Consider the following data and make your best analysis of per member per month (PMPM) rates, considering reductions in utilization or pricing. Bay Pines Medical Center estimates tha

Week 3 Lecture 2.html

Pricing and Service Decisions

Pricing and service decisions are related but separate. Service decisions involve reviewing the community's needs and the supply of some of these needs by other organizations to determine what and how much services are needed. For example, if another organization is providing orthopedics but not urology, you probably need to provide urology and not focus on orthopedics. If another organization is a level III tier center and is nearby, it probably does not make sense for you to be a level I trauma center. You will likely not see much business, but a trauma center requires doctors on staff for all major traumas at all times, which is very expensive. Service decisions are among the first decisions you should make and involve taking a holistic view of the community and deciding which services you should offer. Pricing decisions involve a look at the indirect costs discussed earlier, such as charity care and bad debt, and the contracted prices for the services. Medicare; Medicaid; private payers; third-party payers, such as Blue Cross/Blue Shield; and self-payers are different types of payers and make up a payer mix. A spreadsheet or a computer model can be used to analyze the prices and the services to be provided to each of these types of payers and to estimate the revenue. The hospital or another service provider cannot adjust the prices paid by the government under Medicare and Medicaid, but it can negotiate prices with all other payers.

Besides the social cost, understand that this type of behavior on the part of HCOs is what causes the government to step in and regulate prices. It is wiser for you as a leader to understand that cost-shifting may work for now but might also cause catastrophe for your organization later.

Week 3 Lecture 1.html

Cost Allocation

An HCO, such as a hospital, has many departments that provide services to patients, such as surgery or emergency care. It also has departments that do not provide services to patients but are nevertheless necessary for providing services, for example, sterilization of instruments for surgery. The surgical department cannot operate without oxygen, sterile instruments, supplies of pharmaceuticals, and a host of other real and intangible services. Among intangibles is a billing department to collect payment for the surgeries. Cost allocation is a process like budgeting, in which the cost of the centers that do not produce revenue are allocated to the departments that use their services. For example, the surgical department may be a heavy user of the services provided by the surgical instrument sterilization department but not the nursing units. It would not be fair for both these departments to pay an equal share of the cost of sterilization of surgical instruments. The cost allocation exercise decides what proportion of the total budget of the surgical instrument sterilization department should be applied to the surgery department and what proportions to other departments that are revenue centers. These costs are indirect, but they go into providing the service offered by the surgery department. This is true of all of the services that enable services that create revenue. The cost allocation process can cause friction within the organization as the revenue earning departments do not want the cost burdens that lower their departmental performance, especially when they feel the cost shares are unfair. As a leader, you must understand the concept of cost allocation and the internal friction it can bring about so that you can deal with these issues in, what TV channels like to call, fair and balanced ways.

In this lecture we looked setting prices and introduce planning a budget. The assignments are critical to cementing your understanding of these processes and concepts. Spend the time you need to get comfortable with them. 

Week 3 Lecture 3.html

Strategic Planning

Strategic planning is the basis of all of the organization's future endeavors. Strategic planning is founded on the organization's mission, vision, and values but does not provide managers with the details needed for everyday operations. By managing the budget day by day, the operational details are uncovered. What is obtained from the strategic plan is a vision of the organization over a period of five years or so. This timeline is necessary because many of the capital projects that an organization takes on, such as construction of new buildings, takes place over a period of several years. An Operational Budget will forecast in a detailed method a review of all potential or estimated income which the organization can identify. Traditionally this projection or forecasting of organizational revenue is defined in a relative period of time—for most organizations this time frame is a year—however, it may be a calendar year or the organization’s own year (a fiscal year) defined by its budget protocol and may well be, as an example, June of 2014 to May 2015. The Operational Budget is representative of the entire entity and as such must rely upon the creation of sub-budgets first which are usually departmental in nature. These sub-budgets serve to drive the completed organization’s Operational Budget and as such must be detailed and accurate. One critical element to always remember here is that for all organizations the Operational Budget is short term in nature (1 year) and therefore, as outlined in the GAAP will not generally include Capital Outlay as CO is Long-Term Cost.

In this unit, we looked at different types of accounting methods and methodologies. We talked about gross and net profit, examined revenue from direct and indirect costs, and discussed the social implications of certain types of revenue and expense issues.

Inherent in these discussions were marketing decisions such as the types of services to offer, comparisons with other HCOs, the services needed by a community, and projections for the future on the basis of the expected growth of the community. Please review the following for more information before doing the assignments.

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