Hospital Organization

Hospitals comprehend to be the largest segment of the wellness burster industry, measured by economic volume and auction pitch of a capacious range of professional go. HEALTH CARE SERVICES The different segments of the wellness upkeep delivery system provide non-homogeneous combinations of function. The particular(prenominal) combination offered depends on a variety factors that prevail in a location, including show and local licensing laws, reimbursement structures, availability of medical personnel and facilities, and the demographic details ( much(prenominal) as age and industrial distrisolelyion) of the potential affected role population.The unique aspect of the health cargon industry from an visited account perspective is the health c atomic number 18 delivery system the revenue cycle. The early(a) cycles atomic number 18 essentially similar to those in manufacturing or selling enterprises. Services ar generally described by a six- take compartmentalization. Those levels indicate, only do not strictly define, the type of organization, the level of medical treatment involved, or the severity of, or prognosis for, the medical situation. The levels argon Preventive wellness education and prevention chopines provided by chafe and other organizations, such as schools and family planning clinics. Primary Early staining and routine treatment of health problems, such as argon a lot provided by physicians offices, industrial and school health units, and hospital out unhurried and emergency departments. secondary coil Acute condole with services, ordinaryly provided by medical personnel, through hospitals, victimization elaborate diagnostic and treatment procedures. Tertiary Highly technical services, such as for psychiatric and chronic diseases, provided through specialty facilities and doctrine hospitals. revitalizing Rehabilitative and follow-up acre, typically provided by home health agencies, treat homes, and halfway ho ri ding habits. Continuing Long-term, chronic guard, typically provided by geriatric solar day give c are centers and nursing homes. The growing economic magnitude of the health care system has led to increased regulatory activities foc exploitation on health care. This increase in regulation interacts with a growing demand for much health care and for increasingly technical and complex methods of providing it. The largest and more or less unmixed regulatory activity involves reimbursement by order g all overnments. Other regulatory activities are concerned in set outing degrees with the availability and quality of health care.thither are go on initiatives by state government to link such regulations to reimbursement in order to enforce compliance. The presence of multiple regulatory systems influences the demand for and the record of professional bill services required by health care institutions. Those systems often emphasize narrationing requirements, and health care in stitutions tend to flock compliance reporting as a major use of accounting information. analyzeing services in particular are affected because the regulatory agencies believe heavily on the attest activities of the health care institutions independent accountant.STRUCTURE AND ORGANIZATION Patient care is the essential function of a hospital. Other vital roles include medical education and research. Recently, many large general hospitals select become total community health centers, providing a wide range of out persevering role services in addition to traditional social classning care. One characteristic of the growth of the health center concept is the branch of such diverse related organizations as real estate guardianship companies and medical management companies.These organizations are a response to changes in the reimbursement, regulatory, revenue and financial environment facing hospital management. Such nontraditional organizational structures and patterns of ac tivity are needed to provide adequate financial re commencements to sustenance the delivery of health care by hospitals. Some observers see these changes as leading to major multihospital systems, so that in the future a a few(prenominal) major health entities whitethorn control the majority of the hospital beds in the country. Hospitals may be classified by type of ownership and climate of operation, as follows Government Hospitals soundd by governmental agencies and providing specialized services to specific groups and their dependents, such as the military, veterans, government employees, the indigent and the mentally ill. Investor-owned (proprietary) Hospitals owned by individual proprietors or groups of proprietors or by the public through line of work ownership. The objective of such hospitals is to operate for profit. Voluntary nonprofit Hospitals operated under the sponsorship of a community, religious denomination, or other nonprofit entity.This is the largest categ ory (in number of hospitals), comprising twain major types teaching hospitals and community hospitals. a. Teaching hospitals Generally university-related hospitals, their health care service activities combine education, research and a handsome range of advance(a) patient services. Large community hospitals affiliated with medical schools and offering confine and resident programs are also considered teaching hospitals. b. Community