Hfma point of service collections benchmark

HFMA Business of Health Care

Key Concepts Guide

HFMA Business of Health Care Key Concept Guide 1

HFMA Business of Health Care Key Concepts Guide

(Supplement to the HFMA Business of Health Care Online Course) Last Revised October 2019

© 2015 HFMA. No part of this document may be reproduced or transmitted

in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval

system, without permission in writing from the Healthcare Financial Management Association (HFMA).

HFMA Business of Health Care Key Concept Guide 2

Table of Contents

Introduction ...................................................................................... 4

Section One: Key Terms and Concepts

Course 1: Healthcare Finance –The “Big Picture” .................................... 5

Course 2: Financial Accounting Concepts ............................................ 10

Course 3: Cost Analysis Principles ..................................................... 11

Course 4: Strategic Financial Issues ................................................... 13

Course 5: Managing Financial Resources ............................................. 14

Course 6: Looking to the Future ......................................................... 21

Section Two: Learning Activities

Course 1: Healthcare Finance –The “Big Picture” .................................. 22

Course 2: Financial Accounting Concepts ............................................ 27

Course 3: Cost Analysis Principles ..................................................... 31

Course 4: Strategic Financial Issues ................................................... 34

Course 5: Managing Financial Resources ............................................. 42

Course 6: Looking to the Future ......................................................... 47

Concluding Learning Exercise ............................................................. 48

Answer Key ..................................................................................... 51

Sample Business of Health Care Assessment 75

Questions

HFMA Business of Health Care Key Concept Guide 3

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HFMA Business of Health Care Key Concept Guide 4

Introduction – Key Concepts Approach and Focus

HFMA’s certification program is designed for those seeking to understand the

current healthcare industry. The healthcare business environment results

from two primary aims: to reduce cost and increase value. These objectives

require savvy healthcare professionals who understand the importance of

collaboration, cooperation and innovation as the way business is done.

There is much to do and much to learn.

This guide is intended to assist your progression through the module by

specifying important ideas, trends and practices that comprise the

healthcare business environment. Candidates taking the time to use and/or

customize this guide can develop a handy review tool. This guide consists of

two sections. Section One presents Key Terms and Concepts in a glossary

format. Section Two contains learning exercises which are intended to

provide practice in applying important ideas and concepts learned.

It is recommended that candidates preview the Key-Concept guide prior to

working through the HFMA Business of Health Care online module. For

example, the pages in this guide, associated with the Patient Protection and

Affordable Care Act (PPACA) may be viewed before working on in the first

course, Health Care Finance: The Big Picture. This preview will allow you to

become familiar with the key concepts covered within the course and

attunes candidates to areas of professional practice that may be less

familiar. The learning exercises in this guide are meant to focus your

attention on the course content as you move through the online materials.

HFMA Business of Health Care Key Concept Guide 5

Section One: Key Terms and Concepts

Course 1: Healthcare Finance -- The “Big Picture”

Provider - general A provider is a licensed professional or entity that

provides a medical service to a patient.

Facility provider A facility provider is an acute care hospital, long-term

care hospital, inpatient rehab hospital, psychiatric facility, skilled nursing facility, assisted living facility,

home health agency, hospice agency, clinic or

ambulatory surgery center.

Professional

provider

A professional provider is a physician, pharmacist,

registered nurse or allied professional provider (APP) rendering a medical service to a patient. (Clinical

social workers and physical therapists are examples of

APPs).

Primary care Primary care physicians are trained and board-

certified in family practice, general practice, general internal medicine and pediatrics. They frequently

coordinate a patient’s care and refer patients to

specialists.

Specialist A specialist is a physician who specializes in a specific

disease, body system or type of healthcare.

Third-party payer A third-party payer is a health insurance plan paying a

provider for healthcare services delivered to its insured patients. The other two parties in a healthcare

business transaction are the patient and the provider.

Out-of-pocket payment

Payments made by patients in addition to what their health insurance plan pays are known as out-of-

pocket payments.

Deductible A deductible is a pre-determined amount that the patient pays before the insurer begins to pay for

service.

