,ESSENTIALS OF
HEALTH CARE
FINANCE
EIGHTH EDITION
William O. Cleverley, PhD
Chairman and Founder
Cleverley & Associates
Worthington, Ohio
James O. Cleverley, MHA
President
Cleverley & Associates
Worthington, Ohio
,World Headquarters
Jones & Bartlett Learning
5 Wall Street
Burlington, MA 01803
978-443-5000
www.jblearning.com
Jones & Bartlett Learning books and products are available through most bookstores and online booksellers. To contact Jones & Bartlett
Learning directly, call 800-832-0034, fax 978-443-8000, or visit our website, www.jblearning.com.
Substantial discounts on bulk quantities of Jones & Bartlett Learning publications are available to corporations, professional associations,
and other qualified organizations. For details and specific discount information, contact the special sales department at Jones & Bartlett
Learning via the above contact information or send an email to .
Copyright © 2018 by Jones & Bartlett Learning, LLC, an Ascend Learning Company
All rights reserved. No part of the material protected by this copyright may be reproduced or utilized in any form, electronic or mechanical,
including photocopying, recording, or by any information storage and retrieval system, without written permission from the copyright
owner.
The content, statements, views, and opinions herein are the sole expression of the respective authors and not that of Jones & Bartlett Learning,
LLC. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does
not constitute or imply its endorsement or recommendation by Jones & Bartlett Learning, LLC and such reference shall not be used for
advertising or product endorsement purposes. All trademarks displayed are the trademarks of the parties noted herein. Essentials of Health
Care Finance, Eighth Edition is an independent publication and has not been authorized, sponsored, or otherwise approved by the owners
of the trademarks or service marks referenced in this product.
There may be images in this book that feature models; these models do not necessarily endorse, represent, or participate in the activities
represented in the images. Any screenshots in this product are for educational and instructive purposes only. Any individuals and scenarios
featured in the case studies throughout this product may be real or fictitious, but are used for instructional purposes only.
10919-1
Production Credits
VP, Executive Publisher: David D. Cella Composition: Integra Software Services Pvt. Ltd.
Publisher: Michael Brown Cover Design: Scott Moden
Associate Editor: Lindsey M. Sousa Rights & Media Specialist: Merideth Tumasz
Associate Editor: Danielle Bessette Media Development Editor: Shannon Sheehan
Senior Production Editor: Amanda Clerkin Cover Image (Title Page, Chapter Opener): © A1Stock/Shutterstock
Senior Marketing Manager: Sophie Fleck Teague Printing and Binding: Edwards Brothers Malloy
Manufacturing and Inventory Control Supervisor: Amy Bacus Cover Printing: Edwards Brothers Malloy
Library of Congress Cataloging-in-Publication Data
Names: Cleverley, William O., author. | Cleverley, James O., author.
Title: Essentials of health care finance / William O. Cleverley and James O.
Cleverley.
Description: Eighth edition. | Burlington, Massachusetts : Jones & Bartlett
Learning, [2018] | Includes bibliographical references and index.
