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Note on Statement 17: Assessments and Arrangements Similar to Taxes on Tax-Exempt Institutional Healthcare Providers
This Principles and Practices Board project was undertaken in response to frequent requests from HFMA members for accounting and financial reporting guidance for assessments and other arrangements in lieu of taxes. This statement addresses recommended accounting for three broad types of transactions: arrangements for governmental services, charity pools, and general governmental support. An exposure draft of this statement was issued on April 1, 1993. The HFMA Board approved the release of this statement on March 29, 1994.
The separate reporting in general purpose financial statements of any amounts discussed in this statement depends on the materiality of the amount. In most cases, the amounts will be combined with other reported amounts.
1.1 With increasing frequency, tax-exempt institutional healthcare providers are required to pay assessments and taxes and participate in arrangements in lieu of taxes. This statement addresses the accounting and financial reporting for these transactions. These recommendations also are appropriate for use by taxable institutional healthcare providers. While the specific terms of these arrangements may be different among state and local governments, this statement groups all these arrangements into the following broad types:
1.2 Currently, these types of transactions are made for various purposes and are paid to a number of government agencies and organizations. There may be a variety of arrangements within individual states, because some payments are related to local governmental services. Accounting and financial reporting practices related to these payments are inconsistent.
1.3 This statement describes arrangements by healthcare providers for governmental services (Section 2), charity pools (Section 3), and general governmental support (Section 4), and identifies the appropriate accounting and financial reporting for these arrangements.
1.4 There are mixed views about the appropriateness of certain arrangements this statement addresses. In some cases, providers have at least a short-term financial benefit from the arrangement, as described later. In these circumstances, some providers conclude that the financial advantage outweighs other considerations. Others believe, however, that these arrangements should not be required of tax-exempt entities. This Principles and Practices (P&P) Board statement takes no position on the appropriateness of these arrangements. Rather, this statement addresses the accounting and financial reporting for these arrangements.
2.1 As state and local governments face rising costs and a limited ability to increase revenue, they increasingly examine the status of entities that are tax-exempt. A variety of challenges to tax exemption have been attempted by government agencies to compel tax-exempt providers to share the cost of local services normally supported by tax revenues. Results have been mixed. Some tax-exempt providers have granted various concessions, such as discounted healthcare services to government employees in lieu of tax payments. In some cases, tax-exempt providers have voluntarily agreed to pay for governmental services.
2.2 Payments by tax-exempt healthcare providers for governmental services may relate to fire, security, sanitation, and other services. Also, providers may supply healthcare or other services at no charge or discount the price of these items in exchange for the receipt of governmental services.
2.3 While all payments by providers for governmental services are properly reported as operating expenses, currently a variety of classifications are used. In addition, there are no specific accounting and reporting guidelines for providing healthcare services at reduced or no charge in exchange for governmental services.
2.4 The P&P Board concludes that the proper accounting for a tax-exempt provider's payment for specific governmental services depends on whether there is a specifically identified tax for the service or whether the service is funded as part of the general tax-funded activities of the government.
2.5 If a specifically identified tax is paid by all entities, regardless of tax status, the payment is recorded as an operating expense identified with the expense that is taxed. For example, all entities pay a telephone excise tax regardless of tax status and record it as part of telephone expense. Similarly, if all entities pay specific fees for fire protection services, the payment is recorded as fire protection expense.
2.6 If only tax-exempt entities pay a specifically identified tax, it is recorded as a general governmental support expense as discussed in Section 4 of this statement.
2.7 Provision of healthcare services to a government in exchange for receiving governmental services is a nonmonetary transaction which is recorded on the basis of the "fair values of the assets (or services) involved...."1 If healthcare services are rendered in lieu of an assessment, fee, or other payment to a government, it is appropriate to record revenue and expense. When these healthcare services are rendered, the fair value is recognized as revenue and general governmental support expense.
3.1 Currently, "Federal financial participation" augments state funds used for Medicaid. As a state devotes more funds to this program, the amount of Federal financial participation also rises within the Federally prescribed limits. As states found increasing needs to fund their Medicaid program but limited funds to pay for these benefits, some instituted plans for providers to supply funds to a charity pool which is mAudio Webcasthed by the Federal financial participation. Thus, the state had more funds to repay providers, to pay for healthcare services for more Medicaid patients, and to reduce the healthcare services for which providers received no compensation. Payments into a charity pool are made by providers regardless of tax status.