Coinsurance Coinsurance is a percentage of the insurance payment amount that is paid by the patient, along with the

amount paid by the insurer.

Copay A copay is a flat amount that a patient pays at each time of service.

Claim Claim is another word for a bill for healthcare services

provided.

HFMA Business of Health Care Key Concept Guide 6

Pre-authorization Insurers may require providers to contact them to pre- authorize certain high-cost services before treatment.

A pre-authorization is an acknowledgement by the payer that it considers the service medically necessary

and will pay for it.

Benefit payment Once the insurer has determined the claim is appropriate, a payment is made to the provider. This

payment is officially termed a benefit payment.

Beneficiary Insurers usually refer to the patient for which services are paid as the beneficiary.

Covered benefit The services for which the insurer will pay are usually

referred to as a covered benefit.

Denial The insurer may determine that the claim from the provider is not a covered benefit and will not pay the

claim. This is known as a denial.

Remittance advice A remittance advice is a written explanation

accompanying an insurer’s payment (or non-payment)

of a patient account to a provider. The copy sent to the patient is known an Explanation of Benefits (EOB).

Medicare Part A Medicare Part A (Hospital Insurance) is one of two parts of the original Medicare program established by

Title XVIII of the Social Security Act in 1965. It pays

for hospital inpatient, skilled nursing facility, hospice and some home health care. Part A is a premium-free

benefit funded by FICA payroll deductions. “Categorical” eligibility starts on when a U.S citizen

who paid FICA taxes for at least 40 calendar quarters turns 65. Disabled individuals under 65 who have

received Social Security for 24 months also qualify for Medicare. Funded by a 2.9% payroll tax.

Medicare Part B Medicare Part B (Supplemental Medical Insurance) is

the “voluntary” part of original Medicare. It pays for physician services, outpatient hospital and clinic care

and some home health services. While beneficiaries over 65 pay a monthly premium tied to their prior year

income, about 75% of the total cost is paid from general tax revenues. Since Part B is voluntary and

not everyone may qualify for Part A, it is possible for a patient to have Medicare Part B but not Medicare Part

A or vice versa.

HFMA Business of Health Care Key Concept Guide 7

Medicare Advantage

(Medicare Part C)

Medicare Advantage plans, launched in 1997, are commercial insurance plans (HMOs, PPOs or fee-for-

service plans) that offer Medicare beneficiaries an alternative to traditional Medicare. About 30% of

Medicare beneficiaries select Advantage plans because

benefits frequently exceed those of traditional Medicare. Beneficiaries pay the normal monthly Part B

premium to CMS and sometimes also a separate Medicare Advantage premium to the commercial

payer. Most plans have narrower provider choices than traditional Medicare. CMS pays Medicare Advantage

plans a fixed, risk-adjusted monthly fee per beneficiary that slightly exceeds the estimated cost of

providing similar services under traditional Medicare.

Medicare Prescription Drug

benefit (Medicare Part D)

The Medicare Part D program, launched in 2006, covers prescription medications for Medicare

beneficiaries. Commercial plans have monthly premiums and vary in the cost and kinds of drugs

covered. Plans are allowed to negotiate discounts with drug manufacturers.

Centers for

Medicare and Medicaid Services

(CMS)

The federal government, through the Centers for

Medicare and Medicaid Services or CMS, oversees all parts of the Medicare and Medicaid programs. CMS can

waive a state’s requirement to participate in traditional Medicaid if the state offers beneficiaries plans with

better benefits.

Medicare Cost Report

A Medicare Cost Report is an annual report that institutional providers participating in the Medicare

program must submit to their Medicare Administrative Contractor. For providers paid prospectively, the cost

report determines reimbursement for certain add-on

payments but does not affect the overall payment rate. For providers paid retrospectively, the cost report

determines the payment rate. CMS uses cost report data to update DRG and APC weights and determine

market basket updates.

Medicare Trust Fund

The Medicare Trust Fund is the pool of FICA taxes that pays for Medicare Part A and B. Unless Medicare is

reformed or payroll taxes are increased, the trust fund is expected to be depleted within the next ten years.