hospitals Hospitals that traditionally are found to serve a specific area, such as a city, town, or county, and normally offer more limited services than teaching hospitals do.Hospitals may also be categorized by the type of care provided, as short (acute), general, long-term general, psychiatric, and other special care. The mode of a hospitals operation and type of care occur in various combinations, such as government psychiatric or short-term pediatric. THIRD-PARTY REIMBURSEMENT OR PAYMENT A major difference between health care entities and co mmercial enterprises is that the recipient of health care services the patient in most cases does not pay directly for the services. Instead, allowance is do by some other organization.The payment is often referred to as a troika party. Typically, a hospitals most crucial patient revenue sources are its reimbursement contracts with third parties. In each case, in that location is an identifiable group of patients whose health care services are compensable for, in whole or in part, by the third party. The marrow of the reimbursement, as well as the pensionable class of patients and other administrative matters, is covered by regulations or contracts. The major third parties are governmental agencies. Of these, the state government is the largest.Medicard is state-administered third-party reimbursement program designed to underwrite hospital be of the medically indigent and those eligible for certain types of public welfare. Medicare is a third-party reimbursement program a dministered by the Health Care Financing Administration of the Department of Health and Human Services. State governments sop up long been involved in reimbursement for health care services, and their involvement has increased through participation in the Medicard Program. Recently, the continued growth of third-party expenditures for reimbursement has fostered a number of state-based woo control programs.Of increasing splendour are a wide variety of controls at the state level, usually referred to by terms such as state rate control. The state government has been quite active in encouraging or encouraging such programs. The impact of governmental and commercial third parties on hospital is affected by when the reimbursement or payment is determined and the basis of the reimbursement or payment. Third-party reimbursement systems are either retrospective or likely. Retrospective refers to third-party reimbursement systems that determine the get along to be paid after the servic es have been performed.In prospective payment systems, the amount is determined before the services have been performed. Reimbursements or payments are usually based on either the cost (to the hospital) of services performed for eligible patients or the amounts charged by the hospital for such services. The regulations or contracts of the third party contain specific renders designed to ensure that further certain costs or charges enter into the determination of the reimbursement or payment. There are also provisions to ensure that reimbursement or payment is make only for services to eligible patients.Third-party payers can be expected to continue to refine their approach as the volume of payments increases. The difference between the hospitals open up rates for services rendered and the amounts received or receivable from third-party payers known as a contr unquestionable allowance and is shown as a deduction from crude(a) patient revenues on the statement of revenues and expe nses. PAYMENTS AND SETTLEMENTS Under many retrospective reimbursement and prospective payment contracts, the hospital is paid throughout the year on an stave basis.The payment is based on estimates of costs expected to be incurred during the year in serving patients. At the end of the fiscal year, a reimbursement report is filed with each third party, and any difference between the final cost settlements, by providing an independent basis for third-party reliance on the hospitals accounting records. Reimbursement reports typically include cost-finding calculations that segregate direct costs by cost centers and allocate smash-up costs from indirect or nonrevenue-producing centers to revenue-producing centers, using one of several allocation methods.Departments that provide direct patient services such as nursing, laboratory, and radiology are examples of revenue-producing centers, while support or overhead units such as laundry, dietary, and administrative services are typical non revenue-producing cost centers. This allocation produces an operating cost for each revenue-producing center, consisting of its direct costs plus its share of indirect costs. After all costs have been assigned to revenue-producing centers, they are apportioned to the various third-party payers. STATISTICSDepartmental activity or exercise statistics are employed in most cost-finding methods used to allocate overhead costs to revenue-producing centers. Some statistics, such as square feet of space, may ride out unchanged from prior years. The attender should, barely, inquire whether changes have occurred. Simple expression is right-hand a new wing, department, or floor plan federal agency that statistics must be updated. Certain statistical information is generated by the various transaction cycles. Examples of statistics that are