Introduction

Inventory cost accounting methods are seldom used by medical practitioners. After all, doctors and healthcare organizations provide a service, and generally do not sell things. However, inventory is playing an increasingly important role in the financial viability of procedurally based practitioners, clinics, and hospitals. This occurs because these healthcare entities maintain, dispense, and use durable medical equipment (DME) more abundantly than ever before. Voice systems, RFID, OCR, pick-to-light and laser scanners, CCD scanners, hand-held batch and RF terminals, vehicle-mounted computers, and wearable computers are now all part of the modern healthcare system inventory data-collection and management picture.

Ironically, the financial challenge of hospital inventory management was first articulated in the Efficient Healthcare Consumer Response Report (EHCR) in 1996. The report identified $11.6 billion of cost saving opportunities in the American healthcare system directly due to inefficient product movement and ineffective inventory control and materials management. Now, more than ten years later, this situation has only grown worse. As material costs have increased, our overburdened health system cannot afford such inefficiency.

For example, stock-out emergencies are real and costly. And, inventory models such as economic order quantity (EOQ) costing have been in existence long before modern data capture inventory costing methods, just-in-time (JIT) inventory controls, total quality management protocols, and the other supply chain inventory management (SCIM) initiatives often used to prevent them.

SCIM is a method of accounting that takes into consideration raw materials, the construction of useful products, and the distribution of those products. Physician proceduralists, medical dispensers, and hospitals must understand SCIM, because a healthcare entity’s profitability will suffer if it has too much, or too little DME inventory on hand. DME can be both a cost center or revenue driver, depending on its management.

A perpetual [periodic inventory] costing method is the traditional way to account for DME usage. With periodic costing, the cost of inventory is determined once, at the end of the period. With a perpetual costing inventory, a new unit price is recalculated with each order.

How can the healthcare entity determine the proper DME inventory level? One uncommonly used, but increasingly important, approach is the EOQ method.

Some astute clinic and hospital administrators are just now using EOQ to manage their DME inventory. They are increasing their financial benefits by determining the most cost effective answers to the questions:

·     How much inventory should I order?

·     When should I order the inventory?

·     How can I increase efficiency and reduce costs?

A. Automatic Data Collection

      1. The ADC Technologies

      2. Integration of ADC Technologies

B. Radio Frequency Identification

1. Comparison to Bar Codes

2. Electronic Product Codes

3. RFID versus WiFi for Hospital Inventory Tracking Systems

4. General Recommendations

C.   Healthcare Inventory Management

1.    Inventory Methodologies

a.    LIFO

b.    FIFO

c.    Specific Identification

d.    Average Cost

e.    Just-in-time Management

D.   Economic Order Quantity Process

E.   Assessment of EOQ

F.   Hospital Materials Management Information Systems

1. Software Selection

2. Software Implementation

3. Post Implementation Functionality

4. Browser Based Applications

G.   Conclusion

Case Models

Case Model 1: Inventory Switching at the ABC Medical Center

Case Model 2: EOQ and JIT at St. David’s AIDS Clinic

Checklists

Checklist 1: Inventory Management

Checklist 2: Inventory Do’s and Don’ts

Checklist 3: HMMIS Software Selection Functionality Review 

Checklist 4: Automatic Inventory Data Capture Technologies

Appendix

Appendix 1: Vendor JIT Inventory Comparison

INCURRED BUT NOT REPORTED HEALTHCARE CLAIMS STRATEGIES

By: Dr. David Edward Marcinko; MBA, CPHQ, CMP™

By: Hope Rachel Hetico; RN, MHA, CPHQ, CMP™

Institute of Medical Business Advisors, Inc

________________________________________________________________________________________

Introduction

One of most relevant financial issues of contemporary healthcare and medical reimbursement is known as Incurred But Not Reported (IBNR) claims. IBNR claims are an indirect result of prospective payments systems, the insurance industry and commercial risk contracts, and to some extent fee-for-service medicine. IBNR claims represent a risk and an opportunity for managed care companies, healthcare organizations, clinics, and medical providers alike.