HFMA Business of Health Care Key Concept Guide 8

Fiscal Intermediary

A fiscal intermediary is an organization that contracts with CMS to pay Medicare claims and educate

providers. A newer term is Medicare Administrative Contractor (MAC).

Medicaid Medicaid is a joint federal and state program

established by Title XIX of the Social Security Act in 1965 for low-income and medically needy people. It is

the single largest source of health coverage in the United States. Medicaid covers low income families,

qualified pregnant women and children and individuals

receiving Supplemental Security Income (SSI). Medicaid includes benefits not normally covered by

Medicare, such as nursing home care and personal care services. Each state has different rules about eligibility

and applying for Medicaid.

Children’s Health Insurance

Program (CHIP)

The Children’s Health Insurance Program¸ signed into law in 1997, serves uninsured children up to age 19 in

families with incomes too high to qualify them for Medicaid.

Provider networks Provider networks are groups of providers (“panels”)

that contract with insurers as “preferred” or “in- network” in order to attract patients (steerage). The

insurer steers patients to its panel of network providers by paying a higher proportion of the patient’s costs of

care. Some provider networks are known as “narrow” or “ultra-narrow.”

Value-Based

Purchasing (VBP)

Medicare’s Value-Based Purchasing (VBP) program

started in 2012 as a part of the Affordable Care Act. It reduces payments to providers that do not meet CMS’s

quality of care standards. Participation in VBP is mandatory.

Patient Protection

and Affordable Care

Act

The Affordable Care Act, also known as “Obamacare,”

was passed in 2010 and accomplished three things: (1) it reformed the health insurance market (healthcare

exchanges or marketplaces, individual and employer mandates, and benefit standardization for all

marketplace, individual, and employer-sponsored plans), (2) expanded Medicaid coverage from 100% to

133% of FPL for “expansion” states and (3) accelerated the transformation of the healthcare the delivery

system through three key CMS-administered programs (ACOs, value-based purchasing and bundled

HFMA Business of Health Care Key Concept Guide 9

payments). The 2015 legislation that reformed physician payments (MACRA) is not part of the ACA.

Medical loss ratio Medical loss ratio refers to the percentage of premiums

that payers must spend on clinical services and quality improvement. The Affordable Care Act requires health

insurance issuers to spend at least 80% to 85% of

premium dollars on claims and quality.

Individual

Mandate

The Individual Mandate requires individuals and families

without employer-provided insurance to purchase health insurance or pay a penalty. The Supreme Court

in 2012 characterized the penalty as a tax. The penalty ranges from $695 per year to a maximum of three

times the amount ($2,085) per family or 2.5% of

household income.

Employer

Mandate

The Employer Mandate requires employers with 50 or

more full-time equivalent employees (FTEs) to offer health insurance coverage.

Insurance

Exchange

Insurance Exchanges are federal or state-run health

insurance markets designed to make health insurance affordable and broadly available. They are more

correctly referred to as Health Insurance Marketplaces. Individuals who purchase health insurance on an

exchange (in the marketplace) may qualify for premium

subsidies. 85% of enrollees receive such a subsidy. The subsidies are not available on the individual market.

Accountable Care

Organization (ACO)

Accountable Care Organizations (ACOs) are groups of

Medicare providers and suppliers that work together to coordinate care for traditional Medicare patients. Their

goal is to deliver seamless, high-quality care instead of the fragmented care that often results from a fee-for-

service payment system. The following groups of providers can form an ACO: physicians or certain non-

physician practitioners in group practices, hospitals employing physicians, certain critical access hospitals,

federally qualified health centers, and rural health clinics.

Bundled

payments

A bundled payment is a single prospective payment by

a health plan to all providers involved in a patient’s episode of care where the providers divide the payment

among themselves.

HFMA Business of Health Care Key Concept Guide 10

Course 2: Financial Accounting Concepts

Double entry system

In double entry bookkeeping, each accounting transaction has two sides that are equal or “in

balance.”

Asset What you have or are owed.

Liability What you owe.

Net assets or equity

What you get to keep.

