Financial Issues In Health Care week2 assignment

homework

Chapter 4

The Legal and Regulatory

Environment of Health Care

Learning Objectives

1. Understand how legal and regulatory issues shape
and define good financial management of a health
care organization.

2. Appreciate the consequences of failing to manage the
finances of a health care organization without regard
for the complex and ever-changing array of laws and
regulations that are unique to this industry.

3

Learning Objectives

3. Recognize when and how to involve legal counsel
on a Medicare or Medicaid reimbursement issue or
other financial matter that has regulatory
compliance implications or would otherwise require
you to seek legal advice before making a decision.

4. Identify the most common federal regulatory issues
such as fraud and abuse, Stark, HIPAA privacy and
security, EMTALA, and IRS requirements for tax-
exempt organizations, as well as less common
concerns that arise under the antitrust laws, Red
Flag Rules, and state insurance regulations.

Learning Objectives

5. Identify the major components of a corporate compliance
plan, including the establishment of internal controls
relating to the finances of an organization.

6. Be prepared to respond to a compliance audit or
investigation, particularly when the subject of that inquiry
includes financial records.

7. Be aware of the most important aspects of the Patient
Protection and Affordable Care Act of 20

10

(Health
Reform Act) as it relates to financial management in the
post-Reform environment.

5

Law and Healthcare Financial Management

– Corporate Compliance Plans

• Office of Inspector General (OIG)

Requirements

– Internal Control and Corporate Compliance

• AICPA Elements

6

Primary Regulatory Issues

1. Medicare Reimbursement

– Parts A – Parts D

– Certification of Providers

– Payment to Providers

2. Medicaid Reimbursement

– Eligibility Determination

• Federal Poverty Level (FPL)

• Supplemental Security Income (SSI)

– Coverage of Services

– Establishment of Payment Rates

– Medicaid DSH Payments 7

Primary Regulatory Issues

3. Beneficiary Appeal Rights & Process

– Medicare’s 5 Levels

4. Fraud & Abuse

– False Claims Act

– Qui Team Actions

– Kickback’s and Self-Referrals

• Anti-Kickback Statute

• Stark Physician Self-Referral Law

– Safe Harbors 8

Privacy of Healthcare Information

(HIPAA)

– HIPAA Overview

– Privacy Standards

• Protected Health Information (PHI)

– Security Standards

9

Third Party Payor Contracts

– State Regulator

• “Any willing Provider”

– Federal Law

• ERISA

10

Tax Exemption Issues

– 501 (C) (3) Organizations

– Public Charity vs. Private Foundation

– Charity Care

– Unrelated Business Income

– Form 990

11

Antitrust Issues

– Purpose of Laws

• Promote a competitive free marketplace

– Sherman Act

• Agreements that unreasonably restrain trade

• Price fixing

– IPA’s and PHO’s

– Per Se Violations 12

– Reviews of Mergers, Acquisitions, and Joint

Venture Agreements

• “Statements of Antitrust Enforcement Policy in

Health Care,” (August 1996)

– Sharing Competitive Information

• Financial and/or clinical integration

13

Antitrust Issues

• Prohibits mergers and acquisitions that may

substantially lessen competition

• Analytical Methodology Provided

– Will merger increase concentration in market?

– Does increased concentration raise anti competitive

concerns?

– Can another competitor enter market?

– Are there efficiencies to be realized?

– Without merger would either or merging parties

fail?

14

Clayton Act

Emergency Medical Transfer and Active

Labor Act (EMTALA)

– Prohibits hospitals from transferring an emergency

patient because of inability to pay.

15

Summary

• Healthcare financial managers need to have some understanding

of the major rules and regulations related to health care.

• The legal and regulatory environment in health care is

increasingly complex.

• A prudent manager must plan for an adapt to this environment.

• Failure to comply can put the organization at significant financial

risk and can put individuals at both criminal and financial risk.

• Proper planning, implementation, execution, documentation, and

evaluation of corporate compliance programs is vital for the

financial security of today’s health care organizations.

16

Chapter

5

Community Benefit Assessment

Learning Objectives

• Describe the current basis for tax exemption of not-for-profit

healthcare firms.

