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FUNDAMENTALS OF HEALTH CARE FINANCIAL MANAGEMENT A PRACTICAL GUIDE TO FISCAL ISSUES AND ACTIVITIES Fourth Edition Steven Berger Cover design by Adrian Morgan Cover image : © Getty | JDawnInk Copyright © 2014 by John Wiley & Sons, Inc All rights reserved Published by Jossey-Bass A Wiley Brand One Montgomery Street, Suite 1200, San Francisco, CA 94104-4594—www.josseybass.com No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the Web at www.copyright.com Requests to the publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-7486008, or online at www.wiley.com/go/permissions Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose No warranty may be created or extended by sales representatives or written sales materials The advice and strategies contained herein may not be suitable for your situation You should consult with a professional where appropriate Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages Readers should be aware that Internet Web sites offered as citations and/or sources for further information may have changed or disappeared between the time this was written and when it is read Jossey-Bass books and products are available through most bookstores To contact Jossey-Bass directly call our Customer Care Department within the U.S at 800-956-7739, outside the U.S at 317-572-3986, or fax 317-572-4002 Wiley publishes in a variety of print and electronic formats and by print-on-demand Some material included with standard print versions of this book may not be included in e-books or in print-on-demand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com For more information about Wiley products, visit www.wiley.com Library of Congress Cataloging-in-Publication Data Berger, Steven, author Fundamentals of health care fi nancial management : a practical guide to fi scal issues and activities / Steven Berger — Fourth edition p ; cm Includes bibliographical references and index ISBN 978-1-118-80168-0 (pbk.) — ISBN 978-1-118-80171-0 (pdf) — ISBN 978-1-118-80174-1 (epub) I Title [DNLM: Health Facility Administration—United States Financial Management—United States WX 157 AA1] RA971.3 362.1068'1—dc23 2014001639 Printed in the United States of America fourth edition PB Printing 10 CONTENTS Figures, Tables, and Exhibits Preface Acknowledgments The Author vii xv xix xxi Chapter 1: January What Is Health Care? What Is Management? What Is Financial Management? Why Is Financial Management Important? Ridgeland Heights Medical Center: The Primary Statistics Pro Forma Development Living with the Finance Committee and Board of Directors’ Calendar Year-End Closing 13 19 24 Chapter 2: February 31 Accounting Principles and Practices Objectives of Financial Reporting Basic Accounting Concepts Basic Financial Statements of a Health Care Organization Uses of Financial Information The Financial Statements Preparing for the Auditors Analysis of Sensitive Accounts February Finance Committee Special Reports 32 34 35 36 37 39 52 54 56 Chapter 3: March 61 Strategic Financial Planning: Five-Year Projections RHMC Strategic Financial Planning Ratio Analysis The Capital Plan and Its Relationship to the Strategic Plan 63 67 74 84 IV Contents Chapter 4: April 91 Medicare and Medicaid Net Revenue Concepts Calculation of Medicare and Medicaid Contractual Adjustments Implications of the Balanced Budget Act of 1997 Implications of the Medicare Modernization Act of 2003 Implications of the Patient Protection and Affordable Care Act of 2010 (PPACA or ACA) Managed Care Net Revenue Concepts Preparation of the Medicare and Medicaid Cost Report Presentation of the Audited Financial Statements to the Finance Committee 94 100 109 115 117 131 137 140 Chapter 5: May 145 Fundamentals of Revenue Cycle Management (RCM) 146 Calculation of the Allowance for Doubtful Accounts and Bad-Debt Expense 165 Calculation of the Allowance for Contractual Adjustments 170 Chapter 6: June Budget Preparation: The Beginning Budget Calendar Volume Issues Capital Budgeting: June Accounting and Finance Department Responsibilities June Finance Committee Special Agenda Items 175 177 177 185 190 195 198 Chapter 7: July 203 Budget Preparation: The Middle Months Capital Budgeting: July Regulatory and Legal Environment Other Regulatory and Business Compliance Issues Corporate Compliance Accreditation Issues Patient Satisfaction Issues 204 221 223 227 228 229 232 Chapter 8: August 235 Capital Budget: August Operating Budget Budget Variance Analysis Budget Variance Parameters 236 246 249 252 Contents Flexible Budgeting 252 August Finance Committee Special Agenda Items 260 Chapter 9: September 263 Operating Budget Capital Budget: September Cash Budget Physician Practice Management Issues Current Physician Practice Issues—2013 Additional Physician-Hospital Integration Issues Monthly Physician Reporting 265 275 277 280 292 294 295 Chapter 10: October 299 Information Systems Implications for Health Care Financial Management Information Technology Strategic Plan Initiatives HIPAA Implementation Issues Selection of a New Health Care Information System Budget Presentation to the Board Finance Committee October Finance Committee Special Agenda Items 301 304 306 310 316 328 Chapter 11: November 331 Preparation of the Budget Results and Delivery to the Department Managers Budgeting and Spreading Contractual Adjustments by Department Issues Involving RHMC’s Cost Structure How to Improve the Organization’s Cost Structure