Running head: FINANCIAL RESOURCE MANAGEMENT IN HEALTHCARE 1 C428 RCP1 Task 1 modified.

Financial Resource Management in Healthcare Task 1 Western Governors University English Colonization and the Road to Revolution A1. Fiscally Sustainable Strategies As the CFO (Chief Financial Officer) or Seamus Company, I would propose three strategies to move away from the fee-for-service model. I would recommend moving to either an HMO (Health Maintenance Organization) plan, a POS (Point of Service) plan, or a PPO (Preferred Provider Organization) plan. The most common type of MCOs are HMOs. HMOs are unique in that they do not soley provide money for medical expenses, but they also have the ability to actually deliver patient care/treatment. An HMO is a business arrangement and is comprised of physicians, insurers, and hospitals. HMOs are popular because it typically provides a lower cost of out-of-pocket expenses, has no lifetime maximum for payment, and strives to not only help with emergencies, but also with every day wellness and preventative care. A similar model of managed care is a PPO. However, unlike an HMO, a PPO is not an insurance provider, but instead a group of practitioners that offer medical treatment services to a specified group of individuals. Financially, a PPO may be supported by an employer, an insurance company, or other associations with policy holders. Typically, PPO the out-of-pocket expenses for a PPO is limited. PPOs also differ from HMOs in that HMOs only cover “in network” expenses, while PPOs cover both inside and outside the network care.. An example of a PPO is BlueCross BlueShield. The 3rd option to consider for Seamus is a POS. POS plans allow for users to have much more choice when deciding between healthcare providers. There is typically no deductible and out-of-pocket costs are limited. A1a. Recommended Strategies In order to determine the best strategy for Seamus Company to move from a fee-for- service model to a MCO model, cost-savings, tax deductions, fiscal management, and other tax advantages much be considered for each proposed model. In looking at the cost savings associated with an MCO, HMOs seem to have more benift than the other two models. Typically, deductibles with an HMO are lower than a similar PPO plan. This allows for the portion of payment that Seamus Company is responsible for to decrease, thus saving cost. Also, withing HMOs, insurance carriers have the ability to negotiate with their providers in regards to rates, allowing them to charge lower premiums. Perhaps the largest advantage of an HMO is that with a smaller network of participants, care is more easily coordinated. Not only does this care cordination often produce better clinical outcomes and increased participant satisfaction, it also lowers the expense to the company. Although a PPO and PPS would still bring cost savings through deductibles, they are generally more expensive than HMO plans. As Seamus moves to an MCO plan, they would be able to lower their employee benefit costs which utimately would be another cost saving for the company. Employer contributions to health insurance premiums are tax-deductible and therefore, this tax deduction would also lower the company’s expenditures significantly. This is true of all 3 options; HMO, PPO, and POS. The fiscal management of Seamus Corporation would also benefit from an HMO, PPO, or PPS. Due to the nature of fixed cost for premiums with MCOs, Seamus would be able to better budget, forecast, and allocate expenses going forward. Another benefit to the fiscal management of the company would be that with the more stuctured HMO system, Human Resources would not have to expend as much energy dealing with benefits. This will either allow them the capacity to do more for the company or possible eliminate the need for some employees which will ultimately lower the salaries budget line. The HMO, PPO and POS offer tax-deductible incentives for Seamus. Other tax advantages the come along with moving towards an MCO include benefits for the employee. With any of the HMO, PPO, and POS moves, premiums will be less than the current fee-for-service plan. This savings will be passed on the the employee through their raxes. Overall, this is an advantage for the Seamus Company. While a POS, and PPO could be utilized as an MCO by Seamus, neither present as much of a benefit to that of an HMO. Therefore, as the CFO, I would recommend moving from a fee-for-service plan to a HMO plan. A1b. Financial Management Principles Two financial prinicples that would support the recommendation of moving from a fee- for-service plan to a HMO would be the principle of Cost and the principle of Cash. First, we will look at the cost associated with moving Seamus Company to an HMO. Identifying the costs, ways to minimize that cost, and efficiently control it are prevelant issues in managing the finances of healthcare