BAP62 Issues in Financial Accounting: Health Care Revenue Cycle Assessment Answer
Issues in Financial Accounting
Trimester 1 2019 GROUP ASSIGNMENT
This report reflects the key understanding of the revenue cycle accounting information and its implication while preparing the financial statement of the company. In this report, analysis of the financial health of the healthcare organization and how it has complied with the financial accounting rules and regulation for preparing the revenue cycle accounting in the books of account. It shows that it keeps a check upon the appropriateness of the revenue cycle. Here, the healthcare revenue cycle management comes in limelight which reflects how the revenue of the company is recorded in the books of account of the organization. The revenue cycle reveals the accumulation of cash inflow and outflow in the business functioning of the organization. In context with the health care organization, revenue cycle of a company is accompanied by the different clinical and administrative functions which help in capturing, managing and collecting service revenue from the patients
With the ramified economic changes, each and every organization needs to comply with the international reporting frameworks to prepare the financial statement of the company. It is required to follow international standards so that it is easy for the stakeholders to understand the shared financial information. In this report, the implication of accounting standards for the revenue cycle has been taken into consideration. The annual report of Healthcare organization has been assessed to evaluate the accounting implication of revenue cycle in the recording of the financial transaction in the books of account of the company. Revenue cycle is referred to as the process through which the reimbursements are received by the healthcare providers for the care services extended by them to the patients. The definition of the revenue cycle is separately provided by the "Healthcare Financial Management Association (HFMA)" for the healthcare department. This definition is explained in simple words define revenue cycle as an accumulation of different clinical and administrative functions which helps in capturing, managing and collecting service revenue from the patients. All the several processes that comprise the entire revenue cycle work in a flow and fall one after the other (Bruno, Johnson, and Hesley, 2017).
As per the perception of the Davis, and Colton, (2017), it is revealed that for keeping the financial health of the healthcare providers, it is important to implement such practices in an organization which keeps a check upon the appropriateness of the revenue cycle. Here, the healthcare revenue cycle management comes in limelight. The process of healthcare revenue cycle management helps the healthcare providers in proper identification of activities that release revenue, helps in managing them and proper collection of service revenues from the patients. In the absence of this management system, the healthcare providers cannot sustain business in the long run.
As stated by Wells, and Bravender, (2016), it is revealed that the revenue cycle of healthcare providers is formulated through a series of several steps. The process starts with the patient making an appointment with a healthcare service provider through pre-registration and ends with collecting all the dues on the registered account of the patient. For better understanding, the example of an Australian healthcare provider listed upon the Australian Stock Exchange is taken. The healthcare provider is Health scope.
As per the views of the Barnes, (2017), it is stated that if any patient goes to Healthscope, either for hospital services or for pathology department’s service, a process has to be initiated as per the revenue cycle. The process is as follows:
- The patient has to first place an appointment. This step calls for a pre-registration of the patient. Herein, a separate account for the patient is created in the Healthscope’s data. This account consists of the details about the patient's medical history and the coverage of insurance if any.
- After the patient gets registered and books a successful appointment, the next step is where healthcare services are provisioned to the patients. The concerned healthcare professional shall render the care services. In this step, care is extended along with the prescription of required medication by the professional (Solomon, and Helfand, 2018).
- The next step is the documentation of the services that are provided by the professional to the patients. This step is required to be properly done on account of the liability that comes along because of the provision of punishment in case of wrong treatment. In this step, Healthscope is required to note information relating to patient's demographic conditions, insurance details and clinical details (visit frequency, prescribed medication, and the performed tests). Nowadays medical records are prepared by the healthcare providers in an electronic form (Singh, Mindel, and Mathiassen, 2017).
- After Healthscope renders healthcare services to the patients, it prepares the claims in the name of the patient served. Claims are raised for all the services that are provisioned to the customers. A billing team is at work in Healthscope to raise claims on the patients. The claims are entered by the help of a codified language. For every service that is rendered a particular code is there.
- After the billing is done, the patients of Healthscope pay their share of the claim that is not to be borne by the insurance companies. It is the co-pay which is required to be paid by the patient at Healthscope itself.
- After the co-pay is paid by the patient, the amount is deducted from the entire bill to gather the claim amount that is required to be reimbursed by the insurance company. The claim is filed with the insurance company, usually with the help of a clearinghouse. It is vital to submit the claims because unless filing of claims is done, the insurance company shall not reimburse it. The clearinghouse is often responsible for maintaining the claims error free to prevent denials from the side of the insurance company.
- In case the claims filed by Healthscope consist of some errors, then the claims are denied. Research conducted by Medical Group Management Association specifies that on an average 4% claims are usually denied (Tseng, et. al 2018). To ensure, the management of any possible denials, the denied claims are resubmitted after the mistakes and errors are rectified. After the resubmission is done the insurance company reimburses the claims, if accepted.
