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Significance Often Under Appreciated

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]

As some Medical Executive-Post readers and subscribers are aware, hospitals that filed bankruptcy recently include: a two-hospital system in Honolulu; one in Pontiac, MI; Trinity Hospital in Erin, Tennessee; Century City Doctors Hospital in Beverly Hills, and four hospital system Hospital Partners of America, in Charlotte.

One can only wonder about the impact of Incurred But Not Reported claims on their plight?  

IBNR Definition

According to the www.CertifiedMedicalPlanner.org, an IBNR claim is a concept that signifies healthcare services have been rendered but not invoiced or recorded by the healthcare provider, clinic, hospital, or organization.

Cause and Affect

IBNRs are usually the result of a commercial prospective payment risk contract between managed care organizations and healthcare providers, an IBNR claim refers to the estimated cost of medical services for which a claim has not been filed, or monitored by an IBNR collection systems or control sheet.

IBNR Types

More formally, IBNRs are a financial accounting of all services that have been performed but, as a result of a short period of time or “lag,” have not been invoiced or recorded. The medical services that will not be collected should be accounted for using the following accrued but not recorded (ABNR) entry:

Debit — accrued payments to medical providers or healthcare entity

Credit — IBNR accrual account

Example:

An example of an IBNR is hospital Coronary Artery Bypass Graft [CABG] surgery for a managed care plan member. Out of the capitated or prospective payment funds, the surgeon and/or healthcare organization has to pay for all related physical and respirator therapy, and rehabilitation services, as well as ancillary providers, drugs, and durable medical equipment [DME], as contractually obligated. This may also include complication diagnosis and extensive follow-up treatment.

Accordingly, the health plan will not be completely billed until several weeks, months, or quarters later or even further downstream in the reporting year after the patient is discharged. In order to accurately project the health plan’s financial liability, however, the health plan and hospital must estimate the cost of care based on past expenses.

Accounting Cost Controls

Since the identification and control of costs are paramount in financial healthcare management, an IBNR reserve fund (an interest bearing account) must be set up for claims that reflect services already delivered but, for whatever reason, not yet reimbursed.

From the accounting perspective, IBNR is accrued as an expense and is related as a short-term liability each fiscal month or accounting period.

Otherwise, the organization may not be able to pay the claim, if the associated revenue has already been spent. The proper handling of these “bills in the pipeline” is crucial for proactive providers and health organizations that are exploring arrangements that put them in the role of adjudicating claims or operating in a sub-capitated system.

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Assessment

IBNRs are especially important with newer patients who may be sicker than prior norms.

Recoverables that hospitals post as part of their large reserve charges are also, in many cases, IBNR losses. They may be recorded as IBNR claims on their balance sheets. Once these losses start becoming actual losses, the hospital may look to the insurer to pay a part of the claim. This causes disputes between the payor, provider, and/or healthcare organization.

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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Filed under: Accounting, Health Economics, Practice Management | Tagged: David Edward Marcinko, IBNR, IBNR claims | 3 Comments »