Accounting Equation

The formula for the accounting equation is Assets equal Liabilities plus Net Assets (for a not-for-

profit entity) OR: Assets equal Liabilities plus Equity (for a for-profit entity). Sometimes also referred to as

the accounting identity.

The Matching Principle

According to the matching principle in accounting, revenues earned in a given period (a month, a

quarter, or a year) must be matched with the corresponding expenses incurred in earning that

revenue.

Accrual An accrual is an accounting entry that records an asset (a receivable) for a service (revenue) rendered

but for which payment has not been collected and a liability (a payable) for a matching cost (expense)

incurred but not yet paid. Accrual basis accounting

(an accounting system that uses accruals) is required by Generally Accepted Accounting Principles (GAAP) of

all but the smallest business entities.

Cash basis

accounting

Cash basis accounting is the alternative to accrual

basis accounting. It does not follow the matching principle. Under cash basis accounting, Revenue equal

Cash receipts and Expenses equal Cash disbursements.

The Income

Statement or “Statement of

Activities”

The income statement summarizes revenues,

expenses, and income for an organization over a specified period of time (a month, quarter, or year).

The income statement ties to the balance sheet through net assets: Net assets at beginning of the

period (the previous balance sheet date) plus Net income during the period equal Net assets at the end

of the period (the current balance sheet date).

HFMA Business of Health Care Key Concept Guide 11

The Balance Sheet or

“Statement of Financial

Position”

The balance sheet describes the organization’s assets, liabilities, and net assets at a specified point in time –

usually the end of the accounting period (month, quarter, or year).

The Statement of Cash Flows

The statement of cash flows shows the sources and uses of cash using the accrual basis of accounting. This

statement reconciles the change in the cash balance during the period to net income during the period. The

statement breaks down cash flows into operating, investing and financing activities.

Liquidity Liquidity ratios measure the ability of an entity to pay its

current obligations as they come due (current = obligations due in less than one year). Examples: current

ratio and days-cash-on-hand ratio.

Capital structure

Capital structure ratios measure the relationship of an entity’s debt to its net assets or equity and an entity’s

ability to meet its long-term obligations from its income. Examples: debt-to-equity ratio and debt service coverage

ratio.

Profitability Profitability ratios measure an entity’s earning power.

Example: operating margin and total margin.

Course 3: Cost Analysis Principles

Direct cost Direct costs are costs directly incurred in providing

healthcare services. Direct costs can be variable, such

as nursing salaries and medical supplies, or fixed, such as supervisor salaries and equipment costs.

Indirect cost Indirect costs are costs necessary to operate the business but not directly incurred in service delivery.

Examples are administration, finance, billing, information technology, facility maintenance and

security. Indirect costs can be variable or fixed. (Also

referred to as overhead.)

Fixed cost Fixed costs are constant, regardless of the volume of

services provided.

Variable cost Variable costs vary with the volume of services provided.

HFMA Business of Health Care Key Concept Guide 12

Cost allocation Cost allocation is a process by which indirect (overhead) costs are allocated to revenue-producing

services in a top-down fashion either directly or via a step-down method.

Cost pool The amount of indirect or overhead cost to be allocated

to revenue-producing departments is called a cost pool.

Cost driver Cost driver is an activity based costing term. A cost

driver is the method by which a cost pool is assigned to revenue producing functions. Time is a key cost driver

in healthcare.

Activity based costing

Activity based costing (ABC) is a bottom-up costing technique that assigns costs to individual services

based on actual cost consumption, frequently on the basis of time.

Full cost pricing In Full-cost pricing, direct and indirect costs and a desired level of profit are factored into a price. In full-

cost pricing, costs are fully passed on to customers.

Marginal cost price setting

In Marginal costing, some costs are omitted from pricing decisions. Marginal costing occurs in markets

where competitors exert price pressure.

Cost shifting price setting

Cost shifting is a strategy of compensating for lower payments from some payers (like Medicare and

Medicaid) by charging other payers more (such as commercial and contracted payers).

Contribution

margin

The formula for Contribution margin is Revenue minus

Variable cost or Price per unit minus Variable cost per unit. The result is the “contribution” available for

paying fixed costs and, once fixed costs are met, to the entity’s profit or “margin.”