Supply Chain Management in Health Care Benefits of Tax Status for Health Care Organizations Preparation and Implications of the Annual IRS 990 Report 333 337 340 344 352 356 360 Chapter 12: December 367 Getting Ready for Year-End Reporting—Again Open-Heart Surgery Pro Forma December Finance Committee Special Agenda Items Looking into the Future of Health Care Finance Future Conclusions 371 371 380 383 397 References 401 Index 407 V FIGURES, TABLES, AND EXHIBITS Figures Figure 1.1 Figure 4.1 Figure 4.2 Figure 4.3 Figure 4.4 Figure 4.5 Figure 4.6 Figure 4.7 Figure 5.1 Figure 10.1 Figure 10.2 Figure 10.3 Figure 10.4 Figure 11.1 Figure 11.2 Tables Table 1.1 Table 1.2 Table 1.3 National Health Expenditures, 1960–2010 (in billions of dollars) Medicare Expenditures and Enrollees, 1967–2010 Medicaid Expenditures and Enrollees, 1972–2009 Death Rate per 100,000 Resident Population Aged Sixty-Five to Seventy-Four Medicaid Recipients by Category, 1972–2009 Medicaid Recipients and Payments by Category, 2009 Median Hospital Operating Margins and Net Margins, 2001–2013 Managed Care in the United States, 1976–2008 The Hospital Revenue Cycle IT Spending by Industry Vertical Markets – Worldwide (in billions of dollars) Potential IT Spending in Health Care Top IT Priorities—Next Two Years Financial Trends, Ridgeland Heights Medical Center, 2010–2014 Ridgeland Heights Medical Center Expense per Adjusted Discharge (EPAD) Compared to the Benchmark Median for Similar Medical Centers with 100 to 250 Beds Analysis of CT Scans, DRG 89, Pneumonia, Subset “No Substantial CCs or Moderate CCs,” for the Twelve Months Ending December 31, 2012 2012 Actual and 2013 Budgeted Inpatient Volumes, Ridgeland Heights Medical Center 2012 Actual and 2013 Budgeted Outpatient Visits, Ridgeland Heights Medical Center Pro Forma of Proposed MRI Service: Financial and Volume Assumptions, Ridgeland Heights Medical Center, January 2010 VIII Figures, Tables, and Exhibits Table 1.4 Table 1.5 Table 2.1 Table 2.2 Table 2.3 Table 2.4 Table 2.5 Table 2.6 Table 2.7 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 4.1 Table 5.1 Table 5.2 Table 5.3 Proposed MRI Service: Pro Forma Statement of Revenues and Expenses, Ridgeland Heights Medical Center, January 2010 MRI Service: Annual Statement of Revenues and Expenses, Ridgeland Heights Medical Center, January 2013 Basic Financial Statements of a Health Care Organization Balance Sheet, Ridgeland Heights Medical Center, December 31, 2011, and 2012 (in thousands of dollars) Statement of Operations, Ridgeland Heights Medical Center, Year to Date Ending December 31, 2011, and 2012 (in thousands of dollars) Comparison of Straight-Line and Accelerated Depreciation Methods Statement of Changes in Unrestricted Net Assets, Ridgeland Heights Medical Center, Year to Date Ending December 31, 2011, and 2012 (in thousands of dollars) Statement of Cash Flows, Ridgeland Heights Medical Center, Year to Date Ending December 31, 2011, and 2012 (in thousands of dollars) Analysis of Ridgeland Heights Medical Center Th irty-Year Bond Debt, 2000–2012 Current and Projected Payer Mix, Ridgeland Heights Medical Center Summary of Managed Care Discounts on Gross Charges (%) Key Hospital Financial Statistics and Ratio Medians, Ridgeland Heights Medical Center, December 2012 Analysis of FTEs per APD Versus Salary, Wages, and Fringe Benefits as a Percentage of Total Revenues, Ridgeland Heights Medical Center, Years Ending 2010–2012 (in thousands of dollars) Five-Year Capital Budget, Ridgeland Heights Medical Center (in thousands of dollars) Payer Mix: Ridgeland Heights Medical Center Compared to National Averages for Hospitals Detailed Analysis of the Allowance for Doubtful Accounts (ADA), Ridgeland Heights Medical Center, Month Ending December 31, 2012 Analysis of ADA, Bad-Debt Expense, and Bad-Debt WriteOffs, Ridgeland Heights Medical Center, Twelve Months Ending December 31, 2012 (in dollars) Analysis for the Allowance for Contractual Adjustments (ACA), Ridgeland Heights Medical Center, Month Ending December 31, 2012 References Nowicki, M 2004 The Financial Management of Hospitals and Health Care Organizations (3rd ed.) Ann Arbor, Mich.: Health Administration Press Olivier, M., et al 2001 “A High-Resolution Radiation Hybrid Map of the Human Genome Draft Sequence.” Science, February 16, pp 1298–1302 OptumHealth 2013 Almanac of Hospital Financial and Operating Indicators: A Comprehensive Benchmark of the Nation’s Hospitals Eden Prairie, Minn.: OptumHealth Partners HealthCare 2013 “Partners HealthCare Launches Service to Offer Patients Clinical Whole Genome Sequencing and Interpretation,” Partners Media Center, August 26 www.partners.org/About/Media-Center/Articles/ Clinical-Whole-Genome-Sequencing-Interpretation.aspx Pearman, W A., and Starr, P 1988 Medicare: A Handbook on the History and Issues of Health Care Services for the Elderly New York: Garland Pollack, R 2013 Advocacy Letter to Chairman Max Baucus, U.S Senate Committee of Finance, July 24 www.aha.org/advocacy-issues/letter/2013/ 130724-let-taxexempt.pdf PricewaterhouseCoopers 2013 “Healthcare Emerging Trends 2013.” www.pwc.com/gx/en/healthcare/emerging-trends-pwc-healthcare.jhtml Smith, V., Cooke, J., Rousseau, D., Rudowitz, R., and Marks, C 2007 SCHIP Turns Ten: An Update on Enrollment and the Outlook on Reauthorization from the Program’s Directors Washington, D.C.: Kaiser Commission on Medicaid and the Uninsured TJC (The Joint Commission) Facts About the Joint Commission, TJC 2014 