• Describe the elements of community benefit listed by key

policy groups.

• Assess the relative community benefits provided by

proprietary and not-for-profit

hospitals.

• Develop a methodology for estimating financial benefits

received by not-for-profit healthcare firms.

• Develop a methodology for estimating financial benefits

provided by not-for-profit healthcare firms.

3

4



Background

 Estimating Benefits Provided –

Case Study

 Estimating Benefits Received – Case Study



National Data

 Summary & Conclusions

Outline

5

Why the Interest in Community

Benefits?

Background

6

 Non-profit hospitals – 59% of US hospitals – are not

subject to federal income tax, most sales taxes, or property

taxes. In most states, they sell tax-free bonds, making it

cheaper to fund building projects.

 “In a report issued in December 2006, the Congressional

Budget Office estimated nonprofit hospitals receive $12.6

billion in annual tax exemptions, on top of the $32 billion in

federal, state, and local subsidies the hospital industry as a

whole receives each year.”

1)Federal and State

Governments Need Cash

7

1.

6%

1.9%

2.7%

3.

4%

2.4%

3.

3%

3.4% 2.

5%

4.

1%

0.1%

4.7%

5.

0%

3.7% 4.2% 4.3%

3.7% 5.

2%

2.6%

0%

1%

2%

3%

4%

5%

6%

2001 2002 2003 2004 2005 2006 2007 2008 2009

CPI
CPI Medical

2)Healthcare Costs Are Rising

8

“In a report issued in December 2006, the

Congressional Budget Office estimated from a five-

state survey that nonprofit hospitals provided 0.6%

more in uncompensated care than did for-profit

hospitals.

3)Voluntary Nonprofits Don’t Look

Different From Investor-Owned

Hospitals

9

4) Bad PR

Nonprofit hospitals, once for the

poor, strike it rich

By John Carreyrou, Wall Street

Journal

Hospitals: Is the price right?

By Michael Rosenbaum, CBS

Broadcasting Inc.

Cost Efficiency at Hospital Facilities

in California

Report Shows Hospital Costs and

Charges Vary Widely Throughout The

State – Health care purchasers call for

standardized reporting, more

transparency

Milliman/CalPERS

Hospital-Acquired Superbug

Infections Soar in Newborn

Babies

By Sherry Baker, Health

Sciences Editor – Natural News

Originally Reported in: Pediatric

Infectious Disease Journal

10

What Is Happening?

Background

11

1)Court cases on tax-exempt status

2)State efforts

Detailed community-benefit requirement

CA, ID, TX, IL, IN, NY, PA, WV, MD, NH

Less detailed community-benefit requirements

WY, CO, MS, AL, ND

 Illinois Supreme Court upheld denial of

property tax exemption—March 2010

12

IRS recognized five factors that would support a nonprofit

hospital’s tax exempt status:

a) the operation of an emergency room open to all

members of the community without regard to ability to

pay

b) a governance board composed of community

members

3)The 1969 IRS Community Benefit

Standard Revenue Ruling 69-545

c. the use of surplus revenue for facilities

improvement, patient care, medical training,

education, and research

d. the provision of inpatient hospital care for all

persons in the community able to pay, including

those covered by Medicare and Medicaid

e. an open medical staff with privileges available to

all qualifying physicians.

3)The 1969 IRS Community Benefit

Standard Revenue Ruling 69-5

45

1.Meets the community needs assessment requirements

a)Conducts the assessment every two years

b)Adopted an implementation strategy

c)Input from community

d)Made available to public

2.Meets the financial assisted policy requirements

a)Develop, follow, and communicate a formal charity care policy

14

4)H.R. 3590 Additional Requirements

for Charitable Exemption

3. Meets the requirements on charges

c. Limits charges to emergency and other medically

necessary care to lowest amount for individual

with insurance (prohibits use of gross charges)

4. Meets the billing and collection requirement

d. Does not engage in extraordinary collection efforts

until financial assistance policy eligibility is

exhausted

4)H.R. 3590 Additional Requirements

for Charitable Exemption

16

 Information on Medicaid / indigent care

programs / uncompensated care

Revisions to this are under review

5) Worksheet S-10 of Medicare Cost Report

6) Schedule H of IRS Form 990

Released in December 2007

Mandatory filing is tax year 2009 due in 2010

Complete data may not be available until 2011

at the earliest

17

What Are the Biggest Lightning

Rods?