Total cost Total cost is the sum of variable and fixed costs.

Community

rating

Community rating is an approach used by insurance

companies to set premiums based on the costs of

providing healthcare services to all members in a community.

Group rating Group rating breaks a community down into smaller groups and bases insurance premiums on a group’s

relative risk or consumption of healthcare services.

Break-even analysis

Break-even analysis is a technique for analyzing the relationship between cost, volume and profit.

HFMA Business of Health Care Key Concept Guide 13

Course 4: Strategic Financial Issues

Planning Planning entails preparing the business for future

operation in a “big picture” sense.

Budgeting A budget expresses an organization’s plans in financial terms.

Mission

statement

The mission statement states the purpose of a

business (why it exists).

Vision statement

A vision statement expresses an organization’s aspirations.

Strategic plan A strategic plan guides an organization over a period of 3 to 5 years.

Operating

budget

The operating budget converts estimates of service

volumes into revenues and expenses.

Statistical budget

A statistical budget defines the volumes and units of service expected to be provided.

Revenue budget A revenue budget converts service volumes into expected revenues.

Expense budget An expense budget projects the expenses associated

with the expected revenues.

Cost center Overhead departments such as administration and housekeeping are cost centers that do not directly

produce revenue but are necessary for operating the entity. Other cost centers, such as the emergency

department or radiology, are revenue-producing cost centers.

Capital budget The capital budget contains an entity’s long-term investment decisions. It allocates scare resources

(cash) to capital investments such as land purchases,

building projects, and the acquisition of other long- lived assets.

Maintenance capital

Capital investments made to replace existing capabilities or maintain current service levels are

known as maintenance capital.

Strategic capital Investments made to expand capacity, add new capabilities, or enter new service lines are termed

strategic capital.

HFMA Business of Health Care Key Concept Guide 14

Variance analysis

Variance analysis investigates why actual performance differs from budgeted or expected performance.

Variances can be caused by changes in volumes, changes in prices and changes in productivity.

Simple variance

analysis

Simple variance analysis does not account for changes

in volume. Formulas: Actual revenue minus Budgeted revenue equal Revenue variance

AND: Budgeted expense minus Actual expense equal

Expense variance.

Flexible variance

analysis

Flexible variance analysis adjusts the budget for changes in volume by applying revenue and expense-

per-unit standards to actual volume.

Rate or price variance

Rate variance (also referred to as price variance) is an estimate of how much of a total budget variance is due

to the rate per unit of revenue or expense being different than the budget estimate for the entity. The

formula to calculate the rate variance is:

(Actual rate or price minus Budget rate or price) multiplied by Actual volume

Volume

variance

The volume variance is an estimate of the extent to

which the total budget variance in a budget line item is a result of actual volumes being different from those

used in the budget projection. The formula for calculating the volume variance is:

(Actual volume minus Budget volume) multiplied by

Budget rate

Benchmarking Benchmarking is the comparison of key performance measures relative to best practices or to other

organizations.

Course 5: Managing Financial Resources

Revenue Cycle The collection of sequential, interrelated processes that

start with scheduling a patient and end with getting paid are referred to as the revenue cycle in healthcare. Note

that this definition views the revenue cycle primarily from the perspective of a provider and not a health plan.

HFMA Business of Health Care Key Concept Guide 15

Reimbursement Reimbursement is the traditional term to describe the amount paid by an insurer or a government payer to a

provider. A better term is payment.

Deductible A deductible is a pre-determined amount that a patient pays before the insurer begins to pay for covered

services.

Copay A copay is a flat amount that a patient pays at each time

of service.

Coinsurance Coinsurance is the percentage of the insurance company’s allowable amount for covered services that is

paid by the patient.

Net revenue The gross charges for healthcare services at list prices, less contractual adjustments, discounts, bad debt and

charity, is referred to as patient service net revenue. Provider organizations can also have forms of revenue,

such as premium revenue, other operating revenue and non-operating revenue.

Charge The dollar amount a provider sets for services rendered

before negotiating any discounts. The charge can be different from the amount paid.

