HS440 Unit 7 Seminar Reflection on Adjustments Example

Not Discounts Anyone Chose: A Unit 7 Seminar Reflection on One Line Called Contractual Adjustments

[Student Name]

Purdue University Global

HS440: Finance for Health Care

Unit 7 Seminar Reflection

[Instructor Name]

[Date]

The center and its figures are composite; the study of hospital markups, the finance text and the reflective model cited are real.

The Figures We Worked From

The instructor put two rows on the screen. Gross charges: 18,836,000 dollars in the prior year and 19,788,000 last year. Contractual adjustments and price concessions: 14,457,780 and 15,517,950, or 76.8 and 78.4 percent of charges. Adjustments had grown by about 1,060,000 dollars while charges grew by about 952,000.

How I Read It at First

My first reading, which I shared in the opening round, was that the center was giving away too much. I pictured adjustments as discounts the billing office had chosen to offer, perhaps to keep patients happy or to settle disputes. A growing discount in a year of losses looked like poor management. I suggested the center tighten its discount policy. Two classmates agreed, and one proposed that the billing office report adjustments by staff member to see who was granting them. Looking back, nobody in that first round asked what an adjustment actually was or who decided its size, which says something about how persuasive a single large number can be when it sits beside a loss.

How the Discussion Rebuilt the Line

The instructor asked us to rebuild the line from its parts, payer by payer. For each payer, the adjustment is the gap between the center's list price and what that payer has agreed or is required to pay. The list price for a colonoscopy was about 3,400 dollars. Medicare paid about 640, so the adjustment on a Medicare case was about 2,760. Medicaid paid 380, an adjustment of about 3,020. A commercial case paid about 1,180, an adjustment of about 2,220.

Then we applied the year's mix, in which the center lost 292 commercial patients and gained 394 on Medicaid. Every case that moved from commercial to Medicaid added about 800 dollars to adjustments without any change in policy, price or behavior.

The line I had read as a choice to discount was mostly a record of who walked in the door, because each payer's adjustment is set by a contract or a public program before the patient arrives.

A classmate who works in a hospital billing office added that list prices in the United States are often several times the cost of care and that the gap has widened over time, so adjustments grow even when nothing about contracts changes (Bai & Anderson, 2015). Another pointed out that price concessions to self-pay patients, which the center does choose, were a small part of the total. By the end of the rebuild, the group could account for nearly all of the year's increase without any change in policy at all.

What Changed

I had been treating gross charges as revenue that was being given away. I now read gross charges as an internal list price that almost nobody pays, and adjustments as the accounting entry that brings revenue down to what payers actually owe. Finance texts make the same point: net patient revenue, not gross charges, is the figure that matters for analysis (Pink & Song, 2020). The useful question about this line is not whether the center discounts too much but whether its payer mix is shifting, which the line reveals indirectly.

Looking back with Gibbs's reflective cycle, my first reaction rested on an assumption I had never examined, that a price on a bill is a price someone pays (Gibbs, 1988).

What I Will Do Differently

When I see a large adjustment line now, I will divide it by gross charges, compare the ratio across years and then ask what changed in the payer mix before asking about policy. For the center, a ratio rising from 76.8 to 78.4 percent is a symptom of the commercial patients it lost, which is where the earlier units also pointed. I will also be more careful about proposing fixes before I understand how a figure is built.

An Open Question

If the list price affects so little, why do organizations keep raising it each year? A classmate suggested that some contracts are written as a percentage of charges, which would make the list price matter for those payers. I would like to know how common that still is, and whether such contracts are the real reason list prices keep rising even as fewer payers rely on them. It also made me wonder what a patient sees: the list price appears on statements and estimates, and a self-pay patient may be the only person ever asked to pay something close to it.

References

Bai, G., & Anderson, G. F. (2015). Extreme markup: The fifty US hospitals with the highest charge-to-cost ratios. Health Affairs, 34(6), 922-928. https://doi.org/10.1377/hlthaff.2014.1414

Gibbs, G. (1988). Learning by doing: A guide to teaching and learning methods. Further Education Unit, Oxford Polytechnic.

Pink, G. H., & Song, P. H. (2020). Gapenski's healthcare finance: An introduction to accounting and financial management (7th ed.). Health Administration Press.