Information Systems and Health TechnologyChapter Object.docx

Information Systems
and Health Technology
Chapter Objectives
After reading this chapter, you should be able to
1. Recognize the key role that information technology plays in
the healthcare system.
2. Establish methods to use and protect patient electronic
medical records.
3. Apply the technical and managerial competencies needed to
direct a healthcare organiza-
tion’s information system.
10
© Wavebreak Media/Thinkstock
Information Systems and Health Technology Chapter 10
The computer and digital age offers numerous new
conveniences and advantages to indi-
viduals around the world. Connectivity leads to the ability to
communicate in real time with
people everywhere. Shopping can be completed at home, travel
plans can be made more easily,
and a variety of additional benefits accrue from having access

to the World Wide Web.
Information technology involves the use of technology in
developing, maintaining, and using
computer systems, software, and networks for the processing
and distribution of data. Healthcare
information technology includes all of the technologies used to
transmit and manage health
information for use by consumers, providers, payers, insurers,
and others in the healthcare system
(Blumenthal & Glaser, 2007). Information technology and
healthcare information technology are
both part of a larger concept, known as an information system,
which combines hardware,
software, and infrastructure, as well as the individuals
employed to plan, control, coordinate, and
make decisions regarding such technology (Laudon & Laudon,
2013).
Over the past several decades, computers and information
technology have transformed count-
less aspects of life. Nearly every industry has changed in some
way due to the influence of these
technologies, and the healthcare profession is no exception.
Every aspect of healthcare has been
altered or improved through the use of information technologies
and more advanced information
systems.
A healthcare information technology system fulfills numerous
requirements. Consider a patient
who has been transported to the hospital by ambulance
following an automobile accident. The
information technology system would record all of the
following:

• The time of arrival
• Patient’s status at the time of arrival
• Patient’s contact information, such as for a spouse or
parent
• Patient’s financial status (e.g., type of insurance)
• Initial screening information (triage)
• Physician placed in charge of the patient
• Medical assistants who help with patient care (e.g.,
nurses, medical specialists)
• Tests given and results (e.g., X-ray, blood test, screening
for drugs and alcohol)
• Recommended course of treatment
• Medical services provided
• Medicines administered or prescriptions written
• Patient’s status at the time of admittance to the hospital or
discharge
This information could then be used for the purposes of billing
any government organization,
such as Medicare or Medicaid; health insurance providers; and
the patient. Screenings for drugs
and alcohol constitute private information; however, if the
individual was at fault for causing the
accident and was also under the influence of any substance, that
information becomes a legal
matter with the police. In that case, the patient’s records would
be moved into his or her file for
future use. Should the patient need care after discharge, the
recommended course of care and
provider chosen would be also documented. In addition,
different types of records are kept for
patients with various diseases and other afflictions.
The first section of this chapter investigates the role that
information technology plays in health-
care. The second section explains the use of information

technology in creating patient’s elec-
tronic medical records, along with the challenges of maintaining
patient privacy and system
Health Information Technology Chapter 10
security. The final section identifies the technical and
managerial competencies needed to direct
information systems in a healthcare organization.
10.1 Health Information Technology
The use of information technology to deliver healthcare has
evolved over the past several decades.
At first, automation and computerization allowed for more
efficient billing of patients, scheduling
of patient appointments and the use of a physician’s time, and
record keeping of various sorts,
including the management of medical inventories. Today, new
uses for information technology
emerge on a regular basis. Table 10.1 provides a summary of
the various applications of comput-
ers and digitalization available to medical personnel.
Table 10.1 Applications of information technology
Healthcare settings Information technology applications
Clinical personnel
Off-site emergency care Communicate with hospitals
Transmit patient information
Laboratory Track orders

Record results
Radiology Track orders
Record results
Pharmacy Track prescriptions
Record times when medications are provided
Clinical data Store clinical information
Decisions support Send warnings about potentially harmful
situations
Archives Store previous medical treatments
Store images and results from patient tests
Patient records Record the medical care provided
Postdischarge care Document patient visits to physical therapy,
nursing,
respiratory therapy, and home health visits
Administrative personnel
Patient billing and payment Track charges for medical services
Track payments received
Insurance billing and payment Track charges for medical
services

Medicare/Medicaid billing and payment Track charges for
medical services
Budgeting Record proposed and enacted budgets
Track development and follow-up
(continued)
Healthcare settings Information technology applications
Administrative personnel (continued)
Donation records Maintain records of donors and donations
Payments/accounts payable Track payments to other
organizations
Scheduling attendance of employees Establish work schedules
and time-keeping
Payroll Track payments to employees
Regulatory requirements Communicate regulations
Record methods to meet requirements
Support personnel

Office activities Word processing
Spreadsheets
Medical inventories Medical supplies
Janitorial inventories Janitorial supplies
Food service inventories Food supplies
As Table 10.1 indicates, information technology touches the
three primary areas of activity within
a healthcare organization: clinical, administrative, and support.
Information Systems
The three areas noted in Table 10.1 designate the areas in which
information technology sys-
tems are administered. Clinical systems contain data related to
every aspect of patient care,
from when the individual contacts a healthcare provider to the
final resolution of the contact.
Clinical information systems include all aspects of diagnosis,
including orders for and results of
tests. Physicians can then use information technology to
prescribe procedures and medicines.
Current databases provide physicians and others in the
healthcare industry with information
about potentially dangerous situations, such as drug
interactions, the side effects of medicines,
and injuries or complications that arise from surgeries and
therapies. Each procedure prescribed
by a physician is documented and stored by the provider. In
many cases, these records are now
completely digital, thereby reducing paper storage of past
medical histories. The clinical system

continues with physician and medical assistant notes related to
patient discharge and then tracks
the patient through any postdischarge care.
Administrative systems use information technology to record all
financial transactions, in terms
of both accounts receivable and accounts payable. Quality
information technology systems help
managers establish budgets for individual departments and the
overall organization. Revenues
and costs may be tracked, allowing for more effective control
systems of financial matters. Not-
for-profit health organizations also use information technology
to record the names, affiliations,
and histories of various donors.
Administrative systems also capture data to assist in compliance
with regulatory require-
ments. Among the organizations providing resources to help
ensure compliance are the Joint
Commission, the College of American Pathologists, the
American Association of Blood Banks,
and numerous for-profit organizations that help develop record-
keeping systems and documen-
tation programs.
The third element of information tech-
nology provides support. Information
technology assists in basic office func-
tions, such as sending letters and notices
to patients, providers, partners, the gov-
ernment, and others. Spreadsheets and

other software programs allow manag-
ers to combine, summarize, and analyze
information across a broad spectrum
of healthcare activities. In addition,
healthcare managers can track invento-
ries of medicines and medical supplies
and generate orders in a timely fashion
so that the organization has sufficient
amounts on hand at all times. The same
holds true for janitorial staff and food
service supplies.
Administrative Systems and
Human Resource Management
In today’s modern health systems, infor-
mation technology plays an integral part in the human resource
management function (Gomez-
Mejia, Balkin, & Cardy, 2004). One of the many functions of
administrative systems is to serve
the needs of human resource management. For example, human
resource officers use adminis-
trative systems for such matters as establishing work schedules
and keeping track of the hours
each employee spends on the job. These tasks allow for an
efficient payroll method. The system
also often includes features to record payroll-related payments
to organizations, such as federal
and state governments. At the end of the year, the system
generates W2 forms for individual
employees to use when filing income tax statements.
Many times, job openings are posted on the healthcare
provider’s website. Applicants often
provide preliminary information electronically. Information
technology systems can also be
designed to maintain items such as job descriptions for

individual positions, as well as postings
of all organizational rules and procedures.
In the area of employee safety and discipline, any safety
violations and rules infractions can
be recorded and stored in employee records, which are managed
by the information technol-
ogy system. These records may then be used if it becomes
necessary to terminate an employee.
Such information also plays a vital role when an organization
has been sued for malpractice or
negligence.
The Importance of Integration
Managing an organization’s clinical, administrative, and
support systems requires more than just
information technology expertise. The reason is simple: these
three activities, all of which are
supported by information technology, interact with each other
as part of the day-to-day, week-
to-week, month-to-month, and year-to-year operation of the
facility. As just one example, patient
records require the documentation of medical procedures, which
then must be transferred to the
billing department. Only when the entire system works in
concert with a healthcare organiza-
tion’s activities will it effectively serve all users, including
management, employees, insurance
providers, the government, suppliers, and patients.
© Jupiterimages/Creatas/Thinkstock
▲▲ A variety of clinical applications are available to assist
health-
care professionals.