http:// www.jointcommission.org/facts_about_the_joint_commission/ TJC (The Joint Commission) n.d “Core Measure Sets.” www.jointcommission org/core_measure_sets.aspx US Census Bureau 2012 Statistical Abstract of the United States 2012 Washington, DC: Author Weissenstein, E 1998 “A One-Year Dip: Medicare Inpatient Spending to Resume Climb in ‘99.” Modern Healthcare, February Worley, R., and Ciotti, V 1997 “Selecting Practice Management Information Systems.” MGM Journal, May–June 405 INDEX A AAAHC See Accreditation Association for Ambulatory Health Care (AAAHC) AAG-HCO See Audit and Accounting Guide for Health Care Organizations (AICPA) Abuse, 282 ACA See Patient Protection and Affordable Care Act (ACA) [2010] Accelerated methods of depreciation, 46–47 comparison of straight-line and, 46t Accounting See also GAAP (generally accepted accounting principles) basic concepts in, 35–36 and basic financial statements of health care organization, 36–37 and objectives of financial reporting, 34–35 principles and practices of, 32–54 Accounts receivable, 53 analysis of, 54–55 Accreditation Association for Ambulatory Health Care (AAAHC), 230 Accreditation issues and The Joint Commission’s evaluation and accreditation services, 231–232 and major United States health Care accrediting organizations, 230 Accrual, 36 ACOs (accountable care organizations), 63, 66, 396 definition of, 121–122 ACS Healthcare Solutions, 312 Administrative malpractice, 270 Advisory Board, 80–81, 160 Advisory Board Company, 159 Aetna, 392 Affordable Care Act (ACA), 7, See also Patient Protection and Affordable Care Act AHA See American Hospital Association (AHA) AICPA (American Institute of Certified Public Accountants), 24, 32, 33, 141, 170 Allowance for contractual adjustments (ACA), 53, 55, 164, 170–171 Allowance for doubtful accounts (ADA), 53, 165–166, 170 analysis of, 55 Almanac of Hospital Financial and Operating Indicators (Optum-Health), 57, 75 Alzheimer’s disease, 385 American Academy of Family Physicians, 292 American College of Surgeons (ACS), 4, 230 American Dental Association, 230 American Health Insurance Association, 96 American Hospital Association (AHA), 4, 45, 117, 160, 161, 230, 359–360 American Medical Association, 4, 96, 230 American Osteopathic Association (AOA), 230 American Recovery and Reinvestment Act (ARRA; 2009), 62, 151, 304, 310, 314, 345 Amerinet (GPO), 350 AMI (acute myocardial infarction), 125 APCs (ambulatory payment classification system), 104–107, 133, 138, 152, 340 APD (adjusted patient days), 80 APU (annual market basket payment updates), 118 reduction in, 119–120 ARRA See American Recovery and Reinvestment Act (ARRA; 2009) ASPs (application service providers), 288 Association of Academic Health Centers, 160 Association of American Medical Colleges, 160 Audit and Accounting Guide for Health Care Organizations (AAG-HCO; AICPA), 32–34, 43, 171 Audited financial statements, presentation of, to finance committee, 140–142 implications of management letter comments proposed by auditors for, 141–142 Auditors, preparing for, 52–54 B Bad debts, 44 analysis of provision for, 55 provision for, 53 408 index Balanced Budget Act (BBA; 1997) impact of, on Medicaid, 114–115 implications of, 56, 94–95, 97–98, 101, 109–115 Balanced Budget Refinement Act (BBBRA; 1999), 112 Barr, P., 253 Begley, S., 387 Benefactors, 38–39 Benefits Improvement and Protection Act (BIPA; 2000), 112, 113 Berger, S., 65, 80, 137, 310 Berman, H J., 6, 7, 35 Billing/collection issues, 286–287 BIPA See 2000); Benefits Improvement and Protection Act (BIPA “Bitter Pill: Why Medical Bills Are Killing Us” (Time magazine), 150, 218, 394 Blue Cross, 100, 392 Bond debt status, 57 Bond repayment ratios, 58e Bondholders, 38 Brill, S., 150, 394 Budget accounting and finance department responsibilities in, 195–198 calendar, 177–182 preparation, 177 presentation, for approval, 182 presentation, to board finance committee, 316–328 steps in process of preparing an operating plan and, 178–180t timing of presentation of, to board of directors, 183t Budget, volume issues and approval of projected 2013 and budgeted 2014 inpatient and outpatient volumes: June 26, 189 and demographic changes, 185–186 and historical perspective, 185 and impact of new ACA law, 186–187 and kickoff meeting: June 1, 188 and new services, 186 and physician issues and input, 187–188 and wishful thinking, 188 Budget calendar, 177–182 detailed steps for, 184–185 issuing: July 1, 206 Budget preparation computation of gross revenues and contractual adjustments in, 208 controllable non-salary expense change in, 213–214 expense reductions in, 218–219 fringe level change in, 212–213 full-time equivalent level in, 210–211 and issuing budget calendar: July 1, 206 in middle months, 204–205 pros and cons of top-down and bottom-up, 206 and releasing 2013 projected and 2014 budgeted worksheets to department managers: July 25, 219–221 and review of 2014 budgeted income statement: July 18, 208 and review of gross revenues and contractual adjustments and validation of player mix: July 15, 214 review of salary and non-salary assumptions: July 14, 208 top-down versus bottom-up, 205–207 and value of price increases, 217–218 wage and salary increases in, 211–212 Budget results and issues involving RHMC’s cost structure, 340–344 preparation of, and delivery to department managers, 333–337 and spreading contractual adjustments by department, 337–340 Budget variance analysis, 249–251 automated e-mail alert sample