3.2 In most cases, provider payments are made to a of Provider state agency. The payment amount may be a percent of the amount to be received or may relate to a provider's revenue, cost, operating margin, or other factors. Payments have sometimes been recorded as an offset to revenue, sometimes as a receivable to be offset against related amounts when received, and sometimes as an operating expense, identified as a contribution, tax, or other type of expense.
3.3 Amounts received by the provider may relate to the cost of providing healthcare services to qualifying patients, to the value of bad debts or charity service provided, or to other factors. Payments received have been accounted for in a number of ways, including as recoveries of receivables, as reductions of bad debt expense, or as patient service revenue, other revenue, or nonoperating gain, and may or may not relate to healthcare services to specific patients.
3.4 The P&P Board concludes that the proper accounting for a provider's payments (or obligation and to make a payment) into a charity pool depends on whether or not recovery of any of the funds paid is guaranteed.
3.5 If recovery of any of the amount paid to the charity pool is guaranteed, the recoverable portion is properly recorded as a receivable. If recovery of any payment, or portion thereof is not guaranteed, the amount is recorded as a general governmental support expense as discussed in Section 4 of this statement.
3.6 When a provider is legally entitled to payment from a charity pool, such as when healthcare services are provided to qualifying patients, any unrestricted excess over a receivable recorded as described in paragraph 3.5 is recorded as patient service revenue. Restricted excess amounts are recorded in accordance with the restriction.
General payments are made to government agencies by some tax-exempt healthcare providers. These payments may have no relationship to specific governmental services received by the provider.
4.2 In some areas, payments to charity pools, discussed in Section 3 of this statement, have evolved into general payments similar to taxes that are unrelated to governmental payments for charity service. Providers may make payments similar to general taxes for other reasons.
4.3 The P&P Board concludes that the proper accounting for a provider's liability for general and Financial governmental support, including the types of arrangements described in paragraph 4.2, is properly recorded as general governmental support expense.
5.1 If a specifically identified tax is paid by all entities, regardless of tax status, the liability is recorded as an operating expense identified with the expense that is taxed. If only tax-exempt entities pay a specifically identified tax, the tax is recorded as a general governmental support expense.
5.2 Provision of healthcare services to a government in exchange for receiving governmental services is a nonmonetary transaction which is recorded on the basis of the "fair value" of the services involved. The fair value of the services provided is recorded as revenue and general governmental support expense.
5.3 Payments to a charity pool with recovery guaranteed are reported as a receivable. Other payments to a charity pool are recorded as a general governmental support expense.
5.4 Receipts from a charity pool in excess of receivables due from the pool are recorded as patient service revenue.
Edmund R. Abel, FHFMA, CMPA, CPA
John T. Bigalke, FHFMA, CPA
Eugene R. Curcio, FHFMA, CPA
Paul R. DeMuro, FHFMA, CMPA, CPA
John R. Doidge, FHFMA, CMPA
Richard Donoghue, CPA
Terry Duis, FHFMA, CPA
Robbin R. Grill, CPA
Thomas F. McNulty, CMPA
David B. Petrie. FHFMA, CMPA
Suzanne M. Petru, FHFMA, CPA
James G. Sullivan, CPA
Patricia Hlavinka, CPA
1. Accounting Principles Board Opinion No. 29, "Accounting for Nonmonetary Transactions," paragraph 18.
Publication Date: Tuesday, March 29, 1994
In this Business Profile, Shawn Yates, director of healthcare product management at Ontario Systems, discusses the growing challenge of managing self-pay accounts and provides insight on how providers can successfully collect patient payments.
In this business profile, Cathy Smith, leader of the revenue transformation consulting practice at The Claro Group discusses how the organization helps hospitals and medical groups reimagine their revenue cycle.
In this business profile, Deloitte & Touche LLP executives Anne Phelps, principal and U.S. healthcare regulatory leader, and Daniel Esquibel, senior manager, explain ways health systems, health plans, and physician practices can prepare for MACRA.
In this Business Profile, Bruce Haupt, president and CEO of ClearBalance, discusses how a patient loan program can increase patient collections, reduce bad debt, and speed cash flow.
In this Business Profile, Jerry Bruno, principal with Deloitte Consulting LLP, discusses the importance of choosing revenue cycle solutions that help an organization meet the challenges of a quickly evolving healthcare environment.
