Elaborate on the implications of a Health Services Department moving from
a cost center to a profit center. Information discussed must include:
1. The difference between a cost and a profit center.
2. Decentralization versus centralization within the health service
business.
3. How the health service department can stick to its historic mission
of serving those without insurance and/or those that are
historically'underserved.
4. The implications of having public health professionals that are not
permitted to bill or have reimbursable codes.
Discussion: 500 words, 2 scholarly + 1 biblical
In organizations, a profit center is a department which generates income while a cost
center is classified as a department whose activities support the overall functioning of the
business in some way, but without direct revenue generation. According to Sheth et al. (2020),
profit centers create value for the organization through service delivery to external customers
while cost centers are focused on risk minimization and creating internal efficiencies. In a
healthcare environment, an example of a profit center would be a clinic which performs health
assessments and receives payments and reimbursements for those services, whereas the IT
department would be a cost center, as it provides important technical support for internal
departments but does not perform external services which directly bring in money. On a larger
organizational scale, a community health center (CHC) could be considered a cost center while a
for-profit hospital could be considered a profit center.
Decentralization within a healthcare organization is where different
departments/functional units behave like silos, independent of one another, while
centralization sees different units functioning through central authority. There are advantages
and disadvantages to both approaches. Centralization involves hierarchical structure and
standardized, equitable operations, while decentralization can offer different functional units
flexibility in decision-making and larger opportunities for innovation (Scarffe et al., 2022). This
means there is a rigidity in centralized systems but strong policy and standards in place, and
that there is freedom to improve individual health outcomes but less focus on consistently
equitable health outcomes under a decentralized system.
There are several strategies which can help healthcare organizations maintain their
historic mission and continue serving individuals without insurance and/or those who are
historically underserved. For example, organizations can choose to accept Medicare and
Medicaid patients, enter into an accountable care organization (ACO), or offer case
management services to help uninsured individuals in the community obtain necessary health
insurance. One option is applying for federal funding and using this to fund health operations
for underserved/uninsured communities. The Affordable Care Act introduced funding for the
development and expansion of community health centers (Shi & Singh, 2019). Originally
authorized for 5 years, this has been extended year after year and in 2022, $4 billion was
allocated in addition to a base funding of $1.7 billion (NACHC, n.d.). Another option is
organizing into an ACO network to leverage relationships with other health services
organizations in the area with the goal of improving care coordination, quality, efficiency, and
cost, which allows organizations to serve Medicare beneficiaries and realize financial benefits if
the network can achieve specific cost benchmarks (Shi & Singh, 2019).
Moving from a cost center to a profit center could have many implications. For a use
case, imagine a CHC closes and reopens as a for-profit health center. One major benefit for
internal operations would be the freedom to operate as a decentralized entity if so chosen, as
being free from federal funding and CMS rules would allow for more flexible decision-making.
The organization could choose to cater services to non-Medicare/Medicaid patients, which
would allow for more flexibility in services performed and billing. This could also allow the
organization to grow business and turn a profit. However, there would be a big detriment to the
community that has come to depend on this CHC. A CHC is considered a communal safety net,
and in 2016, over 90% of CHC patients had income well below the poverty line, with almost 24%
being completely uninsured (Shi & Singh, 2019). A lot of these individuals may not have the
means to find replacement health services due to issues like lack of transportation, lack of
access to resources like the internet to find out where else to go, or lack of understanding of
how the healthcare system works. That said, there are implications of safety net facilities that
cannot bill or seek reimbursement the same way as for-profit health organizations, such as
having inadequate federal funding yet no viable means of increasing revenues through their
service offerings (Bachrach et al., 2012). This can lead to razor thin operating margins that do
not allow for needed bank loans nor enable safety net facilities to hire enough or appropriately
qualified staff (Bachrach et al, 2012).
Despite the challenges of operating as a cost center, there is a societal importance for
safety-net facilities. In Deuteronomy 15:11, we are reminded “For there will never cease to be
poor in the land. Therefore, I command you, ‘You shall open wide your hand to your brother, to
the needy and to the poor, in your land’” (English Standard Version Bible, n.d.). Though it may
not make sense for every facility to operate as a CHC/safety net, ensuring that these exist within
our communities helps us provide critical health services to everyone and thus work to improve
the health of all members of our community.
