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Health Care Lab Report

Health Care Financial Terms and Statements

Understanding health care financial terms and statements is a prerequisite for academic and professional success. This assignment is intended to ensure you understand some of the basic terms and statements used.

Complete parts A and B of this worksheet.

Part A:

Complete the table below according to the following guidelines:

In the space provided, write the definition for each term as used in health care management. You must define the term using your own words.

In the space provided after each definition, summarize a health care management scenario that illustrates the importance of the skill, concept, procedure, or tool that the term refers to in 125 words. In the scenario, you may wish to consider the following:

Why is the skill, concept, procedure, or tool necessary for accurate record-keeping, operational efficiency, excellent patient services, employee management, regulatory compliance, reducing costs, forecasting, etc.?

What successes are enabled by an adequate understanding or appropriate application of the skill, concept, procedure, or tool?

What risks or failures are associated with an inadequate understanding or inappropriate application of the skill, concept, procedure, or tool?

Term

Definition

Scenario

Controlling

It is the standard based on which experimental observation can be evaluated as a procedure identical to the experimental procedure, except for the absence of one of the investigated factors.

Controlling helps to properly apply the healthcare costs, patients’ privacy, and enhances the efficiency in healthcare. In the health services delivering quality, it assists in eliminating the time wasted in queuing and increasing contact time of a patient and a doctor. Besides, controlling eliminates the wastage and it increases the output in the healthcare. There is a risk of misuse and poor delivery of the services that could be a controlled aspect in management if it is not observed in healthcare. For instance, the manager may evaluate performance and the way a team is following the established plans and provide corrective action if need. Control is required to maintain operational efficiency, patient services, employee management, regulatory compliance, reducing costs and forecasting.

Decision-

making

It is the process in the healthcare, which bases on definition of the purpose and means of its achievement and construction of options for achieving the goal (set of alternatives).

In the healthcare decision-making needs correct information. The process requires a patient’s consent if it affects him/her. For example, a physician may ask to sign certain document before a surgery. Poor decision-making may have catastrophic results and could mean a matter of life or death. Moreover, the procedure is used when a piece of equipment needs to be purchased for an organization. Management must research various vendors and decide which one fits the need and budget of the facility. Failure to review the information can lead to purchasing the wrong product and overspending. Thus, decision-making skills are needed in operational efficiency, patient services, employee management, regulatory compliance and helping to reduce overall costs.

Organizing

It means the creation of an orderly, functional, or coherent structure of the actions towards a patient.

In an emergency, the management department is responsible for organizing a disaster plan and directing the employees for taking emergency actions. The financial manager sets up a schedule to follow based on the plans that were established. For example, the manager creates a detailed yearend budget worksheet which lists all the approved items that will be purchased in the following year. This organization helps the others to stay on budget and clearly identifies goals. Furthermore, failure to do this will lead to confusion and more than likely an issue in future forecasting. Organizational skills are needed in operational efficiency, patient services, employee management, regulatory compliance and helping to reduce costs.

Planning

Planning involves identification of goals and objectives in the organization and developing detailed steps that are necessary to achieve them.

The managers are aware that planning is an ongoing process because there are always changes and opportunities that happen on a daily basis. This is where the manager determines concepts to prioritize future goals and projects. An example includes a project team coming together to determine the scope and budget surrounding an upcoming construction project. Failure to do so will lead to implementation issues and push back of go live date. Therefore, this tool is needed in accurate record keeping, operational efficiency, providing excellent patient services, employee management, meeting regulatory compliance, costs reduction and forecasting. For instance, if the planning was not made in the emergencies there would be a risk of the wrong actions which could lead to the death of victims, or failures in the hospitals’ accounts.

Original

records

Original records are a notation or a document that shows evidence of an event and they are also the beginning process of the transactions.

A patient’s signature on the consent forms, an EKG, MRI, X-rays, and a physician’s electronic order for medication would all be the original records in the information system (Bharanitharan, 2013). The staff should ensure that people’s names are spelled correctly and that no important information is left out. If one’s information is missing from the chart, the nurse is entitled to ask the patient to provide it in the chart for the next visit. In addition, records such as business checking account or electronic accounting software keep “receipts” for an organization. For example, during a construction project, original records are kept detailing where the funds are allocated and helping with future planning.

