129
5
Appreciating the Impact of
IBNR Claims on Hospital
Revenue Cycles
Monitoring, Management,
and Enhancement
David Edward Marcinko and Karen White
CONTENTS
Three Doors of a Hospital’s Revenue Cycle .................................................................................. 131
Front Door ................................................................................................................................. 131
Middle Door .............................................................................................................................. 131
Back Door ................................................................................................................................. 131
Revenue Accounting Recognition for Hospitals ............................................................................ 132
For-Prot Hospitals ................................................................................................................... 132
Not-for-Prot Hospitals ............................................................................................................ 132
Governmental Hospitals ............................................................................................................ 132
All Hospital’s Revenue Sources ................................................................................................ 133
Revenue Recognition for Medical Practices .................................................................................. 133
Revenue Cycle Management Issues ............................................................................................... 133
Medicare Revenue Augmentation ............................................................................................. 133
Avoiding the Medicare Revenue Flow Conundrum .......................................................................134
Optimum Organizational Structure ........................................................................................... 134
Financial Benchmarking ........................................................................................................... 134
Revenue Cycle Technology Adoption ....................................................................................... 135
Revenue Cycle Performance Evaluation and Review ............................................................... 136
Health Claims Denial Management .......................................................................................... 138
Unpaid Bills and Debt Levels ................................................................................................... 139
Health Care Reform and Political Fiat ...................................................................................... 139
Problem of IBNR Health Care Claims ...................................................................................... 139
IBNR Problems for Health Care Organizations ............................................................................. 140
IBNR Claims-Management Volume and Revenue Consequences ................................................. 141
Inadequate Cash Flows.............................................................................................................. 141
Reserve Shortfalls and Fiscal Instability ................................................................................... 141
Inaccurate Pricing...................................................................................................................... 141
Administrative Cost Increases ................................................................................................... 142
Regulatory Sanctions ................................................................................................................ 142
Potential Solutions to the IBNR Challenge ............................................................................... 142
IBNR Calculations and Methodology ....................................................................................... 142
Internal Controls and Fraud Reduction ..................................................................................... 143
130 Hospitals & Health Care Organizations
The foundation of solid nancial health for any medical entity lies in the effective management
of the organizations incurred but not reported (IBNR) health care claims and revenue cycles
(Figure5.1). In practical terms, effective management means understanding the process and tar-
geting the core of the revenue cycle in order to ne-tune and support scal health and business
growth.
The particular IBNR health care claims control and revenue cycle management needs of any
health care organizations arise for various reasons, including the following:
Health care entities may self-insure professional liability risks to offset the current medical
malpractice insurance crisis.
Nonprot health care entities must replace plants and equipment with cash or debt, not by
issuing investor-owned equity funds.
Hospital bonds and pension plans must be funded.
Hospital donations, gifts, and endowment funds must be managed.
Common Embezzlement Schemes ............................................................................................ 144
Negative Hospital Revenue Headwinds Going Forward................................................................144
Conclusion ..................................................................................................................................... 145
Acknowledgments .......................................................................................................................... 149
Bibliography .................................................................................................................................. 149
Revenue cycle
management
Internal controls
Incurred but not reported
claims
O
p
erational structure
Hospital and entity types
Metering and protection
Managerial accounting
FIGURE 5.1 Hospital IBNR and revenue cycle accounting ecosystem.

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