References
Bachrach, D., Braslow, L., & Karl, A. (2012). Toward a high performance health care system for
vulnerable populations: Funding for safety-net hospitals. The Commonwealth Fund.
https://www.commonwealthfund.org/sites/default/files/documents/___media_files_pu
blications_fund_report_2012_mar_1584_bachrach_funding_safety_net_hosps_final.pdf
English Standard Version Bible. (n.d.) ESV.org. https://www.esv.org
NACHC (n.d.). Federal grant funding. https://www.nachc.org/focus-areas/policy-matters/health-
center-funding/federal-grant-funding/
Scarffe, A. D., Coates, A., Evans, J. M., & Grudniewicz, A. (2022). Centralization and innovation:
Competing priorities for health systems? The International Journal of Health Planning
and Management, 37(5), 2534-2541. doi:10.1002/hpm.3531
Sheth, J., Jain, V., & Ambika, A. (2020). Repositioning the customer support services: The next
frontier of competitive advantage. European Journal of Marketing, 54(7), 1878-1804.
doi:10.1108/EJM-02-2020-0086
Shi, L., & Singh, D. (2019). Essentials of the U.S. health care system (5th ed.). Jones & Bartlett
Learning, LLC
Replies: 400-500 words, 2 scholarly + 1 biblical
Reply #1
Thank you for sharing your insights this week. I too agree that safety-net facilities are
incredibly important for our communities. As you mentioned, the introduction of the ACA
helped proffer healthcare to individuals from less advantaged socioeconomic groups. In fact,
socioeconomic status, including financial stability and housing status, are regarded by the World
Health Organization as major components of social determinants of health (SDH), factors which
are often directly related to health inequities (Houlihan & Leffler, 2019). Notably, however, for-
profit hospitals (our “profit centers”) are likelier to exist in US regions that have SDH issues.
Cronin et al. (2021) found that for-profits are concentrated in certain areas in the US – such as
southern regions with little competition – and that those corresponding areas had higher
numbers of uninsured individuals and higher unemployment rates. Many Americans rely on
employment-related health insurance policies, and only the very rich could ever afford paying
for healthcare services completely out-of-pocket. This means that individuals in these areas
who have a greater need for safety-net services often have fewer healthcare options, if any at
all.
According to Ainkleye et al. (2019), healthcare institutions which struggle financially are
more likely to have patient safety issues and are correlated with higher rates of adverse events
and readmissions. This may be a concern for safety-net patients, as many safety-net hospitals
are heavily reliant on government funding and are often a community’s provider of
“unprofitable services, such as burn units, trauma centers, inpatient psychiatric care, and
neonatal intensive care units” (Bachrach et al., 2012, p.5). This means operational costs can
easily exceed funding sources. An interesting thing I came across in my research was that for-
profit healthcare systems too have the power to improve the health of the un- or underinsured.
Instead of simply opening cost centers in these regions, Cronin et al. (2021) suggest for-profit
institutions offer a unique ability to improve population health in economically disadvantaged
areas, both through direct contributions to improving health in the community (e.g., via
healthcare services) and through indirect means (e.g., the increase in local employment
opportunities and because the for-profit status serves as a healthy stream of tax dollars for the
region). Thus, what can be seen is although safety net facilities have a clear, direct contribution
to communities in need, for-profits have their own unique way of helping too. Whether they
leverage it is another issue.
In Luke 3:10-11 we are told “And the crowds asked him, “What then shall we do?” And
he answered them, “Whoever has two tunics is to share with him who has none and whoever
has food is to do likewise” (English Standard Version Bible, n.d.). Each type of institution has its
own unique contributions it can make to the local community, whether it is the “tunic” or the
“food” – that is, both equally can provide help to those in need, perhaps just in different ways.
Therefore, both are important for improving community health in a holistic way.