Revenue cycle

The patient engagement and payment process from creation to payment

When patients are being treated at ER, their insurance information is collected and medical record number is created. If their insurance deductible is not met, they may need to initialize a payment. Once the patient is discharged, all charges are submitted to insurance which will remit payment for services rendered. Failure to follow the steps in this process can lead to the organization not being compensated. Thus, when the processes are executed correctly, the cycle performs predictably. However, problems at an early stage of the cycle can have significant wave effects. The further the error spreads through the cycle of income, the more expensive the income is reimbursed. Processes of a cycle of receipts appear and influence each other.

Payer mix

A list of the individuals and organizations that pay for provider’s services, along with each payer’s percentage of revenue.

Knowing what each payer will contribute from the payer mix will dominate own medical office overall revenue. For example, if patient has a heavy Medicare population and relies on their consistent payments, what would happen to the cash flow if Medicare’s system goes bankrupt? Relying on Blue Cross- or United Healthcare-type payer can also be dangerous if they decide to reduce their payment significantly. Moreover, the right combination of clinical, regulatory, and contract expertise will vary by payer. For millions of insured Americans, the amount of coverage for public and private health services would seem to be substantial. Consequently, gaining relevant information about the merger opportunities and other trends is key to understanding own practice. For instance, if a doctor has a large number of Anthem and Cigna patients, this merger can provide more advantages in negotiating.

Revenue

It is a term that includes the whole existence of a patient’s account from creation to payment. Processes of a cycle of receipts appear and influence each other (OHSU, n.d.).

The hospital generated 10 million before costs and associated expenses were deducted. The revenue was shown as the top item in an income (profit and loss) statement from which all charges, costs, and expenses are subtracted to arrive at net income. Further, a failure to follow this process would result in the inability to manage payroll and invoices. When the processes are executed correctly, the cycle performs predictably. However, problems at an early stage of the cycle can present significant wave effects. The further the error spreads through the cycle of income, the more it is reimbursed. Without this key financial process, health organizations cannot leave their doors open to patients. Managing the health cycle revenues is a strategy used by medical organizations to pay bills.

Capital expenditure budget

Planned funds for acquiring new assets or equipment

The financial officer can help map out the budget and plan to cover a 5-year, 60-month period or 10-year span. This includes all building expenses with potential inflated costs over time. Using this tool will make a company more competitive while avoiding bankruptcy. Additionally, competition for medical services has increased capital dollars. When third-party and state compensation is reduced, the patient’s volume decreases and alternative services are boosted. Taking into account the situation, a health care manager thoroughly documents and requests capital expenditures. A supervisor is able to quantify the costs and benefits of the project and use one of the four methods of joint capital budgeting: the payback period, net present value, profitability index or internal rate.

Direct cost

Expenses associated with the production of specific goods or services.

The Home Care and Hospice direct costs including specific ones, social worker wages, and associated expenditure of equipment and supplies for home visits to patients of RN and nurse’s aid. Classifying and organizing expenses is needed for budgeting and accounting purposes. When a person is aware of the true costs of production, the service can be priced both competitively and accurately. Besides, direct costs include hospitalization costs (short-term and long-term), outpatient supervision, boarding and day-care, pharmaceutical interventions, laboratory testing and social security payment. In the healthcare economy, the term “direct costs” refers to all costs associated with the use of resources that are entirely related to the use of medical intervention or illness. Direct costs can be divided into direct medical expenses and direct non-medical expenses.

Flexible budget

A flexible budget includes formulas that adjust expenses based on changes in actual revenue or volume.

The flexible budget model provides a better opportunity for planning and controlling than a standard budget (axiom EPM, n.d.). Failure to follow this may lead to overspending. It also allows a company to recalculate production and overhead costs based on what is sold. Correspondingly, flexible budget is a relatively easy way to introduce departmental managers into a complex world of cost management. Managers use a flexible budget system to set financial goals for their agency and track progress in achieving these goals. Particularly, this system gives an instant feedback on the effectiveness of the department in terms of staff hours and money.

Operating budget

Short-term revenue and expenses necessary to operate a facility to cover for the next 12-month period.

