1. Describe the role of finance in the healthcare system.

The role of finance in the healthcare industry is a major part of all decisions made for an organization. “Of course, the manner of financing healthcare affects how hospitals and physicians are reimbursed for services and hence has a significant influence on healthcare finance” (Gapenski, 2013, P. 5). Managers in the healthcare industry must have an up-to-date knowledge on the fundamentals of financing and be able to improve the finical wellbeing of their organization. Financing for a healthcare organization needs to include accounting and financial management functions to be successful. This allows for the measurements of an organizations financial performance and allows for an assessment of operations. “The primary role of finance in health services organizations, as in all businesses, is to plan for, acquire, and use resources to maximize the efficiency (and value) of the enterprise” (Gapenski, 2013, P. 6).

2. Describe the Diagnosis codes and how they are used, impacting reimbursement.

The International Classification of Diseases (ICD) is the typical resource for designating diseases, signs, symptoms, and external causes of injury (Gapenski, 2013). This resource was published by the World Health Organization (WHO). The application of these codes to diagnoses is technical. Hospital coders must understand the coding system, medical terminology and abbreviations used by clinicians, they must have proper training and experience. Proper reimbursement from third-party payers depends on accurate coding. Coding errors can greatly impact the reimbursement that the provider will receive for the services provided. Implementing proper coding techniques, training and detailed notes/test results in patients’ notes can decrease medical coding mistakes in an organization.

3. Describe the features of third-party payers.

Third-party payers are insurers that reimburse health organizations for the health services provided to a patient. They are the major source of revenues for most providers. These organizations help to reduce the financial burden associated with illness and injury. Third-party payers fall into two categories, private insurers (Blue Cross Blue Shield) and public programs (Medicare and Medicaid). Different payment resources depend on what type of category the insurance falls into, if providers are preferred providers, and what services were provided.

A. Private Insurers: Blue Cross Blue Shield is an example of a private insurer. Coverage for specific provider services are covered by paying a monthly monetary fee through a chosen plan.

B. Public Programs: “Government is both a major insurer and a direct provider of healthcare services” (Gapenski, 2013, P. 65). They provide healthcare services directly to qualifying individuals through organizations such as the Department of Veterans Affairs, Department of Defense, and Public Health Departments. They are one of the major insurers in healthcare, providing one-third of healthcare services in the US (Gapenski, 2013). Medicare provides health insurance for individuals 65 and above, while Medicaid provides coverage for low-income, elderly, and the disabled. “These programs have become an important source of revenue for healthcare providers, especially for nursing homes and other providers that treat large numbers of low-income patients” (Gapenski, 2013, P.67).

4. Explain the reimbursement methods used and the effects of coding on reimbursement.

Only a limited number of payment methods are used to reimburse providers for services they provided. These payment methods can be broken down to two broad classifications: fee-for-service and capitation.

A. Fee-for-service: The more services that were provided, the higher the reimbursement to the provider. There are three primary fee-for-service methods for reimbursement; cost based, charge based, and prospective payment.

i. Cost Based- The payer is in agreement with the provider to reimburse the provider for the costs incurred in providing services to the insured population (Gapenski, 2013). Reimbursement to the provider is based on what has happened in the past. It is limited to allowable costs, that are directly related to the delivery of healthcare services. This type of reimbursement guarantees that a provider’s fees will be covered by revenues.

ii. Charge Based- Payers pay billed charges, according to a rate schedule (chargemaster), that has been established by the provider. Insurers that still base reimbursement on charges now often pay dis- counted, charges.

iii. Prospective Payment- The rates that are paid by payers are determined by the payer before services are provided to the patient. Payments are not directly related to either costs or charges either. The common units of payment used in prospective payment systems: per procedure, per diagnosis, per diem, and bundled (Gapenski, 2013).

B. Capitation: The provider is paid a secure amount per covered life per period, regardless of how many services were provided. It is used mostly by managed care organizations to reimburse primary care physicians. It also intensely changes the financial environment of healthcare providers.

Coding errors can greatly impact the reimbursement that the provider will receive for the services provided. It can also have a major impact on an organization if proper codes are not ran for everything that was provided for each patient. Every meal, bedding, gauze, ect. that is used is important to code out for or else an organization will not be able to run properly. Implementing proper coding techniques and detailed notes/test results in patients’ notes can decrease medical coding mistakes in an organization.


Gapenski, C., L. (2013). Fundamentals of Healthcare Finance, 2nd Edition. [Purdue University Global Bookshelf]. (P. 68 and 80). Retrieved from https://purdueuniversityglobal.vitalsource.com/#/books/9781567935714/