References
Ainkleye, D. D., McNutt, L. A., Lazariu, V., & McLaughlin, C. C. (2019). Correlation between
hospital finances and quality and safety of patient care. PLOS One, 18(8), e0219124.
doi:10.1371/journal.pone.0219124
Bachrach, D., Braslow, L., & Karl, A. (2012). Toward a high performance health care system for
vulnerable populations: Funding for safety-net hospitals. The Commonwealth Fund.
https://www.commonwealthfund.org/sites/default/files/documents/___media_files_pu
blications_fund_report_2012_mar_1584_bachrach_funding_safety_net_hosps_final.pdf
Cronin, C. E., Franz, B., Choyke, K., Rodriguez, V., & Gran, B. K. (2021). For-profit hospitals have a
unique opportunity to serve as anchor institutions in the U.S. Preventive Medicine
Reports, 22, 101372. doi:10.1016/j.pmedr.2021.101372
English Standard Version Bible. (n.d.) ESV.org. https://www.esv.org
Harrington, M. K. (2021). Health care finance and the mechanics of insurance and
reimbursement (2nd Ed). Burlington, MA: Jones & Bartlett
Houlihan, J., & Leffler, S. (2019). Assessing and addressing social determinants of health: A key
competency for succeeding in value-based care. Primary Care: Clinics in Office Practice,
46(4), 561-574. doi:10.1016/j.pop.2019.07.013
Reply #2
Thank you for sharing your research this week. A point you brought up that I found
highly important was that billing is required to ensure a healthcare facility recovers costs for its
services and that without this reimbursement they would cease to operate. Often, it is easy to
focus on the public good over the necessity of billable codes, but even not-for-profits need
funding to fuel their operations. Billing in and of itself isn’t a bad thing, it is simply a part of
how an organization can ensure it has the adequate cash flow to provide services to the
community.
As you mentioned in your post, billing and coding are separate functions. However, they
work in tandem to ensure accurate reimbursement, and billing is based on the way medical
interactions are coded. Only documented interactions can be coded and billed. Not only does
documented medical information help clinicians coordinate patient care, adequate
documentation is also necessary to ensure claims are not denied by payers, which can cause
lost revenue (Burks et al., 2022). According to our textbook, healthcare organizations have
refocused the reimbursement process to a multi-stage, complex cycle called revenue cycle
management (RCM) to ensure timely and accurate reimbursement (Harrington, 2021). The
billing piece happens in the back end part of the revenue cycle, while coding is a middle-stage
process, and negotiations with insurers occur at the beginning of the cycle (Harrington, 2021).
An example of how billing can impact healthcare organizations’ financial viability is the
COVID-19 pandemic. The financial stability of US healthcare organizations was threatened by
issues such as increased costs (e.g., staffing, supplies) and lower profit-yielding elective medical
care in favor of essential/life-saving care (Colenda et al., 2020). Even offsetting tax breaks not-
for-profit entities qualify for cannot mitigate an inability to pay debts. As Colenda et al. (2020)
explain, nonprofits have “lower operating margins, higher percentage of government payer mix,
supply chain challenges for necessary equipment and supplies, and higher debt relative to their
net assets and investments” (p.1144). Therefore, accurate billing of services and timely
reimbursement will ensure that facilities have the necessary cash flow to cover expenses and to
continue operating safely and efficiently.
As we are told in Romans 4:4, “Now to the one who works, his wages are not counted as
a gift but as his due” (English Standard Version Bible, n.d.). I stand firmly behind the idea that
billing in healthcare must be done ethically and accurately so as not to fraudulently inflate costs
or overbill the patient. However, I also feel that facilities must be adequately and fairly
reimbursed for the care they provide so that staff can be fairly compensated for their work and
that the facility can continue to operate and serve the community.
References
Burks, K., Shields, J., Evans, J., Plumley, J., Gerlach, J., & Flesher, S. (2022). A sustematic review of
outpatient billing practices. Sage Open Medicine, 10, 20503121221099021.
doi:10.1177/20503121221099021.
Colenda, C. C., Applegate, W. B., Reifler, B. V., & Blazer, D. G. (2020). COVID-19: Financial stress
test for academic medical centers. Academic Medicine, 95(8), 1143-1145.
doi:10.1097/acm.0000000000003418
English Standard Version Bible. (n.d.) ESV.org. https://www.esv.org
Harrington, M. K. (2021). Health care finance and the mechanics of insurance and
reimbursement (2nd Ed). Burlington, MA: Jones & Bartlett
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