Good Essay About Healthcare Financial Management And Decision Making

Type of paper: Essay

Topic: Nursing, Money, Payment, Health, Services, Medicine, Business, Hospital

Pages: 5

Words: 1375

Published: 2021/02/17


Healthcare industry is subject to changes relating to service cost management with the changes involving regulation and policies ranging from federal to the state as well as the payment systems; all affecting healthcare institutions decision-making in addiion t o budgeting. The analysis used the case of West Florida Hospital that offers an extensive array of treatment and rehabilitative services mainly providing services to individuals having activity limitations. The institution has been identified to have been applying flexible budgeting, as well as a combination of pay systems.
Those systems include the use of codes in billing as well as the application of the episode and comprehensive pay systems. That is given is the objective of enhancing healthcare quality as well as maintaining flexibility for adopting changes in payments systems and policies. However, the hospital has a low level service to Medicare patients. In addition, some of the policies and pay systems have been identified to have had great benefits in easing the payment process. However, the policies such as those involving premium reimbursements make payment systems complex for the institutions. Finally, the analysis have identified that the systems and the policies change affects key financial management functions including management of contracts and planning for investments and risk management.


Healthcare industry has been subject to various changes involving service cost management. Those changes including regulation, as well as policies ranging from federal to the state, continue to affect the payment systems, as well as healthcare institutions budgeting. In that view, this report presents and analysis of the effect that the payment systems have on healthcare institutions' financial management as well as the budgeting systems. To achieve the objective, the analysis uses the case of West Florida Hospital and summarizes payment systems as well as policies’ change and their effects.


West Florida Rehabilitation Institute Description
The Institute has an extensive array of treatment and rehabilitative services mainly providing services to individuals having activity limitations. It is licensed by Florida Department of Health as well as Rehabilitation Services and is the only comprehensive physical medicine and rehabilitation hospital in Pensacola area. Their programs focus on returning patients to their maximum independence with the guidance from professionals who specialize in physical medicine and rehabilitation. The Institute is accredited by Joint Commission on Accreditation of Hospitals and has consistently met and exceeded the regional as well as national standards for rehabilitation.  It is adjacent to the West Florida acute care hospital that provides medical support services such as x-ray, lab services, and emergency medical care. Levels of Care include acute Inpatient Services, community Support Groups and Outpatient Services in addition Outpatient Services. It utilizes highly-specialized team approach for patient care as well as in offering wide range of treatments and services for patients who are recovering from Brain Injuries, Stroke, Spinal Cord Injuries, Amputations, Total Joint Surgeries and multiple Fractures. The hospital uses various payment systems with the total Medicaid Patients treated in 2013 being 15,713 with a Medicaid Market Share of 13.21%. The Indigent Patients Treated were 13,110 with an Indigent Patients Market Share of 27.52%. In addition, several insurance plans are accepted by the hospital, including Medicare, Blue Cross of Alabama, Blue Cross of Florida and others. (West Florida, 2013)
For the patients who do not meet the criteria of Charity Discount Policy and are expected to make payment for services out of their pocket, West Florida Hospital provides a managed care like a discount. All patients who are Uninsured; not including those receiving some cosmetic procedures and some given package procedures are offered an Uninsured Discount. (WestFlorida, 2015b) In that respect, the hospital is subject to the effects of changes in policies as well as payment systems applicable to its services.

Medicare payment systems

Having been faced with sharply increasing Medicare expenses in the early 1980s, the federal government fully revised the means by which Medicare pays hospitals for treating the elderly patients. The Health Care Financing Administration, which is the government agency, changed from a retrospective fee-for-service to a prospective payment system (PPS). Hospitals receive a fixed amount under PPS for treating patients diagnosed with a certain illness, despite the type of care received or the length of stay. PPS proved to be effective in curbing growth in healthcare cost. However, due to the fact that it included incentives for hospitals to shorten patients` stays and to always choose the cheapest methods of care, PPS raised issues about possible decrease in the quality of care for the Medicare patients who are hospitalized. (Department of Health, 2007).
A study by RAND and the University of California, Los Angeles, looked at the question of how the reforms of PPS affected the quality of care hospitals for Medicare patients as well as the institutions finance management in. It found that, PPS had no negative impact on outcomes of patients and did not change a trend that is already in existence toward improved care processes. However, Medicare patients were most likely to be discharged in unstable conditions, which was resulted in a higher mortality rate, even though total mortality fell. In respect, to the effect on organizations finance management, organizations greatly adapted fixed budgeting as a way of cost management. (RAND, 2015)

Coding system

The Level, I of HCPCS, is composed of Current Procedural Terminology (CPT-4), is a numeric coding system and retained by the American Medical Association (AMA). The CPT-4 is a coding system that is uniform constituting of descriptive terms and codes identification that are used primarily to recognize medical services and procedures offered by physicians and by other health care professionals. The health care professionals use the CPT-4 to find out services and procedures that to bill private or private health insurance programs. The effect of those systems includes the need for the institutions to adapt suitable systems that are compatible with the codes’ use. However, the codes have greatly eased payment processes for institutions and are mainly applicable for patients dependent on Medicare and other comprehensive payment systems. (Department of Health, 2012).