Future of Information Systems
Information and digital technologies provide exciting new
possibilities for healthcare providers.
Improvements and innovations continue to occur in the areas of
patient safety, medical research,
efficient and precise diagnostics, efficient billing systems for
the medical services provided, the
provision of medical care in remote and rural areas, and
safeguarding of the medical and phar-
macological system from abuse.
In the area of patient safety, physicians and
medical organizations can quickly obtain
access to a patient’s medical history, includ-
ing any allergies, conditions, or complica-
tions that could interfere with medical
care. Currently, a person who suffers aller-
gic reactions to a medicine or has a medi-
cal device implanted in his or her body can
carry an identification card that signals this
basic information to first responders to an
accident or emergency. In the figure, digital
technology will help dramatically improve
the process. For example, patient histo-
ries may one day be available on a website
that individuals can access at any time and
transmit to any medical office. Individual
patients may also one day carry electronic
medical record cards (something like a credit card) or some
other digital storage device, allowing

them to have their medical information on hand at any time.
Medical research stands to gain a great deal from future
information technologies. Researchers
expect to be able to capture more information from a sample of
patients who are testing a medi-
cine or medical procedure. Research programs can then be
adjusted sooner to overcome various
complications or variances. Information technology will also
allow for more precise measure-
ments and recording of research activities, which in turn will
help improve the reliability and
validity of research programs. Rather than thinking of
information technology in terms of data
recording and retrieval only, the terminology may soon shift to
“knowledge management,” which
is a more sweeping concept expressing the connection between
computer and digital technolo-
gies and healthcare.
More efficient and precise diagnostics will emerge from several
sources. The Centers for Disease
Control and Prevention has developed the International
Classification of Diseases diagnosis sys-
tem for use in all U.S. healthcare treatment settings. This
system offers standardized coding for
both mental and physical medical problems, as well as a coding
system for tracking recommended
treatments. At a more macro level, clinical terminology and
hospital statistics are becoming more
standardized across national boundaries. As more universal
classifications emerge, fewer errors
will be made in diagnoses. In addition, more accurate
information can be shared regarding the
most advisable treatment and any medical complications to
avoid. On its website, the World

Health Organization (WHO) provides a substantial amount of
information that medical provid-
ers can use to identify a patient’s malady. The site also offers
recommendations on the most effec-
tive treatment agenda (http://www.who.int).
Advanced genetic information for individual patients will soon
become more routinely available.
The net result will be the ability to predict potential later-onset
or inherited illnesses, such as
© iStockphoto/Thinkstock
▲▲ Information technology helps provide medical care to
patients in remote and rural areas.
Medical Records and Patient Privacy Chapter 10
Alzheimer’s disease, genetic abnormalities, genetic defects, and
some mental illnesses. In essence,
physicians will be able to get a head start on finding ways to
treat patients.
Billing systems are also improved through digital technologies.
Current Procedural Terminology
(CPT) codes, which have been developed, maintained, and
copyrighted by the American Medical
Association (AMA), assign numbers to every task and service
provided by medical practitioners
to patients. CPT codes cover medical, surgical, and diagnostic
services. Insurers can use these
codes to calculate the amount of reimbursement a practitioner
should receive. When all medical
organizations follow the same coding procedures, uniformity is

ensured.
Medical care in remote and rural areas will greatly benefit from
new methods of treating patients
through the use of information technology. Devices such as
smart phones will carry applications
(apps) that can transmit medical information from remote
locations. A person may ingest or have
implanted a device like a microchip to monitor heart rate, blood
pressure, glucose levels, respi-
ration rates, and other vital statistics. The information can then
be transmitted to a physician’s
office located miles away. In some instances, a patient’s history
and current circumstances could
be sent to a doctor so that the patient could be treated without
leaving home.
Information technology for the protection against abuse
combines the medical field with govern-
ment activities designed to stop individuals from using the
system in illegal or unhealthy ways.
For example, in the past, addicts seeking to obtain narcotic
drugs would engage in “doctor shop-
ping,” a practice in which the addict asks several doctors in
different locations for the same drug
and fills the prescription at different pharmacies. Currently,
many states provide a network of
reporting of narcotic purchases from pharmacies, which helps
stop this practice. In the future,
a national database would help prevent such activity, even when
it takes place across state lines
(Centers for Disease Control and Prevention, 2012b).
10.2 Medical Records and Patient Privacy
Healthcare providers in nearly every circumstance share two
common goals. The first relates to

money. Managers of not-for-profit hospitals seek to ensure that
revenues exceed expenses. Profit-
seeking hospitals and healthcare facilities aim to make
sufficient profits to continue operations
and expand services. Individual practitioners look to generate a
quality income. In short, money
plays a key role in the healthcare system.
The second goal is to provide quality patient care. A variety of
outcomes indicate quality care,
from rates of recovery to mortality figures. The list should also
include patient satisfaction with
the facility, satisfaction of the medical staff with the
organization, and community support of the
medical practice and system.
Information technology can serve both financial and quality
goals. Quality electronic systems
can increase efficiencies and cut costs over time, thereby
increasing profit or revenue figures.
At the same time, information technology can assist in
delivering accurate, effective healthcare
practices. This section explains how electronic medical records
and safeguarding patient privacy
improve efficiency and ensure quality of care.
Electronic Medical Records
An electronic medical record (EMR) system provides a digital
repository for clinical medical
data. The information contained in the system allows convenient
and timely access to a patient’s
medical records, including all inpatient and outpatient
treatments. The purpose of these records

is to provide healthcare professionals with a method for docu-
menting, monitoring, and managing healthcare delivery to the
patient. In addition, an EMR documents other elements of
health-
care, including clinical decision support, a medical vocabulary,
and a method for ordering medical tests, drugs from pharmacies,
and other patient-support services following discharge (Garets
&
Davis, 2006). EMRs can serve several key purposes, including:
• Patient safety
• Efficiency in delivering medical care
• Maintaining records of past medical incidents
(documentation)
• Reducing costs
Patient safety can be enhanced through effective use of EMRs.
Quality EMR systems can keep better records of patient circum-
stances, such as allergic reactions to various medicines. They
can
also facilitate automated drug systems and preset reminders for
nurses and medical aides to administer drugs in hospitals and
other care facilities (Kohn, Corrigan, & Donaldson, 2000).
EMRs
also allow improvement of safety issues in terms of pharmaceu-
ticals. With access to a patient’s EMR, the pharmacist is better
able to advise the individual about other issues, such as taking
medicine with or without food, as well as interactions with non-
prescription drugs, such as cough medicine, pain relief
medicines,
and allergy medications.
Efficiencies arise at several stages of a patient’s care. Rather

