homeworkChapter 4
The Legal and Regulatory
Environment of Health Care
Learning Objectives
1. Understand how legal and regulatory issues shape
and define good financial management of a health
care organization.
2. Appreciate the consequences of failing to manage the
finances of a health care organization without regard
for the complex and ever-changing array of laws and
regulations that are unique to this industry.
3
Learning Objectives
3. Recognize when and how to involve legal counsel
on a Medicare or Medicaid reimbursement issue or
other financial matter that has regulatory
compliance implications or would otherwise require
you to seek legal advice before making a decision.
4. Identify the most common federal regulatory issues
such as fraud and abuse, Stark, HIPAA privacy and
security, EMTALA, and IRS requirements for tax-
exempt organizations, as well as less common
concerns that arise under the antitrust laws, Red
Flag Rules, and state insurance regulations.
Learning Objectives
5. Identify the major components of a corporate compliance
plan, including the establishment of internal controls
relating to the finances of an organization.
6. Be prepared to respond to a compliance audit or
investigation, particularly when the subject of that inquiry
includes financial records.
7. Be aware of the most important aspects of the Patient
Protection and Affordable Care Act of 2010 (Health
Reform Act) as it relates to financial management in the
post-Reform environment.
5
Law and Healthcare Financial Management
– Corporate Compliance Plans
• Office of Inspector General (OIG)
Requirements
– Internal Control and Corporate Compliance
• AICPA Elements
6
Primary Regulatory Issues
1. Medicare Reimbursement
– Parts A – Parts D
– Certification of Providers
– Payment to Providers
2. Medicaid Reimbursement
– Eligibility Determination
• Federal Poverty Level (FPL)
• Supplemental Security Income (SSI)
– Coverage of Services
– Establishment of Payment Rates
– Medicaid DSH Payments 7
Primary Regulatory Issues
3. Beneficiary Appeal Rights & Process
– Medicare’s 5 Levels
4. Fraud & Abuse
– False Claims Act
– Qui Team Actions
– Kickback’s and Self-Referrals
• Anti-Kickback Statute
• Stark Physician Self-Referral Law
– Safe Harbors 8
Privacy of Healthcare Information
(HIPAA)
– HIPAA Overview
– Privacy Standards
• Protected Health Information (PHI)
– Security Standards
9
Third Party Payor Contracts
– State Regulator
• “Any willing Provider”
– Federal Law
• ERISA
10
Tax Exemption Issues
– 501 (C) (3) Organizations
– Public Charity vs. Private Foundation
– Charity Care
– Unrelated Business Income
– Form 990
11
Antitrust Issues
– Purpose of Laws
• Promote a competitive free marketplace
– Sherman Act
• Agreements that unreasonably restrain trade
• Price fixing
– IPAChapter 5
Community Benefit Assessment
Learning Objectives
• Describe the current basis for tax exemption of not-for-profit
healthcare firms.
• Describe the elements of community benefit listed by key
policy groups.
• Assess the relative community benefits provided by
proprietary and not-for-profit hospitals.
• Develop a methodology for estimating financial benefits
received by not-for-profit healthcare firms.
• Develop a methodology for estimating financial benefits
provided by not-for-profit healthcare firms.
3
4
Background
Estimating Benefits Provided – Case Study
Estimating Benefits Received – Case Study
National Data
Summary & Conclusions
Outline
5
Why the Interest in Community
Benefits?
Background
6
Non-profit hospitals – 59% of US hospitals – are not
subject to federal income tax, most sales taxes, or property
taxes. In most states, they sell tax-free bonds, making it
cheaper to fund building projects.
“In a report issued in December 2006, the Congressional
Budget Office estimated nonprofit hospitals receive $12.6
billion in annual tax exemptions, on top of the $32 billion in
federal, state, and local subsidies the hospital industry as a
whole receives each year.”
1)Federal and State
Governments Need Cash
7
1.6%
1.9%
2.7%
3.4%
2.4%
3.3%
3.4% 2.5%
4.1%
0.1%
4.7%
5.0%
3.7% 4.2% 4.3%
3.7% 5.2%
2.6%
0%
1%
2%
3%
4%
5%
6%
2001 2002 2003 2004 2005 2006 2007 2008 2009
CPI
CPI Medical
2)Healthcare Costs Are Rising
8
“In a report issued in December 2006, the
Congressional Budget Office estimated from a five-
state survey that nonprofit hospitals provided 0.6%
more in uncompensated care than did for-profit
hospitals.
3)Voluntary Nonprofits Don’t Look
Different From Investor-Owned
Hospitals
9
4) Bad PR
Nonprofit hospitals, once for the
poor, strike it rich
By John Carreyrou, Wall Street
Journal
Hospitals: Is the price right?
