Contractual Allowances

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Contractual Allowances

Part II: RecordFinancial OperationsCHAPTER 4:REVENUES (INFLOW)


The Revenue StreamPayment After Service Is DeliveredFee-for-ServiceDiscounted Fee for Service


The Revenue StreamPayment Before Service Is DeliveredPre-Determined Per-PersonPaymentRate-Setting Differences


Deductions from RevenueContractual AllowancesThe difference between the fullestablished rate and the agreeduponcontractual rate to be paid.


Deductions from RevenueContractual AllowancesIt is not uncommon for differentplans to pay differentcontractual rates for the sameservice.


Other Deductions fromRevenueAllowances for Bad Debtsaka “provision for bad debts”Estimated amounts of creditlosses (bad debts) is chargedto this account.


Other Deductions fromRevenueCharity ServiceServices provided to indigentpatients.


Sources of Health CareRevenueRevenue SourcesSources are generally called “payers.”“Payer mix”* is a measure often includedin an organization’s profile.Many types of management reporting arearranged by payer (the revenuesource).* the proportion of revenues realized from differenttypes of payers.


Sources of Health CareRevenueRevenue SourcesGovernmental Sources includeMedicare, Medicaid, and other.Managed Care Sourcesdistinguished by types of plans andtypes of contracts.Other Sources include commercialinsurers, private pay, and others.


Grouping Revenue forPlanning and ControlGrouping revenue is an effectivemethod for managers to useinformation.The method of grouping, orclassification, must be consistentwith the current structure of theorganization.


Grouping Revenue forPlanning and ControlGrouping revenue by revenue sourcehas just been discussed.Other approaches to grouping include:Revenue CentersCare SettingsService LinesOther classifications such asdisease management


Grouping Revenuesby Care Setting: Example42 %HospitalInpatient8 %Skilled NursingFacility38 %HospitalOutpatient6 %Home HealthAgency4 %Off-SiteClinic2 %HospiceTotal for Care Setting = 100%


Revenue Sources andGrouping AssignmentMedicareMedicaidOtherPublicProgramsPatientsCommercialInsuranceManagedCareContractsICUXLabXLabXICUXICUXLabX


Contractual Allowances:ExampleContractual allowances represent the difference between the fullestablished rate and the agreed-upon contractual rate that will be paid.An example was given in the text of Chapter 4 by which the hospital's fullestablished rate for a certain procedure is $100, but Giant Health Planhas negotiated a managed care contract whereby the plan pays only $90for the procedure.The contractual allowance is $10 ($100 minus 90 = $10).Assume that Near-By Health Plan has negotiated a managed carecontract whereby it pays $95 for the procedure.The contractual allowance would then be $5 ($100 minus 95 = $5.)


Contractual Allowances:PracticeFor a particular procedure:The Medicaid allowed charge is $2,700The Medicare allowed charge is $3,075The Blue Cross/Blue Shield rate is $3,090The hospital established charge is $3,200----------------------------------------------------------------------------------1. Are there contractual allowances in this example?2. If so, what payer is involved?3. What are the dollar amounts of any contractual allowances?Solution:1. Yes2. All three3. $500; $125; $110


Contractual Allowances:AssignmentUsing the worksheet: For each payer enter the full rate and contracted rate.For each payer compute the contractual allowance.PayerFullContractedContractualRateRateAllowanceFHP$72.00 -$35.70 =HPHP72.00 -58.85 =MC72.00 -54.90 =UND72.00 -60.40 =CCN72.00 -70.20 =MO72.00 -70.75 =CGN72.00 -10.00 =PRU72.00 -54.90 =PHCS72.00 -50.00 =ANA72.00 -45.00 =

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