ACCOUNTING FOR HEALTHCARE Pertemuan 8-12 Matakuliah: A1042/Accounting Software Package for Services Tahun: 2010

Healthcare Finance Health Service –Medical practices –Hospitals –Clinics –Nursing homes –Home health care agencies Health insurance Managed care Medical equipment and supplies Pharmaceuticals and biotechnology other Bina Nusantara University 3

The Role of Finane in Health Services Organizations Planning and budgeting. first and foremost, business finance involves evaluating the financial effectiveness of current operations and planning for the future. Budgets play an important role in this process Financial reporting for a variety of reasons, it is important for businesses to record and report to outsiderss the results of operations and current financial status. This is typically accomplished by a set of financial statements. Bina Nusantara University 4

Capital investment decisions Although more important to senior management, managers at all levels must be concerned with the capital investment decision process. Such decisions, which are called capital budgeting decisions, focus on the acquisition of land, building, and equipment. They are the primary means by which business implement strategic plans, and hence they play a key role in a business’s financial future. Bina Nusantara University 5

Financing decisions All organizations must raise capital to buy the assets necessary to support operations. Such decisions involve the choice between internal and external funds, the use of debt versus equity capital, the use of long term versus short term debt, and the use of lease versus conventional financial. Although senior managers typically make financing decisions, these decisions have ramifications for managers at all levels. Bina Nusantara University 6

Working capital management an organization’s current, or short-term, assets, such as cash marketable securities, receivables, and inventories, must be properly managed both to ensure operational effectiveness and to reduce costs. Generally, managers at all levels are involved, to some extent, in short-term asset management, which is often called working capital management Bina Nusantara University 7

Contract management in today’s healthcare environment, health services organizations must negotiate, sign, and monitor contracts with managed care organizations and third party players. The financial staff typically has primary responsibility for these tasks, but managers at all levels are involved in these activities and must be aware of their effects on operating decisions Bina Nusantara University 8

Financial risk management. many financial transactions that take place to support the operations of a business can, themselves increase the business’s risk. Thus, an important finance activity is to control financial risk. Bina Nusantara University 9

Health Service Settings Hospitals Ambulatory (outpatient) care Long term care Integrated delivery systems Bina Nusantara University 10

Alternative Forms of Business Organizations Propritorship and Partnerships Corporation Hybrid forms of organization –Limited liability partnership –Limited liability company –Professional corporation Bina Nusantara University 11

Alternative Forms of Ownership Investor Owned Corporations Non profit organization Bina Nusantara University 12

Third Party Payers Private Insurers Commercial health insurance –Stock companies (shareholder owned and can raise capital by selling shares of stock just like any other for profit company) –Mutual company (no shareholder, its management is controlled by a board of directors elected by the company’s policyholders) Self Insurers Public Insurers Bina Nusantara University 13

Alternative Reimbursement Methods Fee for Service Methods –Cost based, the payer agrees to reimburse the provider for the costs incurred in providing services to the insured population. Reimbursement is limited to allowable costs, usually defined as those costs directly related to the provision of healthcare services. Nevertheless, for all practical purposes, cost based reimbursement guarantees that a provider’s costs will be covered by payments from the payer. Typically, the payer makes periodic interim payments (PIPs) to the provider and a final reconciliation is made after the contract period expires and all costs have been processed through the provider managerigal accounting system. Bina Nusantara University 14

–Charge Baed Reimbursement when payers pay billed charges, they pay according to the schedule of charge rates established by the provider. To a certain extent, this reimbursement systems places payers at the mercy of providers in regards to the cost of healthcare services, especially in markets where competition is limited. Bina Nusantara University 15

–Prospective payment the rates paid by payers are determined by the payer before the services are provided. Furthermore, payments are not directly related to either reimbursable costs or billed charges. Per procedure. Under per procedure reimbursement, a separate payment is made for each procedure performed on a patient. Because of the high administrative costs associated with this method when applied to complex diagnoses, per procedure reimburesement is more commonly used in outpatient than in inpatient settings. Bina Nusantara University 16

Per diagnosis. In the per diagnosis reimbursement method, the provider is paid a rate that depends on the patient’s diagnosis. Diagnoses that require higher resource utilization, and hence are more costly to treat, have higher reimbursement rates. Per day (per diem). If reimbursement is based on a per diem rate, the provider is paid a fixed amount for each day that service is provided, regardless of the nature of the services. This tpye of reimbursement is applicable only to inpatient settings. Note that per diem rates can be stratified. Bina Nusantara University 17

Global pricing. Under global pricing, payers pay a single prospective payment that covers all services delivered in a single episode, whether the services are rendered by a single or by multiple providers. Bina Nusantara University 18

Capitation Method the prospective payment methods presented have been fee for service methods – that is, providers are reimbursed on the basis of the amount of services provided. Capitation, a form of prospective payment, is an entirely different approach to reimbursement and hence deserves to be treated as a separate cateogry. Capitation payment, which is used primarily by managed care plans, dramatically changes the financial environment of healthcare providers. Bina Nusantara University 19

Provider Incentives under prospective payment reimbursement, provider incentives are altered. First, under per procedure reimbursement, the profitability of individual procedures will vary depending on the relationship between the atual costs incurred and the payment for that procedure. Bina Nusantara University 20

Accounts Permanent accounts include items that must be carried form one accounting period to another Temporary accounts are for those items that will automatically be closed at the end of each accounting period Contra accounts are special accounts that convert the gross value of some other account into a net value. Bina Nusantara University 21

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