Hospital Organization

Hospitals continue to be the largest segment of the soundlyness wish well effort, measured by economic majority and words of a wide range of professional go. HEALTH CARE SERVICES The different segments of the health c be delivery system provide mixed combinations of services. The specific combination offered depends on a variety factors that prevail in a location, including state and local licensing laws, reimbursement structures, availability of aesculapian checkup personnel and facilities, and the demographic dilate ( much(prenominal) as age and industrial distribution) of the potential longanimous population.The unique aspect of the health thrill industry from an canvas perspective is the health bid delivery system the tax revenue cycle. The opposite cycles argon essentially similar to those in manufacturing or selling enterprises. Services are generally described by a six-level classification. Those levels indicate, but do not strictly define, the type of organi zation, the level of medical treatment involved, or the severity of, or prognosis for, the medical situation. The levels are term of enlistment Health education and prevention programs provided by business and other organizations, such as schools and family planning clinics. Primary Early detection and routine treatment of health problems, such as are often provided by physicians offices, industrial and school health units, and hospital out diligent and emergency departments.Secondary Acute foreboding services, typically provided by medical personnel, through with(predicate) hospitals, using elabo mark diagnostic and treatment procedures. Tertiary Highly technical services, such as for psychiatric and chronic diseases, provided through long suit facilities and teaching hospitals. Restorative Rehabilitative and follow-up acre, typically provided by home health agencies, nursing homes, and halfway houses. Continuing Long-term, chronic care, typically provided by geriatric d ay care focus ons and nursing homes. The growing economic magnitude of the health care system has led to increased restrictive activities focusing on health care. This increase in regulation interacts with a growing demand for more health care and for increasingly technical and complex methods of providing it. The largest and most evident regulatory natural action involves reimbursement by state politics activitys. Other regulatory activities are concerned in set forthing degrees with the availability and quality of health care.There are continued initiatives by state g overnment to link such regulations to reimbursement in order to enforce compliance. The presence of multiple regulatory systems influences the demand for and the nature of professional report services required by health care institutions. Those systems often emphasize reporting requirements, and health care institutions tend to view compliance reporting as a major use of accounting data. Auditing services in particular are affected because the regulatory agencies rely 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, some(prenominal) larger general hospitals keep up become total community health centers, providing a wide range of outpatient services in addition to traditional glowing care. One characteristic of the growth of the health center concept is the emergence of such diverse related organizations as real estate holding companies and medical management companies.These organizations are a response to changes in the reimbursement, regulatory, tax and financial environment facing hospital management. Such nontraditional organizational structures and patterns of activity are needed to provide adequate financial resources to support the delivery of health care by hospitals. Some observers see these changes as leading to major multihospital systems, so that in the future a few major health entities whitethorn control the majority of the hospital beds in the country. Hospitals whitethorn be classified by type of ownership and mode of operation, as follows Government Hospitals operated 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 stock ownership. The objective of such hospitals is to operate for profit. Voluntary nonprofit Hospitals operated downstairs the sponsorship of a community, phantasmal denomination, or other nonprofit entity.This is the largest category (in fall of hospitals), comprising two major types teaching hospitals and community hospitals. a. Teaching hospitals Generally university-related hospi tals, their health care service activities combine education, research and a broad range of sophisticated patient services. Large community hospitals affiliated with medical schools and offering intern and nonmigratory programs are also get a lineed teaching hospitals. b. Community hospitals Hospitals that traditionally are established to serve a specific area, such as a city, town, or county, and usually offer more limited services than teaching hospitals do.Hospitals may also be categorized by the type of care provided, as short-term (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 commercial enterprises is that the recipient of health care services the patient in most cases does not pay directly for the services. Instead, pay ment is make by some other organization.The payment is often referred to as a third party. Typically, a hospitals most signifi heapt patient revenue sources are its reimbursement contracts with third parties. In each case, there is an identifiable group of patients whose health care services are paid for, in whole or in part, by the third party. The follow of the reimbursement, as well as the eligible 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 comprises of the medically indigent and those eligible for certain types of public welfare. Medicare is a third-party reimbursement program administered by the Health heraldic bearing Financing Administration of the Department of Health and Human Services. State governments have 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 cost control programs.Of increasing importance 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 supporting 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 ex post facto or prospective. Retrospective refers to third-party reimbursement systems that determine the amount to be paid after the services have been performed.In prospective payment systems, the amount is determined before the services have been performed. Reimbursements or payments are u sually based on either the costs (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 provisions designed to ensure that only certain costs or charges enter into the determination of the reimbursement or payment. There are also provisions