than using paper-and-pencil medical
records and updates, a patient’s medical information can be
stored electronically. This informa-
tion can be accessed on site or in remote locations, such as an
accident site or the person’s home.
It can also be retrieved and updated during doctor’s visits and
then stored for future visits.
An EMR system also reduces redundancies in filling out
paperwork. Strategic alliances find EMR
systems particularly valuable, as the patient is not asked to
repeat the same medical history and
information to each individual provider as part of the intake
process. Additional efficiencies
emerge from “scheduling interface” systems, which coordinate
medical care in separate organi-
zations and those served by more than one physician or
healthcare professional.
Documentation protects both the patient and the healthcare
provider. A physician or healthcare
provider can record what medical care was delivered, including
orders for medicines from local
pharmacies and results of medical tests. The patient has greater
assurance, knowing that all treat-
ments have been entered into the system. One optimistic goal
emerging from such documenta-
tion is fewer medical mistakes and consequently fewer lawsuits
against physicians and healthcare
facilities.
Costs can be reduced by eliminating storage areas for paper
files. Rapid retrieval directly from a
computer saves time and may lessen the need for support staff
to look up information. Although
saving money may not constitute the primary reason for

establishing an EMR system, it is a
valuable side or additional benefit. As the use of EMRs
becomes more standard, additional costs
savings may emerge from using the EMR system as a method of
billing patients and maintaining
records of payments.
© Lite Productions/Thinkstock
▲▲ Electronic medical record systems
provide a repository for clinical medi-
cal data.
W E B F I E L D T R I P
For a more in-depth understanding of the creation of online
personal health records, take a look at
the Healthcare Information and Management Systems Society
(HIMSS) Privacy and Security Toolkit
at http://www.himss.org.
In the “Search” field, type “Privacy & Security Toolkits
Personal Health Records.” On the “Results”
page, click on “Personal Health Records-” (the form is dated
April 1, 2013).
Click on the link to open and read the PDF file entitled
“Managing Information Privacy & Security in
Healthcare: Personal Health Records,” by Jill Burrington-
Brown.
• What would you consider the advantages to be of

maintaining a personal health record?
• According to the report, what might be some of the
disadvantages of maintaining an online per-
sonal health record?
• What are some of the privacy concerns discovered in this
study?
• Would you consider creating a personal health record for
yourself? Why or why not?
EMR Adoption
Implementation of EMR systems varies widely among
healthcare providers. Hospitals are far
more likely to have established systems than individual
physician offices. In general, the larger
the scope of care provided, the greater the odds that the
organization has adopted part or all
of an EMR system. The organization that is best known for
tracking EMR adoption rates is the
Healthcare Information Management Systems Society (HIMSS).
As displayed in Table 10.2,
adoption rates appear on a scale from Stage 0 to Stage 7.
Table 10.2 U.S. EMR Adoption Model (EMRAM)
Stage
Cumulative capabilities
2012
Q4
2013
Q1

7 Complete electronic medical record; continuity of care
document transactions
to share data; data warehousing; data continuity with emergency
department,
ambulatory, outpatient
1.9% 1.9%
6 Physician documentation (structured templates), full clinical
decision support
(variance and compliance), full radiology picture archive and
communication
systems
8.2% 9.1%
5 Closed-loop medication administration 14.0% 16.3%
4 Computerized practitioner order entry, clinical decision
support (clinical protocols) 14.2% 14.4%
3 Nursing/clinical documentation (flow sheets), clinical
decision support (error
checking), picture archive and communication systems available
outside of
radiology
38.3% 36.3%
2 Clinical data repository, controlled medical vocabulary,
clinical decision support,
may have document imaging; capable of health information
exchange
10.7% 10.1%

1 Ancillaries (laboratory, radiology, pharmacy) all installed
4.3% 4.2%
0 All three ancillaries not installed 8.4% 7.8%
N =
5,458
N =
5,441
Source: Data from HIMSS Analytics® Database ©2013.
Adapted with permission.
http://www.himss.org
Each year, HIMSS calculates the percentage of healthcare
organizations in each stage. Stage 0
implies no activity at all. Stage 1 represents a minimal level of
ancillary equipment. Each stage
after that indicates greater sophistication in data collection and
usage, leading to full collection
and storage of patient information in an electronic format that is
easier and quicker to retrieve.
Only in Stage 7 is a healthcare provider able to share patient
information with outside entities.
Alternatives to EMR Systems
Some experts distinguish between electronic medical records
and electronic health records. The
difference is that the former only shares information within a
single healthcare organization,

such as a hospital or network of hospitals and satellite medical
providers. An electronic health
record, on the other hand, can be transferred across
organizational boundaries, such as when
a hospital shares information with an independent rehabilitation
service. This situation would
occur in Stage 7 of the EMR adoption model displayed in Table
10.2.
Another format is a personal health record, in which the patient
manages and controls personal
health information. Personal health records may document
regimes such as dietary intake per
day, amounts and intensities of workouts or fitness routines, and
other attempts at improving
one’s health. Various for-profit organizations provide access to
personal health record storage via
Internet access. A diet center, for example, can store personal
information, while also dispensing
information and attempting to sell the center’s products and
services.
Barriers to EMR Adoption
Two primary barriers inhibit healthcare providers from adopting
EMR systems. The first is cost.
Such systems require expensive computer technology, including
hardware, software, and people
with the expertise to install and maintain the system. Given the
expenditures required for the
equipment and expertise, smaller organizations may not receive
an adequate return on their
investment. This explains, in part, why the likelihood of
adoption rises with increasing orga-
nizational size and scope, as costs can be allocated to a larger
number of patients and medical
services.

The second barrier is privacy. Unfortunately, sophisticated
computer hackers (known in the field
of information technology as the Black Hat community) use
malware that can intrude on patient
privacy while creating a method of unlawfully obtaining monies
from various organizations and
the government. Furthermore, a patient may be concerned that a
sensitive condition, such as
being HIV positive or pregnant or one that would influence his
or her health insurance status,
could become available to the wrong parties.
Patient Privacy
Patient privacy in the digital age is of such a serious matter that
it has prompted landmark
health legislation designed to protect it: the Health Insurance
Portability and Accountability Act
(HIPAA). HIPAA has numerous objectives, one of which is to
protect patients from the ongoing
threat of medical identity theft.
As with nearly any major innovation, a dark side to the use of
information technology has
emerged. The problem of identity theft affects individual
consumers, the credit card industry,
and a variety of additional organizations. A new form of such
theft that has recently arisen is
medical identity theft, which occurs when someone steals
personal information in order to make
fraudulent claims against the victim’s health insurance policy.
A policy number, Social Security
number, or other personal information can be stolen from a
medical facility or medical database

and resold on the black market. This form
of theft costs consumers thousands of
dollars, creates stress, and may threaten a
person’s life and health (Coalition Against
Insurance Fraud, n.d.).
Three forms of medical identity theft scams
currently occur. In the first, thieves, such
as dishonest physicians and other medi-
cal personnel who work with insurance
companies, bill a person’s health plan for
fake or inflated treatment claims. Rings of
thieves also work together to obtain stolen
patient information on the black market to
establish fraudulent clinics so they can file
bogus claims against the health policies of
victims.
The second scam occurs when medical data
are used to obtain prescription drugs for
thieves with addiction problems or to sell to others. Dishonest
pharmacists may bill a victim’s
policy for these narcotics, or nurses may order prescriptions in a
patient’s name but buy it for
themselves to sell or use.
In the third case, some medical identity thieves use the system
to obtain free treatment. They
assume the victim’s identity at a hospital or clinic, and the
person’s policy receives the bills.
Any type of identity theft creates serious and long-lasting

