health care finance

Part II: Record Financial Operations

CHAPTER 4: REVENUES (INFLOW)

Health Care Finance by Judith J. Baker and R.W. Baker.

Copyright © 2011 by Jones and Bartlett Publishers, LLC

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.

Table 4–1 Variations in Physician Office Revenue for Two Visit Codes

Other Deductions from Revenue

• 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

• Charity Service

• Services provided to indigent patients

Sources of Health Care 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 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 Health Care Revenue

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

Grouping Revenue for Planning and Control

• 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

• 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

Exhibit 4–1 Revenues by Care Setting

Figure 4–1

Hospital Service Lines

Courtesy of Resource

Group, Ltd., Dallas, Texas.

Figure 4–2 Long-Term Care Service Lines Courtesy of Resource Group, Ltd., Dallas, Texas.

Figure 4–3 Home Care Service Lines. Courtesy of Resource Group, Ltd., Dallas, Texas.

Contractual Allowances: Example 4A

• Contractual allowances are difference between the full established rate and the agreed-upon rate that will be paid.

• In Example 4-A, 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

• 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

1. Are there contractual allowances in this example?

2. If so, what payer is involved?

3. What are the dollar amounts of any contractual allowances?

Solution:

1. Yes

2. All three

3. $500; $125; $110

Assignment Exercise 4-1: 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 4-2: 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