generated in the buying cycle are payroll department pesos restrain to allocate employee benefits, health and welfare costs, and other requital costs. Hours worked Used to allocate nursing administration costs and sometimes employee cafeteria costs. Full-time same employees (FTE) Sometimes used to allocate employee cafeteria costs. Other statistics utilized in cost-finding and third-party reimbursement are generated by departmental activity studies and surveys. Examples of such statistics are pounds of laundry, housekeeping hours of service, social service hours, and cost of drugs and medical and surgical supplies issued to nursing stations.Medicare regulations require a study of at least four 2-week periods annually. FUND ACCOUNTING The size up guide prescribes the use of fund accounting for the external financial statements of nongovernment, not-for-profit hospitals. computer storage accounting entails the maintenance of separate or group accounts for hospital resources fit to the spending objectives set by donors, other outside sources, or the gameboard of trustees. (Investor-owned hospitals are regarded as busine ss enterprises and report as such. ) Two broad classes of funds are used Unrestricted funds, which encompass assets other than those that are restricted, as defined below.Many authorities believe that this class of funds should be referred to as general and that the term unrestricted is misleading, since restrictions other than those enforce by donors or grantors may be placed on assets of these funds. A capture account maintained under a bond indenture provision is an example of an asset that is included in unrestricted funds tho is restricted as to use. Restricted funds, which encompass assets that are subject to restrictions imposed by specified external parties, that is, donors or grantors. Examples are plant shift and endowment funds. audit STRATEGY AND RISK ASSESSMENTIn many ways, the accounting systems and controls that operate in health care institutions are the same as those in any other industry. Because of regulation by governmental agencies and consumer group pressur es, however audit concerns for hospital client is grow considerably. Those concerns, fee pressures because of the nonprofit reputation of many institutions, and competition among firms all create a need for this audit analysis to streamline audit procedures and improve audit efficiency as much as assertable. In developing an audit strategy for a hospital engagement, the auditor had a thorough appreciation of the patient mix.The geographic location of the hospital, the range of service it provides, and state regulations influence the age, financial status, and insurance coverage of the patient population. In particular, the audit strategy will transfigure depending on whether the services are rendered on a charge-paying or cost-reimbursement basis. If most of the hospitals services will be paid on a cost-reimbursement basis the properness of costs incurred is a primary concern of the auditor. The the true of departmental revenue classification is also alpha in the cost appo rtionment process.The payment is made either directly by the patient or by third parties based on actual charges bill auditing statistical data and departmental cost classification is deemphasized since those data do not affect revenue. In planning hospital audit, it is important to have an get wording of the hospitals current financial postal service and financial trends. Analyzing financial ratios may lead to a adequateer understanding of the hospitals operations and problems than could be obtained from reviewing raw data. It is also helpful to compare the hospitals operations and financial position with those of the other institutions.Inherent risk in considerations in the health care industry revolves approximately the third-party reimbursement structure. A key concern is billing procedures, which are complicated by the very significant involvement of third parties. TYPICAL TRANSACTIONS, INTERNAL CONTROLS, AND AUDIT TESTS PATIENT REVENUE CYCLE The major source of revenues i n a hospital is services provided to patients. Revenue was recorded, at hospitals established rate, on the accrual basis at the time services are performed. Patient service revenues are recorded separately by source (laboratory revenues) and by patient type (inpatient or outpatient).Additionally, the source of payment of each patient is essential information that was captured by the accounting system. Hospitals generally bill inpatients after completion of a patients stay in the hospital. The actual amount received by the hospital may vary depending on contractual arrangements between the hospital and the patient or a third-party payer. Services rendered to private-paying patients are billed at the established rates, except that ingenuity allowances may be granted to doctors, employees, or members of religious orders and charity allowances may be granted as determined by patient call for and hospital policy.To understand the hospitals patient revenue cycle, the auditor should bec ome familiar with the various functions and departments that may serve patients and should also understand how those functions and departments relate to accounting for patient revenue. SUBSTANTIVE TESTS OF ACCOUNTS RECEIVABLE Hospital receivables have several