Dominant Payers

Dominant Payers

The main sources of regular income for Happy Hospital are received from several payers that reimburse the organization directly in exchange for its services. Services of the hospital include, but are not limited to, medical care, diagnostic testing, and equipment and supplies used while providing care. The largest portion of the revenue received in exchange for care comes from third-party payers. Third-party payers are the groups that pay Happy Hospital for its services on behalf of the actual patient.

Examples of third-party payers include Medicare, Medicaid and other private insurances. Medicare and Medicaid are government funded insurance programs that provide medical insurance to elderly, disabled, and low-income individuals. Happy Hospital must meet government standards of care and operation in order to qualify to receive payment from either source (Elzer, 2010). Those who are not eligible for Medicare and Medicaid are often covered for health care by a private insurance company, usually provided through an employer or union. In this instance the private insurer is the third-party payer, paying a portion of the insured individual’s hospital charges while the patient pays an out of pocket co-payment.

Co-payments and private payments are considered cash collections. Happy Hospital’s total cash collections from patient accounts amounted to nearly $47 in 2007 (Finkler & Ward, 2006). Otherwise, Happy Hospital billed its patients nearly $21 million, which was the net amount after contractual allowances and charity care. Of this $21 million, it is expected that around 3% will be written off as bad debt (or money that is not expected to be collected due to patient non-payment).

Halfway through the 2007 fiscal year, Happy Hospital received a sum of $3.9 million (as an annual premium) from a managed care organization for a managed care contract. In return, the hospital must provide care to 90,000 of the organizations covered persons for one year...