problems. Overcoming these problems
can take years and a great deal of money. Among the problems
medical identity theft can cause to
consumers are damage to credit ratings, loss of healthcare
coverage, inaccurate personal medical
records, legal complications, and higher health insurance
premiums.
The U.S. Federal Trade Commission (2012) notes the following
signs of medical identity theft:
• A bill for medical services you did not receive
• A call from a debt collector about a medical debt you do
not owe
• Medical collection notices on your credit report that you
do not recognize
• A notice from your health plan saying you reached your
benefit limit
• Denial of insurance because your medical records show a
condition you do not have
Individual consumers can try to avoid the complications of
medical identity theft by carefully
examining every explanation of benefits (EOB) document
received from a health insurance com-
pany, looking at the benefits the policy paid, checking personal
medical records and working to
correct any inaccuracies, and annually checking a credit score.
Anyone who has been victimized
should immediately file a police report and notify the Federal
Trade Commission.
Protection of Health Information
Numerous entities hold vested interests in preventing the theft
or disclosure of patient informa-
tion, including physicians and other medical professionals;

provider organizations; federal, state,
and local governments; and patients themselves. Medical
information represents both a privacy
concern and a financial issue. For this reason, federal
legislation and oversight seek to protect
▲▲ Medical identity theft occurs when someone steals
personal
information to make fraudulent claims against a victim’s
health insurance policy.
health information for all citizens. Medical providers use a
variety of techniques to keep key
information secure and make certain only proper persons can
attain access to materials. Some of
these techniques include palm vein scanners, finger vein
scanners, voice-activated programs, and
eye verification (through scanning of the veins in the whites of
a person’s eye). Protected health
information includes the following:
• Physical and mental health condition
• Healthcare provided by physicians and organizations
• Payments for healthcare services
This protected information includes any activity in the past or
the present, as well as any activi-
ties that will take place in the future.
Health Insurance Portability and Accountability Act (HIPAA)

In 1996, Congress enacted the Health Insurance Portability and
Accountability Act (HIPAA)
to help protect the privacy of information connected to the care
of a specific patient, or individu-
ally identifiable health information. Patient information privacy
actions take place under the ele-
ments of the act known as the Privacy Rule and the Patient
Security Rule. Provisions of HIPAA
include a designation of who is covered, the specific
information that should be protected, physi-
cal and technical safeguards, organizational requirements,
documentation rules, relations to
state laws, enforcement and penalties for noncompliance, and
compliance dates (U.S Department
of Health and Human Services, n.d.-b).
The HIPAA Privacy Rule, enforced by the Office for Civil
Rights (under the U.S. Department of
Health and Human Services), creates a federal protection system
regarding personal health infor-
mation that is held by various organizations and medical
practices. It also grants patients several
rights with respect to their personal information. In more
general terms, any patient protected by
doctor–patient privilege has rights under the HIPAA Privacy
Rule. Physicians, medical assistants,
office staff workers, and others with access to a patient’s
information are forbidden from disclos-
ing that information to others without the patient’s consent.
Safeguards include specific forms
filled out by patients and filed with the medical provider. These
forms, which must be stored in
a secure location, specify which family members or others can
be told about a person’s medical
condition. Computer systems restrain nonauthorized personnel
from seeing a patient’s records.

Information may not be disclosed by phone or in any other way
without securing the proper per-
mission of the patient. Those who fail to maintain these
safeguards may be reported to the Office
for Civil Rights, which can punish such actions in a variety of
ways.
The Privacy Rule also attempts to ensure protection of an
individual’s health information, while
also allowing for the flow of health information that is
necessary to provide and promote high-
quality healthcare and to protect the health and well-being of
the public. The intent of the Privacy
Rule is to generate a balance between important uses of the
information for protection of the larger
population and maintenance of privacy for people seeking care
and healing. To help achieve this
objective, the language of the Privacy Rule is intentionally
flexible and comprehensive in order to
cover the various uses and disclosures it addresses.
The HIPAA Security Rule sets national standards for the
security of electronically protected
health information. The HIPAA Patient Safety Rule regarding
confidentiality protects any infor-
mation that would identify an individual patient. It also covers
information used when analyzing
patient safety events with the goal of improving patient safety.
The intent of the Patient Safety and
Quality Improvement Act (PSQIA) of 2005 is to protect
confidential patient safety work prod-
ucts. A patient safety work product is information that is sent to
a patient safety organization to

report when an individual has been placed at risk by a
healthcare provider’s actions. Such infor-
mation—for example, a report documenting a patient’s exposure
to a nontreatable virus—might
be embarrassing or damaging to the patient; therefore, it should
be kept confidential. The PSQIA
identifies the conditions for disclosing patient safety work
products to various organizations in
an effort to safeguard patient well-being. Again, the Office for
Civil Rights is in charge of enforce-
ment activities.
C A S E
Information Technology and the
Department of Veterans Affairs
The U.S. Department of Veterans Affairs provides a variety of
services to those who have engaged
in military service. Among the activities involved, the agency
oversees healthcare through Veterans
Administration (VA) hospitals; tends to burials and memorials
for deceased veterans; and admin-
isters benefits to veterans and their survivors in the areas of
compensation, education and train-
ing, home loans, life insurance, and vocational rehabilitation. In
2012, the total budget for the
Department of Veterans Affairs exceeded $61 billion (U.S.
Department of Veterans Affairs, 2013). At
that time, the department’s primary director was the Secretary
of Veterans Affairs, Eric Shinseki.
In 2013, a growing chorus of criticism was directed at the VA.
Famous individuals, such as Rachel

Maddow and Jon Stewart, along with news organizations
including NBC, CBS, and The New York
Times, began to highlight one particular problem: the increasing
backlog of claims for benefits by
returning soldiers. NBC’s Bill Briggs (2012) wrote, “The VA’s
benefits-aspiration web page shows the
average claims-processing time was 223 days in October 2011,
246 days in April 2012, 257 days in
July [2012], and 260 days in August [2012]. In fact, the backlog
has doubled in size since 2008, con-
gressional members report.” CBS News reported that more than
a half million veterans were wait-
ing for claims to be processed in 2012 (Martin, 2012).
Social media enhanced the VA’s problem. Returning soldiers
began posting photos of themselves
on websites such as Facebook. In each photo, the veteran held a
sign indicating how long he or she
had been waiting for assistance with a claim.
In response, Secretary Shinseki stated that the organization
would reduce the waiting period back
to 125 days by 2015, which was more than a year and a half
down the road. Briggs (2012) reported,
“The VA cited four reasons for what it calls ‘claims growth’:
• Increased demand—‘the result of 10 years of war’ and due
to many veterans returning ‘with
severe, complex injuries’;
• in 2010, Shinseki decided the VA claims system should
include the recognition of medical condi-
tions related to Agent Orange exposure (240,000 claims were
processed in 2011 for such expo-
sure) as well as ‘Gulf War Illness’;

• approximately 45 percent of Iraq and Afghanistan
veterans are currently seeking compensation
for injuries related to their service—and that marks a ‘historical
high’ for the VA following wars.
Those claims include an average of eight to 10 medical issues
per claim, more than double the
Vietnam era;
• the VA says it is doing ‘better outreach’ to veterans ‘to
educate them about the benefits they’ve
earned.’”
Others believed that a major part of the problem was the
mountain of paperwork that continued
to grow. The VA continued to rely on paper-produced
application forms rather than computerized
or digitalized methods. The organization had conducted a pilot
program for the use of electronic
(continued)
http://www.app.hospitalcompare.va.gov/index.cfm
Managing the Information Technology Department Chapter 10
10.3 Managing the Information Technology Department
Managing any unit in an organization requires understanding of
and adaptation to a unique set
of circumstances, and an information technology (IT)
department in a healthcare organization
is no exception. The skill set necessary to operate the hardware
and software, while also manag-
ing people and relationships, demands an individual with
numerous technical and managerial
competencies.