characteristics not normally found in receivables of commercial organizations. First, full-rate charges to patients for services received may be settled for an amount less than the full rate because of contractual arrangements with third-party payers courtesy, charity, or other policy discounts.In addition, large amounts of receivables are paid by third-parties, and payment may be made by a single payer or combination of payers (e. g. , commercial insurance, Medicare, Medicard, workers compensation and the patient. ) Since a patient may have more than one insurer, it is possible for duplicate payments to be made on the patients account. This impressions in credit balances in accounts receivable, which are characteristic of hos pitals with aggressive billing procedures.The auditor should review the components of these credit balances, and if they are significant, consider reclassifying them. Since the hospital must render duplicate payments, the auditor should review controls over issuance and use of regress checks to determine that they are for valid credit balances and that they are payable to the straitlaced payee. In most hospitals, accounts receivable are classified according to the patients billing status, generally using the following categories InpatientAdmitted but not discharged (commonly referred to as in-house patients) Discharged but not billed (accounts awaiting final or late charges, or unbilled as a result of a backlog in billing procedures which might indicate a control weakness) Discharged and billed Outpatient Unbilled Billed These categories of inpatients and outpatients may be expanded further to indicate private-paying status or third-party responsibility for payment. The existenc e and accuracy of accounts receivable are normally tried by reviewing subsequent property receipts.The validity of admitted-but-not discharged patient receivables can be tested by comparing accounts with the daily census report or by relying on compliance tests of admitting function. Confirming balances with patients may be difficult, and the auditor should consider verificatory other items, such as number of days spent in the hospital, types of insurance coverage, or, at least, the policy number and insurance company. This information confirms that the patient was in the hospital. Negative confirmations generally produce adequate results for the self-pay or patient portion of the bill.Typical responses for the third-party portion state that the patient believes the bill will be paid by the insurance company or that the patient is unable(p) to confirm because of insufficient information. NONPATIENT REVENUES Revenues from sources other than patient charges consist of interest on invested funds, unrestricted gifts and grants, transfers from restricted funds, and expenditures of restricted fund assets for the benefit of unrestricted (general) funds. Audit steps for material nonpatient revenues should include, but not limited to Confirming investment funds activity with banks or an external trustee. Reviewing date and documents underlying gifts, grants, and bequests, such as board minutes, correspondence, and acknowledgement receipts. Reviewing research or grant documentation. Confirming pledges (or differently obtaining satisfaction as to their existence) and evaluating their collectability. BUYING CYCLE Payroll. Hospital employees may be classified as professional and nonprofessional. Examples of professional staff are registered nurses and commissioned vocational nurses. Nonprofessional employees include orderlies, housekeeping and maintenance personnel, and kitchen staff.Control over some(prenominal) professional and nonprofessional time is critical sin ce salary costs fabricate a significant portion of hospital costs. Generally, the same payroll audit procedures used in other organizations of comparable size also apply to hospitals. Compliance testing of total payroll costs should include tests of controls over classification of costs by department, which is important for purposes of reimbursement and also for cost reporting. Misclassification of a reimbursable cost to a no reimbursable cost center could result in failure to receive reimbursement for that cost.The auditor typically reviews the appropriateness of the account distribution and traces amounts to the payroll register or distribution summaries. Those registers or summaries are tested for mathematical accuracy and then agreed to the appropriate general ledger accounts. Other Expenses. Hospital expenses are typically classified by departmental function (such as nursing services and laboratory services). Proper classification of costs by department is important for fina ncial statement purposes as well as cost reporting and reimbursement.The auditor should test the propriety of the general ledger account distribution by reference to purchase documentation. Fixed Assets. Controls over the acquisition of property, plant, and equipment by a hospital should be the same for a commercial enterprise. Some hospital departments own and use expensive, highly specialized equipment, such as nuclear magnetic rapport devices. Department heads should, of course, but that involved in capital budgeting and purchasing decisions, but that involvement should not extend to overriding controls that have been instituted for purchases generally.