By Michael Rosenbaum, CBS
Broadcasting Inc.
Cost Efficiency at Hospital Facilities
in California
Report Shows Hospital Costs and
Charges Vary Widely Throughout The
State – Health care purchasers call for
standardized reporting, more
transparency
Milliman/CalPERS
Hospital-Acquired Superbug
Infections Soar in Newborn
Babies
By Sherry Baker, Health
Sciences Editor – Natural News
Originally Reported in: Pediatric
Infectious Disease Journal
10
What Is Happening?
Background
11
1)Court cases on tax-exempt status
2)State efforts
Detailed community-benefit requirement
CA, ID, TX, IL, IN, NY, PA, WV, MD, NH
Less detailed community-benefit requirements
WY, CO, MS, AL, ND
Illinois Supreme Court upheld denial of
property tax exemption—March 2010
12
IRS recognized five factors that would support a nonprofit
hospital’s tax exempt status:
a) the operation of an emChapter 6
Revenue Determination
•5–3
Learning Objectives
• Define basic methods of payment for health care
firms
• Understand the general factors that influence
pricing
• Define the basic health care pricing formula
• Determine if prices are defensible
• List some of the important considerations when
negotiating a managed-care contract
2
Alternative Payment Systems
• Payment systems can be categorized by 2
dimensions
– Payment Basis
– Unit of Payment
•5–4
3
Payment Basis
• The basis of payment defines how the actual
payment will be made. There are 3 primary
methods-
1. Cost
2. Fee Schedules
– e.g. DRG’s
3. Price Related
– e.g. 75% of billed charges
•5–5
4
Unit of Payment
• Unit of payment defines how the services provided are
consolidated into an actual claim. There are 2 primary
methods-
1. Specific Services
– Individual items that are listed in a claim are paid
2. Bundled Services
– Specific services listed in a claim are paid on some
aggregated basis – such as a DRG or per diem
•5–6
5
•5–7
Health Care Payment Methods
6
Factors Influencing Pricing
• Pricing includes the establishment of CDM prices
and the negotiation of managed care contracts
• Three factors drive pricing policies
– Required net income
– Competitive position
– Market structure
•5–8
7
•5–9
Figure 6–1 Factors Influencing Pricing
8
Setting Actual CDM Prices
• There are 4 factors that must be “mathematically”
reflected in prices
• Failure to incorporate these 4 factors will impact
financial survival.
•5–10
9
•5–11
Four Elements of Pricing
10
•Average costs
Losses on third-party fee-schedule payments
Medicaid
Medicare
Other
Write-offs on billed-charge patients
Self pay
Commercial
Reasonable return on investment
Sustainable growth
•5–12
Pricing Example
Total cost $100,000
Total volume 1,000
Average cost $100
Payer volumes
Medicare (payment rate = $95) 400
Medicaid (payment rate = $75) 100
Managed Care # 1
(payment rate = $110)
300
Managed Care # 2
(pay 80% of charges)
100
Uninsured (pay 10% of charges) 100
Total all payers 1,000
Desired net income $5,000
Given the specified volumes, costs, desired profit, and other
assumptions, what is the required charge per visit (i.e., price)?
11
•5–13
Pricing Example, Income Statement
Approach
Given the specified volumes, costs, desired profit, and other
assumptions, what is the required charge per visit (i.e., price)?
Revenue Computation Amount
Medicare 400 x $95 $38,000
Medicaid 100 x $75 7,500
Managed Care # 1 300 x $110 33,000
Managed Care # 2 100 x 80% x $294.44 23,555
Uninsured 100 x 10% x $294.44 2,944
Total $105,000
less Costs 100,000
Profit $5,000
Solve for this
12
•5Florida National University
Financial Issues in Health Care
Assignment 2, Chapters 4, 5, and 6
ANSWER BRIEFLY THE FOLLOWING QUESTIONS
Chapter 4
1. Describe briefly internal control as it relates to a corporate compliance program. What are the five interrelated components of internal control?
2. Compare and contrast Medicare and Medicaid
3. Discuss the various types of third-party majors
4. Name the four operational requirements for 501(c) (3) tax-exempt organization?
Chapter 5
1. Describe briefly the basis for tax exemption of not- for-profit healthcare firms
2. Name the elements of community benefits listed by the key policy groups
3. Describe briefly the Community Value Index and the four core areas
4. Describe briefly the estimating financial benefits in not-for-profit Healthcare firms
Chapter 6
1. Describe briefly the basic methods of payment for healthcare firms
2. Describe briefly the generic principles of pricing
3. Define the healthcare pricing formula
4. List the important considerations when negotiating a health plan contract
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