In this business profile, Lane Jackson, a partner in the Grant Thornton LLP Health Care Advisory Services practice, with extensive experience in overseeing system implementations and revenue cycle reorganizations, discusses best practices for elevating revenue cycle performance during an EMR implementation. Grant Thornton LLP is a sponsor of the Large System Controllers Council Affinity Group.
Patient financial engagement is more challenging than ever – and more critical. With patient responsibility as a percentage of revenue on the rise, providers have seen their billing-related costs and accounts receivable levels increase. If increasing collection yield and reducing costs are a priority for your organization, the metrics outlined in this presentation will provide the framework you need to understand what’s working and what’s not, in order to guide your overall patient financial engagement initiatives and optimize results.
No two patients are the same. Each has a very personal healthcare experience, and each has distinct financial needs and preferences that have an impact on how, when and if they chose to pay their healthcare bill. It’s no longer effective to apply static billing techniques to solve the complex challenge of collecting balances from patients. The need to tailor financial conversations and payment options to individual needs and preferences is critical. This presentation provides 10 recommendations that will not only help you improve payment performance through a more tailored approach, but take control of rising collection costs.
This white paper, written by Apex Vice President of Solutions and Services, Carrie Romandine, discusses the importance of patient segmentation and messaging specifically related to the patient revenue cycle. Applying strategic messaging that is tailored to each patient type will not only better educate consumers on payment options specific to their billing needs, but it will maximize the amount collected before sending to collections. Further, targeted messaging should be applied across all points of patient interaction (i.e. point of service, customer service, patient statements) and analyzed regularly for maximized results.
This white paper, written by Apex President Patrick Maurer, discusses methods to increase patient adoption of online payments. Providers are now seeking ways to incrementally collect more payments due from patients as well as speeding up the rate of collections. This white paper shows why patient-centric approaches to online payment portals are important complements to traditional provider-centric approaches.
Increased electronic engagement between healthcare providers and patients provides significant opportunities for improving revenue cycle metrics and encouraging patients to access EHRs. This article, written by Apex Founder and CEO Brian Kueppers, explores a number of strategies to create synergy between patient billing, online payment portals and electronic health record (EHR) software to realize a high ROI in speed to payment, patient satisfaction and portal adoption for meaningful use.
Faced with a rising tide of bad debt, a large Southeastern healthcare system was seeing a sharp decline in net patient revenues. The need to improve collections was dire. By integrating critical tools and processes, the health system was able to increase online payments and improve its financial position. Taking a holistic approach increased overall collection yield by 10% while costs came down because the number of statements sent to patients fell by 10%, which equated to a $1.3M annualized improvement in patient cash over a six-month period. This case study explains how.
With the ICD10 deadline quickly approaching and daily responsibilities not slowing down, final preparations for October 1 require strategic prioritization and laser focus.
Read how Gwinnett Medical Center provides clear connections to financial information, offers multiple payment options for patients, and gives onsite staff the ability to collect payments at multiple points throughout the care process.
Read how Orlando Health was able to perform deeper dives into claims data to help the health system see claim rejections more quickly–even on the front end–and reduce A/R days.
To maintain fiscal fitness and boost patient satisfaction and loyalty, healthcare providers need visibility into when and how much they will be paid–by whom–and the ability to better navigate obstacles to payment. They need payment clarity. This whitepaper illuminates this concept that is winning fans at forward-thinking hospitals.
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Effective revenue cycle management can be a challenge for any hospital, but for smaller providers it is even tougher. Read how Wallace Thomson identified unreimbursed procedures, streamlined claims management, and improved its ability to determine charity eligibility.
Before launching an energy-efficiency initiative, it’s important to build a solid business case and understand the funding options and potential incentives that are available. Healthcare leaders should consider taking the steps outlined in the whitepaper to ease the process of gaining approval, piloting, implementing, and supporting sustainability projects. You will find that investing in sustainability and energy efficiency helps hospitals add cash to their bottom line. Discover how hospitals and health systems have various options for funding energy-efficient and renewable-energy initiatives, depending on their current financial structure and strategy.
Health care is a dynamic mergers and acquisitions market with numerous hospitals and health systems contemplating or pursuing formal arrangements with other entities. These relationships often pose a strategic benefit, such as enhancing competencies across the continuum, facilitating economies of scale, or giving the participants a competitive advantage in a crowded market. Underpinning any profitable acquisition is a robust capital planning strategy that ensures an organization reserves sufficient funds and efficiently onboards partners that advance the enterprise mission and values.
