Understanding Medical Cost Accounting

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A Subset of Managerial Accounting

By Dr. David E. Marcinko MBA CMP®

By ME-P Staff Reporters

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Managerial and medical cost accounting is not governed by generally accepted accounting principles (GAAP) as promoted by the Financial Accounting Standards Board (FASB) for CPAs. Rather, a healthcare organization costing expert may be a Certified Cost Accountant (CCA) or Certified Managerial Accountant (CMA) designated by the Cost Accounting Standards Board (CASB), an independent board within the Office of Management and Budget’s (OMB) Office of Federal Procurement Policy (OFPP).

The Cost Accounting Standards Board

CASB consists of five members, including the OFPP Administrator who serves as chairman and four members with experience in government contract cost accounting (two from the federal government, one from industry, and one from the accounting profession). The Board has the exclusive authority to make, promulgate, and amend cost accounting standards and interpretations designed to achieve uniformity and consistency in the cost accounting practices governing the measurement, assignment, and allocation of costs to contracts with the United States.

Codified at 48 CFR

CASB’s regulations are codified at 48 CFR, Chapter 99.  The standards are mandatory for use by all executive agencies and by contractors and subcontractors in estimating, accumulating, and reporting costs in connection with pricing and administration of, and settlement of disputes concerning, all negotiated prime contract and subcontract procurement with the United States in excess of $500,000. The rules and regulations of the CASB appear in the federal acquisition regulations.

North American Industry Classification System (NAICS) codes are used to categorize data for the federal government.  In acquisition they are particularly critical for size standards.  The NAICS codes are revised every five years by the Census Bureau.  As of October 1, 2007, the federal acquisition community began using the 2007 version of the NAICS codes at www.census.gov/epcd/www/naics.html

Cost Accounting Standards

Healthcare organizations and consultants are obligated to comply with the following cost accounting standards (CAS) promulgated by federal agencies:

  • CAS 501 requires consistency in estimating, accumulating, and reporting costs.
  • CAS 502 requires consistency in allocating costs incurred for the same purpose.
  • CAS 505 requires proper treatment of unallowable costs.
  • CAS 506 requires consistency in the periods used for cost accounting.

The requirements of these standards are different from those of traditional financial accounting, which are concerned with providing static historical information to creditors, shareholders, and those outside the public or private healthcare organization.

AssessmentTwo Doctors

Functionally, most healthcare organizations also contain cost centers, which have no revenue budgets or mission to earn revenues for the organization.  Examples include human resources, administration, housekeeping, nursing, and the like.  These are known as responsibility centers with budgeting constraints but no earnings.  Furthermore, shadow cost centers include certain non-cash or cash expenses, such as amortization, depreciation and utilities, and rent. These non-centralized shadow centers are cost allocated for budgeting purposes and must be treated as costs http://www.CertifiedMedicalPlanner.org

MORE:  CASE MODEL EOQ 1

Conclusion

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Update on Tax Reform and New Revenue with FFS Medicare Plans?

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About the Bipartisan Policy Center Debt Reduction Task Force

By Children’s Home Society of Florida Foundation

Senator Max Baucus (D-MT) is continuing his series of tax reform hearings as Chairman of the Senate Finance Committee. On June 19, former Sen. Pete Domenici (R-NM) and Alice Rivlin, former Director of the Congressional Budget Office and the Office of Management and Budget, described their solution. Domenici and Rivlin are the Co-Chairs of the Bipartisan Policy Center Debt Reduction Task Force.

The Domenici-Rivlin Plan

Domenici emphasized that there are two essential parts of the potential 2013 financial reform. He stated, “Healthcare reform and tax reform that raises additional revenue are essential pieces of any serious plan.” Then, Rivlin continued to describe the basic principles for tax reform. She commented, “Assume that all income from whatever source is taxable, which would enable you to raise more revenue from much lower rates, and then go back to decide which modifications are absolutely essential, even though they would raise the rates.”

Two Major Changes

The Domenici-Rivlin plan starts with a modification of Medicare. They propose two major changes.

1. Federal Medicare Exchanges. Private companies could offer fee-for-service and other comprehensive Medicare plans. All Medicare beneficiaries could choose their plan.

2. Competitive Pricing. The private plans and traditional fee-for-service Medicare plans would receive federal support at the level of the second-lowest-cost plan. This pricing method encourages plan providers to economize and reduce overall costs.

Tax Reform

Domenici and Rivlin also offered very specific proposals for comprehensive tax reform.

