Certified Healthcare Financial Professional

Certified Healthcare Financial Professional Certification Basics Friday, February 25, 2016 Courtney Stevenson, MSA WA/AK HFMA Certification Committee Co-Chair

Agenda Module I The Business of Healthcare Module II Operational Excellence Q&A Plus/Deltas 2

CHFP Modules Module I Business of Healthcare 1. Big Picture 2. Financial Accounting Concepts 3. Cost Analysis Principles 4. Strategic Financial Issues 5. Managing Financial Resources 6. Looking to the Future Module II Operational Excellence Practical application of Module 1 Concepts 3

Certified Healthcare Financial Professional Course 1: The Big Picture

YOU will be able to: Learning Objectives Describe the structure of the US healthcare industry Understand the impact of healthcare reform on the industry Explain the payments systems Explain the role of financial management in healthcare 5

Purpose of this Chapter Learning Program Highlight key knowledge for strong job performance Provide an overview of important concepts. The indepth presentation is in the online course. 6

The Big Picture 7

Financing the Healthcare System Patient Insurer Payment to the provider 8

Financing the Healthcare System The fundamental funding transaction 9

Financing the Healthcare System PPACA and Healthcare Insurance Exchange Claims Broker Premium Health Insurance Doctors Co-Pays Forms Hospital 10

Financing the Healthcare System Flow of Money and Services for a Patient with Employer Provided Insurance 11

Financing the Healthcare System Flow of Money and Services for a Patient with Medicare Parts A or B 12

Financing the Healthcare System Flow of Money and Services for a Patient with Medicaid 13

The Big Picture Changes Intended to Reform the US Health Care System 14

Health Care Reform 15

Key Provisions of the ACA Medical Loss Ratio The Individual Mandate Insurance Exchanges The Employer Mandate Accountable Care Organization (ACO) Population Health Bundled Payments 16

The Triple Aim Health Care reform is intended to meet the triple aim Of: 1. Quality outcomes 2. Reduced cost 3. Increased Patient safety and satisfaction with treatment 17

The Big Picture The Role of Financial Management in Health Care Organizations 18

The Finance Function Chief Executive Officer Chief Financial Officer Controller Finance Directors and staff 19

Financial Management Activities Accounting/bookkeeping Treasury Inventorying Budgeting Payroll Accounts Payable Financial Analysis and the Revenue Cycle Insurers Add: Claims Processing and Contract Management 20

Finance as a Strategic Function Access to cost data + Access to clinical data through financial systems Finance can discern trends, patterns and business activity themes in the data, providing useful business information to decision makers 21

Current Pressing Issues Value Based Purchasing (VBP) Quality measurement The shift from volume to value Healthcare Technology Access to Capital Risk Contracting 22

Certified Healthcare Financial Professional Course 2: Financial Accounting Concepts

Learning Objectives YOU will be able to: Describe the basic elements of accounting Differentiate between the key financial statements and what they describe 24

Learning Objectives Conduct a basic analysis of an organization s financial condition using financial statements; Relate basic measures of operational performance to an organization s financial statements; and Know what other accounting reports are usable in the analysis of financial statements. 26

Basic Accounting Principles Double- Entry Everything is in balance: Revenue 5,000 Expenses 5,000 Total 0 27

Accounting Basics What you have or are owed known as an asset What you owe known as a liability ; What you get to keep (or retain) known as net assets or equity 28

Accounting Basics The Matching Principle Match the revenues earned in a given time period (a month, a quarter, or a year) with the expenses incurred to earn that revenue. Accrual Accrual basis of accounting 29

Generally Accepted Accounting Principles GAAP Accounting Method of recording accounting transactions 30

Accounting Basics Cash Basis of Accounting 31

Key Financial Statements The income statement or statement of operations ; The balance sheet or statement of financial position ; The statement of cash flows. 32

Income Statement Revenues - Expenses Income 33

Charity Care Important Income Statement Concerns Bad debt 34

Balance Sheet assets = liabilities + net assets 35

The Statement of Cash Flows Cash flows from operating activities; Cash flows from investing activities; Cash flows from financing activities; 36

Relationships between the balance sheet and income statement Balance sheet reserves and income statement revenues Income statement timing differences regarding receivables Impacts the balance sheet 37

Analysis of Financial Statements What happened? Operational metric 38

Business uses Ratio Analysis Understand the relationships of various parts of the financial sheets Benchmark performance against other organizations Deterring creditworthiness 39

Types of Ratios Liquidity measure the ability of an entity to pay its current obligations as they come due; Capital structure (also known as solvency) measures how the assets for an entity are financed, as well as its ability to pay its long-term debts; Profitability measures the extent to which the entity is generating a surplus 40

The Take-Away You do not need to be a finance expert You do need to: Know your way around the financial sheets Understand what the data in these reports mean 41

Certified Healthcare Financial Professional Course 3: Cost Accounting Principles

YOU will be able to Learning Objectives Define the term cost in health care from the multiple different perspectives represented in the industry; Describe the varying types of costs in a health care business and the different ways that costs can change with the volume of services provided; 43

