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Working capital, or actual cash available for spending, is the key to a successful organization. In a healthcare organization, it is important to determine how much cash is available to run the day-to-day operations. For this Discussion, you analyze the working capital of a healthcare organization of your choice.
To prepare for this Discussion:
Identify one example of an event that has changed the operations of your organization or an organization with which you are familiar. If you are not currently working in a healthcare organization (HCO), you may choose a case study from a reliable source from which to work.
Review this week’s Reading and Learning Resources.
Post a cohesive response to the following:
Describe the organization you have chosen and describe and assess its working capital and strategies to improve to deal with market conditions such as the transition to a value-based care reimbursement payment system. Justify your conclusion.
Investing, Borrowing,
and the Time Value
of Money
© 2013 Delmar/Cengage Learning. All Rights Reserved.
Chapter
10
Objectives
• Upon completion of this chapter, you will
be able to:
– Calculate the time value of money
– Discuss banking relationships and the effects
of financial market disruptions
– Describe prudent investment of cash
– Explain the types and uses of bank loans
– Describe the use of bonds for financings
© 2013 Delmar/Cengage Learning. All Rights Reserved.
2
Introduction
• Businesses rely on smooth operations of
the financial markets
• Businesses need to safely invest money
while retaining access to the money
• Borrowing may be needed when cash flow
is insufficient or for capital investments
• Large healthcare facilities need to use
investment professionals
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3
The Time Value of Money
• Concept of interest: a dollar available
today is worth more than a dollar received
in the future
– The rate of interest reflects the future value
– The rule of 72 lets one estimate the number of
years for an investment to double in value
• Future value: what an amount of money
will be worth on a specified future date
© 2013 Delmar/Cengage Learning. All Rights Reserved.
4
The Time Value of Money (cont’d.)
• Future value of a single sum
– The value of a lump sum invested at a fixed
rate of interest per period can be calculated
for any future number of periods
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5
The Time Value of Money (cont’d.)
• Present value of a single sum
– Tells how much to invest now at a particular
interest rate to reach a desired future value on
a specific date
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6
Banking Relationships
• A large healthcare organization needs to
work with a commercial bank that will:
– Lend money at favorable terms
– Offer business checking accounts with
reasonable fees
– Pay competitive interest rates on short term
investments
– Provide good support to customers
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7
Banking Relationships (cont’d.)
• A large healthcare organization will
prepare a Request for Proposal (RFP) that
states its banking needs
– RFP sent to competing banks that must write
detailed responses
– Responses reviewed and scored
– Existing bank customers contacted about their
satisfaction with bank services
– Best bank is chosen
© 2013 Delmar/Cengage Learning. All Rights Reserved.
8
Banking Relationships (cont’d.)
• A smaller medical facility may choose its
banks based on personal connections
• A bank typically assigns a relationship
manager to each business account
– Relationship manager needs to know financial
status of the medical facility
• A medical facility needs to keep current on
the financial status of its bank
© 2013 Delmar/Cengage Learning. All Rights Reserved.
9
Available Funds
• Money not immediately needed to meet
financial obligations should be invested
• Many investment choices:
• Corporate stocks
• Corporate or municipal bonds
• U. S. Treasury Bills and Notes
• Bank deposits with fixed maturity dates such as
Certificates of Deposit (CDs)
© 2013 Delmar/Cengage Learning. All Rights Reserved.
10
Available Funds (cont’d.)
• Investment decisions based on expected
future needs and how much risk medical
facility will accept
– Example: Corporate bonds pay higher interest
than U. S. Treasury Bills, but there is a risk
that the corporation will go bankrupt
– Three investment considerations: safety,
liquidity, and yield
© 2013 Delmar/Cengage Learning. All Rights Reserved.
11
Insufficient Cash Flow to Meet
Obligations
• Many medical facilities need to borrow
money to:
– Open or expand facilities or buy equipment
– Meet short term operating needs
• Borrowing sources for medical facilities:
– Commercial banks most commonly used
– Corporations can sell stock shares or bonds
– Government facilities can issue bonds
© 2013 Delmar/Cengage Learning. All Rights Reserved.
12
Insufficient Cash Flow to Meet
Obligations (cont’d.)
• Commercial bank loan types:
– Single payment loan
– Line of credit
– Terms loan
• Corporate and tax-free municipal bonds
– Bonds are promises to pay bond holder
interest and, at maturity, the original value
– Interest from corporate bonds is taxable
© 2013 Delmar/Cengage Learning. All Rights Reserved.
13
Insufficient Cash Flow to Meet
Obligations (cont’d.)
• Fixed rate and variable rate debt
– Loans and bonds can have fixed or variable
interest rates
– Variable rates usually tied to an index such as
the London InterBank Offered Rate (LIBOR)
• Corporate stock
– Stockholder owns a portion of the corporation
– Stocks traded on stock exchanges such as
the New York Stock Exchange
© 2013 Delmar/Cengage Learning. All Rights Reserved.
