Financial Management in Radiology

Financial reports provide the basic accounting tools a radiology facility needs to asses its fi scal health as an organization. This chapter sets forth the fundamental concepts, conventions, rules, and procedures involved in generating and understanding fi nancial statements. The three components of fi nancial reporting --balance sheets, statements of operations, and statements of cash fl ows—demonstrate how an organization examines assets and liabilities, operating revenues and expenses, income, and other fi nancing activities. The chapter also explains how to derive and evaluate key fi nancial ratios to determine an organization’s well-being in terms of profi tability, liquidity, and asset management. Comparable ratios for the hospital industry are included. The chapter concludes with a discussion of comparative, trend, and percent change analyses.

This chapter provides radiology administrators and staff basic guidelines for coding and billing patient accounts. The revenue cycle involves many processes and points of intervention by several departments. No single department manages the entire process alone. Effective charge capture and coding practices involve input and management of personnel from the radiology, fi nance, health information management/coding, and compliance departments. Reporting accurate and complete coding and billing information on claims provides payors with information that not only affects current payment but future reimbursement as well. Failure to do so creates an inaccurate provider profi le to Medicare and other payors, which may also put the facility at risk for compliance issues.

Radiology, coding, billing, and fi nance staff should be educated as to collective and individual roles for properly reporting services that patients receive as well as how services provided were performed. Education should include appropriate use of tools and resources (described in this chapter). Also, continuing education related to coding and billing should be strongly considered, and key staff should participate. This chapter is not all inclusive but rather includes information for general coding and reporting guidance purposes. Facilities should contact their carrier or intermediary for further detailed policy guidelines and coding and billing requirements.

Various types of healthcare insurance are available in the United States. In most cases, individuals pay into an insurance system through premiums or coinsurance, and that system in turn pays the providers of healthcare—physicians, technicians, hospitals, clinics, etc. The entity that pays the providers is the payor. This chapter looks closely at Medicare, the nationwide healthcare program primarily for people over 65, and Medicaid, a collection of state-administered programs jointly funded by states and the federal government, primarily for low-income people. It outlines how Medicare determines coverage, as well as aspects of coverage of particular interest to radiology facilities. It also explains how Medicare determines the physician fee schedule and how prospective payment rates for covered inpatient and outpatient services are set. A detailed example explains how local payment rates are calculated on the basis of national guidelines. The chapter then focuses on Medicaid: who may be eligible, what services may be covered, and what factors affect reimbursement rates.

The various types of managed care organizations are described, along with an overview of how these organizations deal with fi nancial risk. Methods used by commercial payors to improve effi ciency and quality among their radiology providers are summarized. The chapter explains the mechanisms of self-insurance, an approach used by large employers that often relies on third-party administrators. It is projected that third-party administrators will gain a stronger foothold in healthcare in the near future. The chapter concludes by suggesting ways in which radiology facilities can make their voices heard by third-party administrators.

In setting prices for its services, a radiology facility must balance its fi nancial goals with the need to remain competitive in the healthcare marketplace. This chapter outlines the factors that go into setting prices and briefl y describes the most common approaches to price setting. Types of costs—fi xed, variable, and semivariable—are defi ned. The chapter explains the main challenges to setting prices: gathering suffi cient, accurate, up-to-date data on services and costs and understanding the complex methods of reimbursement applied by payors. An example demonstrates how price setting takes into account the costs of service, desired profi t margin, various payor reimbursement levels, and limitations to reimbursement.

Once a facility determines the variables that infl uence its prices, it can use that information to its benefi t in negotiating contracts with payors. Detailed examples show how a given facility can calculate its costs per relative value unit (RVU), compare those costs with Medicare rates, then determine which approach should be used as a basis for negotiating a contract. Typical payment methods used by payors are described, with discussions of the pros and cons of each for the radiology provider. The chapter concludes with tips for preparing for and understanding contract negotiation, including explanations of common contract clauses of particular importance to radiology facilities.

Effective management of each step of the revenue cycle helps to minimize revenue loss and referrals of delinquent accounts to a collection agency. This chapter links patient fl ow with the revenue cycle, outlines payment policies, and presents options and procedures for debt collection. The discussion of collection techniques includes an extensive review of the Fair Debt Collection Practices Act.

A budget defi nes expectations for the coming year in a format that allows the radiology administrator to compare them to what actually happens. There are many kinds of budgets; those used by diagnostic imaging departments are staffi ng budgets, operating budgets, capital equipment budgets, special and/or new program budgets, and research budgets.