What Comes to Mind 44

COST Cost is the amount Paid for a service provided 45

Types of Cost Direct Indirect Variable Fixed 46

Types of Cost Semi-fixed Step Variable Short term Long-term 47

The challenge: Cost Allocation What actually is the cost of providing service to a patient? 48

Cost Allocation Cost Pool Costs Driver Department Administration Accounting Housekeeping Maintenance Information Systems Human Resources Cost Driver Number of employees or total revenues Number of employees or total revenues Square footage cleaned Square footage maintained or work orders completed Number of users Number of employees 49

Cost Allocation Revenue Producing Departments Non-revenue (or overhead) Departments 50

Cost Allocation Example of a Hospital Cost Allocation Department Square Feet % of Square Feet Allocated Cost Adult Medicine 1,500 30% $7,500 Pediatrics 1,500 30% 7,500 Laboratory 750 15% 3,750 X Ray 1,250 25% 6,250 Total 5,000 100% $25,000 51

Cost Allocation Example of the Step-down Approach 52

Cost Allocation Activity Based Costing (ABC) Two steps: gathering total data and activity statistics then allocating the costs of activities to a service. 53

Cost Allocation Illustration of Cost Allocation in the Activity Based Costing method Activity Totals Behavioral Allocation Activity Annual Costs Cost Driver Medicine Health Total Rate Registration & check out $25,000 # Visits 4,000 1,000 5,000 $5.00/visit Vital Signs 50,000 Minutes/ Visit 10 5 50,000 $1.00/minute Diagnosis 300,000 Minutes/ Visit 10 20 60,000 $1.00/minute Treatment 500,000 Minutes/ Visit 15 20 80,000 $1.00/minute Medications 75,000 Medications/ visit 1.0 1.0 5,000 $15.00/ medication Billing 200,000 # Visits 4,000 1,000 5,000 $5.00/visit Total $1,150,000 54

Full Cost Pricing Setting Prices Marginal Cost Pricing 55

Contribution Margin 56

Target Cost Pricing 57

Health Plans Target Cost Pricing Community Rate Setting Group Rate Setting 58

Break Even Analysis 59

Summary Health care managers must be attentive to cost in order to remain competitive AND Managers must resist the temptation to maximize profits by cutting costs too far resulting in harm to patients or failure to meet the service needs of patients or customers 60

Certified Healthcare Financial Professional Course 4: Strategic Financial Issues

YOU will be able to Learning Objectives Describe how strategic planning influences budgeting, Differentiate between various budgeting approaches, Define the different types of budgets used in a healthcare business, and Complete a simple budget variance analysis 62

Starting Context Planning Budgeting 63

Basics of Strategic Planning 64

Mission Statement 65

Vision Statement 66

Strategic Plan 67

Budget Basic Budget Concepts' 69

Approaches to Budgeting Incremental Zero-based budgeting 70

Elements of the Budget for a Healthcare Business Financial Planning Resources: Operating and Statistical Budgets Revenue Budget Expense Budget Capital Budget 71

Budget Variance Analysis Actual Budget = Revenue variance Budget Actual = Expense variance 72

Simple Budget Variance Analysis Flexible Budget Variance Analysis 73

Other Guidance for Strategic Financial Planning Benchmarking 74

Strategic Finance Professionals See the bigger picture of organizational strategy Business Clinical care delivery Translate the strategy into measurable terms through the budget process Assess problems with resource use to better manage resources 75

Certified Healthcare Financial Professional Course 5: Managing Financial Resources

YOU will be able to Learning Objectives Describe how healthcare providers are reimbursed for services; Recognize the types of reimbursement methods used in the healthcare industry; Describe the processes by which a hospital or physician clinic bill insurers; 77

Learning Objectives (cont) Calculate metrics used to manage the revenue cycle; Name resource management issues in a health care business; and Recognize the methods that healthcare businesses finance receivables and acquire capital equipment. 78

The Patient Portion Insurers generally require some out-of-pocket payment by the patient to supplement the insurance payment 80

Deductible Types of Patient Payments Coinsurance Co -pay 81

Paying Physicians' for Hospitals Services Reimbursement 82

A/R 83

Charges 84

Payment for Healthcare Receivables Fee-for Service Capitation Cost-based reimbursement Charge-based reimbursement Prospective payment DRG - Hospital Per procedure APC - Hospital or ambulatory care facility RBRVS - physicians Case rate - hosptial or physician Per diem - hospital Bundled payment - hospital and physician 85

Prospective Payment Systems (PPS) Diagnostic Related Groups (DRGs Ambulatory Payment Classifications (APCs) Resource-Based Relative Value Scale (RBRVS) Primary Procedure Rate 86