Technical Competencies
To effectively supervise the IT department in a medical setting,
a manager must have a wide-
ranging set of technical competencies. Initially, two immediate
skill sets emerge. The first set
includes mastery of a mainframe computer system, the capacity
to protect the system, and the
ability to audit a system and resolve conflicts of interest. The
second set involves the ability to
understand medical terminology and medical practice.
Mastery of a Computer System
Computer science training includes a variety of skills and
knowledge bases. A computer sci-
ence student learns how computers work, including hardware
systems. Computer training
also includes an understanding of basic programs, such as word
processing, spreadsheets, and
database management. Most computer specialists acquire
knowledge in the area of program-
ming language, such as Pascal, C++, Java, and COBOL. The
next level of training involves sys-
tem design and system analysis. Specialties include computer
networking, data structures and
algorithms, Internet programming, expert systems, and other
forms of software engineering
(Hall, 2010).
Key elements of these studies for the purposes of medical
organizations are in the areas of medi-
cal software and system integration. Physicians and other
medical professions have specific
needs with regard to computer support. These needs must be
integrated with the activities of the

accounting and billing department, with any group preparing
reports for government agencies,
and so forth. Additional training and continual updating of
information are part of the IT profes-
sion, especially in the areas of system integration.
forms in the fall of 2012, with positive results in six major
cities across the country. Shinseki believed
that full application of digital records was the key to reducing
the major backlog problem.
At the same time, Representative Jeff Miller, R-Fla., chair of
the House Committee on Veterans’
Affairs, complained, “As Congress has said for many years now,
VA needs to look at the root of the
problem of the backlog—training, management, oversight, and
technology—and work forward
from those four points to address this problem.” Miller added:
“Quick fixes will no longer work,
and will continue to make veterans wait months, sometimes
years, on end for an answer” (quoted
in Briggs, 2012).
1. Is the issue faced by the VA an information technology issue
or an information systems problem?
2. Explain the clinical, administrative, and support issues that
are part of this dilemma.
3. What role might the development of an EMR system play in
solving these problems?
4. How might issues of privacy and security evolve in this
situation?

System Protection
In addition to the challenges posed by med-
ical identify theft, an IT manager should
be well-versed in other aspects of system
protection. The IT system should be set
up to defend against attacks that use bots,
malware, and viruses. The goals of hackers
include not only the theft of information but
also the disabling or destruction of an orga-
nization’s computer system. These threats
are not contained to national boundaries;
in fact, the Black Hat community of hack-
ers and other criminals who use computers
for illegal purposes contain members from
around the world (Levine, 2006).
The IT department in a healthcare setting
is charged with preventing vulnerability in
the system and creating privacy protection
for patients, employees, and the overall organization. The term
vulnerability expresses the like-
lihood that a criminal could overcome the system’s protections
and hack in (Tehan, 2005). One
response to vulnerability is to develop secure log-on systems
and to create effective password-
access systems. Medical IT managers oversee access to list
servers and address books. As such,
medical employees and visiting physicians must have full
confidence that the provider’s system
cannot be hacked or violated.
Another response to vulnerability, a nondisclosure policy,
occurs when medical organizational
leaders try to prevent information about system breaches from
leaving the organization. A non-
disclosure policy includes developing statements that demand

complete discretion from any
external IT companies or individuals that worked on the
problem. In contrast, full disclosure
means taking steps to inform all publics of the problem. In
either case, the IT system may be
shut down until the problem is resolved or a new firewall may
be installed to limit traffic to a
provider’s website. In healthcare, acting responsibly when an
information system has been com-
promised may best serve the public’s interests; this is referred
to as the “ethical duty to warn”
(Baack & Baack, 2009).
The medical IT manager helps ensure that information does not
fall into the wrong hands, while
also ensuring that those who require information can access it.
This requires constant commu-
nication with other departments. For example, the human
resources manager contacts the IT
manager when someone has been terminated or is leaving; the
IT manager then makes sure that
the individual will not be able to maintain access to the
provider’s IT system. Similarly, a medical
IT systems manager oversees the process of replacing
computers, as one of the more common
forms of identity theft occurs when someone fails to properly
disable old hard drives and discs
(Baack & Baack, 2009).
Audits and Conflicts of Interest
Medical IT programmers also conduct the auditing process,
which might reveal, for example,
that the healthcare provider has failed to back up key data and
is thus vulnerable should the infor-
mation become lost. The hospital or healthcare provider
establishes a chain of command in these

▲▲ Additional training and continual updating of information
are part of the IT profession, especially in the areas of system
integration.
circumstances so that the system protects the organization’s
interests, the patient’s interests, and
the well-being of the larger public.
When conducting audits, medical IT managers work to ensure
that conflicts of interest do not
emerge. Such conflicts could take place between a healthcare
provider and various strategic part-
ners, such as a pharmaceutical company. For example, doctors
constantly receive free samples of
drugs and enticements to prescribe those drugs. The IT system
helps monitor how these drugs
have been administered to sets of patients over time, with the
corresponding outcomes noted.
Internal Internet Usage
Medical employees should know whether the management team
intends to examine how they
use the Internet and e-mail systems. Personal e-mails not
associated with one’s job raise two
issues. First is the issue of whether an employee should be
allowed to use the provider’s e-mail
address for personal e-mail. If not, the employee may be asked
to create or use a separate account
for that purpose. Most of the time, a separate e-mail address

should be used for personal e-mails.
The second issue concerns the problem of employee’s answering
non-job-related or personal mes-
sages on company time—an issue faced by managers in
numerous organizations. There may be
times when an employee has a valid reason for sending or
receiving a personal message, such as
to check on a sick child or to contact a spouse or partner.
Unfortunately, the temptation involves
going beyond brief messages to more extended conversations.
Text messaging and social media
also tend to consume employees’ time and attention. Many
organizations do establish guidelines
about the use of electronic media on company time, but leave
enforcement to IT managers—and
employees’ consciences—about whether employees’ use of e-
mail and the Internet constitutes
“stealing” organizational time.
Individual employees also face personal responsibility when it
comes to Internet use on the job,
including time spent surfing non-work-related sites. In the past,
employees were able to stop
working in order to read a newspaper or listen to the radio to
find sports scores or take a quick
look at news headlines. The argument has been made in court
that since individuals previously
were able to read the newspaper and make phone calls while on
the job, employees should not be
sanctioned for using a computer in the same way. However,
individual workers who fail to use the
Internet responsibly should not be surprised when a medical IT
manager takes steps to monitor
website visits and sanctions inappropriate use (Baack & Baack,
2009).

