Finance Terms–Chapters 1-5

Medicare
A federally funded program that provides health insurance to Americans at age 65
Prospective Payment
A system by which Medicare reimburses hospitals for the expected cost of a service, rather than a services actual cost
Diagnosis-related group
Groupings of similar healthcare cases that should require similar resource consumption. Used by Medicare to calculate prospective payments
Peer Review Organization
An organization that ensures that providers give appropriate care to Medicare recipients
Resource-based relative value system
A Medicare reimbursement system that provides a flat, per-visit fee to physicians rather than reimbursing them according to their customary charges
Recovery Audit Contractor
A private business that detects and recovers improper Medicare payments to provders
Fraud
An intentional misrepresentation of fact designed to induce reliance by another
Abuse
An unintentional misrepresentation of fact
Second-Party Payment
Payment for healthcare that come from the person receiving the service (patient pays own bill)
Compulsory Health Insurance
A requirement that everyone have health insurance
Direct Service Plan
An arrangement whereby an employer prepays specific hospitals and physicians to care for employees (used in 1940s)
Commercial Indemnity Plan
An arrangement whereby an employer pays an insurance company, which in turn reimburses hospitals and physicians chosen by the employees
Community Rating
A premium-setting method in which all groups covered by an insurance company pay essentially the same premiums, regardless of their health risks.
Experience Rating
A premium-setting method in which different groups covered by an insurance company pay different premiums based on their risk
MAnaged Care Organizations
Organizations that manage the cost, quality, and access to healthcare
Preferred Provider Organizations
Organizations that provide discounted healthcare services to insurance carriers and employers
Health Maintenance Organizations
Organizations that integrate the financing and delivery of healthcare into one organization
Open Panel HMO
An HMO that exerts moderate control over physicians by contracting with them to provide care for enrollees. These physicians can see other patients
Closed Panel HMO
An HMO that contracts with or employs physicians to treat enrollees exclusively (the physicians do not see other patients)
Network HMO
An HMO that contracts with physician groups to provide care for enrollees. May be either open or closed.
Defined Benefit Plan
A health plan in which the employer pays the premium, or an established part of the premium, regardless of the cost.
Defined Contribution plan
A health plan in which the employer pays a set amount toward the cost of the premium and the employee pays the rest. Thus is an employee chooses an expensive plan, he pays more than if he chose a less-expensive plan
Direct Contracting
The practice of contracting directly with an integrated health organization to service the health needs of a large employer (Think Dell)
Consumer-Driven Plan
A health plan that provides information and incentives to encourage enrollees to make wise healthcare choices
Charge
The amount patients are charged for services; also called prices or rates
Per Diem rate
A method of paying for healthcare in which the hospital is paid a flat fee per day, regardless of the service delivered on any given day
Per diagnosis rate
A method of paying for healthcare in which the hospital is paid a flat fee for each given diagnosis, regardless of the actual service provided
Capitation
A payment method in which a healthcare organization receives a fixed amount of money each month for every person enrolled in a given plan, regardless of whether or not a given person receives care.
Bad Debt
Unpaid patient bills (can pay but won’t)
Charity Care
Care provided to patients who the organization knows cannot pay for the care
Cost shifting
The practice of shifting costs to some payers to offset losses from other payers
Tax-Exempt
The status that allows an organization to pay no taxes, including sales tax, income tax, and property tax. May also raise capital by selling tax-exempt bonds, for which they can pay lower interest than comparable taxable bonds
Charitable Organization
An organization that provides community benefit or serves that public interest. In the case of healthcare, a hospital is a charitable organization if it provides care to people who cannot pay for their care or provides community health benefits
Inurement
Providing a benefit to an employee, such as salary, that is greater than the value of the employees work
Specialization
Dividing tasks into manageable categories and assigning the categories to employees with appropriate skills
Departmentalization
Dividing employees into groups or team that have similar responsibilities
Defining the span of managment
Determining the optimum number of employees that a manager can manage based on the nature of tasks and the background of the employees
Defining Authority
Determining the amount of authority to delegate to employees so they can perform assigned tasks
Defining responsibility
Determining the obligation necessary to perform the assigned task
Establishing a unity of command
Appointing one manager to be responsible for a group of employees
Defining the nature of relationships
Determining whether employees and managers have a line or staff relationship
Governing body
Responsible for the proper development, utilization, and maintenance of all resources in the HCO
Executive Committee
A committee of the governing body of an organization that monitors all other committees
Finance committee
A committee of the governing body of an organization that monitors the CEO’s performance in financial affairs
Fiduciary
A person, or a governing body, in a position of great trust and confidence. Typically used to describe the duty of an entity to be loyal and responsible.
Controller
The chief accounting officer in an organization
Treasurer
The person responsible for managing the capitol of an organization
Corporate Restructureing
A legal strategy involving the establishment of subsidiaries or related corporations in order to maximize the economic position of a healthcare organization
Foundation
A not-for-profit corporation, usually a subsidiary of a for-profit organization, that facilitates education and research or otherwise undertakes charitable projects
Integrate Delivery System
A system of healthcare providers capable of accepting financial responsibility for and delivering a full range of clinical services
Physician-Hospital Organizations
Joint venture between healthcare organizations and physicians that are capable of contracting with managed care organizations
Accountable care organization
An organization that coordinates care among healthcare organizations and physicians. A key element is that some portion of its reimbursement is tied to accoutability
Management Functions
The key functions of a manger, including planning, organizing, staffing, directing, and controlling
Management Connective Processes
Management functions that connect elements of the healthcare organization, including communicating, coordinating, and decision making
The Joint Commission
The primary Accrediting Organization of HCOs
HFMA
Confers two certification, Certified Healthcare Financial Professional, and Fellow of the Healthcare Financial Management Association
Admissions
Number of patients, excluding newborns, accepted for inpatient srvices
Average Daily cencus
Average number of inpatients, excluding newborns, receiving care each day during the reporting period
Average Length of Stay
Derived by dividing the number of inpatient days by the number of admissions
Occupancy rate
Ratio of average daily census to the average number of statistical (set up and staffed for use) beds
Ratio Analysis
A financial analysis tool that compares various key financial indicators. Ex. debt to equity and revenue to assets
Capitol Analysis
A process to determine how much a capitol expenditure will cost and what return it will generate
Third-Party Payer
An entity, such as an insurance company, that pays for health care for another entity, such as a patient.
Prospective payment system
Payment system in which a HCO accepts a fixed, predetermined amount to treat a patient, regardless of the true ultimate cost of that treatment. DRGs are one type; Medicare pays hospitals a fixed amount for an episode of treatment based on that treatment’s DRG
Capitation
Payment system in which an organization accepts a monthly payment from a third-party payer for each individual covered by that payer’s plan, regardless of whether a given individual is treated in a given month. Provides a financial incentive to HCO to keep its population from using more healthcare than necessary
Sentinel Indicator
An indicator that alerts a manager every time a particular event occurs. Ex. A manager may be alerted every time a patient in the department goes into cardiac arrest
Rate-based indicator
An indicator that alerts a manager only when a measure reaches a particular tipping point. Ex. A manager might be alerted every time the number of empty bed in the department fall below a certain level
National Patient Safety Goals
A set of goals established by the JC to address safety areas of special concern for hospitals