Per Diem Payment 87

Payment Under the ACA Value-Based Payment Bundled Payment 88

Capitation 89

Summary of Reimbursement Risks and Incentives Provider incentive to increase volume of services Provider incentive to maximize costs Cost Based Charge Based DR G Per Procedure P e r D ie m Provider incentive to decrease volume of services Provider incentive to minimize costs Bundled Payment Capitation Providers Lowest financial risk Lowest financial risk Payers Highest financial risk Lowest financial risk Consumers Risk of overtreatment Risk of under treatment Employers Risk of high costs from inefficiency Risk of high costs from under treatment 90

Billing and Collecting Processes in Health Care Revenue Cycle Post- Visit Activities Pre-Visit Activities During Visit Activities 91

Pre-Visit Revenue Cycle Activities Pre-Visit Activities Patient scheduling Eligibility verification & Pre-certification Registration Point-of-service collections 92

Revenue Cycle Activities During the Patient Visit During the Patient Visit Provide care to patient Document care to patient Utilization review Charge capture Discharge Medical record completion 93

Post-Patient Visit Revenue Cycle Activities Post-Visit Medical record analysis and coding Billing Payment processing by health plan (claims adjudication) Claim logging Eligibility Adjudication Remittance 94

Post-Patient Visit Revenue Cycle Activities (cont.) Post Visit (cont.) Denial management Payment posting and follow up Account closure 95

Working Capital Management 96

Additional Financial Resources Short-Term Accounts payable Line of credit Longer Term Mortgage or bond issuance Lease 97

Certified Healthcare Financial Professional Course 6: Looking to the Future

YOU will be able to Learning Objectives Describe some of the new healthcare reimbursement models; Define the use of business intelligence in the context of health care; Describe how finance professionals, physicians and payers will need to work together; 99

YOU will be able to Learning Objectives Define the trend of population health in future healthcare delivery models; and Apply the lessons learned in this course to your future work in the healthcare industry. 100

Evolving Models of Reimbursement Fee-For-Service reimbursement = Incentive to providers to provide more services (?!) 102

Evolving Models 103

Network of providers Share financial and clinical responsibilities Serve a defined group of patients Key feature: Primary Care physicians in a lead role 104

ACO Challenges Patient Loyalty Managing costs and quality of care of non- ACO providers Bundled payments 105

Bundled Payment Essentially, Fee-for-Service Collaborative care delivery meets funding autonomy Collaborate on rewards and risks 106

The Point of Medical Homes, ACOs and Bundled Payments Providers working together to generate positive patient outcomes Decrease incentive for providers to strive to provide an increasing volume of services Increase incentive to focus on quality of outcomes and value for the prices paid 107

BA and BI in Health Care 108

Key Factors: Data Strategy Business Intelligence Implementation Determine metrics to monitor: Business and strategic plans Access (and timeliness) to data for decision makers Maintaining data integrity 109

Aligning to Drive Value value : quality in relation to the total payment for care 110

Financial and Clinical Alignment 111

Population Health Management 112

Implications Rapid change in business model: From volume to value New skill sets required: Collaborative team skills Multidisciplinary approaches Optimizing costs Big picture: less about numbers alone and more about viewing the context of the numbers 113

New Skills (cont) Implications Insight into clinical sciences i.e. professional practice models Clinical professional must help inform business decisions Focus: benefit the business and the patient 114

Certified Healthcare Financial Professional Module II Operational Excellence

Module II: Operational Excellence 116

WIIFM? YOU prove to YOURSELF that you are Big-Picture Multi-disciplinary perspective Business savvy 117

Operational Excellence: The Approach 8 Random business case studies 7 multiple choice test-items for each cases study 56 total questions Responses to the case studies test-items are aggregated and the a score calculated 90 minutes 118

Tips for Learning Know the context: Pay attention to industry Understand your organizations strategic plan Familiarize yourself with the business goals of the organization what are the barriers? 119

Get fully involved Approach your Job like a Case Study Practice applying new skills Seek out feedback 120

Skills for Module II Job skills: Problem Solving Get the details and the business context Identify the stakeholders what do they want? Outline business goals what are the challenges? Seek out data, evidence, dynamics to understand what is happening Make a recommendation on a solution 121

Module II Payer Case Studies Payer Business Environment Accountable Care Organizations Payer Cancers Premium Growth in a Shifting Environment Denials of coverage Limitations on profits Health Insurance Exchanges Payer consolidations Unsustainable rates; Payer Differentiation Rise of Business Process Outsourcing 122

Module II Physician Case Studies Physician Business Environment Consumerism and physicians Physician Hospital alignment Demand for Physician Collegiality Emerging Ancillary Positions Physician Burnout Physician Independence Physician Shortages (Leakage) Physicians as Entrepreneurs Reform and Physician Liability Physician Hospital Financial Relationships 123

Module II Provider Case Studies Provider Business Environment Hospital Consolidations Hospital Physician Alignment Hospital Facing Bankruptcy Provider- Payer Consolidations Physician Engagement and Leadership Integrated Care Delivery Physicians Remaining Independent Accountable Care Organizations Sustainability of Physician Employment 124

Plus / Deltas 125