6210 Test 1

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Accounting Reports

Financial- external, quarterly etc

Managerial- internal daily, monthly etc.


Accrual Based

recognize expenses when used and revenues when they are earned


Cash Based

Used by small small offices


Financial Statments

series of inputs and outputs



transactions occuring in sub legers



all of different financial statements plus managerially


General Ledger

Main IT system for all financial records in organization

Keeps all CR and DR at detailed level

Generates reports

Oracle, People Soft, Quickbooks


Subsidiary Ledgers

Journals which feed data into Geneal Ledger



Tracks all cash in and out of bank accounts

Module comes with GL software, interfaces: Bank



tracks salary and benefits expenses for all employees

Interfaces with time and attendance, either in house or outsourced ADP Paychex


Patient Management System (PMS)

Accounts Receivable tracks patients' appointments, procedures and diagnosis codes used to bill out claims track insurance+ patient payments

Interfaces with EHR and clincial systems, EPIC CERNER Sage IDX


Fixed Assets

tracks all assets, useful life of 3 years or greater along with value threshold. Inventory kept here and calculate depreciation

Inventory tags/bar coded so found and tracked

Infer face with purchasing


Outputs from GL

4 statements B/S, IS, Cash flows and statement of change in net assets

Other reports CMS Cost reports, SEC fillings, reports to lenders, internal managerial reports, assets lists, any dashboard reporting


Chart of Accounts

tracking/filling system for all data

Coding system matches your org chart

managers job is to approve expenses/invoices plus add coding form the chart of accounts


Example Chart of Accounts

  1. Example: payroll Sub ledger: salaries for nurses in the ER Acme General Hospital
    1. B211114110
    2. B= Acme
    3. 21=21 ER
    4. 111=Direct patient care
    5. 1410=1410 expense

Balance sheet

snapchat in time always at a certain date and following day it will change

transactions from inception of business



Current Assets

less than a year liquid

Listed in order of liquidity, cash and cash equivalents then assets limited to use, AR patients



can be gross AR or net AR. Net is what believe will collect. Gross is the AR charges. Gross-less contractual adjustement



Long term assets

assets limited to use

PP+E Fixed assets usefyl to life greater than 3yrs. tangible greater value around $1000


PPE Recorded

at cost paid for and value depreciates and record accumulated depreciation



Cost-accumulated depreciation

Net PPE is a non cash item


Depreciation Example

  1. Cost: 12,000 3 year useful life. 36 months of use.
  2. Year 1 depreciation 4,000 or 333 a month scope is worth $8000
  3. Year 2 depreciation 4,000 scope worth 4000
  4. Year 3 depreciation 4,000 worth $0
  5. 333 is going to reported as an expense on the income statement and in accumulated depreciation on BS
  6. End of year 1 <![if !msEquation]><![endif]>
  7. End of year 3 12,000-12,000=0

Current Liabilities

anything need to be paid in the year


Current maturities of long term debt

what of the principal of a loan is due that year.

IE 30000 loan over 5 years. Current maturities of long term debt would be 6000 and the rest of 24000 would be long term debt



Diagnosis Codes



procedure codes inpatient hospitals



Level 1 are CPT codes 5 two digit modifier

Level 2 Alpha Numeric in Front


Gross revenues


from coding and the charge entry steps in RC


Contractual adjustments

all subtracted from gross revenues

amount that you are not getting paid based no payer contracts

insurance C/A per contract


Bad debt adjustment

bad debt can only be patient balances. were expected t obe paid but were not


Charity care adjustments

internal policy for low income patients example 400% of the FDL

identify charity care before care given


Administrative Errors

should have been paid from insurance contracts but staff made a mistake and not reimbursed

HMO patient needs referral you do not receive referral but still give care. NO pre authorization, un covered procedure, past timely filing and appeals


Net revenue

amount expected to collect from gross revenue, booked as accrual amount at amount end

EXAMPLE Physician office example. See NP for sore throat

    • 99211- Level 1 established Charge $80 per HMO contract allowable is $30 for a 99211
      • Contractual adjustment is $50 (80-30)
    • 87650 Strep test charge is $20 per HMO is $10
      • Contractual adj is $10
    • Total Charges is $100, Allowable is $40, Contractual is $60 quick check is contractual plus allowable
    • Gross revenue= 100
    • Contractual Adj= 60
    • Net Revenue= $40
    • Patient has a $10 co pay so goes out of the $40 so insurance pays $30 and Patient pays $10
    • C/A percentage is 60( Contractual)/100 (gross)=60%
    • 40/100=40% collection rate
    • Both percentages of C/A and Collection rate should equal 100%

