isc471/hci 571 isabelle bichindaritz1 healthcare financial management 9/14/2012

1ISC471/HCI 571 Isabelle Bichindaritz

Healthcare Financial Management

9/14/2012

2ISC471/HCI 571 Isabelle Bichindaritz

Learning Objectives

• List and describe participants and stages of the revenue cycle.

• List and explain billing and reimbursement methodologies.

• Explain the role of the health information professional in the budgeting process.

9/14/2012

ISC471/HCI 571 Isabelle Bichindaritz

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• Financial management in health care is becoming increasingly complex

• Increasing dependence on the health record’s content to define accurately and completely for reimbursement purposes:– The services provided – The conditions treated

Historical Perspective

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• Health care managers must: – Know how to adjust their operations to respond

to a shifting economy and changing regulatory requirements

– Understand the concepts and principles of financial management

Historical Perspective

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• 1930s – primary method of payment for health care – direct, out-of-pocket remuneration

• Later – establishment of insurance including profit and nonprofit

• Greater use of health care also led to greater demand on the system

Historical Perspective Payment for Health Care Service

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Payment of health insurance premiums use of services paid for by the premiums increase in premiums


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• In 1960s social reform led to the establishment of Medicare.

• In 1980s the reimbursement formula under Medicare was revised to restrict reimbursement and control government expenditures.– Mandated a prospective payment system (PPS)– Attempt to balance payments made for the

same services at a fixed rate


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• Different types of reimbursement methods now in the private insurance industry also:– Prenegotiated amounts– Reimbursement based on a discount off billed charges– Per diem payments– Reimbursement based on audited costs– DRGs– Ambulatory care groups– Resource utilization groups– Payment for services at full billed or discounted charges


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• Third party payer concept– Third party payer pays for the services– Third party payer receives premium payments

• Resource-based relative value scale (RBRVS) implemented in 1992– Intent – to ensure equity in payment for like

services– Assigns a number of units to each procedure– Payments based on CPT-4 codes regardless of

specialty


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• To control costs, insurance companies reduce the options available to a person to obtain services– Growth of managed care programs (HMOs,

PPOs, etc)– Substantial financial disincentives to using

providers outside the network or without proper authorization/approval

• Projected that healthcare expenditures will outpace the rest of the economy and reach 20% of the gross national product by 2018


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• 2008 – 46 million+ people with no health insurance

• 2009 – American Recovery and Reinvestment Act (ARRA) invests in health information technology incentives– to improve nationwide health information network– assist in lowering healthcare costs– strengthen the economy

• Consensus – information technology and delivery of health information critical to control of health care costs


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• Emphasis on generating revenue and maximizing potential sources of revenue– Because of rising costs of health care

• Revenue may be:– Operating

• Include revenue sources from actual delivery of patient care activities and services

– Nonoperating• Include gifts and donations• Endowments• Grants• Interest on investments

Managing the Revenue Cycle

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• Actual makeup of the revenue cycle can vary greatly from organization to organization.

• Revenue cycle generally consists of:– All previsit activities– All postcare activities– Systems associated with a patient or consumer

entering the healthcare system– Receipt of services– Provider being paid for the service

Managing the Revenue Cycle Front-End Activities

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• Major source of revenue is third-party insurance companies.

• It is important to understand and negotiate the best reimbursement contract terms.

• Effectiveness of negotiation dictated by major health players in local market.– Individual physicians may have more difficulty

than major hospital or particular specialty

• Payer contracts are legally binding on both parties.


Contracting

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• Must identify and agree upon:– Actual negotiated payment rates– Specified reimbursement rules– Technical coding and billing requirements


Contracting

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• Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) – Provides incentive payments to physicians who

use e-prescribing technology – Good through 2012– In 2012, there will be penalties for physicians

who do not adopt e-prescribing


Contracting

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• HIM professionals’ role:– Have access to all data associated with

treatments and procedures– Key to collecting and classifying tests and

procedures performed– Can assess the costs associated with a service


Charge Master – Fee Schedule

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• Source documents may be in the form of:– Electronic health records– Automated information systems– Traditional paper health records– Encounter forms

• “If it is not documented, it is not done.” – True for billable services– Failure to document properly can result in

nonpayment and lost revenue.

Managing the Revenue Cycle Front-End Activities Patient Encounter

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• DRGs – example of a per-case, fixed payment system– If payment rates are less than amount charged,

a revenue deduction or adjustment occurs.– If adjustments are significant, expenses may not

be fully covered.– If expenses not fully covered, management may

need to consider alternatives.• Modifying supplies, services, etc.

– Important to consider possible outlier payments in addition to the contracted DRG payment.

Managing the Revenue Cycle Back-End Activities

Reimbursement Analysis

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• Capitation: a payment arrangement associated with managed care– Used in HMOs (health maintenance

organizations)– Providers paid a fixed amount per month– Providers then provide any care needed during

the period, even if the capitation amount does not cover the cost

Managing the Revenue Cycle Back-End Activities

Reimbursement Analysis

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• Centers for Medicare and Medicaid Services (CMS): focusing on eliminating fraud and abuse in Medicare and Medicaid.