Part of a hospital’s overall comprehensive financial budget includes such items as housekeeping supplies, linens as well as overhead expenses such as rent. It is important to review the incoming revenue and cost of services delivered compared to years prior to ensure the company is charging enough to operate properly. Further, health organizations use different types of budgets to monitor the financial status of their organization, such as work, program, product line, cash or capital. A budget is a plan, roadmap, or tool managed by managers to provide patients with quality and economical services. The operating budget includes fixed costs, such as a monthly rent for office space or a payment for the rental of a copier.

Responsibility center

Responsibility center includes manager who is in charge of generating revenue, volume in flow and controlling costs.

Health care institutions are usually organized in departments with a manager who is responsible for the results of the department. This operating unit is known as the Responsibility Center. If the center of responsibility generates revenue, it is called a profit center, while a cost center does not generate revenue. For example, a nurse manager can be responsible for a permanent pediatric ward, as well as a home care manager is in charge of all the home care services that are delivered, and the head of the household department provides the cleanliness of the facility. Moreover, the employee reports to a director who oversees him/her and has the authority of financial matters for several campuses of the hospital. The executive helps control spending in each cost center to increase revenue, conducting routine performance assessments to determine if changes should be made.

Forecast

Forecast is the information that is used for planning for the future, while past data can be used for future budget planning.

A manager needs to use forecasting tools to help determine favorable factors in the future. It is also used to help predict the patient volume in a facility based on research and estimates. The manager that fails to make these educated guesses can ultimately cause the organization to miss significant changes in operational patterns that must be considered. Besides, taking the time to properly forecast and prepare a budget can make the difference between failure and success for a company. Economic forecasts can be a vital management tool for predicting future results and their respective responses. They can also fix problems for managers who are unaware how to properly use them. Therefore, the financial manager should use any tool available when applying financial forecasts in the planning process.

Full-time equivalents

FTE are a measurement tool that confirms the hours worked on a full-time basis.

This method is used to determine the workload of an employee, the efficiency of the company, as well as the crucial component of staffing in a healthcare organization. In addition, it is applied to provide staffing in healthcare organizations depending on hours of operations and the workload. The best scenario for FTE is the employee that works Tuesday through Saturday and is off on Sundays and Mondays. Thus, management must ensure that all operational hours are covered, and have employees in place to handle the facility for the success of the organization. Failure to do so would result in services not being completed. In the context of the Affordable Care Act (Obamacare), the FTE is calculated in a specific order. A large employer uses this FTE Employee Count to determine whether an employer is applicable for several purposes.

Noncontrollable expenses

They are areas out of the manager’s control, such as certain costs or expenditures, which cannot be changed unilaterally.

Based on the hierarchy of the company, some managers may have costs that require payment from their department, but they do not control its amount or time. Moreover, the management or departmental officials can dictate these costs and give them the default. Money can be controlled at a higher level of the organization, but it is not manageable from the point of view of the person concerned. For example, a manager cannot change his / her own salary or the department manager does not have the right to control the value of the rent that is allocated to his department for the office space used. The share of uncontrollable expenditure in the manager’s budget determines how much he/she can affect the level of the department’s spending.

Nonproductive time

The time when an employee is not producing an item or completing a service for which a medical organization pays.

This tool is important to provide excellent customer service. The manager that understands how to handle nonproductive hours will be able to provide coverage during periods when employees are not on duty such as sick time, vacation and paid time off. This staffing logic is essential in ensuring the facility is properly staffed. Non-productive time is owed to the employee in accordance with the contract. Consequently, there are two methods used to calculate this period, namely the scheduled position method and the annualized method. When using the scheduled position method a manager must calculate hours needed for a single employee to fill, so the total hours are balanced for the year.

Staffing

Assigning medical workers to their perspective jobs to ensure all departments can provide healthcare service.

Staffing is another tool that is important in providing excellent patient service as well as managing the operations of a facility. A scenario of staffing would involve creating a plan for the day after a holiday to include additional nursing support is in place in the chemo unit as historically the patient census has been extremely high. The employee that fails to gain proper understanding of how to staff the facility will result in patient complaints and staff burnout. During the recruiting process, there are some key issues that hiring managers always have in mind. Many of the health-related problems are threatening the budgets and welfare of existing workers, and it is extremely important to fill these gaps on time. In this regard, the managers of the medical staff should not be hired solely to fill the position.

