Health Care Finances and Accounting

Health Care Finances and Accounting
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Health Care Finances and Accounting
Health care facilities are using complex systems in the management of financial and
accounting requirements. For an organisation to be successful, executives and healthcare
managers must have a solid understanding of financial management and accounting in all areas
within the healthcare organisation. In this paper, the sources of revenue for healthcare will be
analysed. Furthermore, revenue cycle management and its effect on the income generated and
cash flow for a health entity will be provided. Finally, the paper will seek to explain the process
of insurance company billing and reimbursement and their effect on revenue cycle management
in a healthcare organisation.
Primary Sources of Revenue for Healthcare
The main sources of income for health care are administrative service fees, insurance
premiums, government aid (Thibodeaux, 2010). Health care providers receive money that comes
largely from premiums which policyholders pay to the insurance companies. Moreover, the
enterprises that provide healthcare insurance end up earning more premiums than their intent to
pay out. This is due to the principle of the insurance companies that people rarely get sick. On
the contrary, when the policyholder gets sick, the premiums paid, cover for his healthcare bills,
therefore, contributing to healthcare revenue.
Administrative service fees generate most of the healthcare revenue. According to,
Health PAC online survey, most of health care patients contribute to the annually collected
revenue when they pay for medical services (Thibodeaux, 2010). The amount of revenue
generated in a health facility is dependent on the rates the facility sets. However, the cost of care
from out of pocket, direct remittance has been reduced through health care reform movements
that have focused on introducing third parties to cater for patients cost.
Through subsidies and grants, the government provides revenue to health care industry.
The public revenue is merited through setting up subsidy programs such as Medicare and
Medicaid (Thibodeaux, 2010). Taxes and wage deductions paid by the citizens after collection
and budgeting are subjected back to health care providers by the government. However, in
surplus demands for healthcare provision, the government under its jurisdiction borrow funds to
be included in health provision budget (Institute for Healthcare Improvement, 2011).
Revenue Cycle Management
Revenue cycle management is financial process which healthcare facilities employ in
tracking patient care episodes to final remittance of balance through a medical billing software.
Additionally, the financial process utilises the patient care from appointment schedules and
patients registration. The patient’s name and the insurance provider are the administrative data
that link the clinical and the business side of healthcare. Similarly, the treatment and healthcare
data the patient receives are inclusive of the revenue cycle of the facility (Thibodeaux, 2010).
According to HFMA, the cycle of income entails all the clinical and administrative
functions contributing to the management, collection and capture of the patient service revenue
(Institute for Healthcare Improvement, 2011). The cycle of income involves, the charge capture,
claim submission, coding and patient collection. Afterwards, the preregistration, registration and
remittance processing under regulatory requirements are enforced. Finally, the third-party
follow-up and utilisation review conclude the revenue cycle of the medical services offered by
health care services.
Revenue cycle management affects the amount of revenue generated as a proper follow-
up of revenue cycle processes, can increase payments and in return decrease bad debt write-offs
(Thibodeaux, 2010). As a result, the healthcare will stay in business. For small healthcare
facility, the revenue cycle conflicts the management of employees and the administrative tasks to
be enforced. As a result, there is constant cash flow within the healthcare facility. Therefore, the
revenue cycle is optimised for most processes.
Like a supply chain, the revenue cycle management process affects the overall cash flow
and revenue generated by an entity. Coding errors and incorrect data entries in patients’
insurance records, demographics and information affect the revenue of the office. This affects
the outcome of the cash flow because of the supply chain. Moreover, follow-up on claims and
missing charges against charge slips leads to the delay in payment by insurance firms. Also,
failure of submission of requests results in CMS rejection. This will lead to loss of revenue of up
to 10% for every physician (Thibodeaux, 2010). Lastly, communication between the office
managers and the physician because of proper revenue cycle management process enables
adherence to each role in the revenue cycle. This enables review of financial reports, collections,
income and accounts receivable.
Billing and Reimbursements
When a patient has a scheduled appointment, the hospital staff checks the policy
coverage before the visit. After the patient is declared to have received treatment in the RCM
software, the healthcare provider bestows any copayment that applies to billing under ICD-10
codes (Institute for Healthcare Improvement, 2011). The healthcare facility then sends the care
synopsis, ICD and CPD codes to the insurance company covering the patient. The insurance
provider then processes the claims through medical claim examiners. The claims are evaluated
according to patient eligibility, medical necessity and provider credentials. The accepted claims
are then compensated through a determined bill service percentage.
Reimbursement is a system of payment between an individual and a contracted payer for
service rendered. They work by determining the party responsible for each portion of the sum
charged. Billing and reimbursement affect the revenue cycle management in registration and
eligibility verification. Consistency in the first workflows is set up through billing of patients
service. Additionally, it determines the direction of all workflows of the healthcare facility,
submission of claim forms, contract terms, charge and collections of revenue of the healthcare
facility (Institute for Healthcare Improvement, 2011).
Institute for Healthcare Improvement. (2011). The value in Healthcare. Cleaveland: Healthcare
Financial Management Association.
Thibodeaux, W. (2010, February 20). What are the Primary Sources of Operating Revenue in the
Health Care Industry? eHow. Retrieved from

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