Chapter 11: Resource Management Flashcards
ASSUMPTION FOR AN ORGANIZATION
Production of product/service of value (output)
Being of value, revenue will be generated
Revenue generated will cover cost of resources expended (input)
Some level of profit or receipts over disbursement is necessary for continued viability
THE FINANCIAL SYSTEM: CHART OF ACCOUNTS
A matrix structure that organizes transactions
One axis (the account codes) aggregates transactions according to type
The other axis aggregates transactions according to product line, physical location, or activity
Transactions summarized in statement of profit and loss (P&L) or income and expense (I&E)
REVENUE
Monies received for services provided
Based on the price or charge allocated to each specific service, activity, or item
The charge reflects the related costs of a service/product plus some margin of profit
Charges are discounted or bundled under a global fee, waived for charitable care, or not collected from those who are expected to pay
Charges are not accurate reflection of income
PAY-FOR-PERFORMANCE REIMBURSEMENT
October 2008, CMS denies Medicare reimbursement for “never events”
Half of all “never events” are nursing-sensitive
Commercial companies and Medicaid following on quality reimbursement
CALCULATING REVENUE
The sum of charges is on the financial statement as gross patient services revenue (GPSR)
Revenue deductions include contractual allowances, differences between the charge and actual payment, and charitable care
Bad debt is not deducted from revenue
Net patient services revenue (NPSR) is GPSR, less contractual allowances and charity care
Total operating revenue is NPSR plus other operating and research revenue
There may also be non-operating revenue which is not directly tied to services, such as interest and gifts or donations to a nonprofit entity
EXPENSE
Costs incurred in providing services or producing products
Wages and benefits
Nonpersonnel supplies, minor equipment, activities, interest on loans, and so on
Depreciation of capital assets
COST CONCEPTS
Variable versus fixed costs
Direct versus indirect costs
Total versus unit costs
Incremental versus opportunity costs
BUDGETING
The budget is the translation of an organization’s plan into quantities and dollars
THE STRATEGIC BUDGET
Long-range budget that addresses direction of organization over 3 to 5 years or more
Projections of volume and resources at a high level, with estimations of revenue and expense totals, but not at an extremely detailed level
Major drivers of volume and resources must be described and quantified
Schematic representations of organization’s direction, which are periodically reviewed
THE OPERATIONAL BUDGET
Is detailed, including day-to-day activity of the organization
Includes detail on projected volume and resources, as well as associated revenue and expense
Is constructed for the fiscal year
Incorporates assumptions that will affect revenue and expense, such as inflation and reimbursement
Is prepared at the detailed level of account within cost center
Includes actual experience reported against the budget for each accounting cycle
Presents each fiscal year’s operating budget independent of other years
CAPITAL BUDGET
Includes major durable equipment
Funding comes from the profit generated from operations or from loans
Budget is contained by the time frame of the project rather than of the year
It is important to consider any additional salary and nonsalary costs associated and place them in the operating budget
Program Budget
Isolates one activity or program to evaluate its effectiveness
Consider the extent incremental revenue will exceed incremental expense
Consider capital expenditures for facilities and major equipment and operational expenses
Covers an extended period and includes adjustment for inflation and reimbursement
CASH BUDGET
Based on the fact that actual receipt of revenue and payment of expenses do not occur in the same time period
Projects the cash flow over the course of the fiscal year to ensure there will be sufficient money in the organization to meet its obligations
BUDGETING PROCESS
Identification of activity that generates revenue and drives resource utilization
Workload measures that identify both the significant activities that generate resource utilization and elements that account for individual variation are critical (acuity systems)
For accurate projection of required personnel and material resources, patients can be aggregated into groups with similar resource requirements and the groups can be weighted based on their average utilization relative to one another
Activity and resource projections are then translated into dollars
Total revenue is volume times price, adjusted for the payer and contractual variations
If expense exceeds revenue, or if the level of profit is not at the level needed, the organization moves into negotiation
Movement into implementation with evaluation
ETHICAL STRATEGIES FOR MAXIMIZING REVENUE
Emphasis on how much volume and revenue the individual practitioner generates, including incentive programs
Where direct billing is not possible, there is a need for other measures of volume and activity
Rather than charges, focus on systems that affect the volume of activity—that is the basis for payment
Inaccurate or incomplete documentation can lead to lost revenue opportunities
Payment denials
