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About Rebecca S. Busch Rebecca S. Busch, RN, MBA, CCM, CFE, CHS-III, CBM, CPC, FIALCP, FHFMA is CEO of Medical Business Associates, Inc., and author of "Electronic Health Records An Audit and Internal Control Guide” and "Healthcare Fraud Audit & Detection Guide.”

Past Articles Healthcare Reform: The Application of Business 101? "Reforming" Healthcare Reform

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Rebecca S. Busch
Healthcare Reform: The Application of Business 101?
December 4, 2009

Did you know that most of our government programs are managed by an accounting method referred to as the cash method? What it means is that revenue or cash is not recognized until it is received. This presents a huge risk in misrepresenting the picture of an organizations operation and distorts real income.

The more appropriate accounting method to realize a true picture of an organizations health is the accrual-based accounting method. This method recognizes income when goods are provided/sold or when a service is rendered. Under the cash method, an expense is recognized when it's paid. Under the accrual method, an expense is recognized when the business is obligated to pay it.

The only government report that is generated on the concept of accrual accounting is an annual report that is issued entitled "The financial report of the United States Government." If you really want to understand how much we really are in trouble read the 2008 report. When you utilize the accrual method, the numbers tend to reflect the true operating health of the business unit. Income can be distorted by holding off payment of bills to increase the bottom line or the manipulation of when payments are posted.

On a more serious note – we do not even have an inventory of US assets documented. Think about the value of assets currently owned by the government. How can we make a business decision without understanding our real numbers and not knowing the value of our assets? This is further insult to our already open wounds.

Let’s think about this. Can we at minimum agree to apply basic business concepts in how we manage and report money expenditures in healthcare? How can we begin to make a sound business decision if the information we are relying upon is not kept in a way that the information can be discerned? Please remember the words of President Thomas Jefferson’s to Treasury Secretary Albert Gallatin in 1802 "We might hope to see the finances of the Union as clear and intelligible as a merchants books, so that every member of congress and every man of any mind in the union should be able to comprehend them. To investigate abuses and consequently control them.”

If I asked you to look at your household budget and reduce by 10% most likely you would list what you are paying out into several categories. For example, mandatory expenses such as the mortgage, rent, taxes, and utilities. Discretionary expenses like entertainment and shopping for those extra pair of shoes. If we need to reduce $1,000 per month we begin by isolating those discretionary expenses, the things that we could live without. If that is not a sufficient reduction to get to the $1,000 then major decisions like reducing the mortgage by selling the house or moving to a different apartment with lower overhead needs to be considered.

In health care we have to reduce expenses however, the market in its fragmented form does not even allow the opportunity to create those mandatory versus discretionary expenditure items. In essence, any provision in the healthcare reform bill is a guessing game. It is a variance between the SWAG and WAG method. The scientifically based wild ass guess (SWAG) versus the simplified wild ass guess (WAG). We are betting on the attributes selected in the reform package will be the right ones!

The 2008 Report of the United States Government "The Federal Governments Financial Health” glaringly tells the story. A few highlights for serious consideration on page 9 of the report it references "KEY SUSTAINABILITY DATES.” What does this mean? Look at the following critical dates:

▪ 2008 Medicare Hospital Insurance benefits begin to exceed program tax revenues.

▪ 2017 Social Security benefits begin to exceed program tax revenues.

▪ 2040 Federal Debt held by the Public surpasses historic high of 109% of GDP.

▪ 2080 Total Government cost is more than 3 times revenue.*

(* Revenue is assumed to be the historical average of about 18 percent of GDP.)

Further on page 10 of the report is this commentary "This Citizens’ Guide highlights information in the 2008 Financial Report. The Government Accountability Office’s (GAO) complete audit report on the U.S. Government’s consolidated financial statements can be found beginning on page 165 of the Financial Report. For FY 2008 and FY 2007, GAO issued an unqualified or ‘clean’ opinion on the 2008 and 2007 Statements of Social Insurance. However, certain material financial reporting control weaknesses and other limitations on the scope of its work prevented GAO from expressing an opinion on the remaining financial statements.” Please re read the last statement. Process it and its implications. How can we continue to add to the deficit without sufficient internal controls to manage expenditures?

I am raising three children. All of which I have discussed the concept of setting budgets, living within your means, saving, and planning for your future. I would ask Congress to do the same for the citizens of this great country. I have five golden recommendations for Congress to consider:

1) At minimum require all government programs but specifically health care programs to operate and report their financials utilizing accrual accounting methodology.

2) Any private entity providing a healthcare service or product must disclose at minimum if they utilize proprietary pricing methodologies. (This means financial transactions that are considered a secret.)

3) Every employer who has a healthcare benefit program cannot be contractually prohibited from auditing their program including accountability of how monies were spent and to whom they were given.

4) The Stark laws currently prohibit the concept of "self dealing” among providers of healthcare services specifically professionals such as doctors. The Stark laws should be expanded to avoid "self dealing” by private insurance carriers and all vendors in the healthcare market receiving compensation from a government sponsored program. If a payer or equipment provider can generate additional income by referring a patient to a particular healthcare network in which they have a financial interest then they must disclose this conflict. No different than a provider referring services in which they will benefit financially.

5) A private carrier cannot pay less for services then any of the government sponsored programs.