The success of healthcare mergers, acquisitions, and other affiliations is predicated in part on available capital, and the need for and sources of funding are considerations present throughout the partnering process, from choosing a partner to evaluating an arrangement’s capital needs to selecting an integration model to finding the right money source to finance the deal. This whitepaper offers several strategies that health system leaders have used to assess and manage capital needs for their growing networks.
Announcements from several commercial payers and the Centers for Medicare and Medicaid Services (CMS) early in 2015 around increased efforts to form value-based contracts with providers seemed to point to an impending rise in risk-based contracting. Rather than wait for disruption from the outside in, health care providers are now making inroads on collaborating with payers on various risk-based contracting models to increase the value of health care from within.
Yuma Regional Medical Center (YRMC) is a not-for-profit hospital serving a population of roughly 200,000 in Yuma and the surrounding communities.
Before becoming a ZirMed client, Yuma was attempting to manually monitor hundreds of thousands of charges which led to significant charge capture leakage. Learn how Yuma & ZirMed worked together to address underlying collections issues at the front end, thus increasing Yuma’s overall bottom line.
Kindred Hospital Rehabilitation Services works with partners to audit the market and the facility’s role in that market to identify opportunities for improvement. This approach leads to successes; Kindred’s clinical rehab and management expertise complements our partners’ strengths. Every facility and challenge is unique, and requires a full objective analysis.
As the critical link between patient care and reimbursement, health information enables more complete and accurate revenue capture. This 5-Minute White Paper Briefing shares how to achieve cost-effective revenue integrity by your optimizing HIM systems.
Speedier cash flow starts with better CDI and coding. This 5-Minute White Paper Briefing explains how providers can improve vital measures of technical and business performance to accelerate cash flow.
Qualified coders are getting harder to come by, and even the most seasoned professional can struggle with the complexity of ICD-10. This 5-Minute White Paper Briefing explains how partnerships can help improve coding and other key RCM operations potentially at a cost savings.
The point of managing your revenue cycle isn’t just to improve revenue and cash flow. It’s to do those things effectively by consistently following best practices— while spending as little time, money, and energy on them as possible.
How Lucile Packard Children’s Hospital Stanford increased payments received within 45 days by 20% and reduced paper submission claims by 70% by using ZirMed solutions.
The reasons claims are denied are so varied that managing denials can feel like chasing a thousand different tails. This situation is not surprising given that a hypothetical denial rate of just 5 percent translates to tens of thousands of denied claims per year for large hospitals—where real‐world denial rates often range from 12 to 22 percent. Read about how predictive modeling can detect meaningful correlations across claims denials data.
Emergency Mobile Health Care (EMHC) was founded to be and remains an exclusively locally owned and operated emergency medical service organization; today EMHC serves a population of more than a million people in and around Memphis, answering 75,000 calls each year.
Since the Physician Quality Reporting Initiative (PQRI) introduction, CMS has paid more than $100 million in bonus payments to participants. However, these bonuses ended in 2015; providers who successfully meet the reporting requirements in 2016 will avoid the 2% negative payment adjustment in 2018, so now is the time to act! Included in this whitepaper are implications of increasing patient responsibility, collections best practices, and collections and internal control solutions.
Getting paid what your physician deserves—that’s the goal of every biller. Yet even for the best billers, achieving that success can be elusive when denials stand in the way of success, presenting challenges at every turn. Denials aren’t going away, but you can learn techniques to manage and even prevent them.Join practice management expert Elizabeth W. Woodcock, MBA, FACMPE, CPC, to: Discover methods to translate denial data into business intelligence to improve your bottom line, determine staff productivity benchmarks for billers, and recognize common mistakes in denial management.
Physician practices must improve organizational efficiency to compete in this era of reduced reimbursement and escalating administrative costs.
Many healthcare organizations are pursuing next-generation health information systems solutions. Learn more about Navigant's work with University of Michigan Health System.
The proper implementation of healthcare information technology systems is crucial to an organization’s financial health.
Stay informed about new directions in healthcare finance. Share tools and strategies for improving performance. Be an active participant in your profession. Together, we’ll reshape the business and practice of healthcare. Join us.
Of all the transformations reshaping American health care, none is more profound than the shift toward value. Access HFMA’s Value Project to discover how healthcare finance leaders are joining this transformation.
HFMA's print, email, online, and mobile opportunities provide you maximum reach and impact. We will work with you to build a plan that meets your needs. Contact a sales rep.
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