organizations. One way to minimize cost is to require all health plan participants to pay a higher rate of cost sharing. Another approach might be to target long-run costs associated with health. Many employers are not offering wellness programs that involve employee coaching, medication management, and step counting. This approach allows employees to take ownership of their health and in turn lowers healthcare costs for not only them, but also the company. Secondly, in moving from a fee-for-service plan to an HMO plan, we must be sure to have a good cash flow and supply of cash to fund the expenses. Profitability and cash on hand are very different, and the latter is important to ensure that all obligations can be met by the organization. Revenue cycle and cash collections is a critical part to any hospital and is often a troublesome area. Changing to an HMO will make this much more manageable and provides oversight to all parties involved. A1c. Strategy Alignment The movement from the current fee-for-service plan of Seamus Company toward a Managed Care Organization of a HMO model aligns with their goal of reducting the cost of the company’s health insurance. It does so by utilizing in-network doctors. By doing this, they are able to reduce the amount billed to the insurance company as part of their agreement. This will in turn reduce the overall healthcare cost for Seamus Company. In addition to the savings mentioned above, having employees participate in a wellness model will ultimately increase their overall health, thereby decreasing their need for medical treatment and less utilization of the HMO plan. Lastly, the unique part of an HMO is their ability to provide medical care. Seamus Company could reduce it’s cost by providing pre- paid medical services. The way that works is that anyone who particpates in the HMO would pay a fixed monthly fee, regardless of how much medical care is needed in a given month. This would allow Seamus Company to better predict future healthcare expenditures and better manage the organization fiscally. A2a. Utilization Risk Strategy As Seamus Company transitions from the current fee-for-service plan to the Managed Care Organization of a HMO model, an evaluation of healthcare utilization risk strategy can be done. This evaluation would be based of the use of increased service benefits that the company would now be able to offer. With the additional amounts of services provided under the HMO, Seamus would be taking on an additional risk. However, if the total costs of services exceeds the revenue that is paid out per member, per month. The company would be poorly positioned financially. On the other hand, if the company can manage the healthcare for their employees by implementing a wellness program, costs can be better controlled. A2b. Financial Benefits With the implementation of an HMO model, Seamus Company should reap financial benefits. Three primary benefits will include lowered overall healthcare costs, managing workers’ compensation, and employee retention through increased loyalty. As Seamus Company transitions from the current fee-for-service plan to the Managed Care Organization of a HMO and increases service, they should see a lower overall cost for the company’s healthcare. With negotiated rates, comes lower premiums. In addition, out of pocket expenses are typically lower as well. This should help Seamus gain some quick profitability as some of the healthcare costs shift away from the bottom line. An added benefit is that the cost will be much easier to forecast and manage with an HMO Secondly, as HMO is not just an insurance provider, but also a managed care, it can provide care that focuses on wellness and prevention and implement strategies for managing workers’ compensation claims. As employees are taking better measures towards their overall health and prevention, less claims should arise. When the claims do occur, those should now be able to be handled quickly and efficiently through the HMO. This will provide a significant cost savings to Seamus. Lastly, shifting to an HMO should better retain employees. As more services are offered to employees, their health increases through the wellness program, and they begin to see lower out-of-pocket expenses for their healthcare, they should be encouraged to stay with Seamus for longer than before. As current employees are retained, the previous cost of advertising, interviewing, and training new employees will be greatly reduced, thus serving as another financial benefit for Seamus. A2c. Potential Financial Drawbacks With the implementation of an HMO model, three financial drawbacks could be potentially seen. First, employees may not utilize preventative care as hoped which would lead to loss of time and productivity. Second, the company could be affected negatively in terms of cost if the employees musused the increased service benefits, and lastly, th