Question

2. Discuss the following basic concepts of health economics including provincial versus federal responsibilities, transfer payments, global funding, fee schedules, and case costing. [B5]

a. Compare and Contrast Provincial vs. Federal Economic Responsibilities

b. Explain transfer payments – what are they? How do they work in relation to healthcare funding in Canada?

c. Provide an overview of Global Funding.

d. Outline what fee schedules are for and their significance to HIM Professionals

e. Define Case Costing and its relevance to the funding structure.

Answer 1

Basic concepts of health economics:-

a. Compare and Contrast Provincial vs. Federal Economic Responsibilities:-

Besides what areas of government they get to legislate on, there are very few differences between how the provincial and federal governments operate, Both levels of government require laws to come to their legislatures (the body of elected politicians that create laws) and go through a specific process of voting and study before they become statute (an official law).

The provincial governments are known as unicameral. This means that it only has one body of politicians who are elected by registered voters in a certain area of the province known as a riding to represent them in the provincial legislature.

However, the federal government has a bicameral legislature. This means that it has two houses of Parliament. The lower house is known as the House of Commons and its members are known as Member of Parliament, who are voted to represent a specific area in Canada. The upper house is known as the Senate and its members, known as Senators, are appointed by the Governor-General upon recommendation of the Prime Minister.

In summary, the federal government legislates in areas of national importance, such as:

• National postal service
• National defence
• Criminal law

While the provincial governments legislate in areas of more local significance, such as:

• Health care
• Highways
• Public education

· One of the most frustrating things to hear from provincial politicians is that any policy that affects abortion is federal jurisdiction. This is simply incorrect. Since abortion is carried out in publicly-funded hospitals across Canada, it is actually under provincial jurisdiction as per Section 92 of the Constitution Act.

· Any legislation on the regulation of abortion such as parental consent, waiting periods, or full disclosure must come from provincial legislatures. In fact, there is very little that the federal government can do in regards to abortion, besides to criminalize it in the Criminal Code or restrict it at various stages.

· As pro-lifers, it is important to be involved in both federal and provincial politics. There are many things we can do pass live-saving legislation immediately in our home provinces. And we are more than ready to help you elect pro-life provincial politicians to pass some key pieces of pro-life legislation in the future!

b. transfer payments:-

A transfer payment is a one-way payment to a person or organization which has given or exchanged no goods or services for it. This contrasts with a simple "payment," which in economics refers to a transfer of money in exchange for a product or service.

Generally, the phrase "transfer payment" is used to describe government payments to individuals through social programs such as welfare, student grants, and even Social Security. However, government payments to corporations—including unconditional bailouts and subsidies—are not commonly described as transfer payments.

• A transfer payment is a payment of money for which there are no goods or services exchanged.
• Transfer payments commonly refer to efforts by local, state, and federal governments to redistribute money to those in need.
• In the U.S., Social Security and unemployment insurance are common types of transfer payments.
• Corporate bailouts and subsidies are not commonly referred to as transfer payments.

Transfer payment works in relation to healthcare funding in Canada as per below method;

The Canada Health Transfer (CHT) is the Canadian government's transfer payment program in support of the health systems of the provinces and territories of Canada. The program was originally combined with the Canada Social Transfer in a program known as the Canada Health and Social Transfer. It was made independent from the Canada Health and Social Transfer program on April 1, 2004 to allow for greater accountability and transparency for federal health funding led by then prime minister Paul Martin

The CHT is made up of a cash transfer. In 2008-09, CHT cash transfer payments from the federal government to the provinces and territories were $22.6 billion and tax point transfers were worth $13.9 billion. The cash transfer is expected to grow to 28.6 billion in 2012-2013, a growth rate of approximately six per cent. Annual cash levels are set in legislation up to the 2013-14 fiscal year as a result of the September 2004 Health Accord between the federal government and the provinces/territories.

While the CHT is allocated on an equal per capita basis, the CHT cash component is not because it takes into account the value of provincial/territorial tax points. The value of a tax point represents the amount of revenue that is generated by one percentage point of a particular tax (in the case of the CHT and the CST, the personal income tax or the corporate income tax). Since provinces do not have identical economies and, therefore, have unequal capacity to raise tax revenues, a tax point is worth more in a wealthy province than in a poorer province.

Currently Alberta and Ontario, the two provinces with the highest revenue raising ability, receive lower per capita CHT cash payments than the other provinces.

However, beginning in 2014-15, the Canada Health Transfer allocation to provinces will be determined solely on an equal per capita cash basis and no longer include tax point transfers. According to economist Livio Di Matteo, this will result in 'a particularly large windfall to Alberta

c. Overview of Global Funding. :-

Since the Global Fund was created in 2002, public sector contributions have constituted 95 percent of all financing raised; the remaining 5 percent comes from the private sector or other financing initiatives such as Product Red. The Global Fund states that from 2002 to July 2019, more than 60 donor governments pledged a total of US$51.2 billion and paid US$45.8 billion From 2001 through 2018, the largest contributor by far has been the United States, followed by France, the United Kingdom, Germany, and Japan.The donor nations with the largest percent of gross national income contributed to the fund from 2008 through 2010 were Sweden, Norway, France, the United Kingdom, the Netherlands, and Spain.