A.   Historical Review

B.   What Is an IBNR Claim?

C.   IBNR Problems for Healthcare Organizations

D.   IBNR Claims-Management Volume and Consequences

E.   Managed Care Organization Exacerbation of IBNR Claims

F.   IBNR from a Net Present Value Perspective

G.  Tax Strategies for IBNRs

1.   IRS Rules and Regulations

2.   IBNR Tax Qualifications for Managed Care Organizations

3.   How Managed Care Organizations Intensify IBNRs

4.   How Does IBNR Affect Net Present Value?

H.   IBNR Challenges and Solutions

1.   Tax and Court Penalties

a.   IRC Section 4958

b.   Excess Benefit Definition

c.   Taxes Under Section 4958

2.   Tax Deductibility

I.    Potential Solutions to the IBNR Challenge

J.   IBNR Calculations Methodology

1.   Actuarial Data Analysis

2.   Open Referral Method

3.   Historic Cost Analysis

Table 1: Forecasting IBNR Factors (Smith Model)

Case Models

Case Model 1: The Municipal Hospital Clinic, Inc

Case Model 2: MEGA Federal Hospital Corporation

Checklists

Checklist 1: Mitigating IBNR Risks

Checklist 2: IBNR Claim Variables

Checklist 3: IBNR Claims Management Volume

Appendices

Appendix 1: New Patient Information to Reduce IBNR Claims

Appendix 2: New Patient Hospital Registration to Reduce IBNR Claims

Appendix 3: IBNR Claims Monitor Data Sheet

Appendix 4: Daily IBNR Claims Control Data Sheet

Appendix 5: Reducing IBNR Healthcare Claims

ASSET PROTECTION STRATEGIES FOR MEDICAL ACCOUNTS RECEIVABLE

By: Dr. David Edward Marcinko; MBA, CMP™

By: Hope Rachel Hetico; RN, MHA, CPHQ, CMP™

Institute of Medical Business Advisors, Inc

________________________________________________________________________________________

Introduction

All hospitals, clinics, healthcare entities, and doctors are aware that accounts receivable (ARs) represent money that is owed to them, usually by a patient, insurance company, health maintenance organization (HMO), Medicare, Medicaid, or other third party payer. In the reimbursement climate that exists today, it is not unusual for ARs to represent 75% of a hospital’s investments in current assets. ARs are a major source of cash flow, and cash flow is the life-blood of any healthcare entity. It pays bills, meets office payroll, and satisfies operational obligations.

A feature of ARs in healthcare organizations that differentiates them from ARs in other types of business is that they are often settled for less than the billed amounts. These allowances include four categories that are used to restate ARs to realizable expected values:

·     professional or courtesy allowances;

·     charity (pro bono care) allowances;

·     doubtful account allowances; and

        ·      HMO and managed care organization (MCO) contractual and prospective payment allowances.

A. Rationale and Formulae

B. Types of Healthcare Accounts Receivable

1. Mainstream Accounts Receivable

2. Non-Mainstream Accounts Receivable

3. Not-Acceptable Accounts Receivable

C. The Need to Protect Accounts Receivable

D. Proactive Accounts Receivable Monitoring

E. Financial Ratio Liquidity Analysis for Accounts Receivable

F. Accounts Receivable Protection Strategies

1. Incorporation Strategy

Table 1: Business/Corporate Structure Used by Physicians and Healthcare Entities

a.  What about Corporate Cash?

2.  Multiple Corporation Strategy

3.  Purchased Accounts Receivable Strategy

4.  Accounts Receivable (Credit) Insurance Strategy

5.  Accounts Receivable Financing Strategy

6.  Accounts Receivable Factoring Strategy

7.  Accounts Receivable Leveraging Strategy

8.  Accounts Receivable Buy-Out / Buy-In Strategies

G. The Fair and Accurate Credit Transactions [FACT] Act 

1. Who Must Comply with the “Red Flag” Rules?

2. The Rules of Red

3. FTC Grants a Delay

H. Conclusion

Case Model

Case Model 1: St. James Medical Clinic, Inc

Case Model 2: St. James Out-Patient Physical Therapy, Inc

Checklists

Checklist 1: Healthcare Business Model Options

Checklist 2: Publicly Traded Healthcare Entity Benchmark Options

Checklist 3: Balance Sheet Accounts Receivable Strategic Ratios

Checklist 4: PPMC Business Model Options

Checklist 5: Accounts Receivable Protection Strategies

Checklist 6: Accounts Receivable Credit Insurance

Checklist 7: Internal Accounts Receivable Control

Checklist 8: Accounts Receivable Bad-Debt Expense Control

Checklist 9: Types of Accounts Receivable

Checklist 10: FACT Compliance Regulations 

Appendices

Appendix 1: Accounts Receivable Collections Letter

Appendix 2: Accounts Receivable Reconciliation Letter

Appendix 3: Accounts Receivable Posting and Auditing Form

Appendix 4: Daily Account Receivable Auditing Report Form

Appendix 5: Accounts Receivable Do’s and Don’ts Form

Appendix 6: Statistics for Accounts Receivable Auditing Form

Appendix 7: FTC Enforcement Policy: Identity Theft Red Flag Rule, 16 CFR 681.2