Background

18

1) Large Executive Salaries

19

The combined net income of the 50 largest nonprofit

hospitals jumped nearly eight-fold to $4.27 billion between

2001 and 2006, according to a Wall Street Journal analysis of

data from the American Hospital Directory

The Cleveland Clinic swung from a loss to net income of

$229 million during that period. No fewer than 25 nonprofit

hospitals or hospital systems now earn more than $2

50

million a year. One nonprofit hospital system – Ascension

Health – has a treasure chest of 7.4 billion, more than do

many large, publicly traded companies.

2) Large Profits

2) Large Profits

Nonprofits – which account for a majority of

US hospitals – are faring even better than are

their for-profit counterparts: 77% of the 2,0

33

US nonprofit hospitals are in the black while

just 61% of for-profit hospitals are profitable.

21

3) Large Cash Balances

4)Low Levels of Charity Care

 Untaxed investment gains have greatly increased some hospitals’ cash

piles. Ascension Health – a Catholic nonprofit system that runs 65

hospitals mostly in the Midwest and Northeast – reported net income of

$1.2 billion in its fiscal year ended June 30, 2007, and cash and

investments of $7.5 billion. That’s more cash than Walt Disney Co. has.

 At John H. Stroger Jr. Hospital – formerly knows as Cook County

Hospital – 56% of patients do not have any insurance when they are

admitted, says John Cookinham, the hospital’s chief financial officer.

At Northwestern Memorial, the percentage of uninsured patients is

less than 5%.

22

What Community Benefits Are

Provided?

Background

23

1) Charity Care

2)Bad debt

 Included by AHA

Not included by CHA / VHA / HFMA

No position by IRS – reported in Part III of Schedule H

3) Unreimbursed costs of means tested

programs such as Medicaid

 Included by IRS / AHA / CHA / VHA / HFMA

 Included by IRS / AHA / CHA / VHA / HFMA

24

4) Unreimbursed costs of Medicare

 Included by AHA / HFMA

 Not included by CHA / VHA

 No position by IRS – reported in Part III of Schedule H

5) Other

activities
 Cash and in-kind contributions

 Health professions education

 Community health-improvement services

 Community benefit operations

 Medical research

 Subsidized health services

25

6) Where Are the Current Dollars?

Figure 5–1 State

Analysis of Charity Care

Costs
GAO Analysis of 2006 California,

Indiana, Massachusetts and Texas

26

What Benefits Are Received?

Background

1) Income tax

a) Federal

b) State

2) Property tax

3) Sales tax

4) Tax-exempt financing

5) Other

27

Estimating Benefits Provided –

Case Study

Background

28

Community Benefit Includes*

* These categories are in accordance with CHA/VHA guidelines. Medicare shortfall is excluded from the
Community Benefit Report under these guidelines.

Traditional Charity Care

Unpaid Cost of Medicaid

Medical Education

Subsidized Health Services

Community Health Services

Cash / In-Kind Donations to the Community

Research

29

Standard Charity Care Program

 Sliding scale discounts within charity policy

based upon income level as determined by the

Federal poverty guidelines:

< 100% 100% HCAP

100-200% 100% Charity

201-267% 75% Charity

268-334% 65% Charity

335-400% 45% Charity

Charity Care Policy

30

Traditional Charity Care

Calculation (in millions):

Charity Charge Write-offs $ 120.0

x Cost to Charge Ratio 38.0%

Cost of Charity Care $ 45.6

– Charity Care HCAP Receipts 9.0

Net Cost of Traditional Charity Care $ 36.6

* Actual cost to charge calculated by hospital. This represents a weighted average cost to charge.

** HCAP is the State of Ohio’s Medicaid Disproportionate Share Program and is an additional payment to

hospitals in Ohio that provide a disproportionate share of uncompensated services to the indigent and

uninsured.

Definition: Free or discounted health services provided to persons who cannot afford to

pay, as defined by the hospital and entity charity care policies and procedures

(summarized on the previous slide).