The Global Fund typically raises and spends funds during three-year "replenishment" fund-raising periods. Its first replenishment was launched in 2005, the second in 2007, the third in 2010, the fourth in 2013, and the fifth in 2016.

Alarms were raised prior to the third replenishment meeting in October 2010 about a looming deficit in funding, which would have led to people undergoing ARV treatment losing access, increasing the chance of them becoming resistant to treatment. UNAIDS Executive Director Michel Sidibé dubbed the scenario of a funding deficit an "HIV Nightmare".The Global Fund stated it needed at least US$20 billion for the third replenishment (covering programs 2011-2013), and US$13 billion just to "allow for the continuation of funding of existing programs. Ultimately, US$11.8 billion was mobilized at the third replenishment meeting, with the United States being the largest contributor - followed by France, Germany, and Japan. The Global Fund stated the US$1.2 billion lack in funding would "lead to difficult decisions in the next three years that could slow down the effort to beat the three diseases.

In November 2011, the organization's board cancelled all new grants for 2012, only having enough money to support existing grants However, following the Global Fund's May 2012 board meeting, it announced that an additional US$1.6 billion would be available in the 2012-2014 period for investment in programs.

In December 2013, the fourth replenishment meeting was held in Washington D.C. USD 12 billion was pledged in contributions from 25 countries, as well as the European Commission, private foundations, corporations, and faith-based organizations for the 2014–2016 period. It was the largest amount ever committed to fighting the three diseases.

The fifth replenishment meeting took place September 2016 in Montreal, Canada, and was hosted by Canadian Prime Minister Justin Trudeau. Donors pledged US$12.9 billion (at 2016 exchange rates) for the 2017-2019 period.

France hosted the sixth replenishment meeting in 2019 in Lyon, raising US$14 billion for 2020–2022.

The Global Fund was formed as an independent, non-profit foundation under Swiss law and hosted by the World Health Organization in January 2002. In January 2009, the organization became an administratively autonomous organization, terminating its administrative services agreement with the World Health Organization.

The initial objective of the Global Fund — to provide funding to countries on the basis of performance — was supposed to make it different from other international agencies at the time of its inception. Other organizations may have staff that assist with the implementation of grants. However, the Global Fund's five-year evaluation in 2009 concluded that without a standing body of technical staff, the Global Fund is not able to ascertain the actual results of its projects] It has therefore tended to look at disbursements or the purchase of inputs as performance.It also became apparent shortly after the organization opened that a pure funding mechanism could not work on its own, and it began relying on other agencies – notably the World Health Organization – to support countries in designing and drafting their applications and in supporting implementation] The United Nations Development Programme, in particular, bears responsibility for supporting Global Fund-financed projects in a number of countries. As a result, the organization is most accurately described as a financial supplement to the existing global health architecture rather than as a separate approach.

The Global Fund Secretariat in Geneva, Switzerland, employs about 700 staff. There are neither offices nor staff based in other countries.

In 2013, the Global Fund adopted a new way of distributing its funds in countries to fight AIDS, tuberculosis and malaria. Under this funding model, eligible countries receive an allocation of money every three years for possible use during same the three-year period.The total amount of all allocations across all countries depends on the amount contributed by governments and other donors through the "replenishment" fundraising during the same three-year period. The countries, through their “country coordinating mechanism” committees, submit applications outlining how they'll use the allocation. The committees name entities, called “principal recipients,” to carry about programs within their respective countries. An independent "technical review panel" reviews the applications. Once the applications are approved, the Global Fund provides funding to the principal recipients based on achievement toward agreed indicators and actual expenses. Performance and expenses are periodically reviewed by a “local fund agent,” which in most countries is an international financial audit company

d. Fee schedules are for and their significance to HIM Professionals

What if I told you that your practice is missing out on revenue because of an outdated fee schedule? Would you know how to fix it? Unfortunately, many practices are losing revenue because of their fee schedule and they don’t know that updating it would improve their bottom line.

Most physician fee schedules bill for more than their allowables, and for several reasons.

For one, different payers pay different amounts for a given procedure. Billing each insurer and patient based on these different amounts would result in a complex tangle of multiple fee schedules, all of which would need updating regularly. It’s more than you can expect even the most competent billing team and Electronic Health Record (EHR) system to handle.

Not having a set fee schedule also makes comparing charge volumes over time a nightmare. And if you see Medicare patients, your practice isn’t allowed to charge any other entity a lower fee than what Medicare allows.

Important Goals for Your Fee Schedule

When setting a fee schedule, consistency is important so you can get a true idea of what your accounts receivables are at any time. If you have a bevy of legacy fees that are different multiples of Medicare allowables, your AR picture becomes hazy. In addition to consistency, another goal should be minimizing money left on the table. Insurers won’t pay more than you bill them, so if they pay $150 for a service, you should bill them the full $150 (or more, since payer allowables can change throughout the year).