Identifiers: LCCN 2016047263 | ISBN 9781284094633
Subjects: | MESH: Costs and Cost Analysis | Financial Management | Health
Services—economics
Classification: LCC RA971.3 | NLM W 74.1 | DDC 362.11068/1—dc23
LC record available at https://lccn.loc.gov/2016047263
6048
Printed in the United States of America
21 20 19 18 17 10 9 8 7 6 5 4 3 2 1
, © A1Stock/Shutterstock
Contents
Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi Chapter 4 Legal and Regulatory
Content of the Book. . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Environment . . . . . . . . . . . . . . . . . . . 97
About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii Part I. Knowledge of the Law and Regulations
Contributor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Is an Essential Part of Healthcare Financial
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Part II. Primary Regulatory Issues
Chapter 1 Financial Information and Confronting Healthcare Organizations
the Decision-Making Process. . . . . . . 1 Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Information and Decision Making. . . . . . . . . . . . . . . . . . . 4 Legal Audits and Investigations. . . . . . . . . . . . . . . . . . . 126
Uses and Users of Financial Information. . . . . . . . . . . . . 5 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Financial Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Forms of Business Organization. . . . . . . . . . . . . . . . . . . . . 8
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Chapter 5 Measuring Community
Benefit . . . . . . . . . . . . . . . . . . . . . . . 131
Chapter 2 Billing and Coding for Health
Tax Exemption Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Services. . . . . . . . . . . . . . . . . . . . . . . . 11
Community Benefit Areas. . . . . . . . . . . . . . . . . . . . . . . . . 133
Generating Healthcare Claims . . . . . . . . . . . . . . . . . . . . . 12 The Community Value Index®. . . . . . . . . . . . . . . . . . . . . 135
Scheduling and Registration. . . . . . . . . . . . . . . . . . . . . . . 14 Estimating Financial Benefits in Not-for-Profit
Provide Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Healthcare Firms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Medical Documentation and HIM/Medical Records. . . 15 Estimating Financial Benefits Provided
Charge Entry and Charge Master. . . . . . . . . . . . . . . . . . . 19 by Not-for-Profit Healthcare Firms. . . . . . . . . . . . . . . 142
Billing and Claims Preparation . . . . . . . . . . . . . . . . . . . . . 25 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Claims Editing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Appendix 5-A Schedule H Form. . . . . . . . . . . . . . . . . . . 147
Claim Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Chapter 6 Revenue Determination. . . . . . . . . 151
Appendix 2-A Sample UB-04 Form and Sample Payment Methods and Their Relationship
CMS-1500 Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 to Price Setting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
Methods for Controlling
Chapter 3 Financial Environment of Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Healthcare Organizations . . . . . . . . 31 Generic Principles of Pricing . . . . . . . . . . . . . . . . . . . . . . 154
Financial Viability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Price Setting for Healthcare
Sources of Operating Revenue. . . . . . . . . . . . . . . . . . . . . 34 Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Healthcare Payment Systems . . . . . . . . . . . . . . . . . . . . . . 36 Justifying Healthcare Firm Prices. . . . . . . . . . . . . . . . . . 158
Medicare Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Health Plan Contract Negotiation. . . . . . . . . . . . . . . . . 163
Medicare Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Health Plan Payment Schedules. . . . . . . . . . . . . . . . . . . 166
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
iii
HEALTH CARE
FINANCE
EIGHTH EDITION
William O. Cleverley, PhD
Chairman and Founder
Cleverley & Associates
Worthington, Ohio
James O. Cleverley, MHA
President
Cleverley & Associates
Worthington, Ohio
,World Headquarters
Jones & Bartlett Learning
5 Wall Street
Burlington, MA 01803
978-443-5000
www.jblearning.com
Jones & Bartlett Learning books and products are available through most bookstores and online booksellers. To contact Jones & Bartlett
Learning directly, call 800-832-0034, fax 978-443-8000, or visit our website, www.jblearning.com.
Substantial discounts on bulk quantities of Jones & Bartlett Learning publications are available to corporations, professional associations,
and other qualified organizations. For details and specific discount information, contact the special sales department at Jones & Bartlett
Learning via the above contact information or send an email to .
Copyright © 2018 by Jones & Bartlett Learning, LLC, an Ascend Learning Company
All rights reserved. No part of the material protected by this copyright may be reproduced or utilized in any form, electronic or mechanical,
including photocopying, recording, or by any information storage and retrieval system, without written permission from the copyright
owner.
The content, statements, views, and opinions herein are the sole expression of the respective authors and not that of Jones & Bartlett Learning,
LLC. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does
not constitute or imply its endorsement or recommendation by Jones & Bartlett Learning, LLC and such reference shall not be used for
advertising or product endorsement purposes. All trademarks displayed are the trademarks of the parties noted herein. Essentials of Health
Care Finance, Eighth Edition is an independent publication and has not been authorized, sponsored, or otherwise approved by the owners
of the trademarks or service marks referenced in this product.
There may be images in this book that feature models; these models do not necessarily endorse, represent, or participate in the activities
represented in the images. Any screenshots in this product are for educational and instructive purposes only. Any individuals and scenarios
featured in the case studies throughout this product may be real or fictitious, but are used for instructional purposes only.
10919-1
Production Credits
VP, Executive Publisher: David D. Cella Composition: Integra Software Services Pvt. Ltd.
