Chapter 1: Financial Management in Context
Fundamentals of Healthcare Financial Managament
Steven Berger
Chapter 7
July
Joe Attokaren
July 4, 2007
July is the month when the budget becomes the top priority of the accounting and finance department steps in financial analysis
Which is a better technique – Top Down or Bottom up?
Top Down - is defined as revenue and expense levels imposed by the administration and directed down to the manager who is expected to achieve them.
Bottom Up – is defined as revenue and expense levels determined by each department manager that is aggregated to establish the organization-wide budget.
|Top Down |Bottom Up |
|Pros |Cons |Pros |Cons |
|Administration maintains control on |Department managers are not invested|Managers who set their own budget |Managers have no incentives to set |
|the assumptions that determine the |in the budget outcomes because they |will be more invested in process and|aggressive or "stretch" budget |
|targeted operating margin |do not have any input into the |the future outcomes. |target for their own departments. |
| |process | | |
|There will be less chance of the |Administration is perceived as |The budgeted volumes may be closer |Managers have no idea of the overall|
|managers needing to redo their |autocratic, not participative. |to reality, therefore causing less |hospital budget targets and |
|budgets one, two, three time in | |budget variances in the upcoming |therefore no way of knowing the |
|order to "balance the budget" as the| |year. |amount of bottom lines required from|
|assumptions change. | | |their departments for the |
| | | |organization to succeed as a whole. |
Budget calendar is to provide expectations of the duration and timing of the project for all involved participants
Done by meeting times
Requires good communication
Compute Gross Revenues and Contractual Adjustments
Contractual adjustment = Gross revenue – Net revenue
Review Salary and Nonsalary Assumptions
Labor costs make up 45-55% of all expenses in healthcare organizations
Utilization is critical
Labor costs = Pay rate x # of people employed
Fringe Benefits Levels and Increase
Fringe Benefits is a major recruitment and retention tool
Needs to be reevaluated
Controllable Nonsalary Expense Changes (15-25% of total expense)
Noncontrollable nonsalary expenses – defined as interest and depreciation expense
Proposals for new equipment
Regulatory and Legal Environment
Healthcare is heavily regulated industry
state, federal and local laws
Social Security Act of 1965
Criminal penalties, applicable t persons convicted of committing specified fraudulent acts such as the following
Filing of false claims
Misrepresentation of the qualification of an institution
Solicitation, receipt, or offering of kickbacks, bribes, or rebates
Civil money penalties, applicable to persons determined by the Secretary of HHS to have committed the following acts.
Filed fraudulent claims under the programs
Charged beneficiaries for the services in violation of agreements entered into wit the HHS Secretary
Exclusion from the Medicare and Medicaid program participation for those providers and practitioners who are convicted of crimes involving the following
Health programs established under the Social Security Act
Patient abuse or neglect
Health Insurance Portability and Accountability Act of 1996
Corporate Compliance
Accreditation Issues
Participate “Voluntarily” in accreditation programs
JCAHO – Joint Commission on Accreditation of Healthcare Organizations
Determines if the organization is eligible to participate in the Medicare and Medicaid program and able to bill for and receive reimbursement from the government payers.
Marketing advantage
the ability to contract with Managed Care Organizations (MCOs)
National Committee on Quality Assurance (NCQA) accredits third-party payers
Key Terms
FTE – Full Time Equivalent
HCFA – Health Care Financing Administration
HHS – Health and Human Services
OIG – Office of Inspector General
They monitor utilization patterns to determine if providers are “gaming the system” in an illegal way to improve their Medicare or Medicaid reimbursement.
NCQA – National Committee on Quality Assurance
JCAHO – Joint Commission on Accreditation of Healthcare Organizations
MCO – Managed Care Organization
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