14
Summary
• Medical facilities need effective banking
relationships
• Funds not needed for operating expenses
should be invested with safety and liquidity
the top priorities
• Borrowing can be from commercial banks
– Corporations can sell bonds or stock
– Governments can sell tax-exempt bonds
© 2013 Delmar/Cengage Learning. All Rights Reserved.
15
Chapter
Revenue Cycle
Management
© 2013 Delmar/Cengage Learning. All Rights Reserved.
11
Objectives
• Upon completion of this chapter, you will
be able to:
– Explain revenue cycle management and:
• The importance of written financial policies
• The need for ongoing staff training and workload
management as tools for collecting revenues
• Ways to deal with insurance companies and
government programs
• How to get revenue improvements from better
patient scheduling
© 2013 Delmar/Cengage Learning. All Rights Reserved.
2
Introduction
• Revenue cycle management has the
goal of collecting funds owed for medical
services quickly and efficiently
• Revenue sources:
– Patients: private pay, deductibles, and copayments
– Payments from insurance companies and
government programs
© 2013 Delmar/Cengage Learning. All Rights Reserved.
3
Expediting Cash Flow on Patient
Accounts
• Benefits of rapid collection of revenues:
– More cash on hand to meet operating needs
– Avoidance of loans and interest costs
– Greater probability of collecting payments
(collection rate falls as receivables get older)
• Accounts receivable aging report
– Receivables grouped by days since billing
– Measures effectiveness of collection policies
© 2013 Delmar/Cengage Learning. All Rights Reserved.
4
Financial Policies and Procedures
• Collection policies and procedures
– When possible, establish a payment plan
before service is provided
– Collect payments at time of service
– Verify patient information at time of service
• Address and phone numbers
• Third party healthcare coverage
– Bill patient for balance owed after insurance
payment is received
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5
Financial Policies and Procedures
– Offer flexible payment terms with written
agreement signed by patient
– Use collection agency for non-paying patients
• First confirm address of patient and that multiple
bills were sent to the correct address
• Consider dismissing patient from the practice for
non-payments of bills
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6
Physician and Staff Training
• Financial policies need to be followed
– Staff needs proper training
– Periodic reinforcement needed
• Managing workload
– Bottlenecks can occur when workload is high
– Workload can be re-balanced among staff
– Training reviewed to ensure high efficiency
– Time-saving technology may be available
© 2013 Delmar/Cengage Learning. All Rights Reserved.
7
Billings to Insurance Companies &
Government Programs
• Majority of revenue from third party payers
• Claims filed electronically
– Errors result in rejected claims, additional
work for staff, and delayed payments
– Accuracy enhanced by using
• The encounter form with CPT and ICD-9CM codes
• A coding expert who keeps up with changes
• Review of charges prior to submitting claim
© 2013 Delmar/Cengage Learning. All Rights Reserved.
8
Billings to Insurance Companies &
Government Programs (cont’d.)
• Billing errors
– Some cannot be fixed such as lack of precertification or expired insurance information
– Many can be corrected with rework and
resubmission, but extra staff time is needed
– Review errors and change procedures to limit
the number of payment denials
• Check accuracy of reimbursements
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9
Medical Facility Average Cost
• First step in analyzing profitability
– Total operating costs for a period of time
divided by number of patient encounters
– Multiply medical facility average cost by a
factor to provide reasonable profit margin
– When looking for new patients, calculate
medical facility marginal cost
– Use both results as basis for negotiating
insurance contracts
© 2013 Delmar/Cengage Learning. All Rights Reserved.
10
Electronic Claim Clearinghouses
• Medical facility can contract with a claim
clearinghouse
– Medical facility uploads claims data
– Clearinghouse “scrubs” claims and sends
them to the proper insurance companies
– Claims with errors returned to medical facility
– Insurers pay medical facility via the
Automated Clearing House banking system
– Medical facility gets explanation of benefits
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11
Revenue Losses in the System of
Appointments
• Work expands to meet the time available
– Employees may look busier than they are
– Patient flow may look efficient when it’s not
• Timing of appointments
– Use short, standard, and long visit categories
– Patients need to arrive on time
– Staff needs to move patients efficiently
– Clinicians need to stay on time
© 2013 Delmar/Cengage Learning. All Rights Reserved.
12
Revenue Losses in the System of
Appointments
• Missed appointments
– Continuing problem for medical facilities
– Get multiple contact telephone numbers when
appointment is made
– Call to confirm appointments one day ahead
– Counsel patients who miss appointments
© 2013 Delmar/Cengage Learning. All Rights Reserved.
13
Summary
• Revenue cycle management involves
collection of accounts receivable as
quickly and completely as possible
• Workload management and written
financial policies combined with training of
staff, clinicians, and patients essential to
success of revenue cycle management
© 2013 Delmar/Cengage Learning. All Rights Reserved.
14
Summary (cont’d.)
• Management of receiving funds owed by
third parties includes:
– Encountering forms
– Hiring a coding expert who keeps current
– Review of billing errors to reduce denials
• Revenues are lost when appointments are
missed or are scheduled for the wrong
amounts of time
© 2013 Delmar/Cengage Learning. All Rights Reserved.
15

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