Cost (to the

patient)

The amount payable out of pocket for healthcare

services, which may include deductibles, copayments, coinsurance, amounts payable by the patient for

services that are not included in the patient’s benefit design, and amounts “balance billed” by out-of-network

providers. Health insurance premiums constitute a

separate category of healthcare costs for patients, independent of healthcare utilization.

Cost (to the provider)

The expense (direct and indirect) incurred to deliver healthcare services to patients.

Cost (to the

insurer)

The amount payable to the provider (or reimbursable to

the patient) for services rendered.

Cost (to the employer)

The expense related to providing health benefits (premiums or claims paid).

Price The total amount a provider expects to be paid by payers and patients for healthcare services.

Care purchaser Individuals and entities that contribute to the purchase of healthcare services.

HFMA Business of Health Care Key Concept Guide 16

Payer An organization that negotiates or sets rates for provider services, collects revenue through premium payments or

tax dollars, processes provider claims for service, and pays provider claims using collected premium or tax

revenues.

Provider An entity, organization, or individual that furnishes a healthcare service.

Out-of-pocket

payment

The portion of the total payment for medical services

and treatment for which the patient is responsible, including copayments, coinsurance, and deductibles.

Out-of-pocket payment also includes amounts for services that are not included in the patient’s benefit

design and amounts for services balance billed by out- of-network providers.

Balance billing Balance billing occurs when a healthcare provider bills a

patient for charges (other than copayments, coinsurance, or any amounts that may remain on the

patient’s annual deductible) that exceed the health plan’s payment for a covered service. In-network

providers are contractually prohibited from balance billing health plan members, but balance billing by out-

of-network providers is common.

Price transparency

In health care, readily available information on the price of healthcare services that, together with other

information, helps define the value of those services and enables patients and other care purchasers to identify,

compare, and choose providers that offer the desired level of value.

Value The quality of a healthcare service in relation to the total price paid for the service by care purchasers.

Chargemaster

(also called

Charge Description

Master or CDM)

The chargemaster is a computer file that lists every

service or item a healthcare provider “provides.” It

includes each item’s description, retail price and other information needed for billing, such as revenue codes

and CPT-4/HCPCS codes.

Fee-for-service Fee-for-service is a payment mechanism in which the

provider is paid a separate for each discrete service.

HFMA Business of Health Care Key Concept Guide 17

Charge-based payment

The payment mechanism that pays either list price or a percentage of it is called charge-based payment. This

payment system was widely used in the early days of commercial insurance but has fallen out of use as health

plans have adopted other payment methods.

Fee schedule A fee schedule is a list of prices that a payer or the government pay a provider for a service. It is usually

considerably less than a provider’s list price in its chargemaster.

Prospective

payment system

(PPS)

In response to the open-ended nature of healthcare

payments through the 1960s and 1970s, Medicare and Medicaid adopted a prospective payment system for

hospital inpatient services (IPPS) in 1983 and for hospital outpatient services (OPPS) in 2000. Healthcare

services rendered in other settings are now paid by the government and many commercial payers on a

prospective basis as well. As the name implies, under

prospective payment the payment for a service is determined ahead of time (prospectively) regardless of

how many resources as consumed delivering the service in a particular instance.

Diagnosis- Related Group

(DRG)

Medicare’s inpatient prospective payment system (IPPS) assigns inpatients to diagnosis-related groups (DRGs)

that take into account the patient’s severity of illness, risk of mortality and relative resource consumption.

There are approximately 750 DRGs in Medicare’s

inpatient prospective payment system. CMS modified its DRG system in 2007 to better account for resource

utilization and renamed it MS-DRGs (the MS stands for Medicare Severity). A third, proprietary DRG system is

called AP-DRG (all-payer DRG).

DRG relative

weight

Each DRG has a relative weight based on the DRG’s

relative resource consumption. Each DRG also has a

length of stay associated with it calculated by CMS as the geometric mean length of stay of all Medicare

admissions for that DRG.

