Title: Budgeting in the Not-for-Profit Ambulatory Healthcare environment.(Instructor's Note)
Abstract: CASE DESCRIPTION This case illustrates the crucial role third party insurer and patient mix plays in establishing the amount of federal grant funds a Community Health Center is eligible to receive. The federal grant financing of these centers is designed to provide the necessary funds to provide care for the indigent patient population. The case allows for the discussion of Medicare and Medicaid prospective payments systems as well as the traditional indemnity insurers such as Blue Cross Blue Shield. The case is targeted to senior level and MBA students and requires approximately two to three hours of outside class preparation. It may be covered in one or two class periods, depending upon the complexity of the issues introduced by the instructor. CASE SYNOPSIS The Healthcare delivery system has gone through major changes over the past ten years. While significant attention has been given to the plight of not-for-profit hospitals, little attention has been given to the financial issues of not-for-profit ambulatory Healthcare providers in general and Community Health Centers (CHC) in particular. The dilemma Health Centers face each year is budgeting and justifying the amount of federal support funds they should receive. This budgeting process is complicated by the potential loss of Medicaid patients to a state's HMO plan, reduction in allowable charges by traditional indemnity plans, disallowance of non-Medicare cost in CHC cost reports and a host of other issues. This case revolves around the financial debriefing between Marty (CEO) and the departing Rita (CFO) of the People's Family Health Center. Lynn, the newly hired accountant, must provide Marty the necessary financial information he needs to negotiate the federal grant with the regional office of the Department of Health and Human Services. The issue to be decided is how much of a federal grant is required to balance the health center's budget so they can continue providing the same level of medical care to the indigent population in the county. INSTRUCTORS' NOTES Discussion Questions and Answers 1. What is meant by a prospective payment system (PPS) form of reimbursement? What is potential risk associated with this form of reimbursement? Prospective payment systems defines a form of reimbursement where providers are paid a fee for services based upon the previous year's Medicare or Medicaid cost report. Hospitals are paid a fixed fee per Diagnosis Related Group (DRG) illness. Community Health Centers are paid a fixed fee per patient visit. Hospitals and CHC's are also required to file annual cost reports. The risk associated with this system from a provider prospective is the potential liability for excess reimbursements. Medicare rules are very complex and often require healthcare accounting specialists to prepare cost reports. 2. What is the Contribution Margin (CM) and Weighted Contribution Margin per visit for each patient category? In order to arrive at the various contribution margins, the student deducts the fixed variable cost per visit (21.88) from the reimbursement rates established by Medicare and Medicaid. Students will often asked how a Health Center can calculate a single rate for the thirds party insurers and self pays. The answer is that the Center calculates a weighted average rate. Students now understand that the third party insurers' mix as well as the self-pay patient mix must be held constant over the budget year in question. Unless there are serious economic dislocations in the county, these numbers are relatively constant. In addition, we can use sensitivity analysis to model different mix outcomes. 3 Assume that the Center's current cost and reimbursement structure remain constant over the upcoming year. How many patient visits would the clinic need in order to break even in the absence of a Federal Grant? Comment on the feasibility of your answer. …
Publication Year: 2004
Publication Date: 2004-07-01
Language: en
Type: article
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