Understanding of Medical Terminology and Medical Practices
A successful IT manager must be comfortable with medical
terminology and the methods used
in medical practice. In a large healthcare organization, this
includes the clinical, administrative,
and support functions mentioned in Table 10.1. Of note, the IT
manager needs to understand
not only the essentials of these medical activities but also the
interrelationships among them and
how they are to be documented. The documentation of items
that emerge from healthcare inter-
relationships includes the following:
• Construction of accurate and useful individual patient
records
• Documentation of each medical act for the following
purposes:
ͪ Billing
ͪ Payment to specialists and professionals
ͪ Legal protection in the event of criminal charges
ͪ Protection from civil suits
ͪ Inventory control
• Support of medical research
• Support of medical statistics regarding effectiveness of
care (e.g., survival, recovery rates)
• Methods for providing medical information to strategic
alliance partners
• Methods for providing data for performance evaluations
and other human resource man-

agement activities
• Coordination with other departments, including marketing
and fund raising
Consequently, the IT manager must be able to understand the
basics of medical terminology in
order to effectively support the organization’s operation. Three
additional circumstances influ-
ence the application of these technical competencies:
• The nature of the practice
• The size of the organization
• The presence of strategic alliances
For example, an IT professional work-
ing in a teaching or research hospital may
be charged with responsibilities that dif-
fer from someone serving a community
health center, blood bank, pharmacy, or
physician’s group. The relationships among
medical professionals, the government,
suppliers, and patients differ in each of
these circumstances.
The size of the organization also influences
the degree of sophistication needed to pro-
vide effective IT services. An individual
physician’s office likely needs the most rudi-
mentary form of help, whereas a practicing
group, hospital, pharmacy, or other larger
organizations demand more intricate and
connected systems. IT managers must also
adapt to the presence of strategic alliances.
Each form of organization includes a degree of data sharing.

Thus, medical IT managers are
expected to protect the organization’s system while also
accommodating interactions with other
organizations.
Managerial Competencies
In Chapter 1, managerial competencies, including technical,
conceptual, and human relations
skills, were identified. Each of these competencies clearly
applies to medical IT management.
The technical competencies were noted in the previous section
of this chapter. Conceptual skills
require the IT manager to be able to mesh the activities of
numerous departments into one seam-
less operation. Human relations skills include the ability to
interact not only with other members
of the IT department but also with managers in other
departments, physicians, top managers,
and other organizations. Although the common stereotype may
be that someone gifted in the
technical aspects of computers may be less skilled when a job
requires interactions with other
people, healthcare officials in a variety of organizations
recognize the importance of people skills
▲▲ Medical IT managers require the same technical, con-
ceptual, and human relations skills needed throughout the
organization.

C A S E
New Horizons
Dr. Jean Thomsen was about to embark on major change in her
medical career. For the past
decade, she had run a private medical practice focusing on
pediatric medicine. When the oppor-
tunity was presented to join forces with two other doctors to
form a small practicing group, she
leaped at the chance. The group would allow for consolidation
of office staff employees and
nurses. It would also be possible for the physicians to cover for
each other, which would make it
easier to schedule vacations and time off.
The practicing group, called New Horizons, would maintain a
strategic alliance with a local hospital.
Each physician would have core privileges at the hospital. An
agreement was created so that all of
the referrals for hospital care would direct patients of New
Horizons to the hospital.
Dr. Thomsen’s primary concern was patient records. She had
always been able to rely on paper-
and-pencil methods and a large filing system and storage area to
maintain records of all her past
and current patients. She needed to somehow pull that
information into the New Horizons system,
which involved making PDF files of each paper form for storage
at a remote site on a mainframe
server. Each record would also be saved in a separate file
system at the office using sets of smaller
devices. Her office also had the ability to order some tests and
electronically transfer prescription
orders to most of the local pharmacies.

The hospital had reached Stage 5 of the EMRAM adoption scale
for electronic medical records.
This meant that the hospital had achieved the ability to maintain
a closed-loop medical administra-
tion system. In essence, all parts of the system were integrated
in such a way that any professional
within the hospital could access patient medical records when
needed. The system also included
a clinical decision support system, which provided medical
protocols for various illnesses, injuries,
and medical emergencies. The clinical support system
complements other systems, including those
established with local pharmacies to prescribe and fill drug
orders more efficiently. An additional
system contains a centralized medical imaging and storage
system for each patient’s history.
From Dr. Thomsen’s perspective, the challenges were
significant. The first issue was to make sure
that her former system stored all relevant information on the
New Horizons system. The second
concern was how to integrate the New Horizon system with the
system used by the hospital. She
was worried that information might be lost, that both systems
might be vulnerable in some ways,
and that she would not be able to retrieve medical records
efficiently when the new practice
opened.
1. Was the system that Dr. Thomsen used in her private practice
a medical information technology
system or an information system?
2. What are the potential advantages and disadvantages of
integrating the private practice into a

group system and then the hospital’s system?
3. Who should be in charge of integrating the New Horizons
system with the hospital system—
someone from one of the two organizations or a specialized
professional from a separate com-
pany? Why?
4. What services would not be available to Dr. Thomsen, New
Horizons, or the hospital that would
eventually be used when the hospital moved to Stage 5 of the
EMRAM scale?
in an IT department leadership role. Managerial competencies
would then extend to the classic
functions noted in Chapter 1:
• Plan
• Organize
• Staff
• Direct
• Control
The first two of these activities are most germane to this
chapter. As was noted earlier, the IT
department serves staffing or human resource management
functions in the areas of record
keeping and payroll, as well as other matters. Directing and
controlling issues are examined in
Chapters 13 and 14.
Medical IT Planning

Medical IT planning should be aligned with the overall strategic
goals of the entire health-
care organization. At the strategic level, medical IT planning
begins with a strength, weakness,
opportunity, and threat (SWOT) analysis. The organization’s IT
team conducts audits designed
to identify the strengths and weaknesses of the current system,
along with any opportunities
and threats in the environment. Any strategic response should
be aligned with the healthcare
provider’s overall strategic approach. As noted in Chapter 4,
three common devices used in the
implementation of strategies are budgets, projects, and
programs. IT managers in medical facili-
ties often engage in these activities.
In terms of budgets, the extensive costs associated with
acquiring and maintaining sophisticated
computer systems and software require IT managers to plan far
in advance for the procure-
ment of new hardware and software. The process begins with
careful consultation with medical
professionals, organizational administrators, and the provider’s
top management team, with the
goal of ensuring that any new system or equipment will
effectively meet the provider’s current
and future needs. Budgeting continues with coordinating with
the finance department in order
to ensure that funding for new systems can be obtained—this is
also called “financial feasibility.”
Then, the accounting department must be consulted so that the
costs of the system can be allo-
cated across all units in an acceptable manner. This process
includes assessing the life cycle of the
technology—that is, how long it will last until it becomes
outdated or obsolete.

Project management takes place as an IT system is installed or
upgraded. Doing so requires input
from the clinical, administrative, and support staff. Each
subsystem within the IT system will
be analyzed to ensure that it will efficiently and effectively
serve the needs of the department.
Project management involves a step-by-step process in which all
information is carefully backed
up and secured until it becomes clear that the new system can
operate without problems.
Program management reflects the coordination activities
necessary to integrate the system. This
ongoing process includes making sure the various elements in
the organization prepare, sub-
mit, and receive all required information (billing, patient care
records, safety protocols, etc.) in
a timely fashion; constantly monitoring against internal and
external threats to system security;
and resolving technical issues as they arise (Abraham, 2012).
Medical IT and Organizing
The IT department’s internal structure, as well as the healthcare
organization’s overall structure,
should be designed to facilitate four goals, as noted in Chapter
7:
Chapter Summary Chapter 10
• Management of complexity
• Differentiation and integration
• Management of interdependence
• Creation and oversight of boundary-spanning activities

Complexity involves the number of diverse and autonomous but
interrelated organizational com-
ponents that have been detailed in this chapter. The IT system
accounts for all of these compo-
nents as the system is developed and implemented.
Differentiation and integration are served
by first developing IT systems that effectively provide needed
information and analytics across
a broad spectrum of activities, including those dictated by the
nature of the organization (e.g.,
pharmacy vs. physician’s office). Then the activities are
coordinated among the specialized parts.
Interdependence constitutes one of the most important aspects
of the IT department’s role. The
system only works when each unit can depend on others for the
information to continue the
medical process, such as when an emergency room patient
moves into the hospital itself to be
served by a different staff. Not only do these systems require
coordination, but the information
regarding service must also be transmitted to the accounting
office so that the patient’s bill can
be calculated.
Boundary spanning includes careful construction of data files
that report all information to be
reported to external entities, including the government,
insurance companies, strategic alliance
partners, accreditation agencies, and others. In this instance, the
IT department manager is
responsible for bridging both internal and external boundaries
in ways that serve the organiza-
tion’s interests (Thompson, Strickland, & Gamble, 2005).