31

Unpaid Cost of Medicaid

Calculation (in millions):

Costs of Medicaid $ 38.0

– Medicaid Payments 31.0

Net Cost of Medicaid $ 7.0

32

Medical Education

Calculation (in millions):

Medical Education Costs $ 20.0

– GME Payments 10.0

Net Cost of Medical Education $ 10.0

33

Subsidized Health Services

Calculation (in millions):

Cost of Subsidized Health Services $ 1.9

– Revenues (0.1)

Net Cost of Subsidized Health Services $ 1.8

34

Community Health Services

Calculation (in millions):

Community Health Services $ 1.0

Net Cost of Community Health Services $ 1.0

35

Cash/In-Kind Donations to the Community

Calculation (in millions):

Cash and In-Kind Donations $ 0.3

Net Cash / In-Kind and Other $ 0.3

36

Research

Calculation (in millions):

Net Unsubsidized Research Cost $ 0.1

37

Community Benefit (in millions)
FY2010

Charity care (net cost) $ 36.6

Net cost of Medicaid programs 7.0

Net cost of medical education 10.0

Subsidized health services 1.8

Community health services 1.0

Cash/in-kind and other 0.3

Research 0.0

Total $ 56.8

38

Estimating Benefits Received –

Case Study

Background

39

Benefits Received Categories

Real Property

Tax



Sales & Use Tax

Commercial Activity

Tax



Postage

FUTA

Tax Exempt Bond

Interest Savings

Local Income Tax

State Income /

Franchise Tax



Federal Income Tax

40

Real Property Tax

Calculation (in millions):

Fair Market Value of Land, Buildings & Building

Improvements $ 500.0

x Assessment Percentage of 35% 35.0%

Assessed Value $ 175.0

x Tax Rate of 7.0% 7.0%

Real Property Taxes Due $ 12.25

41

Sales & Use Tax

Calculation (in millions):

Supply Expense* $ 125.0

x Tax Rate of 7.0% 7.0%

Sales Tax Foregone 8.75

* Excludes drugs which are exempt in the State of Ohio

42

Postage

Calculation (in millions):

Postage Rate (For-Profit) – 1st Class 0.

44

Postage Rate (Not-For-Profit) – 1st Class 0.22

Difference in Postage Rate 0.22

Number of Items Mailed 3.5

x Difference in Postage Rate 0.22

Postage Foregone $ 0.77

43

Federal Unemployment Tax

Calculation (in thousands):

Wage Base $ 7.0

x Number of FTEs 6.0

Total Wages $ 42,000

x Tax Rate of 0.8% 0.8%

Federal Unemployment Taxes Foregone $ 336

Definition: Federal unemployment taxes are 0.8% on the first $7,000 of wages for

each employee

44

Tax Exempt Bonds – Other
Benefits Received

Definition: Benefit received from payment of lower

rates on tax-exempt borrowing

Calculation (in millions):

Taxable Bond Rate 6.75%

Hospital Tax Exempt Rate 5.00%

Differential 1.75%

Hospital Bonds Outstanding $300.0

Tax-Exempt Benefit Received $ 5.25

45

City Income Tax

Calculation (in millions):

Federal Taxable Income Before State & Local Income Taxes $ 47.644

x Tax Rate of 2.0% 2.0%

City Income Tax Foregone $ .953

46

State of Ohio Income Tax

Calculations (in millions):

Federal Taxable Income Before State Tax $ 46.691

x Tax Rate of 8.5% 8.5%

State of Ohio Income Tax Forgone $ 3.969

47

Federal Income Tax

Calculation (in millions):

Taxable Income $ 42.722

x Tax Rate of 35% 35.0%

Federal Income Tax Foregone $ 14.9

52

48

Value of Benefits Received FY2010
(in millions)

