Test 1 Flashcards
Chapters: 1-4
Uses and Users of Financial Information:
Evaluating the FINANCIAL CONDITION of an entity
Status of a firm’s assets, liabilities, and equity positions, described in financial statements.
- Equated with an organization’s viability
- Most common use of financial info.
- Underlies most business decisions
- Includes short-term v. long-term conditions
Uses and Users of Financial Information:
Evaluating STEWARDSHIP within an entity
Management’s responsibility to properly utilize organization’s resources (including people) and financial assets.
- Historically: most important aspect
- Designed to prevent loss of assets through employees’ malfeasance.
Uses and Users of Financial Information: Assessing the EFFICIENCY of operations
The ratio of outputs to inputs; the lowest possible cost of production.
- Rising in importance due to increasing healthcare costs and lower reimbursement.
- Implies availability of standards or benchmarks for comparison.
Uses and Users of Financial Information: Assessing the EFFECTIVENESS of operations
Attainment of objectives through production of outputs
- Difficult to measure as organizations do not always states their objectives quantitatively.
- Less emphasis than efficiency; unnecessary services at efficient prices.
Uses and Users of Financial Information: Determining the COMPLIANCE of operation with directives
Whether or not the directives are followed
- Financial reporting is required to ensure compliance.
- Internally (Budgets)
- Externally (Lenders, Credit rating agencies)
Financial Management Functions: Controllers
Responsible for internal finances:
- Direct preparation of financial statements and reports.
- Direct preparation of budgets.
- Analyze future earnings and expenses.
- Develop internal control procedures.
- Prepare reports for regulatory agencies.
Financial Management Functions: Treasurers
Responsible for external finances:
- Establish billing, credit, and collection policies
- Manage investments
- Secure financing
- Short-term: Line of credit, transfer of funds
- Long-term: Bond issuance
- Maintain investor and credit rating relations.
- Analyze mergers and acquisition opportunities.
Forms of Business Organizations: Not-For-Profit
- Objective function: maximize shareholders’ value instead of profit maximization.
- Shareholders: Communities, not individuals.
- Exempt from federal income tax and most state/local property taxes
- Required to provide “community benefit”
- Lower cost of equity capital than IO but more limited access to capital.
- Currently comprise 80% of hospitals
Forms of Business Organizations: Investor-Owned Health Care Entities
- Objective function: Maximize shareholders’ profits
- Shareholders: risk-based equity investor
- Able to access capital through debt and equity.
- Subject to “double taxation” (corporate and shareholder level)
Types of Investor-Owned Entities: Publicly-Traded
Buy and sell shares of the firm on the open market.
- Subject to reporting requirements and regulation by the Securities and Exchange Commission (SEC).
- Advantage: Able to raise equity capital through sales of stocks.
Types of Investor-Owned Entities: Privately-Held
Shares are held by a few investors and not available to the general public.
- Advantage: Far fewer reporting requirements from SEC
- Until recently, Hospital Corporation of America (HCA) was the largest.
Types of Investor-Owned Entities: Professional Corporations
Professional corporation/association (PC/PA): formed by professionals with the advantage of corporation.
- Shareholders are free from personal liability; professionals are liable.
- Widely used by physicians.
Types of Investor-Owned Entities: Sole Proprietorships
Unincorporated businesses owned by a single individual.
- Advantages:
- Easy and inexpensive to set up
- No profit sharing
- No government regulation
- No special income taxes
- Disadvantages:
- Unlimited liability
- Limited access to capital
Types of Investor-Owned Entities: Partnerships
Unincorporated businesses with two or more owners
- Advantages:
- Easy to form
- Subject to few government regulations
- Not subject to double-taxation
- Disadvantages:
- Unlimited liability
- Difficult to dissolve
- Potential for conflict among partners
Types of Investor-Owned Entities: Limited Liability Companies/Partnerships (LLC/LLP)
Combine characteristics of partnership and liability protection of corporation.
- Liability of the general partner is limited.
- Flexible to structure allocations of income and losses as owners choose
- Required to follow tax allocation rules
Government-Owned Health Care Organizations
Public organization, owned by state or local government.
- Sometimes able to access additional revenue through taxes.
- Not able to raise funds through equity investments.
- Like NFPs, exempt from property and income taxes.
- May face political pressure to return some earning to the community or reduce prices.
NFP Non-Business-Oriented Organization
Perform voluntary services in communities
- Tax-emept
- Rely primarily on public donations
- Different financial statements and management than business-oriented firms.
i.e. Red Cross, American Cancer Society
Major Revenue Cycle Steps: Registration
Basic patient information collected.
1) Insurance verification, including health plan and ID number.
2) Amount due from patient for co-pay or deductible
3) Financial counseling:
- For patients with no insurance or those unable to pay co-pay/deductible
- Financing
- Medicaid and other government programs.
Major Revenue Cycle Steps: Medical Record/Coding
1) International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM).
- Official system in the US for classifying and assigning health conditions and related info.
2) Healthcare Common Procedure Coding System (HCPCS)
- A collection of codes based on the American Medical Association’s Current Procedural Terminology (CPT).
- Used for Medicare claims regarding medical procedures, supplies, products, and services.
Medical Record/Coding: ICD-9
-Diagnosis codes are 3 digits, followed by a decimal point, then 1-2 additional digits.
- Procedure codes are used to report inpatient procedures.