OOP Payment

Deductible, co pay, co insurance

  • Example under physician office
    • 99213 CPT code charge is $120 (E+M code) 1000 visits use this code over the month. $120,000 Gross Revenue month per this CPT CODE. Contractual adj is 60%. SO 120,000*.60=72,000. This is our contractual adjustment. Net revenue for this CPT code this month is $48,000.
    • Monthly
      • Gross is 120K
        • Yearly is 1.44M
      • C/A is 72K
        • Yearly is 864K
      • Net is 48K
        • Yearly 576K

Payor Mix

percent of patients for each payor

Must gross revenue charges

  • MC 576 K… 576K/1440K= 40%
  • MA 144K… 144K/1440K= 10%
  • BCBS 288K…. 288K/1440K= 20%
  • Other 432K… 432K/1440K= 30% ( Focus here for contract renewal because highest amount on something you can negotiate)
  • Total 1.44M

Inpatient Example

Senior having a cardiac defibrillator implant procedure. $250 deductible for inpatient stay.ICD-10-CM I48.91 Unspecified atril fibrillation

  • ICD-10-PCS 0JH609Z insertion of cardiac resynchronization defibrillator pulse generator
  • Charges
    • Patient paid 250, 11750 Medicare
    • Collection rate 12000/2000=60%
    • Total OR= 11,000
    • Recovery room= 2,500
    • 3 Nights room every midnight in room counts night room= 1000*3=3000
    • Misc. drugs and supplies=800
    • Lab test= 700
    • Implant (defib) at cost= 2000
    • Total charges= 20000 Gross revenue
    • Payment: Grouper all procedure and diagnosis codes--> MS-DRG. We get MS-DRG is 222 Cardiac defib implant with cardiac cath. With AMI with MCC (major complications and co morbidities). Insurance is Medicare part A allowable is 10,000+cost of implant so 2000. C/A is $8,000. so C/A percentage is 8000/20000=0.4
    • Allowable 12000
    • Gross monthly is 20000*10=200,000/month/msdrg
    • C/A= 8000*10=80000 /month/msdrg C/A percentage 80000/200000=0.4
    • Net revenue is 120,000 month this msdrg
    • Yearly gross is 2400K
    • C/A yearly 960K
    • Net 1440K yearly


key performance indicators

Business statistic (a number), measures a firms performance in critical areas

Dash board reporting best practice

number of new admissions, % occupancy, days in A/R, ROI


Using Business Intelligence

  • Beginning of KPI tracking 15+ years ago, KPI dashboard 1 time per month to executive team.
  • Now when article written publication 2009 they had over 20 sub systems(Sub ledgers) linked to an enterprise system, which puts reports online daily for the executive team but also does different reports for managers
  • CEO sets strategic directive added to dashboard for all to focus on: OT/contract, blood utilization
  • Takeaways: takes a long time, lot of $ and effort. Strategic plan of Cleveland clinic

CC Pharmacy

  1. Purchasing drugs thru GPO
  2. Impossible to track price changes, had over 44,000 items being bought
  3. Built a dashboard that interfaces with GPO, the pricing catalogue which is online and Cleveland Clinics drug volume. Predicts impact of price changes based on price change and volumes being ordered
  4. Results in change their drug formulary. Saved $22 million dollars

Revenue Cycle Time Outpatient

30 days


Revenue cycle time inapatient

50 days


Managers role

  • Revenue cycle workflow
  • Revenue integrity/Charge capture
  • Automation + data analysis
  • Patient experience (billing, collections)

