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In: Accounting

Question C3.5 is based on the following case. Goodfellow & Perkins gained a new client, Brookwood...

Question C3.5 is based on the following case.

Goodfellow & Perkins gained a new client, Brookwood Pines Hospital (BPH), a private, not-for-profit hospital. The fiscal year-end for Brookwood Pines is June 30. You are performing the audit for the 2023 fiscal year end, and the audit is currently in the risk assessment phase.

The healthcare industry can be very complicated, especially in the area of billing for services provided. BPH contracts with private physician groups who use the hospital facilities, equipment, and nursing staff to treat patients. The physicians in the private group are not employees of the hospital; they are simply using the hospital facilities to treat patients. For example, a group of urologists have their own practice, separate from the hospital, where they treat patients. If one of the patients needs a surgical procedure that must be done at a hospital, then the attending urologist will approve the paperwork required to admit the patient to BPH. BPH offers inducements to the urologists so they will refer patients to BPH rather than a competing hospital. One of the inducements BPH offers is free office space in the hospital for the doctors to use when they are treating patients in the hospital.

After the doctor and hospital services are provided to the patient, the patient and/or the patient's insurance company is billed. The doctor will bill for the services he or she provided, and the hospital will bill for the use of hospital facilities and staff. Doctors and hospitals bill using a coding system that is standardized across the healthcare industry and consists of three main code sets: ICD, CPT, and HCPCS. Using a coding system is more efficient and data-friendly compared to writing a narrative about the procedures performed. However, the coding system is very complex, with thousands of different codes for medical procedures and diagnoses. To complicate matters even more, for patients who are covered by government-sponsored Medicare or Medicaid, doctors and hospitals must adhere to complicated government regulations surrounding billings to Medicare and Medicaid.

As healthcare costs continue to rise each year, BPH administrators struggle to maintain consistent profitability. They look for ways to keep costs low and also to collect from patients and insurance companies as quickly as possible. In addition, BPH must have a strong risk management team to handle unique situations that may occur in hospitals, such as malpractice lawsuits and periodic inspections by the state department of health and hospitals. Negative publicity for BPH could lead to decreased revenues if physicians decide to contract with a competing hospital.

Required

  1. a. Gather information: Research online to learn more about common types of health care fraud. Identify and explain any significant fraud risk factors for BPH.
  2. b. Analysis: Which financial statement accounts would you identify as being at significant risk for material misstatement?

Solutions

Expert Solution

A) The common frauds undertaken in the medical and health care field are : Billing for medical services which were never be rendered, Billing for dummy patients, Selling the medical equipments and medicines to competitors and in open market, Inflating the list of out-door patients to increase the treatment bills by physicians, Inflating the treatment and surgeon fees to Insurance company or government cases, Dummy bills for hospital utilities, receiving cash payment by medical doctors and employee from patients and not raising bills.

The various risk factors which exist in BPH case are:

a) The Private physicians can raise bills for dummy patients.

b) The Urologists can refer patients to BPH for their monitory benefits.

c) The Urologists can refer government and complicated case to BPH and other straight forward cases to competitors.

d) The office space provided to doctors in the BPH can be misused.

e) The outside doctors can raise bill above the insurance companies limits which BPH have to bear.

f) The healthcare industry coding system for medical procedures and diagnoses are complex so can be misused by doctors for their personal benefits.

g) The bills raised to Government sponsored Medicare or Medicaid may not be approved by Government due to some reason, the BPH has to bear the cost.

h) Non collection by BPH administrators and rise in medical costs could put hospital in loss.

i) Inspections from the state department of health and hospitals could raise expenses for the BPH.

B) The financial statement accounts which have significant risk for material misstatement are:

i) The medical equipments account : Where frauds for dummy bills with no inventory to hospital could inflate the overall costs.

ii) The Private Doctors Bill accounts : The treatment to dummy patients could inflate the Private doctors bill accounts.

iii) The Urologists Surgery Bill accounts: The urologists could raise heavy bill showing material misstatement.

iv) The Claim on Insurance Company accounts : Due to inflated billed raised to the patients covered by insurance companies will give rise to the many pending cases and non-recovery by BPH.

v) Government sponsored Medicare or Medicaid Claim accounts : Being complex regulations surrounding the bills raises material misstatement and incomplete cases.

vi) The Utilities and Consumables accounts: The frauds by the doctors, hospital employees and administrators would raises many cases of misstatement in the Utilities accounts of the BPH.

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