Chapter Summary
Information technology uses technology in the development and
maintenance of computer sys-
tems, software, and networks for the processing and distribution
of data. Healthcare information
technology includes all technologies used to transmit and
manage health information for use
by consumers, providers, payers, insurers, and others in the
healthcare system. An information
system combines hardware; software; infrastructure; and the
individuals employed to conduct
planning, control, coordination, and decision making in an
organization.
Information technology touches the three primary areas of
activity within a healthcare organiza-
tion: clinical, administrative, and support. It also plays a key
role in the human resource manage-
ment function. In the future, IT innovations will take place in
the areas of patient safety, medical
research, efficient and precise diagnostics, medical care
provision in remote and rural areas, and
safeguarding the medical and pharmacological system from
abuse.
Quality electronic systems can increase efficiencies and cut
costs over time, thereby increasing
profit or revenue figures. At the same time, information
technology can assist in the delivery of
accurate, effective healthcare practice. An electronic medical
record (EMR) system provides a
repository for clinical medical data that allows convenient and
timely access to a patient’s medi-
cal records, including all inpatient and outpatient treatments.
Electronic medical records can
improve patient safety, efficiency in delivering medical care,

maintenance of records of past med-
ical incidents (documentation), and reduction of operating costs.
The HIMSS measures adoption
rates of EMR systems in the United States. Costs and patient
concerns about privacy have slowed
some adoption rates.
http://www.investorwords.com/3504/organization.html
Key Terms Chapter 10
To protect the privacy of individually identifiable health
information, Congress enacted the
Health Insurance Portability and Accountability Act of 1996.
Patient information privacy actions
are covered by the Privacy Rule and the Patient Security Rule,
while reporting of patient safety
incidents is protected by the Patient Safety and Quality
Improvement Act (PSQIA). The Office for
Civil Rights is in charge of enforcing HIPAA.
Managing an information technology (IT) department in a
healthcare organization requires
understanding of and adaptation to a unique set of
circumstances. The skill set necessary to
operate the hardware and software, while also managing people
and relationships, demands an
individual with numerous technical and managerial
competencies.
Managing the IT department in a medical setting requires two
skill sets. The first includes mas-
tery of a computer system, the capacity to protect the system,
and the ability to audit a system and
resolve conflicts of interest. The second set involves the ability

to understand medical terminol-
ogy and medical practice.
Medical IT department managers exhibit technical, conceptual,
and human relations skills.
Three common devices are used to implement organizational
and departmental strategies—bud-
gets, projects, and programs. The IT department’s internal
structure, as well as the healthcare
organization’s overall structure, should be designed to facilitate
the management of complexity,
differentiation and integration, and interdependence, while also
creating and overseeing bound-
ary-spanning activities.
Key Terms
electronic health record a system in which a patient’s medical
records can be transferred
across organizational boundaries
electronic medical record (EMR) a digital repository for clinical
medical data
healthcare information technology all of the technologies used
to transmit and manage
health information for use by consumers, providers, payers,
insurers, and others in the health-
care system
Health Insurance Portability and Accountability Act (HIPAA)
the law enacted to protect
the privacy of individual identifiable health information
information system the combination of computer hardware,
software, and infrastructure,
with the individuals employed to conduct planning, control,

coordination, and decision making
in an organization
information technology the use of technology in the
development, maintenance, and use of
computer systems, software, and networks for the processing
and distribution of data
personal health record a system in which a patient manages and
controls personal health
information
vulnerability the likelihood that a criminal could overcome a
medical system’s information
technology protections and hack in.
http://www.investorwords.com/944/combination.html
Critical Thinking Chapter 10
Additional Resources
American Association of Blood Banks http://www.aabb.org
American Health Information Management Association
http://www.ahima.org
College of American Pathologists http://www.cap.org
Healthcare Information and Management Systems Society
Health Information Careers http://www.hicareers.com
Critical Thinking
Review Questions

1. Define information technology and information systems.
2. In what three areas is information technology applied to
healthcare organizations?
3. Describe the nature of a clinical information system.
4. Describe an administrative information system.
5. What future improvements are possible with regard to
information systems and
healthcare?
6. What is an electronic medical record (EMR)?
7. What purposes are served by electronic medical record
systems?
8. Define electronic health record and personal health record.
9. What two barriers to EMR adoption are cited in this chapter?
10. What types of protected health information are covered by
the Health Insurance
Portability and Accountability Act (HIPAA)?
11. Explain the Privacy Rule and Patient Safety Rule aspects of
HIPAA.
12. What types of technical competencies are required in
medical information technology
management jobs?
13. Define the terms vulnerability, nondisclosure, and full
disclosure as they relate to medical
information technology.
14. What three managerial skills are useful to medical
information technology managers?
15. What activities do managers in medical information
technology departments engage in to
help implement organizational strategies that affect their

departments?
Analytical Exercises
1. What three types of medical identity theft take place? How
might an effective information
system prevent incidents of medical identity theft?
2. Explain all of the relationships that would exist between
clinical, administrative, and sup-
port systems in a healthcare information system.
3. Many people become frustrated when their medical
information is revealed to others. Some
health insurers say they have the right to such information
because it affects policy rates.
Should a new employee be forced to sign a waiver allowing this
information to be shared
http://www.aabb.org
http://www.ahima.org
http://www.cap.org
http://www.hicareers.com
Critical Thinking Chapter 10
with the insurance company, which in essence denies the
individual protection granted by
HIPAA?
4. Using biometrics, it may become possible to implant a chip
containing the individual’s medi-
cal history. The same implant could also provide security
information and record financial

transactions with healthcare organizations. If so, which
organization should oversee the
use of this information—a healthcare provider, the government,
or an independent agency?
What potential problems might emerge from such a system?
5. Which of the following should a human resource manager be
allowed to record in an
employee’s records? Defend your rationale for each.
• Smoker versus nonsmoker
• Married, divorced, cohabitating
• Political affiliation
• Height and weight
• Medical problems
• DNA information
6. Which of the two competencies do you believe is more
important for an IT department
manager—technical or managerial? Defend your answer.
7. Relate the concepts of complexity, differentiation and
integration, interdependence, and
boundary spanning to each of the following:
• Technical skills
• Conceptual skills
• Human relations skills
Finance and Accounting
Management and Planning

