Part I: Healthcare Finance And Contractual Allowance

Part Ihca270 Health Care Financepart I Contractual Allowancebackgro

Part I HCA/270 Health Care Finance PART I - Contractual Allowance Background: Each health plan negotiates specific contracts with the physician or hospital. Each procedure code has an established rate and a contracted rate. Let's say that the established rate for the code 99214 is $84. The physician bills the insurance company $72 for the patient visit. The physician has a contract where it was agreed that the health plan would pay $45 for a patient visit. Therefore, the contractual allowance is the difference between the established rate of $84 and the agreed-upon amount of $45.

Directions: Contractual allowances represent the difference between the full established procedure rate and the rate that will be paid to the physician practice based upon the agreed-upon contractural rate. For Part I of this assignment, assume that each payer listed below have negotiated a Managed Care contract with the physician. The physician has performed 10 new patient physicals, one for each payer, and will bill each of the health plans the established rate of $174 for procedure code 98235. The contracted rate is listed in Column B. You must find the contractural allowance for each health plan and place the result in Column C. New Patient Physical Exam Code is 99385 . Established rate of $174.

Column A Column B Column C

Health Plan Payer Contracted Rate Contractual Allowance

There are three parts to this assignment. Each part is located under a different tab in this document. To move onto Part II, click on the Part II tab at the bottom left of the screen. If you do not see the Part II and Part III tabs, open the spreadsheet fully by clicking the double squares in the upper right corner. HAP $110.00 Tricare $98.00 HPM $142.95 Medicaid $60.45 Medicare $70.20 BCN PPO $135.90 BCBS $152.00 Humana $112.00 CCN $74.35 Priority Health $128.25

Paper For Above instruction

Introduction

The healthcare payment system relies heavily on contractual agreements between providers and payers, which determine reimbursement rates and influence healthcare costs. The concept of contractual allowance is central to understanding how these agreements impact both the financial operations of healthcare providers and the overall management of healthcare expenses. This paper explores the background of contractual allowances, their calculation, and their significance within healthcare finance, along with an analysis of revenue grouping and expense management in a healthcare setting, culminating in a reflective overview of an educational lesson involving teacher observation and interview.

Part I: Contractual Allowance and Its Calculation

Contractual allowances serve as the financial adjustments made between the established charges for services and the amounts actually reimbursed by payers as per negotiated contracts. For instance, in the case of procedure code 99385, with an established rate of $174, different health plans have negotiated varying contracted rates, resulting in different allowances. The allowance is computed as the difference between the established rate and the contracted rate for each payer. This calculation is vital because it determines the actual revenue received by providers and assists in financial planning and cost analysis.

The formula used for calculating contractual allowances is straightforward:

Contractual Allowance = Established Rate - Contracted Rate

Applying this to the specified payers, the allowances are calculated as follows:

- HAP: $174 - $110 = $64

- Tricare: $174 - $98 = $76

- HPM: $174 - $142.95 = $31.05

- Medicaid: $174 - $60.45 = $113.55

- Medicare: $174 - $70.20 = $103.80

- BCN PPO: $174 - $135.90 = $38.10

- BCBS: $174 - $152.00 = $22

- Humana: $174 - $112.00 = $62

- CCN: $174 - $74.35 = $99.65

- Priority Health: $174 - $128.25 = $45.75

These calculations highlight the variability in contractual allowances across different payers and underscore the importance of contractual negotiations in healthcare finance.

Part II: Revenue Grouping by Payer Source

Revenue management in healthcare involves grouping income sources by their origin to facilitate financial analysis and decision-making. The grouping process, as exemplified in the Metropolis Health System (MHS), separates revenue streams from different sources such as insurance, government programs, and direct patient payments. Grouping by payer enables organizations to identify revenue patterns, assess payer performance, and strategize reimbursement negotiations.

The ten situations described demonstrate how revenue should be classified based on the payer or funding source. For example:

- Services not covered by insurance but billed to the patient are categorized under "Patients" or "Other Public Programs" depending on the payer.

- Emergency services billed to the county jail are classified under "Public Programs."

- Billing to Medicaid, Medicare, and other insurance programs are grouped accordingly, emphasizing the importance of accurate coding in revenue classification.

Proper grouping ensures transparency and accuracy in financial reporting and supports compliance with regulatory requirements.

Part III: Expense Grouping by Cost Center

Organizations structure their expenses around cost centers to monitor and control costs effectively. Cost centers such as professional services, rehabilitation therapy, marketing, and administrative functions encompass all expenses related to their respective operations. For example, in the physical therapy and rehabilitation center, expenses like salaries, equipment, supplies, and marketing are allocated to specific cost centers.

A detailed classification includes:

- Salaries of therapists and nurses (Professional Services, Therapy)

- Equipment such as EKG machines and exercise mats (Medical Equipment)

- Marketing expenses like advertisements (Marketing)

- Supplies like office materials and patient aids (Administrative)

This systematic approach to expense grouping aids in financial analysis, cost control, and strategic planning within healthcare organizations.

Reflections on Lesson Observation and Teacher Interview

Parallel to financial management in healthcare, effective operational and educational practices require planning, implementation, and evaluation. Observing a teacher’s lesson provides insights into instructional strategies, classroom management, and student engagement—key components analogous to financial oversight in healthcare.

The interview process helps understand the teacher’s planning methodology, including how they formulate objectives, select activities, and assess student learning. For example, a teacher’s ability to adapt lessons to different learning styles mirrors how healthcare providers negotiate contracts tailored to various payer requirements. Observations of classroom management and engagement strategies reflect the importance of operational efficiency and responsive leadership—principles essential in financial management.

Overall, these educational insights underscore the significance of strategic planning, adaptability, and evaluation—principles applicable to both effective teaching and healthcare finance management.

Conclusion

Understanding contractual allowances is fundamental to healthcare financial management, impacting reimbursement and revenue realization. Grouping revenue sources and expenses by payer and cost center, respectively, facilitates accurate financial reporting and strategic planning. Additionally, observational and interview techniques in educational settings highlight the importance of planning, execution, and assessment—concepts equally vital in healthcare operations. Collectively, these components form a comprehensive approach to managing healthcare finance and organizational effectiveness.

References

• American Medical Association. (2020). CPT Professional Edition. AMA.
• Beasley, J. W., et al. (2011). The impact of payer contracts on provider reimbursements. Journal of Healthcare Finance, 37(2), 45-54.
• CMS. (2022). Medicare Provider Reimbursement Manual. Centers for Medicare & Medicaid Services.
• Finkler, S. A., et al. (2018). Financial Management for Health Services Organizations. Pearson.
• Harrison, P., & Sykes, R. (2019). Contract negotiations in healthcare: Strategies and implications. Healthcare Management Review, 44(3), 210-217.
• Medicare.gov. (2023). Understanding Medicare Payments. U.S. Department of Health & Human Services.
• Segal, G., & Mainard, R. (2017). Revenue cycle management in hospitals. Journal of Medical Practice Management, 33(5), 290-297.
• Thomas, C. M., et al. (2019). Cost Center Analysis in Healthcare Settings. Health Economics & Outcomes Research, 5(2), 101-110.
• U.S. Department of Health and Human Services. (2021). Healthcare Cost Reports. HHS.gov.
• Watson, D., & Kitchener, A. (2020). Implementing Effective Classroom Management. Contemporary Educational Psychology, 61, 101-110.