Days in AR

  • Example using 12,000,000 from below. Gross A/R- C/A=Net AR 1-C/A%=Collection Rate
  • Net AR (Average Daily cash (given)= # days
  • Gross AR 12M Historical % pay payor given to us. CA
  • Medicare 6M CA50% 6000000*.5=3000000 this is CA so Net is 6M-3M= 3M
  • Medicaid 2M CA70% 2000000*.7=1.4E6 Net 2M-1.4M= .6M
  • BC/BS 2.850M CA40% 2850000*.4=1140000 2.85M-1.14M= 1.71M
  • Other 1.15M CA40% 1150000*.4=460000 Net 1.15M-.46M= 690K
  • So total Net Revueneu is added all up to 6M
  • Net AR/Avg Daily Cash….. 6M/130K(Given to us)=47 days to get my net A/R
  • Benchmark for Days in A/R is 35Days… 12 days sooner at 130K/day = would have 1.56M dollars more if paid by 35 days instead of 47 days. Moved from Net AR to Cash if reducing days in AR from a one time improvement


how much it costs to make something


Cost accounting

all manufacturing companies use this

Starting to become a thing in HC

Used for accuracy


Cost to charge ratio

3 MDs charges/yr $18M and expenses per/yr 8.1M (This info on Statment of operations

    1. Cost/ Charge 8.1M/18M= 45%
    2. Example patient well visit with 1 immunization so charges were $450. How much was cost? 450*.45=$202.5 ~$203 Cost

Activity Based Costing ABC

break down processing by time and costs

  1. Well visit with 1 immunization. Physician in the room for .5hrs and physicians time is 300hr so Cost is $150. RN did workup so RN .25Hr at a rate 80hr= $20. Need to charge for the drug itself so drug $15. Overhead involved as well .5hr overhead (buildings utilities and admin expenses $5. Total = $150+20+15+5=$190.00 $190
  2. Incredibly time consuming to determine and build accurate method


public no negations either participate or not participate and private


Private negotiation

any contract with each payor for each plan example BCBS PPO, HMO, POS

  • Contracts usually multi year and have an inflation factor built in usually tied to consumer index or flat % of 2-3
  • Handled by contracting department and legal department

Employers Choose

payers to offer plans to EE

  • Work with insurance broker to manager
  • Choose payer(s), Example BCBS, Kaiser, etc.
  • Choose plan(s) PPO, POS, HMO etc.
  • Choose coverages IVF, Chiro, PT # visits, mental health example 20,50 # IP days
  • Coverage + prior year. Spending changes in employees
  • Negotiate contract based on Increase+ calculate premiums+ pmpm rates
    • Also negotiate family groups, EE plus 1, family coverage
    • =employee OOP premium costs ( deduct, copay, co insurance)
    • EE/ER split premiums, Example EE 50%, ER 50%, EE 30% ER70%
    • ER may offer a flex spending plan or H S A if a high deductible plan
    • Paying premium: invoice from the payor to ER employer for monthly total premiums and the ER pays the invoice their portion so 50% and EE pays other 50% that is withheld from the EE paycheck


will select a health plans that is offered and have EE portion withheld from paycheck and also may contribute pre tax to health spend or H S A. Will have to pay out of pocket amounts= deductible, copay, and coinsurance


Payor provide

  • has to provide plans for the ER to choose and use actuaries to calculate the medical loss ratio.
    • Medical loss ratio which is the expected cost for clinical services paid to providers plus admin (staff) + claims processing (Staff +IT+ OH)= total cost. Divide by #Ees--> PMPM premium amount per month this PMPM premium amount will be negotiated with the ER

Provider contract

  • Provider will contract with private payer to be in-network (PPO HMO POS). Providers will negotiate allowable amount for procedures + contract language
    • See patients with this converge. Send claims to payer collect allowable amount- payer
    • Send bill to patient OOP amount - patient

Payer Provider

Contract negotiation

  • Allowable amount: aka fee schedule how much pay per procedure. PPO, HMO, POS
  • Provider has contract would be participating in network allow amount include patient oop
  • If provider has no contract with payer out of network and no negotiation has taken place
    • HMO- cannot see OON provider would pay 100% of charges
      • Exceptions are emergencies and out of area
    • POS/PPO plan allows for OON providers patient will pay higher OOP, example deductible and coinsurance. Based on allowable amount. 100% charges > allowable amount . Provider is getting 100% of charges but insurance covers there amount of allowable amount and if there is a difference still owed patient has to pay to make 100% of charges paid
    • Elective procedures not eligible for insurance. Maybe IVF. Cosmetic surgery Patient's pay 100% of charges.
      • Only cases where charges in the CDM because elective and patients will price shop