- Up to 4 digits, with a decimal point after the first two.
-These codes are used in DRG assignment, for determining payment.
Medical Record/Coding: HCPCS
- Used by physicians for reporting both inpatient and outpatient procedures
- Used by facilities for reporting outpatient procedures.
-Two-Tiered
Level 1- Current Procedural Terminology, a 5-digit code (maintained by AMA)
Level 2- HCPCS codes
-These codes are often a major determinant of provider payment for both facilities and physicians.
Medical Record/Coding: HCPCS - Level 1: CPT Codes
Six Main Categories:
1) Evaluation and Management
2) Anesthesia
3) Surgery
4) Radiology
5) Pathology and Laboratory
6) Medicine
-May also include a modifier code for clarification purposes
Medical Record/Coding: HCPCS - Level 2: HCPCS Codes
Used to report products, services, supplies, materials, or procedures not otherwise indicated by Level 1.
- 5-digit code beginning with a letter then 4 subsequent numbers.
- Two groups of codes:1) Permanent
2) Temporary
- Used for needs not covered by the permanent codes; can remain “temporary” indefinitely or eventually become permanent.
Major Revenue Cycle Steps: Charge Entry
Represents the “Capture” of products and services provided.
- Three Greatest Billing Concerns
1) Capture of charges for services performed
2) Incorrect billing
3) Billing late charges - Methods of Charge Capture
- Charge slips posted as batch process
- Order entry system
-Charge explosion can be used when a uniform set of supplies is used.
Charge Entry: Chargemaster
A list of all the goods and services provided by a hospital, and the price(s) the hospital charges for each.
- Six Elements
1) Charge Code
2) Item Description
3) Department Number
4) Charge (Price)
5) Revenue Code
6) CPT/HCPCS code
a.k.a. Charge Description Master (CDM)
Major Revenue Cycle Steps: Billing/Claims Preparation
CMS-1500: The uniform professional claim form
-Used by non-institutional providers to submit claims to Medicare and other payers.
CMS-1450 (UB-04): the uniform institutional claim form
- Used by institutional providers to submit claims to Medicare and other payers.
- Data from this form is used to determine DRGs and APCs
- One or more HCPCS codes must be present on the claim form for APC assignment.
-Most claims not electronically submitted
Major Revenue Cycle Steps: Claims Editing
Software designed to find claims errors.
- Providers utilize this to maximize payment and processing speed.
- Payers use this to determine minimum payment obligation and to delay payments for valid reasons.
- Error checking:
- Spelling/Grammar
- Missing data
- Internal validity
Claims Editing: National Correct Coding Initiative (NCCI)
Developed by CMS in order to promote correct coding methodologies.
- NCCI edits are incorporated within the Outpatient Code Editor (OCE)
- Ensures that the most comprehensive groups of codes are billed rather than the component parts.
- Check for mutually exclusive code pairs.
- 83 edits as of March 2010
Claims Editing: Claim-Level Dispositions
- Rejection: Claim must be corrected and resubmitted
- Denial: Claim cannot be resubmitted but can be appealed.
- Return to Provider (RTP): Problems must be corrected and claim resubmitted.
- Suspension: Claim requires further information before it can be processed
Claims Editing: Line-Item Dispositions
- Rejection: Claim is processed but line item is rejected and can be resubmitted later.
- Denial: Claim is processed but line item is rejected and cannot be resubmitted.
Community Benefit
The scope of services and support that a hospital providers in return for its tax-exempt status
Static Coding
Direct coding of HCPCS codes into the charge master
-aka Hard Coding
Dynamic Coding
Codes are left off the charge master and entered later by HIM personnel.
-aka Soft Coding
Resource-Based Relative Value Scale (RBRVS)
A system for measuring physician input to medical services for the purpose of calculating a physician feed schedule.
-The relative value of each service is the sum of the relative value units.
Reasonable Cost
A qualification introduced by the payer to limit its total payment by excluding certain categories of cost or placing limits on costs that the payer deems reasonable.
Diagnosis-Related Groups (DRGs)
A patient classification system that categorizes patients into groups that are clinically coherent and homogeneous with respect to resource use.
The Stark Law
Prohibits physicians from referring a patient for certain “designated health services” to an entity with which the physician has a “financial relationship.”
-Only applies to physicians.
Anti-Kickback Statues (AKS)
No person may offer or request, give, or receive remuneration in exchange for a referral for a good or service that may be reimbursed under a federal healthcare program.
- Applies to all healthcare entities and their associates.
- Intent-based
False Claims Act (FCA)
Federal government’s primary civil remedy for improper or fraudulent claims.
- Violators subject to monetary fines per claim.
- Intent-based
Qui Tam Actions
FCA claims may be brought against an entity not only by the government agencies, but also by individuals.
- Individual is referred to as “relator”
- aka Whistleblower suits
Sherman Act (Section 1)
Applies to agreements that unreasonably restrain trade, which may include agreements or conspiracies to fix prices, divide market territories, boycott other firms, or use coercive tactics with the intent of injuring competition.
Clayton Act (Section 7)
Prohibits mergers and acquisitions that may substantially lessen competition.
Emergency Medial Transfer and Active Labor Act (EMTALA)
Prohibits hospitals from transferring an emergency patient because of inability to pay for services.
Employee Retirement Income Security Act (EIRSA)
Federal regulation of self-insurance plans.