• Estimated national health care fraud: between $75 billion and $250 billion

• Recovery Audit Contractor program (RAC):– Instituted by CMS to identify and recover many

of these improper or inadvertent payments

Financial Aspects of Fraud and Abuse Compliance

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Insurance Billing Terms

• Patient account• Guarantor• Health plan, payers• Subscriber, insured party, enrollee, member,

beneficiary• Member number, policy number, insurance

ID• Group number9/14/2012


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Insurance Billing Terms (continued)

• Claims • Assignment of benefits• Adjudication• Explanation of benefits (EOB), remittance

advice • Allowed amount • Remittance, reimbursement

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Insurance Billing Terms (continued)

• Adjustments, contractual adjustment, write-down adjustment

• Coordination of benefits, crossover or piggyback claims

• Copay, coinsurance amount• Coinsurance • Deductible• Patient billing9/14/2012


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Codes For Billing

• Standardized codes required for healthcare transactions, such as insurance claims and remittance advice

• Procedure codes assigned for services rendered and supplies used (HCPCS/CPT-4 codes)

• Diagnosis codes assigned to represent disease or medical condition treated (ICD-9-CM codes)9/14/2012


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Overview of Codes

• CPT-4– Numeric standardized codes for reporting

medical services, procedures, treatments performed by medical staff

– Five digits long

• HCPCS – Coding system used for billing for procedures,

services, supplies– Includes CPT-4 codes

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Small sample of CPT-4 codes.

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Small sample of HCPCS supply codes and administration codes.

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Overview of Codes (continued)

• Procedure modifier codes – Two-digit codes used in conjunction with

HCPCS/CPT-4 codes for billing purposes

• ABC codes – Used to bill for alternative medicine – Not part of the CPT or HCPCS code sets; only

accepted by some payers

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Small sample of procedure modifier codes.

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• ICD-9-CM – System of standardized codes developed

collaboratively by WHO and 10 international centers

– The modifier “CM” provides way to code patient clinical information; makes codes useful for indexing medical records, medical case reviews, communicating patient’s condition precisely

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Small sample of ICD-9-CM codes.

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• DRG – Used to classify ICD-9-CM codes into 25 major

diagnostic categories (MDCs)– Old DRG system had 538 codes; newer MS-

DRG system has 745 codes

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Reimbursement Examples

• Fee for service: Control what provider can charge

• Allowed amount: Discounted fees agreed to by provider for services; listed on EOB

• Managed care: Control patients’ utilization of services

• Capitation: Flat rate paid to provider by HMO based on per member per month

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Reimbursement Examples (continued)

• PPO: Allows patients to use both PPO and non-PPO providers, but pay more when going out of network

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Reimbursement Examples (continued)

• Government-funded health plans: Largest payers in U.S. and include: – CHAMPVA – VA – TRICARE– IHS – FECA – WC – Medicaid, Medicare9/14/2012


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Medicare• Part A

– Covers inpatient hospital stays, skilled nursing facilities

– Most beneficiaries do not pay premiums (previously collected as Medicare taxes)

• Part B– Covers professional services– Beneficiaries pay premium; uses fee-for-service

model based on RBRVS

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Medicare (continued)

• Part C (Medicare Advantage Plans)– HMO plans authorized by Medicare– Patient pays HMO a premium, which supplies

all of patient’s Part A, Part B, Medigap, and sometimes Part D coverage

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• Part D – Helps patients purchase prescription drugs at

lower cost– Patients pay premium to private insurance plans

this coverage

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• Medigap – Supplemental private insurance– Pays portion of Medicare claims and

deductibles for which patient is responsible

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Managed Care/HMOs

• Developed to help control costs of use of healthcare services

• Designed to make PCP into gatekeepers who control access to additional services– HMOs act as both insurer and provider– HMO patients must use HMO for all services,

except emergencies

• Authorized by Congress in 19739/14/2012


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Managed Care Plan Examples

• Staff model – HMO owns facilities and employs doctors

• Group practice model – HMO contracts with facilities and physicians to

provide services

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Managed Care Plan Examples (continued)

• IPA model– Independent physicians form business

arrangement for purpose of contracting with HMO and thus receives payment from HMO

• IDN model – Facilities and physicians form business

arrangement for purpose of contracting with HMO to provide both hospital and physician services

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PPS Reimbursement

• Hospitals do not bill insurance plans in same way as physicians

• Hospitals use UB-04 claim form instead of CMS-1500 form

• Hospital claim coders must identify principal diagnosis and associate revenue codes with procedures

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PPS Reimbursement (continued)

