Tigi Primer On Hospital Accounting & Finance

Income for a hospital or health system is recognized when patient services are provided. This means that revenue is recognized when the hospital or health system has performed the services or treatments for the patients. This is the point at which the hospital has fulfilled its obligation to provide the services and can therefore recognize the revenue. It is important to note that income recognition is not dependent on when charges are posted, reimbursement is collected, or when a patient submits a co-payment. The key factor is the provision of patient services.

The link between hospital pricing and financing is complex. This means that hospitals have various factors to consider when determining the prices for their services, such as the cost of medical equipment, supplies, staffing, and overhead expenses. Additionally, hospitals often have different payment agreements with different payers, such as insurance companies, government programs, and individual patients, which further complicates the pricing process. Therefore, hospitals struggle to provide up-front transparent prices because of the intricate relationship between pricing and financing.

Medicare's proportion of payment varies between 32% and 45% on average. The minimum average reported over the past 5 years is 32%, and is therefore the target answer to this question. Note that the proportion of Medicare payment is rising, but the Primer correctly cites 32% as a global average. Medicare dependent hospitals, and regions with high rates of retired persons will also have higher proportion of Medicare payment.

Medicaid is indeed a state administered program that provides medical care for disabled and low-income individuals and families who cannot afford it. Unlike Medicare, Medicaid is not a standardized program, as each state has the authority to establish its own guidelines for coverage and eligibility. Therefore, the statement that Medicaid is not a carbon copy of Medicare is accurate.

An HMO is a managed healthcare plan that combines the financing and delivery of healthcare for a specific group of people. This means that the HMO takes care of both the financial aspects and the actual provision of healthcare services. HMOs often have contracts with healthcare providers, either employing them directly or owning them, to ensure that their enrolled population has access to the necessary medical care. This statement is true because it accurately describes the role and structure of an HMO.

The given statement is true. Independent Practice Associations (IPA)s are indeed Physician Services providers that have their own practices and physicians. They also enter into contracts with one or more Health Maintenance Organizations (HMOs). This allows them to provide healthcare services to members of the HMOs while maintaining their independence as separate entities.

Managed Care Organizations offer hospital providers incentives to improve quality and reduce costs. These incentives can include Per-Diem payment systems that directly reimburse certain items and procedures, as well as the measurement of pre-defined metrics. Providers may also receive bonuses for meeting or exceeding these metrics. This statement is true as it accurately describes the incentives offered by Managed Care Organizations to hospital providers.

The explanation for the given correct answer is that using a risk adjusted Net Present Value (NPV) calculation is indeed the preferred method of justifying Capital Expenditures. NPV takes into account the time value of money and adjusts for risk by discounting future cash flows. By using this method, companies can assess the profitability and feasibility of their capital investments, considering both the potential returns and the associated risks. This allows for a more accurate evaluation and comparison of different investment opportunities.

Medicare covers beneficiaries out of two separate trust funds: Hospital Insurance, known as Medicare Part A, and Supplementary Insurance, known as Medicare Parts B & D. Part A covers inpatient hospital care, skilled nursing facility care, and some home health and hospice care. Parts B & D cover outpatient medical services, physician visits, preventive services, prescription drugs, and some medical supplies. Medicare Part C, also known as Medicare Advantage, is a type of Medicare health plan offered by private companies that contract with Medicare to provide all Part A and Part B benefits. Medicare Part D is the prescription drug coverage provided by private insurance companies.

The explanation for the given correct answer is that Medicare Severity Diagnosis Related Groups (MS-DRGs) payment rates are indeed determined using a complex formula based on a base rate with an intensity or weight. The payment for a more intense treatment setting, such as a Teaching hospital, has increased weights. This means that the same MS-DRG can have different reimbursement values depending on where the case is treated. Therefore, it is true that the same MS-DRG would have two different reimbursement values based on the treatment location.

The explanation for the given correct answer is that the Average Length of Stay (ALOS) is calculated by dividing the total number of days all patients have stayed in the hospital by the total number of patients. The statement mentions that over time, ALOS is declining nationally, which means that on average, patients are spending fewer days in the hospital. This could be due to various factors such as advancements in medical treatments, improved care delivery, and increased emphasis on outpatient care.

A notable exception to the partial cost coverage norm in Medicare and Medicaid reimbursement comes form the Critical Access Hospital program. If a hospital is designated as "Critical Access," Medicare reimburses 101% of all Medicare Patient costs. There are 1300 hospitals that have received this designation, but there are stringent requirements to maintain the designation. A facility must be 35 miles or more form another facility, maintain a 24hour Emergency Department, operate and staff a maximum of 25 acute care beds, discharge or transfer a patient within 96 hours, and secure transfer agreements with a tertiary hospital.
Importantly, when considering private payers: payment rates for private payers are not necessarily higher than Medicare rates. Instead, the costs to treat private payer patients is significantly lower, and therefore, the opportunity to make a profit on these patients is real, but not assured.
Consequently, costs of care dominate executives' decision making.

Payers for hospital and general healthcare services include a variety of entities. The Federal Government plays a significant role in funding healthcare through programs like Medicare and Medicaid. State and Local Governments also contribute to healthcare funding through their own programs and initiatives. Private payers like commercial insurance providers are another source of payment for healthcare services. Patients and their families are responsible for paying for a portion of their healthcare costs, either through insurance premiums or out-of-pocket expenses. Employers often provide healthcare coverage for their employees as part of their benefits package. Foundations may also contribute to funding healthcare services through grants and donations.

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The preferred ways to recognize revenue for a hospital include a per case basis, a per diem basis, and a capitated fee basis. These methods take into account the varying lengths of patient stays and the charges generated based on the patient's condition. A per case basis recognizes revenue based on the specific case or treatment provided to each patient. A per diem basis recognizes revenue on a daily basis, taking into account the number of days a patient stays in the hospital. A capitated fee basis involves a fixed payment per patient, regardless of the length of stay or services provided. These methods allow hospitals to accurately track and recognize revenue based on the unique circumstances of each patient.