Revenue

Revenue

  • Definition: Revenue represents amounts earned by an organization, specifically actual or expected cash inflows due to the organization’s major business activities.

  • Healthcare Context: For health care, revenue is primarily earned through the provision of services to patients.

  • Value Representation: Revenue is typically expressed as the value of services rendered at full established rates by the facility.

Receiving Revenue for Services

  • Revenue can be classified based on when payment is received relative to service delivery:

    • Payment After Service:

      • Fee-for-Service: Payment is made in relation to the quantity and type of services delivered.

      • Discounted Fee-for-Service: An agreed-upon contracted discount on the fee received by the organization.

    • Payment Before Service:

      • Predetermined Per-Person Payment: Payment based on a fixed rate per individual before service delivery.

      • Rate-setting Differences: Variations in agreements that impact the rate-setting process leading to numerous possibilities.

    • Contractual Allowances and Other Deductions: Differences between the full established rate and the contracted rate paid, often associated with composite services.

Grouping Revenue for Planning and Control

  • Effective revenue grouping aids management in planning and controlling finances:

    1. Revenue Centers: A unit responsible for generating specific revenue targets within the organization.

    2. Care Setting Grouping: Differentiates revenue by service delivery sites, with basic classifications like inpatient versus ambulatory care.

    3. Service Lines: Organized by similar service types, such as:

    • Hospitals: Adoption of Major Diagnostic Categories (MDCs) for standardized service lines.

    • Long-Term Care: Various care levels in a Continuing Care Retirement Community.

    • Home Care: Services delivered in a patient's home.

    • Physician Groups: Variation in service delivery based on the nature of the group.

    • Other Classifications: Organizations, like Columbia/HCA, utilize a disease management approach for revenue classification covering multiple areas of health care.