for, 252e budget variance parameters in, 252 and monthly departmental variance report, 251e Bundled Payment Initiative, 122–123 Bundled Payment Initiative (MMA), 122–123 Bush, George W., 115, 386 C CAHPS Hospital Survey, 233 CAHs (critical-access hospitals), 139 Canada, 4, 115 Capital budgeting and consensus meetings with pool evaluators: August 19–22, 243–244 in August, 236–237 automatically approved capital funding items in, 243 and consensus meeting for all proposals over $100,000: August 29, 244–245 and detailed discussion for all proposals over $100,000 and training all proposal evaluators: August 12, 237–240 index and discussion of all pool proposals with pool evaluators: August 13, 240–242 and funding availability, 242–243 in July, 221–223 in June, 190–195 and online evaluation of proposals: August 13–16, 243 and online revision of ratings: August 29–31, 245–246 and proposed capital funding summary (2014), 242 in September, 275–277 and summary of 2014 capital budget requests, 238t Capital structure, 77 Capitalization policy inconsistent with industry standards, 47–49 Carlson, J., 225 Cash budget function of, 278–280 physical practice management (PPM) issues in, 280–281 at RHMC, 279t Cash flow, 282 Catholic Heart Association, 362 Catlin, A., CBO See Congressional Budget Office (CBO) CCRCs (continued care retirement communities), 33 CCs (complications or comorbidities), 102–103, 151, 348, 349 CDHP See Consumer-driven health plans (CDHP) Celera, 385 Center for Information Technology Leadership, 155 Center for Public Integrity, 160 Centers for Medicare and Medicaid Services (CMS; department of Health and Human Services), 48, 98, 104, 121, 124, 153, 156, 161, 218, 223, 233, 388 Board of Trustees, 391 DRG system, 102, 104, 218 CFO magazine, 398–399 Charge capture, 150 Chicago Tribune, 385 Children’s Health Insurance Program (CHIP), 127–128 Ciotti, V G., 310 Cleverly, W O., 37, 64, 65 Clinical Process of Care Domain, 124, 233 Clinton, Bill, 97–98 CMS See Centers for Medicare and Medicaid Services CMS-TJC Core Measure Set, 125 CMS-TJC Core Measure Set (MMA), 125–126 College of American Pathology (CAP), 230 Community, 38 Computerized practitioner order entry (CPOE), 344, 345 Congressional Budget Office (CBO), 63, 70, 119 Conn, J., 288 Consolidated Omnibus Budget Reconciliation Act (COBRA), 359 Consumer-driven health plans (CDHP), 135, 394 Continued dare retirement communities (CCRCs), 33 Continuum of care, 394 Contract labor, 44 Contractual adjustments, 53 allowance for (ACA), 53 analysis, 54 analysis of allowance for, 55 Cook, B., 291 Cooke, J., 114 Core Measure Set, 125–126 Coronary artery bypass graft (CABG), 372, 376 Cost structure improvement attaining optimum productivity and staffi ng levels, 350–352 enhancing communication with physicians, 344–345 obtaining best pricing for supplies and products, 350 reducing utilization of services and supplies, 347–349 standardizing organization’s supplies, 345–347 Cost valuation, 35–36 CPOE See Computerized practitioner order entry (CPOE) “Critical Condition: Why Healthcare CFOs Have the Toughest Finance Jobs in America” (CFO magazine), 398–399 D Death rate per 100,000 resident population aged 65 to 74, 100f Denmark, Department management, 38 Depreciation, 45 Disproportionate share hospital (DSH) program, 130–131 409 410 index Double entry, 36 Doubtful accounts See Allowance for doubtful accounts (ADA) DRGs (diagnostic-related groups), 101–103, 110, 133, 152, 153, 155, 159, 347 and DRG89, 348 utilization analysis of DRG89, 348 Drug therapy, 387–388 DSS (clinical decision support systems), 122 E Eisenhower, Dwight D., 96 Electronic budgeting system, 274–275 Employee Retirement Income Security Act (ERISA; 1974), 200–201, 307 EMR (electronic medical records system), 62, 122, 151, 267, 303–304, 310, 345, 395 End-stage renal disease (ESRD), 94 Entity, 35 EPAD (expenses per adjusted discharge), 80 EPAPD (expenses per APD), 80 Equity investors, 39 ERISA See 1974); Employee Retirement Income Security Act (ERISA Estimated Useful Lives of Depreciable Hospital Assets (American Hospital Association), 45, 60 Estimation, 53 Expense reduction, 282 F False Claims Act, 225 FASB See Financial Accounting Standards Board Federal Balanced Budget Act (1997), 47 Federal Register, 139, 309 Federation of American Hospitals, 160 FICA, 18, 110 Finance committee special agenda items August: review of annual materials management inventory level, 260–261 August: review of next year’s budget assumptions, 260 December, 380 December: annual achievements, 382–383 December: review and approval of auditors and auditor fees for current year, 381–382 December: review and approval of auditors and fees for current year, 381 December: review of malpractice insurance coverage, 380 February, 56–59 June: pension status and actuary report review, 199 October, 328–329 Finance committee special reports, 56–59 on bond debt status, 57 health insurance annual review, 57–59 on selected bond repayment ratios, 58 Financial Accounting Standards Board (FASB), 34 Financial information, uses of, 37–39 Financial reporting accounting principles and practices for, 32–34 analysis of sensitive accounts in, 54–56 basic accounting concepts in, 35–36 of changes in unrestricted net assets/equity, 49–50 objectives of, 34–35 statement of cash flows in, 50–52 Financial statements, 39 balance sheet, 39 of cash flows, 50–52 of changes in unrestricted net assets/ equality, 49–50 for health care organization, 36–37 notes for, 52 