Financial Management in Health Care, Research Paper Example

Introduction

In the Health Industry the HealthCare Financial entities consist of Patient and Non-Patient categories, with the patient consisting of Self Payer, Third Party Payer which include Blue Cross Blue Shield, Commercial Insurance which entails Medicaid, Medicare, Self-Insured Employers, while the Non-Patients consisting of grants, contributions, tax support, and miscellaneous financial payments according to Jones and Bartlett Learning (2006).

Healthcare Organizations are the basis providers of service to patients, but are also separate business that must be profitable in order to remain viable, and as such must have the appropriate financial structures, policies, practices, and operating environment to enable them to constantly achieve desired goals and objective in very strongly competitive markets.

The Financial Structure of Medicare

Medicare has three benefit programs for beneficiaries, namely Part A, Part B and a prescription drug, and Part D according to Jones and Bartlett Learning (2006).

Part A or hospital insurance is provided free to all beneficiaries is they have 40% or more of covered Medicare employment, Part B or medical insurance requires monthly payment of $88.50, while Part D, when initiated in 2006, provides a drug coverage plan with a maximum  limit of  $3600.

The minimum coverage under Part D requires a $250 deductible followed by 25 % co-pay for charges between $250 and $2250 and 100% for expenses ranging from $2250 to $5100. Patients incurring expenses above $5100, according to Jones and Bartlett Leaning (2006) are required to deposit 5% in co-payment before receiving service (Jones and Bartlett, 2006).

Part D also has provisions for patients to use Medigap to supplement their insurance coverage for medical expenses (Jones and Bartlett Learning, 2006).

Part A of the Medicare package requires a fixed deductible of $952 before benefits are approved, and inpatient resident for 60 days are more in hospitals will incur daily charges of $238. Provisions are also made for co-insurance and no deductible for patients entering Skilled Nursing Facilities for less than 21 days. However, additional payments of $119 are required for patients in residence between 21 and 100 days, according to Jones and Bartlett Learning (2006).

Part B of the option has a $124 deductible for medical services and payments of 20% co-insurance before submitted claims are approved.

Policies unique to Medicare

Benefits under Medicare are provided to three categories of individuals, namely those 65 and over, the disabled, and beneficiaries with end stage renal disease, and payment system is based on a bundled service unit known as Prospective Payment System(Jones and Bartlett Learning 2006)

All hospitals except those outside the 50 states, has approved waiver, are classified as critical access, falls under the distinct psychiatric and rehabilitative category, or are operating as Children’s Hospitals, are required to comply with the financial procedures (Jones and Bartlett Learning, 2006).

Medicare makes one payment to each hospital, which was then responsible for paying outside suppliers as well as those other business organizations responsible for providing Non-Physician Services.

Additionally, according to Jones and Bartlett (2006) these payments by Medicare to the hospitals are made up of Prospective Payments, Capital Payments and Reasonable Cost Payments (Jones and Bartlett, 2006).

Financial Management Practices Prevalent in Medicare Operations

Each hospital has as to use DRG system to make payments to outside parties. DRG payments are based on the prevailing hospitals dollar rate which is made up of labor and non-labor components, and the specific weight of each case being handled.

Reasonable Cost Payments, according to Jones and Bartlett Learning (2006), are made to cover bad debts, expenses like kidney acquisitions, and graduate medical education that hospitals may incur during their operations (Jones and Bartlett Learning, 2006).

Financial Structure of Medicaid

Medicaid uses Managed Care- which is an approach to deliver financial health care that is aimed at improving the quality of care and reducing cost, to organize and deliver services to its qualified beneficiaries, according to Kaiser Commission on Medicaid and The Uninsured (2010).

The institution puts a network of providers at financial risk by paying them fixed monthly capitation rate for each enrollee to provide all or a set of defined Medicaid covered expenses, and payment arrangements provides different financial incentives to providers, supports a practice that emphasize early detection and treatment of health problems, and coordinated management of patient conditions (Kaiser Commission on Medicaid and The Uninsured, 2010).

Policies unique to Medicaid

Medicaid is funded jointly by the state and federal government, and such funding is an entitlement, which means that there is no limit on the amount the federal government is required to pay, as long as the state meets its commitment according to National Health Policy Forum (2011).

