Revenue Management in Health Care Organizations

Introduction

Health care organizations require revenue for them to offer quality services. The organizations obtain income from different sources. They include government programs, private payers, and investment. The health care organizations do not negotiate on payment rates for the government programs. However, they have an influence over the payment rates by private payers (Gesme & Wiseman, 2013). The organizations negotiate based on the overall changes in the institution, t6he payer’s claims history, and level of competition. Health care organizations require an efficient model of revenue management and forecasting. Changing the model affects the organizations’ capacity to manage and account for income and expenditures. In return, it becomes hard for the organizations to create excellent financial plans.

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Sources of Revenue

Sources of income refer to the channels that the health care institutions use to get money. According to Harrington, Hauser, Olney, and Rosenau (2011), health care organizations require generating revenue to guarantee provision of quality services. Health care institutions have a compound system of income generation. The biggest share of health care revenue comes from the government. Countries have laws that set the payment rate for the government programs. According to Harrington et al. (2011), the revenue from the government does not cater for the entire health expenditure. Besides public support, health care organizations also charge patients for the service delivered.

The money obtained from patients is referred to as operating revenue. Harrington et al. (2011) claim that operating income is a critical source of finance to health care facilities. In the state of Florida, operating revenue is the primary source of income to hospitals (Werner, Kolstad, Stuart, & Polsky, 201 1). Other sources of income to health care organizations include “research grants, returns on investments, proceeds from gift shops, and donations” (Werner et al., 2011, p. 694). The question on revenue streams has been of significant help to this study. It did not only contribute to identifying the primary sources of income for health care organizations but also understanding the significance of revenue to the institutions. The question facilitated the understanding of how health care organizations generate revenue.

Negotiation of Payment Rates

Health care organizations acquire operating revenue from two sources. They are the private and public payers. The public payers constitute the health insurance schemes like Medicaid and Medicare that are government sponsored. Conversely, private payers comprise self-payments, employer-sponsored medical cover, and personal health insurance. Health care facilities do not negotiate with the public payers on payment rates (Devers et al., 2012). Administrative rules and laws set the payment rates for Medicaid and Medicare. Medicare pays a certain amount of money for each patient. The amount paid depends on “the patient’s Diagnostic Related Group (DRG) that depends on an individual’s health condition” (Devers et al., 2012, p. 421). On the other hand, the payment rates for Medicaid vary from one state to another.

The health care organizations bargain payment rates with private health insurance corporations. Devers et al. (2012) posit, “The hospitals ensure that private insurance companies pay high rate to cushion themselves from bad debt, public payer underpayment, and charity care” (p. 439). Devers et al. (2012) allege that health care organizations consider net changes across the institutions when negotiating for payment rates. It helps the organization to arrive at a robust contract. Health care facilities review the claims history of existing payers as they negotiate for new payment rates. They consider the amount of money that a payer brings to the institution. The revenue is split into categories like outpatient care, inpatient care, and other service lines. Understanding the amount of money that a payer spends on particular service lines helps the health care organization to establish the appropriate payment rates. Gesme and Wiseman (2013) claim that health care facilities also scrutinize denials to ensure that the negotiation process is transparent. It helps to establish a profitable relationship amid payers and health care organizations.

Gesme and Wiseman (2013) maintain that health care organizations regard preparation and due diligence as the foundation of negotiation. Most health care organizations enter into negotiations with an open mind. It enables the parties to the negotiation to strike a deal that benefits all. At times, the hospitals are forced to compromise to arrive at an arrangement that is mutually beneficial. Some health care institutions take advantage of the services they deliver. In a situation where a majority of the payer’s patients rely on one health facility, the institution has an upper hand in the negotiation. The hospital settles for a high payment rate (Gesme & Wiseman, 2013). The question on how hospitals negotiate rates with payers was significant to this research. The question helped to understand the preparations that hospital makes before entering into negotiations. Additionally, the issue contributed to identifying the different leverages that hospitals apply during negotiation.

Challenges of Changing Models

Frenk and Moon (2013) claim that changing the models in managing and forecasting revenues results in numerous problems. It becomes hard for the health care organization to ascertain the amount of money that it spends on a particular service. Application of a single model helps the health care organization to maintain a consistent record of expenditures of individual services. Additionally, it becomes possible for the organization to determine the revenue generated through different services. Thus, it becomes easy for the organization to predict and plan for future revenues.

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According to Frenk and Moon (2013), changing models of management and forecast of income makes it hard for the health care organization to keep a consistent record of revenue and expenditures. Thus, it becomes difficult for the organization to monitor the trend of income generation and forecast future income. Frenk and Moon (2013) argue that changing the model of revenue administration and forecast amounts to introducing a new system of income management. Thus, a health care organization cannot use past records to make decisions on matters that affect the new model of revenue management and forecast.

Werner et al. (2011) claim that numerous factors influence the sources of revenue for health care institutions. They include government regulations, consumer-guided insurance plans, and co-payments among others. These factors affect the cycle of income of the health care organizations. Changing the mode of revenue management and forecast impacts the hospital’s ability to fortify its cash flow prospects. Additionally, it becomes hard for the health care organization to authenticate and process necessary account information (Werner et al., 2011).

Changing the model of revenue management and forecast may interfere with the organization’s budget. In return, it would be hard for the health care organization to predict cash flow or disburse money promptly. Werner et al. (2011) claim that it would be hard for health care organization to predict possible cash flow challenges and take requisite measures. The question on the challenges of changing models in managing and forecasting revenues has facilitated the understanding of the significance of money management to health care organizations. The question has helped to bring out the complexities associated with revenue management and projection in health care settings.

Conclusion

Health care organizations obtain income from different sources. They include government programs, investment, proceeds from gift shops and private payers. The organizations negotiate on the payment rates by private payers based on the degree of competition, claims history of the payers and changes in the organization. A steady model of revenue management and forecast is paramount to health care organizations. Changing the model impacts the organization’s ability to create an efficient financial plan.

References

Devers, K., Casalino, L., Rudell, L., Stoddard, J., Brewster, L., & Lake, T. (2012). Hospitals negotiating leverage with health plans: How and why has it changed? Health Services Research, 38(1), 419-446.

Frenk, J., & Moon, S. (2013). Governance challenges in global health. The New England Journal of Medicine, 368(1), 936-942.

Gesme, D., & Wiseman, M. (2013). How to negotiate with health care plans. Journal of Oncology Practice, 6(4), 220-222.

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Harrington, C., Hauser, C., Olney, B., & Rosenau, P. (2011). Ownership, financing, and management strategies of the ten largest for-profit nursing home chains in the United States. International Journal of Health Services, 41(4), 725-746.

Werner, R., Kolstad, J., Stuart, E., & Polsky, D. (2011). The effect of pay-for-performance in hospitals: Lessons for quality improvement. Health Affairs, 30(4), 690-698.

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StudyCorgi. (2021, February 10). Revenue Management in Health Care Organizations. Retrieved from https://studycorgi.com/revenue-management-in-health-care-organizations/

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StudyCorgi. 2021. "Revenue Management in Health Care Organizations." February 10, 2021. https://studycorgi.com/revenue-management-in-health-care-organizations/.

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StudyCorgi. (2021) 'Revenue Management in Health Care Organizations'. 10 February.

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