preparation of, for auditors, 52–54 and statement of operations, 41–49 uses of information from, 37–39 Fitch Ratings, 57, 73, 116, 117, 164–165 Flexible budgeting, 252–254 common statistical allocation bases for developing indirect cost centers in, 257e and cost accounting and analysis, 254–255 and impossibility of determining “true cost,” 255–256 inputs for calculating procedure-level unit costs for CT scan of abdomen, 256t outputs for calculating procedure-level units costs for CT scan of abdomen, 259t sample of, and monitoring outcomes with volume changes, 253 Food and Drug Administration (FDA), 388 Foster, G., 253 France, Fraud, 282 Fringe benefits, 18, 44 FTEs (full-time equivalents) in budget preparation, 210–211 in financial management, 9, 17, 79, 80 Fuhrmans, V., 155 index “Future of Medicine: How Genetic Engineering Will Change Us in the Next Century” (Time), 385 G GAAP (generally accepted accounting principles), 24, 32, 45, 49, 52, 140, 166, 170 Gamble, M., 294 Gapenski, L C., 14 Gardner, J., 158 Gartner, Inc., 302 GDP (gross domestic product) health care’s percentage of, Gene therapy, 384–387 Genetic Information Nondiscrimination Act (GINA), 309 Genomic medicine, 384–387 Germany, Gibson, R P., 310 Governing board, 38 Great Society, 96 Group purchasing organizations (GPO), 350 “Growth in US Health Spending Remained Slow in 2010; Health Share of Gross Domestic Product Was Unchanged From 2009” (Health Affairs), GUI (graphical user interface), 306 H HAI (Hospital-acquired infections), 118, 126 Hall, M., 63 Hastings Center, 388 HCAHPS (Hospital Consumer Assessment of Health care Providers and Systems), 124, 125, 233 HCFAC See Health Care Fraud and Abuse (HCFAC) HCPCS (Healthcare Common Procedure Coding System), 153 Health, United States, 2011 (NCHS), 3, 93, 97, 100, 108 Health care defining, 3–5 general management, 5–6 Health care finance, future of, 383–393 conclusions, 397–399 general macro health care trends in, 384–389 health care IT trends in, 396–397 hospital segment trends in, 393–396 industry payer trends in, 389–393 Health care financial management defining, 6–7 importance of, 8–9 six major objectives of, Health Care Financing Administration (HCFA), 153 Health Care Fraud and Abuse (HCFAC), 158, 159 Health Care Information System features and functions of selected, 311–312 financial implications of, for RHMC, 312–314 and how improvements to clinical systems benefit RHMC’s financial outcomes, 312–316 selection of new, 310 and top IT priorities-next two years, 312f Health Information Management (HIM), 150, 152, 154 Health Information Technology for Economic and Clinical Health Act (HITECH), 62, 308, 309 Breach Notification for Unsecured Protected Health Information, 309 Health Insurance Association of America, 96 Health Insurance Exchange (HIX), 7, 55–56, 63, 70–72, 118, 129, 135, 230, 324, 327, 392 Health Insurance Portability and Accountability Act (HIPAA; 1996), 224–225, 228, 306–310 Privacy, Security, Enforcement, and Breach Notification Rules (HSS 2013), 308 Healthcare Common Procedure Coding System (HCPCS), 104 Healthcare Financial Management Association (HFMA), 79, 165, 352 MAP, 165 Healthcare Informatics, 397 Healthcare Insights, 251 HF (heart failure), 125 HFM magazine (Healthcare Financial Management Association), 352 HH PPS (home health prospective payment system), 111 HHA (Medicare-certified home health agency), 9, 111 HHS, 159, 308, 309 See U.S Department of Health and Human Services Hill-Burton Act (1948), 357 HIPAA See Health Insurance Portability and Accountability Act (HIPAA) HIT (health information technology), 62 HITECH See Health Information Technology for Economic and Clinical Health Act (HITECH) 411 412 index HIX See Health Insurance Exchange HMOs (health maintenance organizations), 7, 95 plans, 134 Holder, E., 158, 160 Horngren, C T., 253 Hospital Consumer Assessment of Health care Providers and Systems (HCAHPS), 125, 233 Hospital Corporation of America (HCA), 80, 359 Hospital Statistics, 117 HSAs (health savings accounts), 115 Human Genome Project, 385 Humana, 392 I ICD-9-CM codes (International Classification of Diseases), 102, 103, 153–155, 259, 347, 348 ICD-10, 154, 259, 347 Indemnity insurance, 100 Independent Payment Advisory Board (IPAB), 294 Information systems implications of, for health care financial management, 301–304 and integrating data and reporting to support enhanced decision making, 305–306 strategic initiatives in, 303–304 to support enhanced clinical process management and data access, 304–305 Information technology (IT) and HIPAA implementation issues, 306–310 and information systems implications for health care financial management, 301–304 maximizing infrastructure of, and delivery capabilities, 306 and potential spending, in health care, 303f and spending by industry vertical markets, 302f strategic plan initiatives, 304–306 Institute of Medicine (IOM), 344–345 Internal rate of return (IRR), 13–14 Internal Revenue Code 501(c)(3), 5–6, International Classification of Diseases (ICD-9-CM), 102 Investment bankers, 38 IPA (independent practice association), 9, 284–286 IPPS (inpatient prospective payment system), 127 IPS (interim payment system), 111 IQR (inpatient quality program), 123–124 IRS 990 form, 43 preparation and implications, 360–361 IRS 990-T form, 43 J Johnson, Lyndon B., 94, 96, 97 Joint Commission on Accreditation of Healthcare Organizations (JCAHO), 230 K Kaiser Commission on Medicaid and the Uninsured, 114 Kalb, C., 386, 388 Kaufman, K., 