per person in 2011, as shown in Figure 1.1. With $2.7 trillion dollars spent on healthcare every year (317 million people multiplied by $8,500 per person), there is a large amount of money to be managed, and it must be managed well. Sound financial management is more than watching every dollar. Financial management, as a component of the overall management of an organization, must assure that dollars are being spent wisely. 2 smi81240_01_c01_001-024.indd 2 3/7/14 9:23 AM Introduction Figure 1.1: Healthcare spending per person, United States 1960–2011 $9,000 Money spent on healthcare ($) $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1960 1965 1970 1975 1980 1985 Year 1990 1995 2000 2005 2010 Source: Data from OECD Health Statistics 2013—Frequently Requested Data, retrieved from http://www.oecd.org/els/health -systems/oecdhealthdata2013-frequentlyrequesteddata.htm Overall management of a healthcare organization starts with an understanding of the healthcare goals it wishes to accomplish, often expressed in a mission statement. For example, a rural hospital may define its healthcare goals as providing a broad range of healthcare services. Jersey Shore Hospital’s mission statement (presented in Exhibit 1.1) includes providing quality health services through the usual components of a hospital: inpatient care (treatments that require overnight stays in the hospital), outpatient care (treatments that permit the patient to return home the same day), primary care (routine visits with physicians and nurse practitioners), and outreach services (health screenings, health fairs, conferences, workshops, and lectures). In contrast, a private physician practice in dermatology may focus its mission on a much more narrow set of services. Assignment: Health Care Finance There are a variety of healthcare organizations in the healthcare industry (Shi & Singh, 2012). Different types of organizations will define their missions differently. And there may even be differences in the missions among the same types of organizations. As a component of the overall management of an organization, it is important for those involved with financial management to understand the mission and to determine if dollars are being spent on the most appropriate things. 3 smi81240_01_c01_001-024.indd 3 3/7/14 9:23 AM Introduction Exhibit 1.1 Jersey Shore Hospital mission statement Jersey Shore Hospital is a rural healthcare facility committed to providing quality health services with an efficient balance of outpatient care, acute and sub-acute inpatient care, primary care and outreach services. The Hospital maximizes the effectiveness of its program through integration with other healthcare providers to assure the community access to a broad array of healthcare services. Source: Jersey Shore Hospital, Jersey Shore, PA, http://www.JSH.org (June 4, 2013) Developing an operational plan is one way of communicating and assigning resources regarding how the mission is to be accomplished. Based upon the mission statement, the operational plan includes listing the specific goals, objectives, and activities that will be undertaken by the organization. For a healthcare organization, a good operational plan requires a keen understanding of patients’ healthcare needs and the healthcare delivery process that addresses those needs. For many hospitals, achieving part of their mission requires provision of inpatient hospital services and outpatient services. The starting point for the operational plan is a forecast of the number of patients to be treated. An example of a patient forecast is provided in Exhibit 1.2. In this example, elective hospital admissions and outpatient visits have been quite stable over time. The number of older people presenting for emergency care has followed demographic trends. The proportion of outpatient surgeries (admission and discharge on the same day) is forecasted to increase from 70% in 2011 to 80% in 2013. Exhibit 1.2 Hospital patient volume forecast Actual 2011 2,000 8,000 8,800 80,100 Volume Measures Planned care (elective) admissions Nonelective admissions Outpatient surgery admissions Outpatient visits Actual 2012 1,980 8,200 9,100 81,000 Plan 2013 2,010 8,800 9,800 81,400 After projections of patient volume, the operational plan includes the use of personnel (medical, operational, and administrative) and physical resources (buildings, equipment, and supplies). An example of a personnel plan is provided in Exhibit 1.3. For this example, despite increases in admissions and outpatient visits, there were fewer full-time equivalent employees in 2012 than in 2011. A continuation of this trend toward providing more services with fewer personnel is planned for 2013. Not presented, but following along these same lines, are plans for the buildings, equipment, and supplies that will be used to treat patients. 4 smi81240_01_c01_001-024.indd 4 3/7/14 9:23 AM Understanding Finance Exhibit 1.3 Hospital personnel plan (full-time equivalent employees) Actual 2011 60 342 132 146 198 878 Hospital Personnel Physicians Nursing and allied health Other clinical staff Scientific, therapeutic, & technical Nonclinical staff Total Actual 2012 60 322 131 145 181 839 Plan 2013 60 313 130 144 169 816 The financial aspects involved with acquiring and using the personnel and physical resources are presented in a business plan. The essence of a business plan is tying the personnel and physical resources in the operational plan to financial (dollar) resources. Business plans and budgets will be described more fully in Chapter 7. Sound financial management follows operational management—assuring that the goals and objectives are met by efficiently undertaking planned activities—with an emphasis on the finances involved. Because sound financial management follows operational management, many finance personnel develop