1. ISC471/HCI 571 Isabelle Bichindaritz1 Healthcare Financial Management 9/14/2012

2. ISC471/HCI 571 Isabelle Bichindaritz2 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

3. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 3

4. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 4

5. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 5

6. Payment of health insurance premiums  use of services paid for by the premiums  increase in premiums Historical Perspective Payment for Health Care Service 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 6

7. 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 Historical Perspective Payment for Health Care Service 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 7

8. 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 Historical Perspective Payment for Health Care Service 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 8

9. 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 Historical Perspective Payment for Health Care Service 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 9

10. 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 Historical Perspective Payment for Health Care Service 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 10

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12. 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 Historical Perspective Payment for Health Care Service 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 12

13. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 13

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15. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 15

16. 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. Managing the Revenue Cycle Front-End Activities Contracting 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 16

17. Must identify and agree upon: –Actual negotiated payment rates –Specified reimbursement rules –Technical coding and billing requirements Managing the Revenue Cycle Front-End Activities Contracting 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 17

18. 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 Managing the Revenue Cycle Front-End Activities Contracting 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 18

19. 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 Managing the Revenue Cycle Front-End Activities Charge Master – Fee Schedule 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 19

20. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 20

21. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 21

22. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 22

23. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 23

24. Insurance Billing Terms Patient account Guarantor Health plan, payers Subscriber, insured party, enrollee, member, beneficiary Member number, policy number, insurance ID Group number 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 24

25. Insurance Billing Terms (continued) Claims Assignment of benefits Adjudication Explanation of benefits (EOB), remittance advice Allowed amount Remittance, reimbursement 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 25

26. Insurance Billing Terms (continued) Adjustments, contractual adjustment, write- down adjustment Coordination of benefits, crossover or piggyback claims Copay, coinsurance amount Coinsurance Deductible Patient billing 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 26

27. 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) 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 27

28. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 28

29. Small sample of CPT-4 codes. 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 29

30. Small sample of HCPCS supply codes and administration codes. 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 30

31. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 31

32. Small sample of procedure modifier codes. 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 32

33. Overview of Codes (continued) 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 33

34. Small sample of ICD-9-CM codes. 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 34

35. Overview of Codes (continued) 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 35

36. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 36

37. Reimbursement Examples (continued) PPO: Allows patients to use both PPO and non-PPO providers, but pay more when going out of network 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 37

38. Reimbursement Examples (continued) Government-funded health plans: Largest payers in U.S. and include: –CHAMPVA –VA –TRICARE –IHS –FECA –WC –Medicaid, Medicare 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 38

39. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 39

40. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 40

41. Medicare (continued) Part D –Helps patients purchase prescription drugs at lower cost –Patients pay premium to private insurance plans this coverage 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 41

42. Medicare (continued) Medigap –Supplemental private insurance –Pays portion of Medicare claims and deductibles for which patient is responsible 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 42

43. 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 1973 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 43

44. Managed Care Plan Examples Staff model –HMO owns facilities and employs doctors Group practice model –HMO contracts with facilities and physicians to provide services 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 44

45. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 45

46. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 46

47. PPS Reimbursement (continued) Not used for children’s hospitals, cancer hospitals, critical access hospitals 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 47

48. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 48

49. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 49

50. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 50

51. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 51

52. Determining the hospital’s capital base rate. 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 52

53. Flow of MS-DRG Grouper logic. 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 53

54. Outpatient PPS Reimburses hospital outpatient services Does not use DRGs nor apply to doctor’s offices 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 54

55. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 55

56. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 56

57. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 57

58. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 58

59. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 59

60. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 60

61. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 61

62. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 62

63. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 63

64. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 64

65. 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 The Budget and Business Plan Budgets Statistics Budget 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 65

66. –Length of stay by: DRG Diagnosis Clinical service Physician –Number and type of: Ambulatory visits Home health visits Ambulatory surgery cases Emergency department visits The Budget and Business Plan Budgets Statistics Budget 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 66

67. 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 The Budget and Business Plan Budgets Statistics Budget 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 67

68. Must manage: –Manpower –Machinery –Materials –Money All proposed expenditures must balance these 4 Ms. Preparing a Business Plan The Four Ms 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 68

69. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 69

70. 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 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 70

71. HIM professionals must become more adept in fiscal activities. Other Phases of Financial Management Role of the HIM Professional in Financial Management 9/14/2012ISC471/HCI 571 Isabelle Bichindaritz 71