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The Healthcare System in the US: Financial Basics

The healthcare system in the US operates under several complex mechanisms that define the approaches to the financial management of its institutions. This aspect identifies the strategy for accounting, which is similar to that of any other for-profit or non-profit organization. Essential features that a financial manager should consider is the objectives of a particular establishment and contracts with third parties that provide payments for services. This lecture aims to examine Medicare, Medicaid, and Managed Care and provide information regarding components that have to be considered when creating a financial plan for a healthcare organization.

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Primary Characteristics

For a financial manager, it is crucial to consider the goal that an organization has. An essential feature of the healthcare industry in the state is that both for-profit businesses, non-profit organizations, and enterprises funded by the government can provide services to patients (Harrison & Harrison, 2013). Each of these establishments has a different objective; thus the crucial aspects of managing financials will differ.

Healthcare reimbursement in the US utilizes a variety of payment mechanisms the aim of which is to “remunerate on the basis of the quantity, complexity, and quality of care provided” (Britton, 2015, p. 549). The primary insurance systems are Medicare, Medicaid, and Managed Care.

Financial management of a healthcare establishment is similar to the one of any business; thus, the balance sheet and income statement are its crucial components. However, the distinct difference to consider is the source of payments that provides financial compensation for services. Within this industry, it is a third party, either an insurance company or a governmental initiative such as Medicare or Medicaid (Harrison & Harrison, 2013). The primary objective that should be considered when managing the finances of a healthcare establishment is the mentioned third party contracts, which requires specific systems.


The program was established to provide health coverage for vulnerable populations, more specifically to those with low income. Medicaid was authorized together with Medicare in 1965 “by Title XIX of the Social Security Act” (“Medicaid,” n.d., para. 1). It should be noted that although Medicaid is established nationwide, each state provides specific guidelines for the program’s execution and eligibility. Some changes to the program were made when the Affordable Care Act was introduced.

Currently, individuals are eligible for Medicaid if their income is below the minimum level for the state. Together with Medicaid, the government created the Center for Medicaid and CHIP Services (CMCS), Children’s Health Insurance Program (CHIP), and the Basic Health Program (BHP) (“Medicaid,” n.d.). The reimbursement procedures differ due to the possibility of establishing specific guidelines that exist under Medicaid.

In general, to receive reimbursement for the services a healthcare establishment should fill a claim where services and procedures that were provided to patients are described. Two primary components have to be given to the state – information regarding a person and data on a health provider. Additionally, the process includes identifying specific codes such as International Classification of Diseases, Place of Service, Healthcare Common Procedure Coding System (HCPCS) Level II, and Current Procedural Terminology (CPT) (“Medicare,” n.d.).

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Each step requires a thorough understanding of code systems and specific requirements of a particular state, which results in Medicaid being a complicated system for financial specialists.

The benefits of the program for patients are in the fact that eligible individuals are able to access healthcare services, while the organizations can receive payment for their services from the government. According to the Executive Office of Health and Human Services “claims are processed for payment approximately every two weeks,” and deposits are automatically sent to an electronic account specified by the provider (“Claim processing,” n.d.). Thus, Medicaid reimbursement can be received within a 14 days period.


It is an insurance program provided by the government for people older than sixty-five years. Social security and payroll taxes are providing financials for Medicare. There are four components of health services that are distinguished by Medicare and referred to as parts A, B, C, and D. Those include inpatient, outpatient, Medicare medical advantage, and prescription drugs respectively. The first aspect that should be considered when examining Medicare reimbursement is that each type of a provider is paid by a separate system and rate. The difference between Medicaid and Medicare is that in the latter reimbursement claims are filled on behalf of a healthcare provider.

Medicare Administrative Contractor (MAC) has a vital role in reimbursement because the facility accepts Part A and Part B claims in a particular state. The process can take up to thirty days (“Claims processing,” n.d.).