expertise in the operations whose dollars they are planning, tracking, reporting, and analyzing. Some of the best finance personnel are those who learn which aspects of the organization need to be watched, improved, or generally managed to achieve the organization’s heath care goals (Miller, Brunssona, & Lapsley, 1998). Anyone aspiring to become a general or financial manager of a healthcare organization is well advised to be attentive to the clinical concerns and patient concerns of operations, as well as financial concerns.Assignment: Health Care Finance 1.1 Understanding Finance Finance is a commonly used term that describes an array of fields of study and practice where money is concerned. In the popular press, finance often refers to banking and government systems. Banks and government agencies, like the Federal Reserve, have a substantial role in the economy. Banks are institutions licensed to receive deposits, make loans, and provide for an orderly movement of money in the economy. The Federal Reserve is an agency with responsibility for banking information and regulation, payment systems (working with banks to process checks), and monetary policy (setting money supply and interest rates). Clearly banks and government agencies serve important roles in finance for the economy. For patients at healthcare organizations, finance refers to the management of billing, payments, and interactions with insurance companies. An office of Patient Financial Services is generally available to answer patients’ questions about their bills and provide financial assistance, when appropriate. Financial services representatives may work with patients to determine all possible assistance options, including private insurance, Medicare, Medicaid, and other programs. 5 smi81240_01_c01_001-024.indd 5 3/7/14 9:23 AM Section 1.1 Understanding Finance For healthcare organizations and managers, finance also refers to accounting, the process of preparing financial statements and additional analyses of interest to an organization’s management. More specifically, finance is the management of assets, liabilities, revenues, and expenses, which will be discussed in greater detail in Chapter 2. Assets are the items controlled by the organization and include money (checking accounts), supplies, equipment, buildings, and a host of other items. Liabilities, or debts, are the amounts owed to other individuals or companies. Revenues are the monies earned for providing patient services, selling pharmaceuticals and medical supplies, and other activities. Expenses are the monies associated with paying personnel, purchasing pharmaceuticals and medical supplies, and using equipment and buildings. This last definition of finance, or planning, tracking, reporting, and analyzing the flows of money, is the focus of this book. There are three components of finance for managers: financial accounting, managerial accounting, and corporate finance. Each of these components refers to an area of activity that managers must control for sound financial management of an organization. Financial Accounting Financial accounting is the practice of “keeping track” of resources. It involves recording and compiling business and financial transactions, assuring the accuracy of transactions, and preparing reports of the results. With this definition, financial accounting functions are present in almost every part of an organization. Given the complex activities that occur in healthcare organizations, keeping track of resources can be a challenging task. Tracking Costs Imagine that a child is brought to the emergency department after falling on the playground. Where does financial accounting occur in this case? Accounting for the emergency department begins long before the first patient arrives with the tracking of resources that were acquired to build the department. The building and equipment were purchased and financial accounting recognized both the purchase and how it is being paid for, perhaps by borrowing money. Accounting also recognizes how much of the purchase price is allocated to each year of its useful life. (This allocation is an expense called depreciation that will be considered in Chapter 3.) Next, accounting keeps track of how much it costs to keep the lights on, even if zero patients are present at any given time. In addition to the explicit electricity needed to keep the lights on, inventories of supplies and resources must be available, waiting for patients to arrive. Based upon forecasts of patient volume, personnel are hired, hours tallied, and paychecks issued. Human resources and accounting work hand in hand to assure that wages and salaries are reported and paid properly. 6 smi81240_01_c01_001-024.indd 6 3/7/14 9:23 AM Section 1.1 Understanding Finance Similarly, documentation of diagnoses and treatments requires clinical departments to work with accounting. Tracking patient care is where the most substantial financial accounting activity (in terms of the number of entries in an information system) occurs in healthcare organizations. After a careful patient history and physical examination, the child is diagnosed as having a scraped elbow with treatment consisting of cleansing the wound and applying a bandage. For proper medical documentation, as well as payment and financial reporting purposes, at least three different coding structures are involved in this case. The use of proper codes is important because they are the basis upon which healthcare providers and insurance companies communicate. If providers want to be paid promptly and correctly, they must use the right codes. First, the diagnosis is clarified with an International Classification of Diseases—9th Clinical Modification (ICD-9-CM) code of 913.0 “abrasion or friction burn of elbow, forearm, and wrist, without mention of infection.” On