Case mix index

(CMI)

The average resource consumption of all inpatients

taken together is known as the case mix index. The formula: (Sum of all inpatients’ relative DRG weights)

divided by (Number of inpatients).

Per diem In a per-diem arrangement, a health plan reimburses a facility a fixed amount per day for care to a patient.

HFMA Business of Health Care Key Concept Guide 18

Concurrent review

Hospitals and health plans monitor length of stay in a process called concurrent review to ensure that patients

are discharged in a timely manner. Concurrent review can be performed onsite or remotely. Concurrent review

is one form of utilization review.

Bundled payments

One form of value-based payment is bundled payment, in which a health plan pays a single prospective rate for

all services provided by the physician, hospital and post- acute provider (the “bundle”) and the providers divide

the payment among themselves.

Capitation Capitation pays a fixed payment amount per person per month to a provider in advance in return for all services

necessary to care for the patient. Capitation payments are normally expressed as an amount per member per

month (PMPM). Capitation revenue is considered premium revenue, not patient service revenue.

Risk transfer Risk transfer refers to a payment mechanism whereby

the cost of care for a group of patients (risk) is transferred from the health plan to the provider.

Capitation is the most extreme form of risk transfer because it shifts risk entirely from the payer to the

provider.

Eligibility verification

Providers can verify a patient's eligibility for health benefits with the health plan either by checking a health

plan’s website or calling the plan.

Point-of- service

collections

Collection by the provider of patient deductibles, copayments or coinsurance at time of service is known

as point-of-service collections.

EMTALA EMTALA (Emergency Medical Treatment and Active

Labor Act) is a 1986 federal law that requires hospital emergency rooms to examine and stabilize patients with

emergent medical conditions before asking for insurance

information or payment. EMTALA was enacted to prohibit a practice known as patient “dumping.”

Utilization review

Utilization review is similar to concurrent review but can also encompass review activities before a patient is

admitted or after a patient has been discharged.

HFMA Business of Health Care Key Concept Guide 19

Charge capture When a provider charges a patient for services and aggregates the charges in the patient’s account the

provider is performing a task known as charge capture. Charge capture typically takes place at the time the

service is rendered but can also occur later (for example during coding).

Discharged Not

Final Billed (DNFB)

The dollar amount of patient charges (or days revenue)

between discharge and final billing is known as Discharged Not Final Billed (DNFB). Physicians complete

their documentation, coders code charts, and departments complete their charge capture during this

time.

Coding During coding, the patient’s medical record is analyzed and “coded” (assigned a machine-readable set of ICD-10

diagnosis and ICD-10-PCS/CPT-4 procedure codes) by a professional coder before the account can be billed.

Billing Billing refers to the process of creating a bill (or claim)

from charges, diagnosis information, procedure data and demographic information and submitting it electronically

or (less frequently) on a paper claim form to the health plan.

Claims

adjudication

Once a bill has been received by a health plan, it is

validated for eligibility, screened for omissions and errors and priced. This process is known as claims

adjudication.

Remittance advice

The written explanation accompanying an insurer’s payment (or non-payment) of a patient account to a

provider is called a remittance advice. The copy sent to the patient is known an Explanation of Benefits (EOB).

Working capital The difference between current assets (cash,

receivables, and inventory) and current liabilities (accrued payroll and accounts payable) is called working

capital.

Days in A/R A key measure of an entity’s liquidity, Days in A/R measures an entity’s efficiency in converting its

accounts receivable quickly into cash. The correct name of this ratio is “Days Net Revenue in Net Accounts

Receivable.” The formula: Net A/R from the balance sheet divided by Average daily net patient service

revenue from the income statement.

HFMA Business of Health Care Key Concept Guide 20

Days cash on hand

Another important measure of liquidity, Days Cash on Hand measures how many days an entity could

theoretically continue to operate without any further inflow of cash from of its accounts receivable, instead

spending down its entire cash holdings and “near-cash” deposits and liquid investments. The formula: Cash and

cash equivalents from the balance sheet divided by Average daily cash operating expenses from the income

statement.

Days in inventory

Hospitals track supply inventory levels via the days in inventory ratio. The formula: Inventory divided by