1. Tax Brackets. Their personal tax system has brackets of 28% and 15%. The corporate rate is 28%.

2. Capital Gains. All gains from capital asset sales are taxed at ordinary income rates. Most taxpayers would pay 28% capital gains rates.

3. Child Credit. The credit per child would be $1,600.

4. Itemized Deductions. None; except miscellaneous deductions that exceed 5% of adjusted gross income.

5. Mortgage Deduction. A 15% credit on interest paid with a limit of $25,000 per year.

6. Charitable Gifts. A 15% credit on deductible gifts.

7. State and Local Taxes. Not deductible.

8. IRAs and Retirement Plans. A 15% tax credit or deductions up to $20,000 per year.

Assessment

Ms. Rivlin concluded her discussion by observing that the plan under discussion was similar to the Bowles-Simpson plan approved by the National Commission on Fiscal Responsibility and Reform. She observed, “The basic structure is the same. You can’t get there any other way.”

Editor’s Note:

Sen. Baucus and House Ways and Means Chairman Dave Camp (R-MI) are steadily moving toward major tax reform in 2013. The two bipartisan groups advocating reform have agreed on general principles. However, there still remains a major political discussion at the end of this year before broad-based reform can commence. Your editor and this organization take no specific position on these recommendations. This information is offered because it will have major impact on all Americans.

Conclusion

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Labor Day US Budget Deficit Estimated at $1.32 Trillion Dollars

Office of Management and Budget Report for 2011

By Children’s Home Society of Florida Foundation

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On September 1st, 2011, the White House Office of Management and Budget (OMB) released an updated estimate of the budget deficit. OMB Director Jacob Lew indicated that the deficit projections are now reduced.

OMB Projections

The February projection by OMB had been a deficit of $1.65 trillion for the current fiscal year. The new deficit number for fiscal year 2011 is $1.32 trillion. The larger number would be 10.9% of the economy. The reduced deficit number is still approximately 8.8% of the gross domestic product.

Lew gives credit to the Budget Control Act of 2011, signed by President Obama on August 2nd. Under the provisions of that act, there are substantial spending reductions.

Budget Committee Pleased

Senate Budget Committee Chair Kent Conrad (D-ND) was pleased with the lower budget numbers, but indicated there still is a long road to recovery. Referring to the Joint Select Committee on Deficit Reduction, he stated, “It is my hope the committee exceeds its $1.5 trillion target. It is also critical that the special committee considers measures to address the near-turn struggling economy.”

Assessment

In his address on September 8th 2011, President Obama is expected to discuss both the Joint Select Committee and long-term budget goals.

The OMB report also estimated the total debt by the end of 2011. The federal debt is a combination of debt held by the public and various government trust funds. The debt held by the public at the end of 2011 is estimated to be $10.26 trillion or 72% of the economy.

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Prominent Politician Views on Health Information Technology

A Guest Thought-Leader Op-Ed Piece

Ann Miller; RN, MHA [Executive-Director]  

By Alberto Borges; MD

In this review, ME-P thought-leader and colleague, Al Borges MD dissects and presents the political views of HIT by several prominent politicians.  WHY?

He believes that only a handful of politicians are questioning whether the cost of HIT will actually improve healthcare as promised, which can end up in wasted taxpayer money, and worse, become a slow-moving HIT blunder which puts patient lives at risk. Even President Obama’s staff quietly admits that these statements are unproven.

Assessment

For example, Dr. Ezekiel Emanuel, the brother of White House Chief of Staff Rahm Emanuel and the current health-policy adviser at the Office of Management and Budget and a member of Federal Council on Comparative Effectiveness Research stated last year that:

“Vague promises of savings from cutting waste, enhancing prevention and wellness, installing electronic medical records and improving quality are merely ‘lipstick’ cost control, more for show and public relations than for true change.”

Link: Politician Views of HIT [updated November 2009]

Conclusion

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Healthcare Projections and the US Budget 2007-09

Issues and Challenges for Obama Administration Reform

By Staff ReportersUS Capitol

Read the complete testimony and statement of Peter R. Orzag, OMB Director, to the US Senate, dated June 21, 2007.

For more information:

Congressional Budget Office

Second and D Streets; SW

Washington, DC 20515

Link: 06-21-healthcarereform

Assessment

Now, almost two years later, and with the new Obama Administration, has your opinion changed on the potential of healthcare reform; why or why not?

Conclusion

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