Total

Real Property Tax $ 12.250

Sales & Use Tax $ 8.750

Postage $ .770

Federal Unemployment Tax (FUTA) $ .336

Local Income Tax $ .953

State Income / Franchise Tax $ 3.969

Federal Income Tax $ 14.952

Tax Exempt Bonds $ 5.250

Total Benefit Received $ 47.230

Community Benefit Provided $ 56.800

Excess Community Benefit $ 9.570

National Data

50

 All PPS acute-care hospitals 2008

 Hospitals removed if did not have Medicaid revenues

or Medicaid charges reported in WKS S-10

 Data set reduced from 3,478 to 2,423

3,478 Hospitals 2,423 Hospitals

Number of

Hospitals %

Net Patient

Revenue %

Number of

Hospitals %

Net Patient

Revenue %

Investor Owned 25 13 23 13

Government 17 16 17 15

VNP Church 14 16 15 16

VNP Other 43 56 45

56

Total 100 100 100 100

1)The Sample of Hospitals Used

2) Comparison sample to all US

3) Medicaid Composition

Medicaid Charges to

Gross Charges

Medicaid Days to

Total Days

Investor Owned 12.9 13.7

Government 17.9 16.7

VNP Church 11.8 16.3

VNP Other 13.4 13.9

51

52

Medicare Payment to Net Patient

Revenue

Investor Owned 25.3

Government 22.0

VNP Church 26.5

VNP Other 24.2

4) Medicare composition

53

5) Profit margins– median

Patient Margin (NPR less

Cost)

Investor Owner 5.3

Government -4.8

VNP Church -0.5

VNP Other -1.3

54

6) Charge/cost Structure –

Medians

Hospital

Charge

Index

Hospital Cost

Index

Investor Owned 132 99

Government 90 106

VNP Church 107 100

VNP Other 95 101

National Data –

Audited Financial Statements

56

 Sample of five large IO systems ($32 billion of revenue; 2008)

 $5.0 billion IO 1

 $9.0 billion IO 2

 $10.8 billion IO 3

 $4.5 billion IO 4

 $3.0 billion IO 5

 Sample of five large VNP systems ($45 billion of revenue)

 $13.6 billion VNP 1 (2008)

 $8.2 billion VNP 2 (2008)

 $6.9 billion VNP 3 (2007)

 $6.7 billion VNP 4 (2008)

 $9.2 billion VNP 5 (2009)

Summary Data National – Large Systems

57

3) Comparative Statistics

IO

Systems

VNP

Systems

Average Revenue (billions) $6.4 $9.0

Average Bad Debt to Net Revenue % 10.1 7.0

Average Charity to Net Revenue (Based

upon Charges)
3.9 NA

Average Medicare % 27.7 35.7

Average Medicaid % 9.4 13.4

Average CEO Pay (thousands) $2,410 $2,420

Average CFO Pay (thousands) 1,140 1,220

58

Summary

Community benefit analysis will become more

important in the years ahead

Comparisons of benefits provided in non-profits with

investor-owned hospitals will be closely reviewed

Not-for-profit hospitals must begin to document

the benefits they provide

Chapter

6

Revenue Determination

•5–

3

Learning Objectives

• Define basic methods of payment for health care

firms

• Understand the general factors that influence

pricing

• Define the basic health care pricing formula

• Determine if prices are defensible

• List some of the important considerations when

negotiating a managed-care contract

2

Alternative Payment Systems

• Payment systems can be categorized by 2

dimensions

–

Payment Basis

–

Unit of Payment

•5–

4

3

Payment Basis

• The basis of payment defines how the actual

payment will be made. There are 3 primary

methods-

1. Cost

2. Fee Schedules

– e.g. DRG’s

3. Price Related

– e.g. 75% of billed charges

•5–

5

4

Unit of Payment

• Unit of payment defines how the services provided are

consolidated into an actual claim. There are 2 primary

methods-

1. Specific Services

– Individual items that are listed in a claim are paid

2. Bundled Services

– Specific services listed in a claim are paid on some

aggregated basis – such as a DRG or per diem

•5–6

5

•5–

7

Health Care Payment Methods

6

Factors Influencing Pricing

• Pricing includes the establishment of CDM prices

and the negotiation of managed care contracts

• Three factors drive pricing policies

– Required net income

– Competitive position

– Market structure

•5–

8

7

•5–

9

Figure 6–1 Factors Influencing Pricing

8

Setting Actual CDM Prices

• There are 4 factors that must be “mathematically”

reflected in prices

• Failure to incorporate these 4 factors will impact

financial survival.

