Health Care Finance

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9781284118308_SLID_CH05.ppt
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Chapter 5: Revenues (Inflow)

The Revenue Stream

  • Payment After Service Is Delivered
  • Fee-for-Service
  • Discounted Fee for Service

Payment Before Service Is Delivered

  • Pre-Determined Per-Person Payment
  • Rate-Setting Differences

Deductions from Revenue

  • Contractual Allowances
  • The difference between the full established rate and the agreed-upon contractual rate to be paid

Deductions from Revenue

  • Contractual Allowances
  • It is not uncommon for different plans to pay different contractual rates for the same service.

Other Deductions from Revenue
(1 of 2)

  • Allowances for Bad Debts, aka “provision for bad debts”
  • Estimated amounts of credit losses (bad debts) is charged to this account.

Other Deductions from Revenue
(2 of 2)

  • Charity Service
  • Services provided to indigent patients

Sources of Healthcare Revenue

  • Revenue Sources
  • Sources are generally called “payers.”
  • “Payer mix”* is a measure often included in an organization’s profile.
  • Many types of management reporting are arranged by payer (the revenue source).

* The proportion of revenues realized from different types of payers.

Revenue Sources

  • Governmental Sources include Medicare, Medicaid, and other.
  • Managed Care Sources are distinguished by types of plans and types of contracts.
  • Other Sources include commercial insurers, private pay, and others.

Governmental Sources

  • Title XVIII of the Social Security Act is commonly known as Medicare.
  • The Medicare program currently has four parts.
  • Title XIX of the Social Security Act is commonly known as Medicaid.
  • The Medicaid program is state-specific.

Managed Care Sources of
Healthcare Revenue

  • Types of managed care plans include health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

Grouping Revenue for
Planning and Control (1 of 2)

  • Grouping revenue is an effective method for managers to use information.
  • The method of grouping, or classification, must be consistent with the current structure of the organization.

Grouping Revenue for
Planning and Control (2 of 2)

  • Grouping revenue by revenue source has just been discussed.
  • Other approaches to grouping include:
  • Revenue Centers
  • Care Settings
  • Service Lines
  • Other classifications such as disease management

Figure 5-1 Hospital Service Lines

Courtesy of Resource Group, Ltd., Dallas, Texas

Figure 5-2 Long-Term Care Service Lines

Courtesy of Resource Group, Ltd., Dallas, Texas

Figure 5-3 Home Care Service Lines

Courtesy of Resource Group, Ltd., Dallas, Texas

Contractual Allowances: Example 5A

  • Contractual allowances are the difference between the full established rate and the agreed-upon rate that will be paid.
  • In Example 5A, the hospital's full established rate for a certain procedure is $100, but GHP has negotiated a managed care contract whereby the plan pays only $90 for the procedure.
  • The contractual allowance is $10 ($100 minus 90 = $10)
  • Assume that Near-By Health Plan has negotiated a managed care contract whereby it pays $95 for the procedure.
  • Their contractual allowance would then be $5 ($100 minus 95 = $5).

Contractual Allowances: Practice
(1 of 2)

For a particular procedure:

  • The Medicaid allowed charge is $2,700
  • The Medicare allowed charge is $3,075
  • The Blue Cross/Blue Shield rate is $3,090
  • The hospital established charge is $3,200

Contractual Allowances: Practice
(2 of 2)

Are there contractual allowances in this
example?

If so, what payer is involved?

What are the dollar amounts of any
contractual allowances?

Solution:

Yes

All three

$500; $125; $110

Assignment Exercise 5-1:
Contractual Allowances

  • Using the worksheet: For each payer, enter the full rate and contracted rate.
  • For each payer, compute the contractual allowance.
Payer FHP HPHP MC UND CCN MO CGN PRU PHCS ANA
Contractual Allowance $36.30 13.15 17.10 11.60 1.80 1.25 62.00 17.10 22.00 27.00
Contracted Rate $35.70 = 58.85 = 54.90 = 60.40 = 70.20 = 70.75 = 10.00 = 54.90 = 50.00 = 45.00 =
Full Rate $72.00 – 72.00 – 72.00 – 72.00 – 72.00 – 72.00 – 72.00 – 72.00 – 72.00 – 72.00 –

Assignment 5-2:
Revenue Sources and Grouping

Medicare Medicaid Other Public Programs Patients Commercial Insurance Managed Care Contracts
ICU X
Lab X
Lab X
ICU X
ICU X
Lab X