Health Care Finances And Accounting

Running head: HEALTH CARE FINANCES AND ACCOUNTING 1

Health Care Finances and Accounting

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HEALTH CARE FINANCES AND ACCOUNTING 2

Health Care Finances and Accounting

Introduction

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

HEALTH CARE FINANCES AND ACCOUNTING 3

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.

HEALTH CARE FINANCES AND ACCOUNTING 4

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

HEALTH CARE FINANCES AND ACCOUNTING 5

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).

HEALTH CARE FINANCES AND ACCOUNTING 6

References

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

http://www.ehow.com/list_7519515_primary-revenue-health-care-industry.html

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