•5–

10

9

•5–

11

Four Elements of Pricing

10

•Average costs

Losses on third-party fee-schedule payments

Medicaid

Medicare

Other

Write-offs on billed-charge patients

Self pay



Commercial

Reasonable return on investment

Sustainable growth

•5–

12

Pricing Example

Total cost $100,000

Total volume 1,000

Average cost $100

Payer volumes

Medicare (payment rate = $95) 400

Medicaid (payment rate = $75) 100

Managed Care # 1

(payment rate = $110)
300

Managed Care # 2

(pay 80% of charges)
100

Uninsured (pay 10% of charges) 100

Total all payers 1,000

Desired net income $5,000

Given the specified volumes, costs, desired profit, and other

assumptions, what is the required charge per visit (i.e., price)?

11

•5–

13

Pricing Example, Income Statement

Approach

Given the specified volumes, costs, desired profit, and other

assumptions, what is the required charge per visit (i.e., price)?

Revenue Computation Amount

Medicare 400 x $95 $38,000

Medicaid 100 x $75 7,500

Managed Care # 1 300 x $110 33,000

Managed Care # 2 100 x 80% x $294.44 23,555

Uninsured 100 x 10% x $294.44 2,944

Total $105,000

less Costs 100,000

Profit $5,000

Solve for this

12

•5–

14

Pricing Formula

General Pricing Formula

Required net income + Loss on fee-schedule payers
Average cost +

Volume of charge payers Price =

1 – Average discount experienced on charge payers

$5,000 + $1,500
$100 +

200 Price =

= $294.44

1 – .55

Pricing Formula Applied to Example

13

•5–

15

1. Increase in costs

2. Governmental programs that pay less than cost

3. Managed-care plan fee schedules that do not

pay at levels above cost

4. Increases in required profit, such as debt-

service obligations or capital replacement

5. Reductions in charge-paying patients

6. Increases in uninsured patients

Factors That Tend to Increase Prices

14

Assessing Reasonableness of

Prices
• Many healthcare providers, especially hospitals,

have been criticized for unreasonable prices.

• One web site http://www.hospitalvictims.com

compares prices based on markups for all

hospitals in US. A Maryland hospital (Johns

Hopkins) is selected because Medicare + Medicaid

pay close to 100% of charges which keeps

Maryland hospital prices very low.

•5–

16

15

http://www.hospitalvictims.com/

•5–

17

1. Return-on-Investment (ROI) adequacy

2. Comparison with other health care firms

Reasonableness of Charges

Two Generic Ways of Assessing:

16

•5–

18

 Is ROI at Case Hospital

reasonable?

 Are costs at Case Hospital reasonable?

 Is investment at Case Hospital

reasonable?

ROI Method, Case

Hospital Example

Three Issues:

Investment

CostRevenue
InvestmentonReturn




17

•5–19

Figure 6–3 Return on Assets (Net Income/Assets)

5-

Year Average – 2004 to

2008

18

•5–

20

Figure 6–4 Return on Equity (Net Income/Equity) 5-

Year Average – 2004 to 2008

18

•5–21

Reasonableness of Costs,

Case Hospital Example

1. Medicare cost per discharge – Case-mix- and wage-index adjusted (MCPD)

2. Medicare cost per outpatient claim – relative-weight and wage-index adjusted

(MCPC)

The hospital cost index (HCI) is then constructed as follows:

avgUS

MCPC
xrevenueOutpatient%

avgUS

MCPD
xrevenueInpatient%HCI 

Cost Assessment Methodology:

20

•5–22

Figure 6–5 Hospital Cost Index – 2008

18

Figure 6–6 Medicare Cost per Discharge CMI & WI

Adj) – 2008

18

Figure 6–7 Cost per Medicare Visit (RW & WI Adj) –

2008

18

Figure 6–8 Fixed Asset Turnover (Net Revenue/Net

Fixed Assets) – 2008

18

•5–

26

Case Hospital is not realizing excessive

profits

Costs at Case Hospital are consistent

with expected values and are reasonable

 Investment at Case Hospital is

reasonable and not excessive

Therefore prices must be reasonable

ROI Method—Summary, Case

Hospital Example

Conclusions:

25

•5–27

Compare with similar hospitals and/or

Compare with hospitals in the same region

Comparison-of-Charges Method,

Case Hospital Example

General Methodology:

Compare with all academic centers in California

Compare with regional average for academic

medical centers (cost-of-living adjusted)

Case Hospital:

26

Figure 6–9 Hospital Charge Index – 2008

18

Figure 6–10 Medicare Charge per Discharge (CMI &

WI Adj) – 2008

18

Figure 6–11 Average Charge per APC (RW & WI

Adj) – 2008

18

Figure 6–12 Medicare Inpatient DSH %

Average

Value – 2004 – 2008

18

Negotiating Managed Care Contracts

• Contract negotiation is critical to continued

financial

solvency

• Contract negotiation involved 2 key areas

– Contract language

– Payment rates

•5–

32

31

•5–

33

Managed-Care Contract Negotiation

1. Remove contract ambiguity

2. Eliminate retroactive denials

3. Establish a reasonable appeal process

4. Define clean claims

5. Remove most favored nation (MFN) clauses

6. Prohibit silent PPO arrangements

7. Include terms for outliers or technology-driven increases

8. Establish ability to recover payment after termination

9. Preserve the ability to be paid for services

10. Minimize health plan rate differentials

10 Important Areas of Managed-Care Contract Language:

32

Average Commercial Contract

Rates

to Hospitals 2009

Services Average

INPATIENT SERVICES

All IP services Paid at % 80.1%

MS-DRG $7,781

Medical-per diem $2,076

Surgical-per diem $2,228

Psych $868

SNF $761

Normal vag Del case rate (or 2 day

stay)

$3,669

C-Section case rate (or 3 day stay) $4,780

Nursery Level 1- Boarder-per diem $740

Stop Loss: Threshold $100,212

Stop Loss Charges paid at %: 63.5%

Rate Increase Limit % 5.8%

•5–

34

33

Average

Commercial

Contract Rates

to Hospitals 2009

Outpatient Services

All OP services Paid at % 79.8%

Emergency Department Paid at % 74.5%

Emergency Department-Case Rate $667

Observation Paid at % 73.5%

Observation case rate-per hour $65

Physical Therapy Paid at % 74.6%

PT case rate-per visit $147

MRI OP Paid at % 76.4%

MRI OP-case rate $1,009

Outpatient Surgery Paid at % 74.7%

OP Surgery Group-case rate $2,569

OP Surg Group 1-case rate $1,280

OP Surg Group 2-case rate $1,632

OP Surg Group 3-case rate $2,011

OP Surg Group 4-case rate $2,448

OP Surg Group 5-case rate $2,894

OP Surg Group 6-case rate $3,116

OP Surg Group 7-case rate $3,964

OP Surg Group 8-case rate $4,718

OP Surg Group 9-case rate $5,875

•5–

35

34

Summary

• Revenue generation is critical to financial

solvency

• Revenue generation is impacted by 3 areas:

– Pricing

– Contract negotiation

– Coding and billing

• Inadequate payments by many government payers

force healthcare providers to “cost shift”

•5–36

35

Florida National University

Financial Issues in Health Care

Assignment 2, Chapters 4, 5, and 6

ANSWER BRIEFLY THE FOLLOWING QUESTIONS

Chapter 4

1. Describe briefly internal control as it relates to a corporate compliance program. What are the five interrelated components of internal control?

2. Compare and contrast Medicare and Medicaid

3. Discuss the various types of third-party majors

4. Name the four operational requirements for 501(c) (3) tax-exempt organization?

Chapter 5

1. Describe briefly the basis for tax exemption of not- for-profit healthcare firms

2. Name the elements of community benefits listed by the key policy groups

3. Describe briefly the Community Value Index and the four core areas

4. Describe briefly the estimating financial benefits in not-for-profit Healthcare firms

Chapter 6

1. Describe briefly the basic methods of payment for healthcare firms

2. Describe briefly the generic principles of pricing

3. Define the healthcare pricing formula

4. List the important considerations when negotiating a health plan contract