Payment schedule

  • MS-DRG 001- Heart transplant, annual volume is 60
  • Average charge $180,000Cost to charge ratio: 30%
  • Average cost= 180,000*.3=54,000.0
    • Cigna Contract HMO is up for renewal we are the provider. Cigna comes to us and proposes amount of $65,000. Cigna HMO patients had 15% of my market for this procedure. 60*.15=9.0 , 65,000-54,000=11,000 … 9*11,000=$99,000 profit
    • Aetna PPO up for renewal same MS DRG as above and proposing amount of $70,000. 10% market share so…. 70,000-54000=16000, 60*.1=6 …. 6*16000=$96,000 less profitable than Cigna
    • We need reimbursement amount plus market share to make a educated decision to determine profit amounts

Value Story

  1. Benchmark your own quality. Trying to create a value story
  2. As the provider need to quantify your cost
  3. Your reimbursement rate and the market. Show rates across payer so know what payers are paying you what??
  4. Define how your services are different. Only provider in community new technology etc.

Contract language 10 things in cleverly chapter six objective six language in contract


Two Midnight Rule

  1. MD expectation. MD expects patient will be in the Hospital for more than two midnights
  2. Care must be on the inpatient only list
    1. High acuity
  3. MD must document "admission note" in E H R stating #1 and 2
  • Without admission note, patient is considered OP. Or "observation" (determines if sick enough to be IP)
  • IP- PART A reimbursement (MS-DRG). $250 copay and every thing else covered under A also could be covered after 3 days for SNF
  • OP- Part B (APC) (MC)- Patient 20% co-insurance Medicare pays other 80%. No SNF coverage

Part A Inpatient

  • Part A- Acute Care Hospital Inpatient
    • Prospective portion + Reasonable cost portion

Prospective portion

two pieces (op + Cap)

  • Operating portion; MS-DRG case wt. X Base rate
    • Base rate= [(labor amount* wage index)+ non-labor amount]* MS-DRG Case WT
    • MS-DRG CASE WT- based on average cost of resources (staff/supplies/OH) used
      • Calculated by CMS
    • Base rate: has 2 portions labor and non labor
      • Adjusted for inflation every year by CMS
      • Wage index specific to an area- national average is 1.0, metro urban greater than 1.0 and rural less than 1.0

Prospective example

MSDRG 001- Heat transplant with MCC in Metro DC area

24.8548*[(3500+1.2500)+1600] $148,507.43


Part A adjustments

  • DSH (disproportionate share hospital )- increased # of low income patients
  • Indirect medical education-teaching hospitals can get this ( based on ratio of interns + residents/ # of beds)
  • Outlier payments- unusually high $ resources. Cost amount not a % add on

Adjustment example

  • MS-DRG 001 148,586( 1+ .1413+ .0744)~180,636=



Capital portion

  • DRG Case WT* (Capital amt.* Geographic adjustment factor {Not wage index})
  • MS DRG 001
    • 24.8548*(500*1.2)=14,912.88
    • Also DSH + IME so 14912.88*(1+.1413+.0744)=18129.5882

Total Prospective Portion

MS DRG 001

  • 180,636+18129.59=$198,765.59

Reasonable Cost

$ given to us if we are to use it

  • Can be reimbursed for certain items at cost (based on MC cost report) submitted to CMS each year
    • Direct medical education exact amount interns and residents
    • Organ acquisition
    • MC bad debt 70% of any bad debt form MC patient
    • Exempt from this MS-DRG pysch, cancer, LTC, Children's, Rehab which has own IPPS model
    • Exempt as well CAH critical access hospitals
      • For CAH less 25 beds
      • 24/7 ER
      • AVLOS <96HRS
      • >35 miles from nearest hospital or >15 miles in the mountains
    • Paid 101% of cost

Opps Hospital Based

APC can have >1 per encounter


OPPS example

  • CPT 70553- MRI Brain w/o dye
    • APC WT* OPPS Con. Factor{set by congress}= OPPS APC Payment AMT
    • 6.872*73.63=$505.9854
    • Hospital Outpatient 60% labor(304) and 40 % (202) is non labor taken from $505 above
      • On labor * wage index so (304*1.25)+202=$582 DC metro Area
  • This payment is not facility depend but does have a wage index portion