Publisher: Michael Brown Cover Design: Scott Moden
Associate Editor: Lindsey M. Sousa Rights & Media Specialist: Merideth Tumasz
Associate Editor: Danielle Bessette Media Development Editor: Shannon Sheehan
Senior Production Editor: Amanda Clerkin Cover Image (Title Page, Chapter Opener): © A1Stock/Shutterstock
Senior Marketing Manager: Sophie Fleck Teague Printing and Binding: Edwards Brothers Malloy
Manufacturing and Inventory Control Supervisor: Amy Bacus Cover Printing: Edwards Brothers Malloy
Library of Congress Cataloging-in-Publication Data
Names: Cleverley, William O., author. | Cleverley, James O., author.
Title: Essentials of health care finance / William O. Cleverley and James O.
Cleverley.
Description: Eighth edition. | Burlington, Massachusetts : Jones & Bartlett
Learning, [2018] | Includes bibliographical references and index.
Identifiers: LCCN 2016047263 | ISBN 9781284094633
Subjects: | MESH: Costs and Cost Analysis | Financial Management | Health
Services—economics
Classification: LCC RA971.3 | NLM W 74.1 | DDC 362.11068/1—dc23
LC record available at https://lccn.loc.gov/2016047263
6048
Printed in the United States of America
21 20 19 18 17 10 9 8 7 6 5 4 3 2 1
, © A1Stock/Shutterstock
Contents
Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi Chapter 4 Legal and Regulatory
Content of the Book. . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Environment . . . . . . . . . . . . . . . . . . . 97
About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii Part I. Knowledge of the Law and Regulations
Contributor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Is an Essential Part of Healthcare Financial
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Part II. Primary Regulatory Issues
Chapter 1 Financial Information and Confronting Healthcare Organizations
the Decision-Making Process. . . . . . . 1 Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Information and Decision Making. . . . . . . . . . . . . . . . . . . 4 Legal Audits and Investigations. . . . . . . . . . . . . . . . . . . 126
Uses and Users of Financial Information. . . . . . . . . . . . . 5 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Financial Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Forms of Business Organization. . . . . . . . . . . . . . . . . . . . . 8
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Chapter 5 Measuring Community
Benefit . . . . . . . . . . . . . . . . . . . . . . . 131
Chapter 2 Billing and Coding for Health
Tax Exemption Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Services. . . . . . . . . . . . . . . . . . . . . . . . 11
Community Benefit Areas. . . . . . . . . . . . . . . . . . . . . . . . . 133
Generating Healthcare Claims . . . . . . . . . . . . . . . . . . . . . 12 The Community Value Index®. . . . . . . . . . . . . . . . . . . . . 135
Scheduling and Registration. . . . . . . . . . . . . . . . . . . . . . . 14 Estimating Financial Benefits in Not-for-Profit
Provide Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Healthcare Firms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Medical Documentation and HIM/Medical Records. . . 15 Estimating Financial Benefits Provided
Charge Entry and Charge Master. . . . . . . . . . . . . . . . . . . 19 by Not-for-Profit Healthcare Firms. . . . . . . . . . . . . . . 142
Billing and Claims Preparation . . . . . . . . . . . . . . . . . . . . . 25 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Claims Editing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Appendix 5-A Schedule H Form. . . . . . . . . . . . . . . . . . . 147
Claim Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Chapter 6 Revenue Determination. . . . . . . . . 151
Appendix 2-A Sample UB-04 Form and Sample Payment Methods and Their Relationship
CMS-1500 Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 to Price Setting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
Methods for Controlling
Chapter 3 Financial Environment of Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Healthcare Organizations . . . . . . . . 31 Generic Principles of Pricing . . . . . . . . . . . . . . . . . . . . . . 154
Financial Viability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Price Setting for Healthcare
Sources of Operating Revenue. . . . . . . . . . . . . . . . . . . . . 34 Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Healthcare Payment Systems . . . . . . . . . . . . . . . . . . . . . . 36 Justifying Healthcare Firm Prices. . . . . . . . . . . . . . . . . . 158
Medicare Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Health Plan Contract Negotiation. . . . . . . . . . . . . . . . . 163
Medicare Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Health Plan Payment Schedules. . . . . . . . . . . . . . . . . . . 166
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
iii