• Not used for children’s hospitals, cancer hospitals, critical access hospitals

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Other Medicare PPS

• Inpatient psychiatric hospital prospective payment system

• Long-term care hospital prospective payment system

• Skilled nursing facility prospective payment system

• Home health prospective payment system

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Medicare Part A and MS-DRGs

• PPS uses DRGs to determine reimbursement for inpatient stays

• PPS determines DRG from principal diagnosis– Assigns to higher DRG if relevant diagnoses of

comorbidities or complications exist– MS-DRGs better account for medical severity

of health-related situations

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Medicare Part A and MS-DRGs (continued)

• DRG code assigned RW – Reflects average relative costliness of group’s

cases compared with costliness for average Medicare case

• PPS adjusts RW of DRG for geographic and wage differences

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Medicare Part A and MS-DRGs (continued)

• Hospital reimbursement calculated by multiplying hospital’s PPS rate (operating and capital base rate) times RW of DRG code

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Determining the hospital’s capital base rate.

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Flow of MS-DRG Grouper logic.

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Outpatient PPS

• Reimburses hospital outpatient services • Does not use DRGs nor apply to doctor’s

offices

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Outpatient PPS (continued)

• Determines payment based on procedures that are assigned to an APC– Relative weights represent resource

requirements of service– Calculates reimbursement from RW of APC

times national conversion factor; adjusts for wage, geographic differences

• Allows outpatient claim to have multiple APCs

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Examples of Fraud and Abuse

• Medically unnecessary services performed to increase reimbursement

• Upcoding, or deliberately incorrectly coding hospital claim to trick Grouper software into assigning higher DRG

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Examples of Fraud and Abuse (continued)

• Unbundling, or coding components of a comprehensive service as several HCPCS codes instead using comprehensive code

• Billing for services not provided• Billing for levels of service not supported

by documentation in patient’s health record

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• Provides economic information and an internal framework to enable health care leaders to make effective decisions concerning the activities and overall performance within an organization.

• Includes information in the form of:– Internal accounting reports– Budgets– Business plans– Cost analysis– Other reports

Setting Priorities for Financial Decisions Management Accounting

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• Strategic and operational plans set targets for performance.

• Budgets are plans for the financial resources associated with performance plans.

• Most organizations have:– Mission– Goals– Objectives

• Mission, goals, and objectives are used to develop and link departmental objectives and budgets to organizational goals.

Setting Priorities for Financial Decisions Management Accounting

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• A statement of the organization’s purpose in broad terms

• Defines the geographic environment and population served by the organization

Setting Priorities for Financial Decisions Mission

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• Defined by organizational leaders to support and implement the mission

• Statement of what the organization wants to do

• Foundation to determine the organization’s intent

Setting Priorities for Financial Decisions Goals

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• Formed once the intent is known• More specific than goals• To define the expectations or outcomes

given the goal direction• To provide clear guidelines for management

and supervisors• To define the action steps to achieve the

objective

Setting Priorities for Financial Decisions Objectives

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• Action steps define:– The dates when certain activities are to be

completed– How much labor or funding will be required– How resources will be used– Expected outcomes or results

Setting Priorities for Financial Decisions Objectives

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• Budgets are detailed numerical documents.• They translate goals, objectives and action

steps into forecasts of volume and monetary resources needed.

• Planning and preparing budgets is part of the managerial accounting process.

The Budget and Business Plan Budgets

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• Future volumes predicted by assessing data from historical trends

• HIM department is primary source of historical data such as:– Discharges by:

• clinical service• payer types• DRG• physician

– Operative procedures by• type• surgeon


Statistics Budget

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– Length of stay by:• DRG• Diagnosis• Clinical service• Physician

– Number and type of:• Ambulatory visits• Home health visits• Ambulatory surgery cases• Emergency department visits


Statistics Budget

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• Second source of volume predictions:– Interviews with key medical and clinical staff– Medical staff may be aware of plans for service

changes and expansions of competing organizations.

• Third source of volume predictions:– Comparison of data within the HIM department

from month to month– Identifying trends in utilization of the enterprise

by different physicians or geographic location


Statistics Budget

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• Must manage:– Manpower– Machinery– Materials– Money

• All proposed expenditures must balance these 4 Ms.

Preparing a Business Plan The Four Ms

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• Refers to recording and reporting the financial transactions of the organization for:– Internal management– Users outside of the organization

• External users might include:– Loan officers– Creditors– Investors– Payers

Financial Accounting

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• Organizations must adhere to generally accepted accounting principles promulgated by the Financial Standards Accounting Board (FASB).– Rule-making body of the American Institute of

Certified Public Accountants (AICPA)

Financial Accounting

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• HIM professionals must become more adept in fiscal activities.

Other Phases of Financial Management Role of the HIM Professional in Financial

Management

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isc471/hci 571 isabelle bichindaritz1 healthcare financial management 9/14/2012

Documents

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health care managers

health records content

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reimbursement methodologies

reimbursement purposes

reimbursement formula

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