October 1, 2014, the ICD-9-CM codes used to report medical diagnoses will be replaced by the ICD-10-CM codes. ICD-10 is more detailed and is the system used through most of the world. The new ICD-10 code will be S50.0 “contusion of elbow” and W09.8 “external cause of injuries, fall, falling (accidental), playground equipment.” Assignment: Health Care Finance The movement from ICD-9 to ICD-10 will be complex, as it means moving from a system that healthcare organizations have used for a number of years, with approximately 4,500 codes, to a new system with approximately 70,000 codes. Second, after the diagnosis, treatment by the medical provider is clarified with a Current Procedural Terminology®, Fourth Edition (CPT-4) code of 99282 “Emergency department visit with expanded problem focused history and examination with medical decision making of low complexity.” And third, the use of the hospital emergency department as the site of the diagnosis and treatment is clarified with an Ambulatory Payment Classification (APC) code of 613 “Level 2 type A emergency visit.” (More detail on the use of CPT-4 and APC codes will be provided in Chapter 5.) Beyond the coding systems presented in this example, several other coding systems may be employed, based upon the diagnoses, underlying causes of the need for medical treatments, treatments, and disposition. How will the child or other responsible party pay for the visit to the emergency department? To start, a schedule of fees (called a chargemaster in hospitals) is prepared based upon historical or estimated costs; see Exhibit 1.4. All of the services provided to the patient are collected and placed on the patient bill and aligned with the schedule of fees. Some sets of services may be bundled into groups for payment purposes. In our hurt child example, the chargemaster for the emergency department might include a line item for each product provided to the child, including antibiotics, pain relievers, and bandages. By placing each product on the patient bill, the emergency department can determine the expenses associated with each patient’s care and track the use of supplies. 7 smi81240_01_c01_001-024.indd 7 3/7/14 9:23 AM Section 1.1 Understanding Finance Exhibit 1.4 Ronald Reagan UCLA Medical Center charge description master file, June 1, 2012 (selected entries) Evaluation and Management Services Emergency Room Visit, Level 2 (low to moderate severity) Emergency Room Visit, Level 3 (moderate severity) Emergency Room Visit, Level 4 (high severity) Outpatient Visit, established patient, 15 minutes Laboratory and Pathology Services Basic Metabolic Panel Blood Gas Analysis, including 02 saturation Complete Blood Count, automated Complete Blood Count, with differential WBC, automated Radiology Services CT Scan, Abdomen, with contrast Mammography, Screening, Bilateral MRI, Head or Brain, without contrast, followed by contrast X-Ray, Chest, two views Medicine Services Cardiac Catheterization, Left Heart, percutaneous Echocardiography, complete Electrocardiogram, routine, with interpretation and report Inhalation Treatment, pressurized or nonpressurized Surgery Services Arthroscopy, Knee, with meniscectomy (medial or lateral) Arthroscopy, Shoulder, with partial acromioplasty Carpal Tunnel Surgery Cataract Removal with Insertion of Intraocular Lens, 1 Stage 2012 CPT Code 99282 99283 99284 99213 Average Charge $300 $470 $750 $183 74160 77057 70553 71020 $2,070 $336 $6,270 $230 80048 82805 85027 85025 93452 93307 93000 94640 29881 29826 64721 66984 $200 $140 $30 $40 $17,847 $906 $289 $115 $9,018 $12,382 $5,481 $6,730 Source: State of California, Office of Statewide Health Planning and Development, Annual Financial Data Hospital Chargemasters, http://www.oshpd.ca.gov/Chargemaster/default.aspx After determining the charges on the patient bill, the payment status of the patient is evaluated. All hospitals, some clinics, and other healthcare settings have procedures to determine whether a patient will qualify for charity care (and thus no charge is made to the patient) or whether the patient directly or an insurance company will be presented with a bill. If an insurance company is responsible for payment, the hospital must determine the amount that will be paid, which is often specified in a contract between the hospital and the insurance company. The display from the chargemaster in Exhibit 1.4 provides only the services and the charge. Beyond these two elements, a complete chargemaster would include information on all insurance contracts and payment policies of payers. Chargemasters are under constant revision, as contract with insurance companies and payment policies change often. Finally, a bill will be sent to the insurance company, and accounting will keep track of the bill’s status, including the receipt of payment and the deposit of funds into the hospital’s bank account. There are a great many ways in which insurance companies may pay providers, each of which may require unique information to be included on the bill to assure correct payment (Casto & Forrestal, 2013). 8 smi81240_01_c01_001-024.indd 8 3/7/14 9:23 AM Section 1.1 Understanding Finance As this example demonstrates, even for the simplest patient visit, a substantial amount of information is collected and used in financial accounting, and nonaccountants collect much of it. Since the mission of healthcare organizations is the delivery of healthcare services, effective accountants learn to work closely with clinical and other administrative personnel to track resources. With the visit example replicated hundreds or thousands of times, financial accounting systems capture data that permit the tracking of all funds, allowing for reporting and analysis. The most visible product of financial ac … Get a 10 % discount on an order above $ 100 Use the following coupon code : NURSING10