63 Kelly, M., 387 Kennedy, John F., 96 KiddieCare See State Children’s Health Insurance Program (SCHIP) Kotulak, R., 385 Kukla, S F., 6, 7, 35 L Lagnado, L., 159 Lassman, D., Leapfrog Group, 310 Liptak, A., 386 Liquidity ratios, 77 LTAC (long-term acute-care), 139 M Managed care, 71 Managed care net revenue concepts, 131–137 and managed care in United States, 1976–2008, 132f and methods of managed care company reimbursements to hospitals, 132–133 and methods of managed care company reimbursements to physicians, 133–134 Manos, D., 154 Margin target, 73 Marks, C., 114 Martin, A B., Matching, 36 McCafferty, J., 399 McGregor, Margaret, 235–236 MCOs (managed care organizations), 7, 134, 136, 230, 232, 285 MEC (medical executive committee), 67 index MedAssets, 350 Medicaid program, 3–4, Disproportionate share hospital (DSH) program, 130–131 expansion, 129–130 impact of Balanced Budget Act on, 114–115 “Medical-Price Inflation Is at Slowest Pace in 50 Years” (Wall Street Journal), 389 Medicare + Choice, 113, 115 Medicare Advantage plan (formerly Medicare + Choice), 95, 112, 113, 128 Medicare Claims Processing Manual (CMS), 156 Medicare Learning Network, 105, 106 Medicare Modernization Act (MMA; 2003) and Bundled Payment Initiative, 122–123 and calculating performance, 124–125 and CMS-TJC Core Measure Set, 125–126 and establishment of ACO Contracts with Medicare, 121–122 and establishment of health insurance exchanges and affordability credits, 129 and estimated effects of insurance coverage provisions of reconciliation proposal combined with H.R 3590, 119e implications of ACA and, 117–119 and individual and business mandates, 127–128 and median hospital margins and net margins, 116 and Medicaid expansion, 129–130 and Medicare and Medicaid DSH cuts, 130–131 and penalties for high readmission rates, 120–121 and reduced payments for high levels of hospital-acquired infections, 126–127 and reduction in APUs, 119–120 and value-based purchasing (VBP) program, 123–124 Medicare Payment Advisory Commission (MedPAC), 157 Medicare Prescription Drug Improvement and Modernization Act (MMA), 95 Medicare program, 3–4, 7, 45, 47–49, 389–391 DSH payments, 130–131 Part A (hospital insurance program), 94–96, 110, 118 Part B (supplemental medical insurance program), 94–96 Part C, 94–95 Part D, 95 Medicare Recovery Audit Contactor (RAC) program, 151 Medicare Shared Savings Program (MSSP), 121 Medicare/Medicaid contractual adjustments and APCs: how they work, 104–107 calculation, 100–107 and Medicaid hospital net revenue concepts, 107–109 and Medicaid recipients and payments by category, 2009, 107–109 and Medicaid recipients by category, 1972–2009, 107–109 and Medicare hospital net revenue concepts, 100–102 and Medicare payment methodologies, 101e and MS-DRGs: how they work, 101e Medicare/Medicaid cost report implications and sensitivity of, 139–140 preparation of, 137–140 ratio of costs to charges (RCC) in, 138–139 Medicare/Medicaid net revenue concepts and calculation of contractual adjustments, 100–102 and history of Medicare/Medicaid, 94–96 and impact of Medicare and Medicaid on provider net revenues, 96–99 and Medicaid expenditures and enrollees, 1972–2009, 98f and Medicare expenditures and enrollees, 1967–2010, 97f Microcosting, 256 Minimum essential coverage (MEC), 127–128 MMA See Medicare Prescription Drug Improvement and Modernization Act (MMA) Model Hospital Compliance Plan, 228 Model Laboratory Compliance Plan, 228 Modern Healthcare, 115 Moody’s rating agency, 57 Morath, E., 389 Mostashari, Farzad, 154 MS-DRGs: how they work, 102–103 MSO (management services organization), 285–288 from PPMC to, 283–285 MSSP See Medicare Shared Savings Program (MSSP) N National Association of Public Hospitals and Health Systems, 160 National Center for Health Statistics (NCHS), 3–6, 93, 97, 99, 108, 109, 111, 393 National Committee for Quality Assurance (NCQA), 230, 232 413 414 index National Health Care Expenditure Projection, 388–390 National Health Expenditures 1960–2010, 5f 2010–2022, 390t NCHS See National Center for Health Statistics (NCHS) Net present value (NPV), 13–14 Netherlands, New York Times, 160 Newsweek magazine, 386, 388 Nonstandard estimated useful life, 45 Nowicki, M., O OASDI (old-age survivor and disability insurance), 17–18 Occupational Health and Safety Administration, 227–228 Office of the National Coordinator for Health Information Technology (ONCHIT), 62, 154 Olivier, M., 385 ONCHIT See Office of the National Coordinator for Health Information Technology (ONCHIT) Open-heart surgery pro forma, 371–372 and development of expenses, 376–377 and development of volume and revenue, 372–376 fi xed expenses, 379 and fringe benefits, 377 and importance of financial analyst objectivity, 376 and staffing expenses, 377 and variable expenses, 377, 379 and variable startup staffi ng expenses, 377 Operating budget electronic budgeting system for following year, 274–275 final review and approval of operating budget and review of human resources Committee Package: September 17, 271–273 last look at budget assumptions and semifinal budget approval: September 9, 265–266 preparation of 2014 budget for finance committee, 273–275 and return of department managers’ operating budget work to their vice presidents: August 15, 246–248 and review of proposed operating budget by divisional vice president and its return to finance, 248–249 September, 265–266 Operation of plant costs, 44–45 OPPS See Outpatient Prospective Payment System (OPPS) OptumHealth, 57 ORYX initiative, 231, 310 Outpatient Prospective Payment System (OPPS), 104, 105, 112 methodology, 106e P Pacioli, 301 Partners HealthCare, 388 Patient care supplies, 44–45 Patient Experience of Care Domain, 124–125, 233 Patient Protection and Affordable Care Act (ACA; 2010), 156, 294 and estimated effects of insurance coverage provisions of reconciliation proposal combined with H.R 3590, 119 implications of, 55–56, 63, 66, 70, 98, 117–119 Patient satisfaction issues, 232–233 PCP (primary care physician), 134, 282, 285–286, 289, 292 Pearmen, W A., 94 Percutaneous transluminal coronary angioplasty (PTCA), 372, 376 PHI (protected health information), 307 PHO (physician hospital organization), Physician Foundation, 293–294 Physician practice issues, current (2013), 292–295 and additional physician-hospital integration issues, 294–295 and monthly physician reporting, 295–297 Physician practice management company (PPMC) from, to management services organization (MSO), 283–285 hospital-owned, 291–292 Physician practice management issues and concept of patient throughput in, 288–291 effect of, on health care costs, 280–281 and expense reduction, 282 and management service organization (MSO), 285–288 physician office management in, 281–283 index revenue enhancement in, 281 and transition from physician practice management company (PPMC) to management services organization (MSO), 283–285 Physician’s Current Procedural Terminology (CPT-4), 104 Pollack, R., 360 POSs (point-of-service organizations), 7, 392 plans, 134–135 Power of Clinical and Financial Metrics (Berger), 80 PPACA See Patient Protection and Affordable Care Act (ACA) [2010] PPMC (physician practice management company), 283–285 See also under Physician practice management issues PPOs(preferred provider organizations), 7, 95, 135 plans, 134 PPS (prospective payment system), 111, 112, 171, 324 Premier (GPO), 350 Price setting, 149–150 PricewaterhouseCoopers, 398 Professional liability self-insurance status, 381e Professional/management fees, 44–45 Profitability ratios, 77 Provider Reimbursement Manual (HCFA), 140 Purchased services, 44 R RAC (Recovery audit contractors), 160, 161 Radnofsky, L., 389 Rating agencies, 38 Ratio analysis additional financial ratio formulas for, 76e and average age of plant, 78–79 average payment period, 78 and bond-related ratios, 75 and capital structure, 77 and current expenses as percentage of total expenses, 79 and current ratio, 78 cushion ratio, 78 and days cash on hand, 77 and days in accounts receivable, 78 debt-service coverage, 78 description of, 74–75 and liquidity ratios, 77 and long-term debt to capitalization, 78 opening margin/net margin, 77 operating ratio formulas, 80e and operating ratios, 80 and profitability ratios, 77 RBRVS (Resource-Based Relative Value Scale), 153 RCC (ratio of costs to charges), 254–255 Referral issues, 286 Regulatory and legal environment business compliance issues, 227–228 and corporate compliance, 228–229 and kickbacks, bribes, and rebates, 224–225 and Medicare and Medicaid fraud and abuse, 224 and Office of Inspector General work plan, 226–227e Relative value units (RVUs), 68 Renfro, Angela, 145–146 Revenue cycle director (RCD), 147, 155, 163 Revenue cycle management (RCM) charge capture and price setting in, 149–150 coding and reimbursement: coding 2013, 152–153 coding and reimbursement: coding 2014, 154 coding and reimbursement: documentation capture and review, 150–152 coding and reimbursement: timeliness, 154–155 denials management, 155–156 denials management: fraud and abuse issues related to billing, 156–160 denials management: recovery audit contactors (RAC), 160–161 follow-up: managed care arrangements and negotiations, 161–162 fundamentals of, 145–149 hospital revenue cycle, 148 and Office of Inspector General work plan, 156e performance monitoring, 162–165 preregistration, precertification, and insurance verification, 149 Revenue enhancement, 281 Revenue/expense assumptions, 15–19 RHMC See Ridgeland Heights Medical Center Ridgeland Heights Medical Center (RHMC) actions to counter dwindling inpatient census, 11–12 analysis for allowance for contractual adjustments (ACA), 171t analysis of fringe benefits percentage, 19e analysis of thirty-year bond debt, 58t annual finance committee agenda, 23e 415 416 index Ridgeland Heights Medical Center (continued) balance sheet, 40–41t balanced scorecard measures for patient accounting department, 163 budget assumptions, 2014, 261t and calculations of Medicare and Medicaid contractual adjustments, 100–107 capital and operating budget planning calendar, 2015, 276–277t capital budget calendar, 2014, 193–194e cardiac surgery program, 373–375t cardiac surgery program income statement pro forma, 378t cash inflows and outflows, 317t categories of medical staff at, 285e current and projected payer mix, 71t decision time, 12–13 detailed analysis of allowance for doubtful accounts (ADA), 167–170t divisional FTE summary, 211t final “closing the gap” analysis,” 270t final working budgeted statement of operations, budget year ending December 31, 2014, 272–273t financial management implications, 13 fringe benefit expenses, 213t health insurance information (2012), 59e implications of Medicare and Medicaid net revenue concepts on, 99–100 information technology capital expenses for computer installation, 313t inpatient volumes, 10t key hospital financial statistics and ratio medians, 79t managed care inroads, 11 modified preliminary