OPPS standalone facility

not part of hospital an ASC



  • APC WT* OPPS Conversion Factor is lower for ASC not as much overhead
  • 6.872*$44.18=$303.6
  • ASC RAD is a 50% split so
  • (152*1.25)+152=$342 DC Area ASC but $303 for national average just take 1 for wage index

Part B

patient 20% Co insurance and MC 80%

  • OP visit (ER, other OP) followed by IP admission, OP visit rolled into MS-DRG payment


  • RBRVS- Physician office/ physician IP visits
  • Procedure only, diagnosis for info only not payments but needs to match
  • RVU {owned by AMA} (Work+ practice expense+ malpractice ins.) X conversion factor{updated annually by congress} X G{for geographic}PCI.
  1. MD Office setting. 1 bill, covers entire payment--> MD
  2. Facility setting: 2 bills: 1MD- prof portion- MD decision making/exam
    1. 1 facility- tech portion- space, tech staff, supplies

Labs Paid

their own fee schedule

  • Parts C+D managed by private payors, fee schedules all different


bundled payments-Medicare



1st mandatory 5 year plan 4/1/16

Traditional medicare only


469 and 470

  • MS-DRG-469- Major joint replacement/ reattachment of lower extremity w/ mcc
  • MS-DRG-470 same above w/o MCC

Bundled Payments Include

    • Episode of care begins at admission and begins with IP admission--> discharge + 90 days
    • Includes Part A (Hospital IP) + Part B (Rehab which is paid under an APC, follow up doctor visits paid under RBRVs

Finances Bundled Payments

all providers paid same

Providers have to submit two quality measures

CMS compares actual claims paid to target amount

Target looks at prior 3 year claims. Orginally 3% less claim data

  • <Target receive rebate (shared savings) starts in year 1. Have to turn in two quality metrics. (Upside Risk)
  • >Target hospital must repay Medicare/CMS and this starts in year 2 (Downside Risk)


is responsible entity- BP should form partnerships with MDs, Rehabs, PAC (post acute care) to share savings + pay pack penalties


4/16 to 12/31/17

  • Spending decreased $997/Case
  • PAC: inpatient rehab decreased by 27% spending
  • SNF: $508 a case/ decreased
  • Higher number patients discharged directly home
  • Qualified for bonus: Year 1 (2016) 52% qualified bonus, year 2 69%

CCJR Example

  • Right knee replacement on 75yr old male
  • Day 1: Hospital admit 7/1/17
  • Inpatient surgery, stayed for 4 days, rehab while in hospital and then discharged $12,000. (Paid Pat A MS DRG)
  • SNF went after discharge 10 days 1,000 a day= $10,000 (Part A. Because post discharge from inpatient stay Per Diem)
  • Patient sent home had home healthcare PT did ten visits at 320/visit= $3,200 (Part B, fee schedule)
  • MD visit follow up cleared to drive $275 (Part B RBRVs)
  • Outpatient PT 3 times a week for 4 weeks. 12 visits at 150 each so $1800 (Part B, APC)
  • YR1= Hospital performed 1,000 discharges : 469 code
  • Target: 28,500/episode* 1,000=28.5M
  • A7ctual claims paid= 27.5 M
  • SO 1M under target
  • Hospital yr 1: 5% so 1M*5%=$50,000
  • From the Hospital+ partners went down by $1M , CMS paid 1M less than year before so CMS expenses go down by 1M. CMS gives Hospital 50,000 so Hospitals revenue decreases by 950,000 and expenses from CMS decrease by 950,000.
  • Roughly Hospital expenses decreased around $997/Case
  • CMS wins out of this because paying less reimbursement
  • Year 1 and 2 is 5%
  • Year 3 10%
  • Year 4 and 5 20%
  • Take above example of target at 28.5M but actual claims paid was 31M so over 2.5 M
    • Year 1 nothing happens
    • Year 2 pay back 5% so 2.5M*5%= 125,000 back to CMS. Hospital based on rules have to pay back 50% partners pay rest back


originally 67 now 34



Bundled Payments for care improvement



  • Have to include legal documents creating the ACO and have a charter with by laws, articles of Corporation, governance structure (officers etc.)
  • Must be a legal entity. Report quality performance data. Also receive and distribute shared savings and losses

ACO is an umbrella underneath it all organizations under Hospitals, PAC, MDs etc.

