HCF 7010 Module 2 Reimbursement and Revenue Cycle Written Assignment Example

Same Hip, Three Prices: How Payment Methods Change What a Hospital Earns and Does, and What Denials Are Costing It

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MBA in Healthcare Management, Thomas Edison State University

HCF-7010: Healthcare Finance

Mentor Name

Month Day, Year

Same Hip, Three Prices: How Payment Methods Change What a Hospital Earns and Does, and What Denials Are Costing It

The composite Ocean County hospital in these assignments, Barnegat Bay, receives payment under several methods at once. This assignment answers two scenario questions. The first compares how three payment methods would reimburse the same inpatient case and what operating behavior each encourages. The second analyzes the hospital's revenue cycle, the process that turns services into collected cash, and estimates the value of improving it. Concepts and definitions follow Berger (2014); payment rates are illustrative.

Scenario 1: One Case, Three Payment Methods

A patient has an elective hip replacement with a three-day stay. The hospital's charges, its list prices, total $48,000, and its cost to provide the care, from cost accounting, is $13,400. Three payers cover patients like this one.

The same procedure earns very different amounts, and each method creates different incentives. With a single case payment, every day and every supply the hospital avoids is money kept, so shortening the stay and negotiating the implant's price become the levers. Clinical pathways that get patients walking on the first day after surgery serve both goals at once. Under the per diem contract, each additional day adds $3,100 of revenue, so the incentive runs the other way: shorter stays reduce payment, even though the costliest part of the stay, the surgery, falls on the first day. Under percentage of charges, payment rises with the hospital's own chargemaster prices, which rewards high list prices and gives the payer little protection.

The operating implications are practical. Because most of Barnegat Bay's joint replacement patients are covered by Medicare, the hospital's case managers should plan for discharge on day two where clinically appropriate, and the supply chain team should negotiate implant prices, since both reduce cost under the case rate. The managed care team should seek to convert plan B's per diem contract into a case rate, removing an incentive that conflicts with good care. Value-based approaches go further: Medicare's mandatory episode-based payment models for joint replacement hold hospitals accountable for costs from admission through recovery, including post-acute care, which rewards coordination after discharge as well as efficiency during the stay (Centers for Medicare & Medicaid Services, 2024).

Scenario 2: Revenue Cycle Performance

The revenue cycle runs from scheduling and registration through insurance verification, coding, claim submission, payment posting, denial management and collection of patient balances. Berger (2014) emphasizes that weaknesses at the front end, such as wrong insurance information or missing authorizations, show up later as denials and delays. Barnegat Bay's indicators show such weaknesses: an initial denial rate of 11 percent of claims by value, about $35.0 million of expected revenue a year, of which about 35 percent is ultimately written off, and days in accounts receivable that rose from 41 to 45.

Each element can be valued. Lowering the initial denial rate from 11 to 6 percent, with the same write-off rate, would preserve about $5.6 million a year in revenue that is now lost. Reducing days in accounts receivable from 45 to 40 would free about $4.4 million of cash, since each day represents about $871,000 of net patient revenue. These improvements also lower administrative cost. Tseng et al. (2018) put the administrative cost of billing an ordinary inpatient stay at an academic system near $124, and an inpatient operation near $215, so every claim that must be reworked adds cost on top of delayed cash.

Recommendations

The analysis points to front-end fixes first. Registration staff should verify insurance and obtain required authorizations before scheduled admissions, using electronic eligibility checks. Clinical documentation specialists should review records for elective surgical cases before coding, since documentation gaps drive many medical necessity denials. Denials should be tracked by payer and reason in a monthly report, so that the hospital can correct root causes and hold payers to contract terms. Finally, patient financial counseling before elective procedures would reduce bad debt from patient balances, a growing share of revenue as deductibles rise.

Conclusion

Payment method determines not only what a hospital earns for a case but how it is encouraged to deliver care: case rates reward efficiency, per diems reward longer stays and percentage of charges rewards high prices. Revenue cycle performance determines how much of what the hospital earns it actually collects. At Barnegat Bay, cutting denials and receivable days would protect about $5.6 million of revenue and free about $4.4 million of cash, gains that begin with getting registration and documentation right.

References

Berger, S. (2014). Fundamentals of health care financial management: A practical guide to fiscal issues and activities (4th ed.). Jossey-Bass.

Centers for Medicare & Medicaid Services. (2024). Transforming Episode Accountability Model (TEAM). https://www.cms.gov/priorities/innovation/innovation-models/team-model

Tseng, P., Kaplan, R. S., Richman, B. D., Shah, M. A., & Schulman, K. A. (2018). Administrative costs associated with physician billing and insurance-related activities at an academic health care system. JAMA, 319(7), 691-697. https://doi.org/10.1001/jama.2017.19148