Payment systems

There have been significant reforms in the Fee-for-Service Payment systems commonly used as they offer healthcare providers some strong financial incentives for delivering more services to people, while financially penalizing the providers for delivery of better services, as well as improvement in health care (Department of Health, 2007). The major alternatives for payment systems include episode payment and Comprehensive Care Payment
Episode payment entails paying a single price for all healthcare services that are needed by a patient for an entire episode of care. Such cases involve all of inpatient as well as the outpatient care needed by a patient after a heart attack.
Comprehensive Care Payment that is also referred to as condition-adjusted capitation. It is also known as or risk-adjusted global fees and involves the payment of a single price covering all services that are needed by specific groups for a fixed period. Such include the care that is needed in the course of the year by people working for an employer or having chronic diseases (Department of Health, 2012).
Episode Payment is better for specific kinds of conditions as well as patients while Comprehensive Care Payment is better for other types of patients and conditions. The best approach is a combination of both payment systems. However, when to use them depend on characteristics of cost as well as the quality of the problems to be addressed (Department of Health, 2007).

Use of Mixed Payment System

West Florida Hospital uses multiple payment methods. Although various services today involve payment through Fee-for-Services, many are done on some capitation or episode Payment. For instance, Medicare pays for services on partial episodes basis through the DRG system. In addition, some physicians, including surgeons, as well as obstetricians, are paid on the case rate basis, and others are paid in fees for specific services. Other service providers get paid capitation for some patients and no for others. The payment system’s goal should be paying for the care of every condition in the correct way and not necessarily in the same way generalizing all conditions. That would be suitable for financial management using a flexible budget (Kaufman, 2007).

Laws and policies effect: Health Care Premiums’ Reimbursement

While reimbursement of individual health care premiums for employees constitute an improper employer payment plan, healthcare laws provide some relief to the small employers who do not qualify as large employers defined as those with 50 or more employees on full-time basis. Small employers continuing to offer employer payment plan have to file for self-report violations as well as compute penalty tax if any. However, the law requires them to reform their plans in line with the Affordable care act, or they are liable to the penalties. The law states that here is transitional relief that apply for both reimbursements of Medicare premiums as well as the reimbursements of the individual policy premiums. The policy makes the payment system more complex for hospitals considering they have to handle small employers differently from the large employers (Longest, Rakich & Darr, 2000).

Effect on Budgets

Budgets have been mainly used as cost-containment instruments in health care in several countries. However, there is a need to distinguish budgets involving the whole health care system from budgets for parts such as ambulatory care and hospital care, as well as pharmaceuticals. Budgets have been useful in managing health facilities including hospitals, but does not preclude the hospitals from applying other payment methods. For instance, the use of DRGs in remunerating specific hospital departments while respecting predetermined budgets for a hospital as a whole. In that case, budgets differ from other payment schemes as they are used for allocating pre-determined amounts of funds setting the framework for the subsequent introduction of the other payment schemes (Longest, Rakich & Darr, 2000).
On the other hand, attaining cost-containment for the hospital depends on the type of budget as well as its rigidity. The degree of the budget’s rigidity may be hard or soft budgets. Under the hard budgets, the hospital is fully responsible for all its profits as well as losses while, in soft/flexible budgets, it entails flexible amount spending without penalties in cases of excess. Thus, the hard type can be termed as more effective for containing cost although it may reduce access as well as the quality of services in addition to producing waiting lists. In terms cost-containment potential, the hard budgets are effective but with soft budgets there is a high risk of overspending. In that view, considering that the West Florida hospital’s main goals are to enhance quality of its services and care, it should adopt the flexible budget in addition to both the episode and the comprehensive payment systems (Longest, Rakich & Darr, 2000).

Regulations and payment systems effect on financial decision-making

The following are the financial management functions that are affected by the payments systems, as well as policies and regulations by federal and state authorities. Decisions making in long-term investment, decisions about financing and management of the working capital. It also affects the management of contracts. Organizations in health services must negotiate, sign, and monitor contracts with managed care organizations and third-party payers. The laws and payment systems determine the types of contracts and conditions involved. Finally, they affect Management of financial risk (Kaufman, 2007).


The analysis has demonstrated that the hospital have a low share of the Medicaid payments that accounted for 13.21% in is operations. However, the increasing changes in policies and laws regarding health care access and costs greatly influence payment systems and budgeting method that he organization should adapt. Currently, the business applies the episode method but the increasing changes involving affordable care requires the adoption of both methods including the comprehensive care payment. In addition, use of code payment has been crucial in enhancing the adoption of the Medicare system as it enhances identification of services and ease of charging clients. Finally, he company’s objective of enhancing service quality has been identified as in need of continued use of the flexible budgeting that adapts he current changes, as well as responds to the needs of both payment systems.


Kaufman, K. (2007). Taking Care of Your Organization’s Financial Health. Healthcare Executive 22 (1), 15 – 20.
Longest, B., Rakich, S. & Darr, K. (2000). Managing Health Services Organizations and Systems. 4th Ed. Baltimore: Health Professions Press
RAND. (2015). Medicare’s Prospective Payment System’s Effects on Quality of Hospital Care. Retrieved from,
West Florida Hospital. (2013). 2013 Community Report. Retrieved from,
West Florida Hospital. (2015a). West Florida Rehabilitation Institute. Retrieved from,
West Florida Hospital. (2015b). Patient Financial Resource. Retrieved from,

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