The Federal portion of the payment is called Federal Medical Assistance Percentage or FMAP, and is designed to ensure that the federal government pays higher percentages of cost in states that has lower per capita income relative to the national average, according to National Health Policy Forum (2011).

Financial Management Practices Prevalent in Medicaid Operations

The formula used to calculate the payment the Federal Government has to make under Medicaid to each state is as follows;

Federal Formula= 1- 0.45× State per Capita Income/ US per Capita Income.

In terms of the State in question the computation is done using the formula below,

State Formula = 0.45×State per Capita Income/ US per Capita Income (National Health Policy, 2011).

Financial Structure of Blue Cross Blue Shield

Blue Cross Blue Shield provided fee for service plans through PPO, where certain hospitals and other health care providers offer services at reduced cost.

Choice between Standard and a basic option are available to beneficiaries nationally, but the former applies only when PPO providers are used.

Physicians charge $150  under all options, coinsurance of 35% of plan are applicable to all visits made to Non-Preferred Professionals, $350 are payable upon all admissions to Non-Preferred Hospitals, and copayments of $30 are required for every visit to pharmacies according to Blue Cross Blue Shield-Federal (2010).

Policies Unique to Blue Cross Blue Shield

At Blue Cross Blue Shield benefits are paid only when claims for covered serviceshave been submitted, providers are allowed to have four free general prescriptions filled free of cost, and outpatients to mental health facilities are limited to 25 visits per year.

Financial Management Practice Prevalent

Blue Cross Blue Shield currently excused providers from making any more out of pocket expenses if they have exceeded the $5000 and $7000 maximum limits for the basic and standard options respectively in any financial year

Why effective financial management is more difficult in Health Care than in other industries?

Effective Financial Management is difficult in the Health Care than in any other industry for many reasons.

Hospitals operating in any environment are ethically bound to provide services to the community as inexpensively as possible,despite the financial arrangements, according to Horwitz (2005), and the majority of them operate as Non-Profit organizations, which have to depend on government grants, contributions and miscellaneous sources of funding to maintain viability.

In contrast, to For-Profit Hospitals are able to strategically locate themselves in areas where there are high numbers of well insured patients. This gives them the advantage of skillfully managing their case mix to ensure profits are generated.

The revenues of hospitals are challenged by the fact that the majority of payments made to the Health Care Industry are made by Health Care providers, and not by the patients who are the real consumers, and these institutions have to comply with restrictive and profit inhibiting government policies and procedures, according to The American College of Health Care Executives (2011).

Business in other industries on the other hand,  have more populated and diverse market segments to operate in, and  as such are able adjust their prices in response to the dynamics  market forces to ensure profit making occurs consistently.

Conclusion

The Health Care Financial entities in this industry faces diverse and difficult propositions, and  financial managers will continue to find it increasingly challenging  to meet their goals and objectives  in terms of profit generations and  providing quality and low cost services to customers at the same time.

This is made even more difficult by the taxation policy, inflexible financial structures and practices, government reimbursement policies, taxation policies and the high volumes of not for-profit organizations operating in environments that are not conducive to high revenue generations, massive capital injections grants, donations, and miscellaneous sources of funding.

Additionally, many hospitals are not able to specialize in offering services that offers high service profitability per unit of service. This would increase their revenue generations, and provide the capital necessary to finance the need for the latest equipment and technology required to expedite the delivery of other services.

Reference

The Jones and Bartlett Learning, (2006). Financial Environment of HealthCare Organizations Chapter 3www.jbleasrning.com/samples/6763742368/42368_ch3_072.pdf  pp.33-51 08/20/11

Horwitz, J.R., (2005).Making Profits and Providing Care: Comparing Non-Profits, For Profits, and Government Hospitals Health Affairs 24 No.3 (20050 pp.790-801 www.healtaffairs.org/content , 08/20/11

Blue Cross Blue Shield-Federal (2010). 2010 Service Benefit Plan Brochurewww.fepblue.org/benefitplan/2010-sbp/bsbs-2010-R171.005.pdf , 08/20/11

National Health Policy Forum, (2011). The Basics: Medicaid Financing George Washington University Washington DC. www.nhpf.org/library/the basicsmedicaidfinancing02-04-11.pdf 08/.20/11

The Kaiser Commission on Medicaid and the Uninsured (2010).  Medicaid and Managed Care: Key Data, Trends and Issues www.kff.org/medicaid/upload/8046.pdf , 08/2011