This can be a balancing act because you don’t want to set your fee schedules so high that you drive away patients. Self-pay patients and those with high deductibles are likely to call and ask about charges in advance. Excessive charges are likely to send them elsewhere.

Knowing Your Allowables Is Only Step One

Know, at minimum, what Medicare allowables are. If you’re charging less than what Medicare allows, you may develop a false sense of prosperity since you’re collecting 100% of what your billing commercial payers, many of whose allowables are higher than Medicare’s.

And, of course, if you’re charging a payer less than the allowable, you have no sure way of knowing how much you should have billed out.

You should make revisiting your fee schedule a regular practice to make sure your billed charge is higher than the allowed amount. If your billed charge is equal to the allowed amount, you’ve billed too little and left money on the table.

How often Should You Revisit Your Fee Schedule?

If you can review and revise your fee schedule every three months, that’s probably ideal. You shouldn’t go longer than a year, however. Healthcare market dynamics change, your liability insurance rates change, and patient volumes change frequently, and keeping up with where your fee schedule should be is essential to collecting sufficient revenue to stay in business and invest in the agency’s future. If you’re seeing that your payers are regularly allowing 100% of your charges, it’s time to modify your fee schedule. Check what Medicare and private payers are paying compared to your charges.

How Do Practices Set Fee Schedules?

Perhaps the simplest way to set fee schedules is to use a percentage of what Medicare allows. For example, family practices may charge 150% to 200% of what Medicare allows, and specialists may charge 300% of what Medicare allows. But the percentage you arrive at should be based on your own payer contracts and what other practices in your area are charging.

Another good starting place for most practices is conducting a cost study, either in-house or with the help of a consultant. Ultimately you want a list of services, each of which is assigned a proportion of overhead and margin as well as the base cost.

Fee Schedule Best Practices

A few fee schedule best practices include:

• Avoiding sudden changes in fees. If they’re too low, increase them incrementally until they’re where they need to be.
• Set fees in consideration of what your market generally charges.
• Make the fee schedule uniform for all physicians, or at least by specialty.
• Avoid charging different patients different fees, though you can allow for discounts for self-pay patients, and perhaps a deeper discount if they pay at the time of service.
• During contract negotiations, focus on codes for which you are paid on the low end of what peers are paid.
• Always read an insurer’s contract thoroughly before signing it and obtain a copy of your contract. If you do not have a current copy of your contract, I would recommend contacting your insurance carriers to obtain a copy for your records.

Now that you know how to check your fee schedule and update it, make it a habit. You might be surprised at the hidden revenue within your own practice.

e. Case Costing and its relevance to the funding structure.

Case costing:

Case costing is an accounting method that captures full costs of specific procedures and episodes of care by calculating all direct and indirect costs. It is sometimes called “patient-level costing.”

Case costing helps managers, physicians, directors, the executive team, front line staff and the board to gain a better understanding of the services we provide when, for whom, by whom and at what cost. It presents information on the provision of services (what, where, when, why and how) and on financial and human resources that were not available previously. This information is used for analyses, comparisons, evaluations and decision-making.

We can answer questions like: How much does a lens implant cost at NSHA - Central Zone? How does that compare with the procedure done elsewhere? How do the outcomes compare? Solid answers and more informed decisions will help us to honour our commitment to sustainable health care and improved health outcomes.

Meaning and Concept of Capital Structure:

The term ‘structure’ means the arrangement of the various parts. So capital structure means the arrangement of capital from different sources so that the long-term funds needed for the business are raised.

Thus, capital structure refers to the proportions or combinations of equity share capital, preference share capital, debentures, long-term loans, retained earnings and other long-term sources of funds in the total amount of capital which a firm should raise to run its business.

Few definitions of capital structure given by some financial experts:

“Capital structure of a company refers to the make-up of its capitalisation and it includes all long-term capital resources viz., loans, reserves, shares and bonds.”—Gerstenberg.

“Capital structure is the combination of debt and equity securities that comprise a firm’s financing of its assets.”—John J. Hampton.

“Capital structure refers to the mix of long-term sources of funds, such as, debentures, long-term debts, preference share capital and equity share capital including reserves and surplus.”—I. M. Pandey.

Capital Structure, Financial Structure and Assets Structure:

The term capital structure should not be confused with Financial structure and Assets structure. While financial structure consists of short-term debt, long-term debt and share holders’ fund i.e., the entire left hand side of the company’s Balance Sheet. But capital structure consists of long-term debt and shareholders’ fund.

So, it may be concluded that the capital structure of a firm is a part of its financial structure. Some experts of financial management include short-term debt in the composition of capital structure. In that case, there is no difference between the two terms—capital structure and financial structure.

So, capital structure is different from financial structure. It is a part of financial structure. Capital structure refers to the proportion of long-term debt and equity in the total capital of a company. On the other hand, financial structure refers to the net worth or owners’ equity and all liabilities (long-term as well as short-term).