Situational analysis

It is an assessment of the current health situation and a basis for developing and updating national policies, strategies and plans (World Health Organization, n.d.).

An example of situational analysis is working with a marketing department to determine the best way to communicate to the potential patients given the demographics. A marketing plan is created to guide the hospital on the best way to get the message out. Completing this analysis will help with the overall survival of the business. It is not merely a set of facts that characterizes epidemiology, demography and the state of health of the population. Instead, it should be comprehensive, covering the full range of current and potential future health issues and their determinants. Such a situational analysis can serve as a basis for identifying priorities that need to be addressed in a policy, strategy or plan, through a broad or inclusive political dialogue.

SWOT analysis

SWOT analysis is a tool that can provide guidance to managers, clinical practitioners, nannies, nurse educators, and staff involved in analyzing the effectiveness in clinical systems and procedures while preparing a form of a plan.

Medical institution should create a marketing action plan to determine sustainability. The SWOT analysis would be beneficial to such a business. Strengths may include high patient satisfaction as well as determining the need for an updated website, while competition could present a threat. The goal is converting weaknesses into strengths and opportunities and minimizing threats. This process helps provide a clear action plan for the organization. In fact, a SWOT can be used for any planning or analysis activity that may affect future financing, planning and management decisions. This is able to allow management and clinical staff to conduct a more comprehensive analysis. The main objective of strategic planning is to bring the organization to an equilibrium with the environment and to maintain this balance in time. Organizations maintain this balance by evaluating new programs and services for the purpose of the most effective organization.

Part B:

Resources:

Complete the table below.

In 100 words, identify the purpose of the financial statement listed and provide an example of how the statement is used.

Financial Statement

Purpose of Statement

Example of Use

Balance sheet

A balance sheet is used to determine how much money is owed, used and the worth of the facility. Besides, the balance sheet shows the next step by comparing the results of different clinical strategies. Proper balance involves clinical outcomes (e.g. myocardial infarction, death, symptom improvement), results of use (e.g., ordered laboratory studies, recipes, visits), and total system costs. Although patient satisfaction is an extremely important result, it is related to service (for example, time spent on waiting for a doctor, access to the phone).

A physician would use the balance sheet to establish the amount of money that the medical organization is worth. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders. Additionally, the balance sheet provides a base value for the company and shows what resources must be worked with (Heffernan, 2013). Most small-business purchases are asset ones, meaning that the valuation is largely driven by the balance sheet (Heffernan, 2013). Physicians apply it to understand how to track and measure balance data best to determine the effectiveness of their groups’ use of capital and manage risks.

Income statement

Although the balance sheet shows the position of the company at a certain point in time, the profit and loss account is a report that demonstrates how much income is earned over a certain period of time (usually a year or part of the year). It reveals the costs and expenses associated with earning income. The “main principle” of the income statement is the net income or loss of the item. It can be prepared using one-stage or multi-stage format, but it is usually organized in the same way, regardless of industry. The profit and loss account differs from the statement of cash flows because the income statement is not reflected when income or expenses are deducted.

It can be used to track revenues and expenses so that the operating performance of a business can be determined. For example, a medical organization would use its income statement to reveal if it makes sense to expand the square footage into an adjacent the building. The income statement over the past 5 years would show the profitability of the medical building and help detect the major revenues it has earned.

Operating budget

An operating budget is the annual budget, which lists all activity of a year. It contains estimates required for the operations of the facility. It is a tool used by managers to ensure that quality and cost-effective services are provided to patients. An operating budget starts with revenue, and then shows each expense type broken down by a distinct code. It includes variable and fixed costs such as monthly lease payment for copiers. The budget also involves operating expenses, such as interest on business loans, and the non-cash expense of depreciation. These items enable the company to confirm its projected net income.

This budget differs from the capital budget, which outlines items over $5K that will be purchased in the future. The budget-assembling process can be time-consuming, especially as it becomes more detailed in large and complex businesses. The budget season starts in June and ends the end of August. Historical performance is reviewed and used to confirm future budget numbers. Once the budget is finished, the finance manager produces a monthly report that shows the company’s actual performance for the month, along with the budgeted numbers for comparison and analysis.

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