budgeted statement of operations, 268–269t operating budget calendar, 180–182t outpatient volumes, 10t payer mix (compared to national averages), 93 pension status: 2014 actuarial report, 200e physician development success factors, 296t pool evaluations, 241e preliminary budgeted statement of operations, 216–217t preparing for auditors, 52–56 primary statistics, 9–10 pro forma development, 13 pro forma of proposed MRI service: financial and volume assumptions, 16t–17t pro forma of proposed MRI service: statement of revenues and services, January 2010, 20t pro forma of proposed MRI service: statement of revenues and services, January 2013, 21t projected 2013 and budgeted 2014 inpatient volumes, 190t projected 2013 and budgeted 2014 outpatient volumes, 190t quantifiable community benefits report, 363t revenue and contractual analysis, 209t statement of cash flows, 51t statement of changes in unrestricted net assets, 49t statement of operations, 42t strategic financial planning, 67–74 tax benefits accrued, due to not-for-profit status, 358t year-end accounting procedures, 25e–29e Ridgeland Heights Medical Center (RHMC), proposed 2014 budget analysis of revenue and contractual allowances for, 325t CEO’s memorandum to board of directors regarding, 319–321e expense per adjusted discharge (EPAD) compared to benchmark median, 3343f final proposed budgeted statement of operations for, 321t financial trends, 328f key volume assumptions and gross revenue percentage for, 323t monthly budget spread, Radiology Department, 335–336t ratio analysis and key success factors for, 322t salary reconciliation for, 327t and spread of budgeted contractual adjustments by department, 338–339t staffing expenses and FTE summary for, 326t table of contents, 318e Rousseau, R., 114 Rudowitz, R., 114 S Sabranes-Oaxley law (SOX), 38, 141 Salaries, 43 Samuelson, Rick, 175 SCHIP Turns 10: An Update on Enrollment and the Outlook on Reauthorization from the Program’s Director (Kaiser Commission on Medicaid and the Uninsured), 114–115 index Scully, Thomas, 115 Sebelius, Kathleen, 158 Senior management, 38 Sensitive accounts, analysis of accounts receivable, 54–55 allowance for contractual adjustment, 56–57 allowance for doubtful accounts (ADA), 55 contractual adjustments, 54 provision for bad debts, 55 third-party settlements, 56 SFAS See Statement of Financial Accounting Standards (SFAS) Smith, Mary, 103–104 Smith, V., 114 SNF (skilled nursing facility), 9, 107, 109 Social Security, OASDI as, 17 Social Security Act (1965), 157, 158, 224 Title XIX, 94 Title XVIII, 94 SOX See Sabranes-Oaxley law (SOX) Specifications Manual for National Hospital Inpatient Quality Measures, 125 Standard & Poor rating agency, 57 Stark II laws, 282 Starr, P., 94 State Children’s Health Insurance Program (SCHIP), 114–115 Statement of Financial Accounting Standards (SFAS), 201–202 Straight-line and accelerated depreciation methods, comparison of, 46t Strategic financial planning and converting vision into financial reality, 65–66 five-year projections, 63–67 implications for operating expenses, 72–74 and payer mix, 69–70 rates and reimbursements, 70–72 and strategic planning, 64–65 summary of managed care discounts and gross changes, 72t volume assumptions, 68–69 Studer, Quint, 294 Supply chain management, 352–356 and adopting consignment policy, 355 and developing close relations with distributors, 353–354 and establishing in-service training, 355 and implementing e-commerce, 355–356 and just-in-time inventory management, 354 and obtaining best pricing, 353 Switzerland, T Tax Relief and Healthcare Act (2006), 161 Tax status, 355–356 for-profit, 357 not-for-profit, 356–357 The Joint Commission (TJC), 125, 230–232, 310 Third party payers, Third-party settlements, 53 analysis of, 56 Thomas, Clarence, 386 Three-Domain Performance Scoring Model, 124 Time magazine, 150, 218, 385, 394 TJC (The Joint Commission), 125 To Err is Human: Building a Safer Health System (Institute of Medicine), 344–345 Transactions, 35 Transparent pricing, Tricare, 128, 227 Truman, Harry, 96 U UnitedHealthcare, 392 Urban Institute, 130 U.S Department of Health and Human Services (HHS), 3, 104, 159, 224, 225, 227, 308, 309 Office of Inspector General (OIG), 156–158, 225, 227 USA Today, 130 V VBP (value-based purchasing), 63, 118, 123–124, 232, 233 roadmap, 120 Total Performance Score (TPS), 233 VHA/Novation, 350 Volume assumptions, 14–15 and inpatient volumes, 68 and outpatient volumes, 68 and physician office visit volumes, 68 W Wall Street Journal, 155, 159, 389 Washington, B., Weeks, L E., 6, 7, 35 417 418 index Weissenstein, E., 115 Welby, Marcus, 289 Wilkes, Mary, 253 Worley, R., 288 WVS (weighted value score), 244–245 Y Yale University, 103 Yale-New Haven Hospital, 103 Year-end closing overview, 24–25 Uploaded by [StormRG] WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley's ebook EULA ... amount of dollars that flow through the health care industry Describe the importance of health care financial management in America Explain the role and objective of health care Describe the twofold... founder and president of Healthcare Insights, LLC (www.hcillc.com), which specializes in the teaching of health care general and financial management issues In addition, Healthcare Insights has developed... compelling world of the health care financial manager Although not on the front line of the patient’s care, the health care financial manager needs to be involved in or apprised of all decisions