Assignment: Hospital’s Net Revenue

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Assignment: Hospital’s Net Revenue

Assignment: Hospital’s Net Revenue

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Community benefit is narrowly defined to include the cost of charity care and uncompensated Medicaid costs (or the hospital’s loss to the Medicare program). The plan must be based on a community-wide needs assessment and must contain mechanisms for measuring the plan’s effectiveness, including measurable objectives and a budget. The budget must include an amount for community benefit at least equal to one of the following (Texas Tax Code 1993):

◆ 4 percent of the hospital’s net revenue

◆ 100 percent of the hospital’s state and local tax exemptions

◆ An amount that is reasonable in relation to community needs, available resources, and the hospital’s state and local tax exemptions

As of 2015, 25 states required nonprofit hospitals to provide community benefit (definitions of community benefit vary greatly among the states); however, only Illinois, Nevada, Pennsylvania, Texas, and Utah required nonprofit hospitals to provide a specific amount of charity care (Nelson, Tan, and Mueller 2015).

IntroductIon Third-party payers are agents of patients who contract with providers (the second party) to pay all or a part of the bill to the patient (the first party). The most common third-party payers are insurance companies and the government (through Medicare and Medicaid). Third-party payers have had an important effect on healthcare organizations since the 1920s. As mentioned in chapter 1 and illustrated in exhibit 5.1, third-party payment—including payments from the federal government, private insurance, and state and local government— represented 84.0 percent of total personal healthcare expenditures in 2014 (CMS 2016a).

HIstory of tHIrd-PArty PAyment Third-party payment started in the 1920s, but not without significant opposition. Labor unions supported health insurance for their members as early as 1915, but their efforts failed as a result of opposition by the American Medical Association (AMA) and the antisocialist mood of the country during and after World War I. Physicians were wary of approving a payment system that would change the second-party payment system—patients paying their own bills, rather than an insurance company paying the bills—already in place (see exhibit 5.2).

emergence of PrePAId medIcAl cAre

The second-party payment system was economically efficient in that patients sought only the amount and quality of care they could afford. However, the second-party payment system created ethical concerns because some patients who needed care could not afford it, which

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