Financing of Health Care Effects on Services

Financial Management Financial Management is an essential component of an organization’s effectiveness. Health care is a service industry—business is the delivery of health care services. The nurse manager who understands finance will be more equipped to interpret and negotiate with others to meet goals and objectives. This is where you discuss the 3 viewpoints found in Baker and Baker: Managers have 3 views: financial, process, clinical. As a nurse manager, you will have to work with persons having all of these. It is to your advantage to be able to ‘speak’ the language so you can competently advocate for your unit and provide the resources necessary to meet your organizational goals.

Economics Premise of economics: Society has a limited number of resources and competition for these limited resources is constant. Economic process involves resource allocation and the actions of persons. Incentives are important to achieve market efficiency. We are going to discuss incentives throughout this course. Money is a great incentive! An incentive is a motivator = the greater the incentive the greater the motivation. This is a basic foundation for behavior. While not all behaviors or tied to incentives, it would be naive to think that incentives are not a major player.

Health Care Key Participants Providers Suppliers Consumers Regulators Payers This list is what is sometimes confusing in healthcare. Who is the consumer? If we went to Wal-mart and ask who the consumer was, each employee would be able to tell us. In health care, we serve the patient (client) but we also serve the payors (insurance, PPO, HMO, insurance, govt. agency). This makes it difficult to navigate this system in the traditional business format. Therefore, health care finance in complex.

Providers Nurses Physicians Hospitals Government Other Profit Nonprofit Government Other Nurses incentives tend to be hourly wage and care issues Physicians are paid per episode: This changes their incentives. Also, much power due to admissions Hospitals: the majority of hospitals are nonprofit Govt: include VA, medicare, medicaid, mental health, public health, DHHS, etc Other: nursing homes, home health, hospice,

Supplier Usually always for profit Supplies and equipment Development of new technology Important in cost Important in delivery of care Outcomes

Consumers Population Race Education Employed Generational Generation X Generation M

Payers Insurance Moral hazard The perception of no costs, so greater utilization. Tell the story about ER visits for snotty nosed kids after hours because had card and free - where you or I would have gone to store and got Triaminic. These moral hazard visits ‘clog’ the system, but also drive reimbursement (sure thing of payment).

Payment Systems Cost-based Charity Prospective Payment Cost reimbursement (set rates) Difference between cost and reimbursement is the contractual allowance Charity Hill Burton Larger reimbursement for urban systems Prospective Payment DRG Charity: larger reimbursement rates for urban settings to offset the prospective larger number of indigent served. The Hill Burton act relates to care of indigent and tax relief. Prospective payments began in 1983. DRG is not assigned until discharge.

Control of Costs HMO Preferred Provider Organizations Managed Care Incentives for physicians Preferred Provider Organizations Arrangements between providers and payers Market share by competitive costs Managed Care Control consumption of resources Combination of HMO (in network) and PPO (out of network) HMO: Physicians receive same $ amount no matter the care. Therefore, these gatekeepers are rewarded in this system for providing less care (or less expensive care). Captitated payments common. Focuses on wellness (compared to insurance agencies who focus on illness). Important, for HMOs to work, must get care only from physicians attached to HMO. (also hospitals are HMO designated-negotiate lower costs) Managed Care: Compared to HMO where physician is gatekeeper, managed care uses case manager to authorize provision of services. For example, need 2 opinions prior to surgery, etc.

Role of Nurse Manager in Financial Management Varies widely Determined by level of decentralization Knowledge about economics and health care finance Cost management Inventory Productivity Forecasting skills

Responsibility Centers Cost center Revenue center Profit center Does the perception of nursing units as cost centers affect the perception as efficient? Now see the term revenue center to refer to those that are cost and revenue.

Medicine as a Business Why the purpose of medicine is to “help” people Unless a profit is made, they will not be able to help people for long Beliefs regarding business and medicine are discordant Business: take care of yourself Medicine: take care of others Read the first part of this article regarding food.