As per the views of Tseng, et. al (2018), it is divulged that in case the claims raised by Healthscope are not reimbursed in full by the insurance company, the direct signal is non-coverage of an entire claim by the policy undertaken by the patient. In this case, the outstanding bill is sent to the patient. The revenue cycle for Healthscope ends when the patient finally ends up by paying the dues not reimbursed. A continuous follow – up is required at the end of Healthscope. This is the consistent steps which are followed and recorded as per the AASB-15 in the books of account of the company to strengthen its reporting frameworks to keep every recording of the revenue true and fair to its stakeholders.
However, the Healthscope faces several complexities in the revenue cycle process. The process looks smooth at the discussion but comes with multiple problems. These problems relate to the changes that are seen in the contracts done with the insurance companies, legislative requirements, delayed reimbursements, payment failure on the side of patients, and etc. However, an improper billing system is also a major drawback. The problem in the billing system leads to incomplete patient information required to track patient records, erroneous bills and eventual delays in reimbursements. Moreover, the coding of the claims is also a complex task and is bound to inculcate errors, if not properly done (Baker, and Weigand, 2015.)
Application of Accounting Criteria relevant for theme selected
AASB 15, “Revenue from Contract with Customers” states an obligation on the organization to record revenue only when the performance obligations as mentioned in the contract with the customer are satisfied. Resultant, Healthscope is required to keep the requirements of AASB 15 in mind to ensure a smoother revenue cycle. The amount to be billed upon the patient has to be based upon the tenure of customer treatment and/or the services rendered. Unless the performance meets the desired conditions, a claim cannot be raised (Niescho, 2018).
For Healthscope, to get a better revenue cycle management, certain things are required to be ensured. At the time when the patient is pre-registered, it is important to verify the eligibility of the insurance coverage stated by the patient. This will make sure the reimbursement of claims by the insurance company (Bhullar, Bhatnagar, and Gupta, 2018).
It is analyzed that AASB 15 Revenue from Contracts with Customers as amended incorporates IFRS15 Revenue from Contracts with Customers as issued and amended by IFRB which needs be compiled by the company while recording the revenue cycle in the books of account. As discussed, the main reason leading to reimbursement delays is a denial of claims by the insurance companies is related to the company's failure to maintain an effective claim management system in its business process. Healthscope is required to implement an effective claim management system in operation.
Source:- (Bremberger, Cambini, Gugler, and Rondi, 2016).
The system must perform a fast process of fast resolution of claims. Any technical or clinical glitch existent in the denied claims has to be resolved at the earliest hour possible. The company has strengthened its financial reporting frameworks by complying with the requirements of AASB 15 with a view to maintain and ensure a smoother revenue cycle in its business operating. In order to record the revenue life of the sold services to patients, Company follows proper accounting frameworks which start with the creating the invoices for the patients and recording of the transactions for cash inflow in the operating revenue cycle (Bremberger, Cambini, Gugler, and Rondi, 2016).
Summary of Findings
This research paper has revealed that while recording the financial details of the company, it is found that while recording the financial revenue in the books of account, there needs to be a proper invoice and financial details. In the case of Health scope Company, it has recorded its all debtors and other financial information by using the proper invoices and documents. In addition to this, the revenue cycle of the company has also been supported by the notes to the account of the company. In addition to this, related to the cash inflows, all amount in the process found to be non-coverage of the entire claim by the policy undertaken by the patient. In this case, the outstanding bill is sent to the patient as per the set procedure in the revenue cycle. The revenue cycle for Healthscope ends when the patient finally ends up by paying the dues not reimbursed. A continuous follow – up is required at the end of Healthscope.
- Healthscope needs to strengthen its financial accounting and reporting frameworks by setting up harmonization in its domestic and international reporting frameworks while developing the revenue cycle.
- All the accountants and auditors would assess the inherent, control and detention risk and on the basis of the same recording of revenue transactional and auditing should be done to keep the transparent view of the recorded financial transactions.
- The revenue cycle of the company should be bifurcated while recording the capital and revenue nature transactions. Therefore, money received in the revenue nature would be recorded in the profit and loss account of the company and other capital nature amount received would be recorded in the assets side of the company.
- The company needs to give proper notes to account for the amount recorded in the operating revenue cycle. Nonetheless, the amount recorded for other income will be shown as other income in the profit and loss account while computing the total income of the company. In this case, net income would be only the income received by selling services to patients in health scope hospital (CHANDREN, AHMAD, and ALI, 2017).
After assessing the annual report of the health care organization and implication of the accounting standards rules and regulations, it is found that company needs to set up proper harmonization in the domestic and international accounting frameworks for the recording of the revenue cycle financial information in the books of account. For this, the staffs are required to be trained for tasks like proper billing, coding system, verification of insurance, and investigation in relation to the denials. A report suggests that an improper error check in the claims has caused around 43% of hospitals in America have spent over $10,000 on resolving claim denials in the 2016 year's first quarter. So, to better manage the revenue cycle, certain things mentioned above are to be implemented and assured. Now, in the end, it could be inferred that company needs to keep the bifurcation in the recording of the revenue and capital nature data in the books of account with the view to comply with the AASB-15 for its revenue operating cycle.