Operating budgets begin with a forecast of volume for the coming year, based on a review of the previous year’s fi gures and any changes expected for the coming year. Those volumes are then used to project revenues, along with staff and variable nonsalary expenses. These, along with fi xed expenses, are usually separated by cost center and subaccount, to provide a detailed picture of costs. This picture, along with a careful recording of the assumptions that shaped the budget, allows for a fuller understanding of variances between budgeted and actual revenues and expenses as the year progresses.

Capital equipment budgets are generally constructed on a rolling 3- to 5-year basis. Purchases expected 3 to 5 years from now are separated into replacement (of current equipment) and strategic (purchases that change the entire working environment). Include all operating and capital expenses in planning, not just the cost of the new equipment itself.

Program budgets allow institutions to examine a special program or project on its own fi nancial merit, prior to melding all of its costs into the normal cost centers.

Research budgets are mainly the responsibility of the primary investigator (PI), but the radiology administrator should participate in developing and overseeing budgets for any research that uses clinical equipment or staff.

This chapter describes different ways to measure productivity. The goal isn’t simply to save money, but to allocate resources where they are most needed. Measuring productivity is easiest when resources are accounted for in detail.

Simple productivity tools may be based on a ratio of procedures completed per unit of worked time, or of Relative Value Units earned per unit of worked time. Or they may take a standard for the time a given procedure should take, multiply that by the total number of procedures, and compare the result to actual worked time. More complex productivity tools also use time standards, but on a fi ner level, weighting the times involved to refl ect reality in a particular facility and taking account of tasks that must be performed regardless of the number of procedures performed, to calculate percent productive time.

There are a number of places to fi nd external benchmarks to which to compare productivity results, including AHRA reports. The primary aim, though, should be to improve over time.

A pro forma is a set of fi nancial statements that forecast the results of a new business activity by using present-day data. It takes into account the real costs of a venture and projects its likely returns, as well as an institution’s place in the market and real limitations. This chapter uses three example pro formas to demonstrate how to project revenues and expenses in a variety of categories.

Two funding options exist for acquiring capital equipment: purchase or lease. Another option is to forego acquisition and use an application service provider. Each option offers advantages and disadvantages. Administrators should always evaluate acquisition plans from a fi nancial perspective and negotiate terms and conditions with vendors. Capital equipment acquisition takes place in stages: needs assessment, request for information, request for proposal, and evaluation of vendor information and proposals. Following established guidelines will help the administrator achieve successful results at each stage.

A business plan is a document describing a planned business venture. This chapter describes two planning techniques, one focusing on an organization’s strengths, weaknesses, opportunities, and threats (SWOT analysis), the other on the forces that might help or hinder an organization in its pursuit of some goal (force fi eld analysis).

A formal business plan should emphasize market and investor needs, make a convincing case that a substantial market exists, establish market interest, and document its claims. It should provide objectives for the near and long term, prove that the organization can reasonably expect to meet those objectives, and show that the realization of the plan will meet the target audience’s requirements.

The document may be aimed at an internal or an external audience. It typically consists of a description of the company and its management team and the product or service to be offered, an assessment of the market and competitors, a description of marketing strategy, fi nancial information and analyses, and a list of exit strategies should things go wrong. The chapter includes examples of fi nancial analyses, focusing on return on investment (ROI) and net present value (NPV) calculations.

This chapter is designed to help radiology administrators not only understand what corporate compliance is but also how to establish an effective corporate compliance plan. This chapter is not intended to be a comprehensive list of regulations that impact radiology facilities. Rather, it provides information regarding the signifi cant, national regulations that affect the largest share of radiology facilities today, including the Health Insurance Portability and Accountability Act (HIPAA). The success of any compliance program depends on the commitment made by management to provide ongoing monitoring of internal processes. Whether the facility is a department in a large hospital or an independent imaging center, policies and procedures, employee education, and continuous monitoring are essential components of a culture of compliance. This chapter describes the core elements of an effective corporate compliance program and how to implement them into a comprehensive compliance plan, with specifi c examples for radiology facilities.

Radiology administrators need to be prepared to resolve ethical and political dilemmas. Such dilemmas are most likely to arise in connection with the fi duciary relationship between the administrator and his or her employer; the employment model between the radiologist and the institution and the bottom-line consequences; the allocation of technological resources; turf battles; conduct vis-à-vis vendors; health disparity issues; and workforce diversity. Certifi ed Radiology Administrators (CRAs) must agree in writing to a Code of Ethics, presented in this chapter.

A political requirement for success as an administrator is participation in capital planning. In many institutions, input from the radiology manager and/or radiology team will govern at least 40% of capital expenses per fi scal year. The successful administrator will ask broad questions about the institution’s role and will become knowledgeable about trends in all aspects of healthcare.