to ensure that reimbursement or payment is made 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 established rates for services rendered and the amounts received or due from third-party payers known as a contractual allowance and is shown as a deduction from gross patient revenues on the statement of revenues and expenses. PAYMENTS AND SETTLEMENTS Under many retrospective reimbursement and prospective payment contracts, the hospital is paid throughout the family on an interim 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 divvy up overhead 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 radioscopy are patterns of revenue-producing centers, while support or overhead units such as laundry, dietary, and administrative services are typical nonrevenue-producing cost centers. This allocation produces an operating cost for each revenue-producing center, consisting of its direct costs plus its share of indi rect costs. After all costs have been assigned to revenue-producing centers, they are ap fateed to the various third-party payers. STATISTICSDepartmental activity or usage statistics are employed in most cost-finding methods use to allocate overhead costs to revenue-producing centers. Some statistics, such as square feet of space, may remain unchanged from prior years. The auditor should, however, inquire whether changes have occurred. Simple observation is helpful a new wing, department, or floor plan way 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 pesos employ to allocate employee benefits, health and welfare costs, and other compensation costs. Hours worked Used to allocate nursing administration costs and sometimes employee cafeteria costs. Full-time equivalent employees (FTE) Sometimes used to allocate employee cafeteria costs. Othe r 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 audit guide prescribes the use of fund accounting for the external financial statements of nongovernment, not-for-profit hospitals. Fund accounting entails the maintenance of separate or group accounts for hospital resources according to the spending objectives set by donors, other alfresco sources, or the board of trustees. (Investor-owned hospitals are regarded as business 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 imposed by donors or grantors may be placed on assets of these funds. A reserve account maintained under a bond indenture provision is an example of an asset that is included in unrestricted funds but is restricted as to use. Restricted funds, which encompass assets that are subject to restrictions imposed by contract external parties, that is, donors or grantors. Examples are plant replacement and endowment funds. scrutinise 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 pressures, however audit concerns for hospital client is expand considerably. Those concerns, fee pressures because of the nonprofit nature of many institutions, and competition among firms all create a need fo r this audit analysis to streamline audit procedures and improve audit efficiency as much as possible. In developing an audit strategy for a hospital engagement, the auditor had a thorough understanding 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 vary 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 propriety of costs incurred is a primary concern of the auditor. The accuracy of departmental revenue classification is also important in the cost allocation process.The payment is made either directly by the patient or by third parties based on actual charges accountinged 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 understanding of the hospitals current financial position and financial trends. Analyzing financial ratios may lead to a fuller understanding of the hospitals operations and problems than could be obtained from reviewing fresh 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 around 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 in 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 rev enues) 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 billed 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 courtesy allowances may be granted to doctors, employees, or members of religious orders and charity allowances may be granted as determined by patient needs and hospital policy.To understand the hospitals patient revenue cycle, the auditor should become 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 r eceivables 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 angiotensin-converting enzyme 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 expirations in credit balances in accounts receivable, which are characteristic of hospitals 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 refund duplicate paym ents, the auditor should review controls over issuance and use of refund checks to determine that they are for valid credit balances and that they are payable to the proper payee. In most hospitals, accounts receivable are classified according to the patients billing status, generally using the following categories conAdmitted but not fulfill (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 throw out to indicate private-paying status or third-party responsibility for payment. The existence and accuracy of accounts receivable are normally tested by reviewing subsequent cash 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 confirming 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 to confirm because of insufficient information. NONPATIENT REVENUES Revenues from sources other than patient charges consist of engage 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 n ot limited to Confirming enthronization 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 otherwise obtaining pleasure 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 licensed vocational nurses. nonprofessional employees include orderlies, housekeeping and maintenance personnel, and kitchen staff.Control over both professional and nonprofessional time is critical since salary costs constitute a significant portion of hospital costs. Generally, the same payroll department 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 financial statement purposes as well as cost reporting and reimbursement.The auditor should test the propriety of the general ledger account distribution by reference to purchasing documentation. Fixed Assets. Controls over the acquisition of property, plan t, 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 resonance devices. Department heads should, of course, but that involved in capital budgeting and purchasing decisions, but that involvement should not extend to preponderant controls that have been instituted for purchases generally.