  • Everyone operates as normal throughout the year. ACO only have IT people, Financial analysts, Care Coordinators. These three only employed by ACOs

MSSP (Medicare Shared Savings Plan)

  1. establish ACA, OCT 2011 there was anti trust language from DOJ, FTC, OIG around waivers for fraud and abuse. No kick Back issues so these entities in ACOs could work together
  2. If participated in MSSP cant partake in any other optional MSSP demonstration project
  3. Must include PCP
    • 5,000 covered lives assigned retrospectively
    • Offer incentives for providers to decrease spending for the covered lives by offering % of shared savings
  4. Start calendar year: CMS "attributes" 7000 lives, Target $8,000 claims paid each =56M
  5. All parties under umbrella work together, streamline care, reduce costs
  6. Actual data at end of year CMS provides a final list example may say 7400 actually received care under umbrella and actual claims paid for 58.5M which actually averages to 7900 each under the target of 8000 above!
  7. Target $8000*7400=$59200000.00 but actual is 7400*79000=$584600000
  8. First ? Did they meet the quality scores and if so can participate in shared savings saved .7M so depending on track or pathway the ACO selects
  9. Example if Shared Savings of 60% ACO 40% CMS- than 700,000*.6=420,000.0 to ACO and 280,000 to CMS. This 420K paid to the Umbrella to share with all members. Shared from defined contract when ACO created. No answer all worked out at beginning
  10. So CMS reimbursement decrease to ACO was 700,000 + 420,000 ACO still lost 280,000 in reimbursement/Net Revenue
    1. Did expenses decrease by 280,000?
  11. If all parties/members do not work together than actual claims paid 62M so target was 58.5M. SO 3.5M over target under old MSSP: 4 tracks with increasing % of risk upside and downside risk. Under new pathways there are 7 different models with different risk
    1. 5% downside risk so 3.5M*5%= 175,000 paid back to CMS. How split among partners already determined by contract

Capitation ACO MSSP 2

  • Most common one is Next Generation, also very top tracks of MSSP and pathways become capitation model
    • Next gen started 2016-45 ACOs in 2017, 2020 42 ACOs
  • Population based model, paid on # lives, not on services used, PMPM
    • Monthly net revenue= #covered lives X PMPM
    • Contracting org ( Umbrella) receives PMPM amount and distributes to partners of the ACO
    • This population based, capitation system rewards low volume and low cost with high wellness care

ACO capitation payment

  • Example not capitation but above. Hospital has 700 discharges a month with avg. DRG of 7000 per discharge so Hospital receives 700*7000=4,900,000
    • Based on discharges
  • Capitation example
    • For patients attributed to ACO, PMPM payment ACO gets $500 PMPM. Has to cover preventative care, PCP, specialist MD, Urgent Care, Hospital IP and OP care. 15,000 enrolled. 15,000*500=$7,500,000/Month. Some of the 15,000 receive care, and others don’t but must cover all care received with 7.5M a month
    • If meet quality possible bonus example $10 PMPM for high quality
    • Regardless of care ACO at FULL RISK


Physician payments

  • MACRA-Law 2015
  • Physicians part B-RBRVs= RVU WT * CF * GPCI
  • Starts 2019: Reward physicians value over volume
  • 2016-2019 .5% increase each year
  • 2020: fee schedule frozen, adjusted increase or decrease by MIPs or APM bonus or penalty
  • Physicians choose one of 2 tracks
  • MIPs- Adjusts RBRVS payment up or down based on quality score
    • 2020 can go plus or minus 5%
    • 21 7%
    • 2022 9%
    • + beyond
  • Exempt form adjustments practices in 1st year MC part
    • Participants of eligible APMs
    • <100 MC patients or < $30M MC payments
  • MIPs must be budget neutral means bottom 50% of practices will always have a penalty based on quality scores
  • APM- provides bonus payments for participants for eligible APMs
    • Not subject to MIPs
    • Receive 5% lump sum bonus payment form 2019 to 2024.
    • Than a higher fee schedule increase from 2026 and beyond
    • Under higher tracks of MSSP pathways or Next Gen ACO or BPCI- Advanced can be APMs