An important aspect to consider with Medicare is that several components can be paid directly by a patient. Under Part A claims those include additional fees, deductibles, and copays that are billed after Medicare provides a payment to the provider. For Part B claims, the program can provide pay to either patient or healthcare establishments. The process depends on which party files the form, and in case its done by a healthcare provider, the establishment will receive eighty percent of the required financing.

The patient who received services should cover the remaining twenty percent of the bill. In cases when patient assigns the form “provider can only charge you up to 15% over the amount that non-participating providers are paid” (“Lower costs with the assignment,” n.d., para. 5). The program provides payments on behalf of a patient; thus, it is a single-payer system. A financial manager has to input the information mentioned above and create the CMS-1500 claim, which can be printed, sent via email, or submitted to the system electronically.

To receive a Medicare reimbursement a provider should fill out an electronic form in accordance with the Health Insurance Portability and Accountability Act. The CMS-15000 form for payment claim must be filled, including insurance number, description of services that were provided, charged fees, and reason codes. Patients need to fill out CMS 1490 form if they need to receive payment under Part C of Medicare.

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The final step is submitting the information electronically to the system. Overall, the most complicated step is ensuring that specific codes in regards to patient illness and treatment are filled out correctly. Similarly to Medicaid, Medicare ensures that citizens can receive healthcare, which is the primary benefit of the program for both patients and healthcare establishments.

Managed Care

It is an insurance program aimed at creating a network of healthcare providers that would offer services to patients at reduced costs. Managed Care is a program “organized to manage cost, utilization, and quality” by establishing a network of healthcare organizations that operate under a specific contract (“Managed care,” n.d.). Thus, the amount of payment covered by Managed Care depends on the contract’s rules and can vary significantly depending on a network. Health Maintenance Organizations (HMO), Preferred Provider Organizations (PPO), and Point of Service (POS) are the three types of plans that are used within this system (“Managed care,” n.d.). The payments and procedures for reimbursement are arranged with accordance to a particular network’s rules.

PPO allows an individual to choose a specific clinic from a list, which usually leads to lower insurance payments for patients. The process of reimbursement in PPO network implies paying for services while those are being received by a patient. In most cases, the healthcare establishment submits a bill directly to the insurer. The company provides reimbursement directly to the provider, while a patient may be required to give a co-payment. The process of claiming a PPO reimbursement implies that physicians agree on a specific fee for their services.

HMO system operates on the basis of prepaid services, which implies a monthly fee paid by members. These costs have to transferred to HMO both if the services were provided or nor not in a given period (“Managed care,” n.d.).

Due to the specifics of the system patients are not required to pay for deductibles; instead, they are billed for nominal co-payments. In this case, care providers receive a capitation payment each month as their reimbursement. PPO and HMO characteristic are combined in the POS system. Within it, an individual can choose a primary care provider from the network. The insurance company pays for the service while the patient may need to provide a minimal co-payment in some cases (“Managed care,” n.d.). The Managed Care system typically processes claims within a month.

An organization has to provide customer and patient information and health provider information. Additionally, date, type, and description of a particular service should be included as part of the information. The steps of the process are not complicated and require an understanding of the requirements that a particular insurance company has (“Claims processing,” n.d.). After completion, the form should be mailed to the insurer. The program has many benefits because it allows to control and lower costs while maintaining a high quality of services for patients.


It can be concluded that each healthcare reimbursement system has specific characteristics that define the process of claiming and receiving payment. Medicare and Medicaid systems help vulnerable populations receive healthcare services by covering the majority of costs. Managed Care allows patients to choose between HMO, PPO, or POS types of health establishments network; thus, the reimbursement process differs depending on a specific kind of plan.


Britton J. R. (2015). Healthcare reimbursement and quality improvement: Integration using the electronic medical record comment on “fee-for-service payment–an evil practice that must be stamped out?” International Journal of Health Policy and Management, 4(8), 549-541. Web.

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Claims processing. (n.d.). Web.

Harrison, C., & Harrison, W. P. (2013). Introduction to healthcare finance and accounting. Clifton Park, NY: Cengage Learning/Delmar.

Lower costs with assignment. (n.d.). 

Managed care. (n.d.). 

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