Chapter Objectives
After reading this chapter, you should be able to
1. Describe the essence of financial governance and working
capital policy.
2. Apply the functions of long-term finance to management in
the healthcare industry.
3. Explain the essence of accounting as it applies to healthcare
management.
6
© Imagebroker.net/SuperStock
Finance and Accounting Management and Planning Chapter 6
The relationships among the practices of medicine, healthcare
management, and finan-
cial management can easily be described as being complex. A
physician in an individual
practice, one in a group of specialists, and managers within a
larger healthcare facility setting
all encounter myriad challenges associated with setting prices
for services; receiving payments
from insurance companies, patients, and the government; paying
for medical equipment and
supplies; and covering the costs of operation, including wages
for support staff, the price of a
physical office space through a lease or a purchase, and other
expenses. Meanwhile, healthcare
managers must also contend with requests for purchases of new

equipment, increased space, and
a variety of additional items that may or may not be suited to a
healthcare organization’s goals.
Healthcare managers also oversee payroll, billing statements,
accounts payable and receivable,
third-party reimbursements, discounting systems, tax statements
and bills, and numerous finan-
cial and accounting activities. All of these tasks relate to the
process of cash flow management,
or working capital policy.
Working capital policy poses challenges for managers in every
type of industry. However, health-
care providers face additional obstacles that most private-sector
companies do not. For example,
any physician or pharmacy accepting Medicare and Medicaid
patients often encounters diffi-
culties in receiving reimbursements in a
timely fashion. The dilemma follows a com-
mon cycle: A patient receives care or fills
a prescription; reimbursement documents
are filed with the appropriate government
agency; then the wait begins, many times
for months. Meanwhile, supply bills, sala-
ries, utilities, and other expenses come due
and must be paid. Thus, any pharmacy or
medical practice that accepts Medicare or
Medicaid but that does not have a substan-
tial cash reserve has a problem.
Consider the dilemma of Dr. Madalene
Green, a solo practitioner at Potomac
Arthritis and Rheumatism in Bethesda,
Maryland. Medicare covers 50% of her
patients. In a recent government entangle-

ment over budget issues, Medicare stopped
making payments. The net result was that Dr. Green had to
forgo her own salary in order to
remain solvent (Washington Business Journal, 2010).
In 2008, physicians in California and other Western states
complained that they were owed mil-
lions of dollars in backlogged Medicare reimbursements. This
continuing problem has led some
physicians to turn away elderly patients and has pushed others
to near bankruptcy. Doctors who
serve high numbers of Medicare patients say they have been
forced to default on rent, lay off staff,
and plead with drug suppliers to continue shipments of
medicines (Yoshino, 2008).
The expansion of the government’s role in managing the
healthcare system has led many to
worry that these types of problems will only continue to
increase. With physicians who try to
© Keith Brofsky/Digital Vision/Thinkstock
▲▲ Many medical providers must wait a long time before
receiving government payments for products and services.
Financial Governance and Working Capital Policy Chapter 6
establish practices lacking cash reserves, and with other
organizations at the brink of default due
to such payment delays, many have called on Congress to
become involved and help resolve these
problems.

This chapter examines the natures of finance and accounting as
they apply to the field of health-
care. The first section outlines the forms, methods, and analyses
used in managing an orga-
nization’s financial system and presents working capital policy,
which directs the oversight of
day-to-day operations. Next, the chapter discusses pricing
issues and the types of financial
instruments that organizations may use to accomplish an
organization’s longer-term goals. The
final section describes the role of accounting in a healthcare
organization’s operations.
6.1 Financial Governance and Working Capital Policy
Financial governance in the field of healthcare involves two
primary responsibilities: (1) over-
sight of day-to-day operations that require financing and (2)
planning for and implementing
financial instruments that provide for the organization’s long-
term financial needs (Gapenski,
2003). Tending to a healthcare provider’s financial well-being
constitutes a primary concern
for managers in the healthcare system. The increasing
complexity of the economic and politi-
cal environments in the area of finance makes this task highly
demanding. Rigorous track-
ing of an organization’s financial activities constitutes one
crucial component in managing this
complexity.
Financial Documents and Statements
Finance and accounting departments prepare several documents
and statements that assist
healthcare managers in overseeing the organization’s monetary

well-being. Three forms that
assist the finance and accounting departments, as well as other
organizational leaders, include a
balance sheet, an income summary, and a ratio analysis.
Balance Sheet
A balance sheet summarizes an organization’s current status
with regard to assets, liabilities,
and equity. Figure 6.1 presents the items located in each portion
of a balance sheet. Note that
an organization’s total assets may be divided into what it owes
(total liabilities) and what it owns
(total equity) as follows:
Total assets = Total liabilities + Total equity
Balance sheets are typically prepared on an annual basis.
The balance sheet provides a financial manager with a snapshot
of the organization’s current
position in terms of debt and equity. When managers examine a
series of balance sheets that
have been prepared over several years, they can study trends
regarding growth of assets, changes
in levels of liability, and differences in levels of equity in order
to determine the organization’s
financial well-being over time (Weygandt, 2013).
Income Summary
An income summary is an accounting or financial statement that
provides a somewhat different
purpose for a profit-seeking organization than it does for a

nonprofit. Managers in nonprofit, or
not-for-profit, providers use an income summary to make sure
that revenues exceed expenses. In
a nonprofit, the manager works to make sure that organizational
funds (the amount by which rev-
enues exceed expenses) are being used wisely and efficiently,
with sufficient monies to subsidize
other goals, such as support of the less fortunate in the
community and the expansion of medical
services over time. A manager in a for-profit hospital, however,
wishes to understand whether
annual operations do indeed result in profits to be retained in
order to build share value growth
or to be distributed as dividends to shareholders. Figure 6.2
displays the elements of a standard
income summary.
Figure 6.1 Elements in a balance sheet
f06.01_HCA340.ai
Assets Liabilities Equity
Short-term assets
Cash
Marketable securites
Accounts receivable
Inventory
Short-term liabilities
Accounts payable

Payments due
trade credit
commercial paper
Common stock
Paid-in surplus
Preferred stock
Retained earnings
Long-term assets
Building
Equipment
Financial instruments
Long-term liabilities
Loans
Bonds
Lease payments
Assets Liabilities Equity
Short-term assets
Cash

Marketable
securites
Accounts
receivable
Inventory
$2,750,000
1,250,000
3,750,000
250,000
Short-term
liabilities
Accounts
payable
Payments due
trade credit
commercial
paper
$ 500,000
1,250,000

750,000
250,000
Common stock
Paid-in surplus
Preferred stock
Retained earnings
$9,000,000
3,000,000
0
$6, 250,000
Total short-term
assets
$8,000,000 Total short-term
liabilities
$2,750,000
Long-term assets
Building
Equipment
Financial
instruments

$20,000,000
10,000,000
0
Long-term liabilities
Loans
Bonds
Lease payments
$ 1,500,000
15,000,000
50,000
Total long-term
assets
$30,000,000 Total long-term
liabilities
$17,000,000
Total assets $38,000,000 Total liabilities $19,750,000 Total
equity $18,250,000

Healthcare organizations receive revenues from multiple
sources, including patients, insur-
ance providers, and government payments for services. As
Figure 6.2 shows, these revenues are
totaled. For a healthcare organization, the cost of goods sold
portion of an income summary
includes the total expenses for medical supplies and other items
directly related to the delivery
of health services. Depreciation is tallied for all buildings and
equipment, and a healthcare man-
ager may use several different methods to depreciate an asset
over time. Unusual expenses may
include a settlement of a lawsuit or other nonroutine payments,
while unusual income includes
any gifts or bequeaths that the organization receives. Note that
taxes are paid only by profit-seek-
ing health organizations. Thus, net income after taxes (NIAT) is
the bottom-line profit earned by
these organizations (Finney, 2012). However, the government
does not charge nonprofit organiza-
tions, such as many skilled nursing facilities, taxes. So instead
of NIAT, the bottom-line amount
reported is the total by which revenues exceed expenses.
Ratio Analysis
A ratio analysis combines information made available by the
finance and accounting depart-
ments to help managers evaluate various operations in the
organization. Healthcare managers
are usually interested in four categories of ratios:
• Liquidity ratio: Measures the organization’s ability to pay
its short-term obligations on time
• Activity ratio: Measures efficiencies in organizational

operations
• Leverage ratio: Measures organizational debt and risk
• Profitability ratio: Measures organizational profits
Although other ratios may be calculated, these four categories
offer healthcare managers a quick
look at an organization’s financial well-being. Managers should
avoid the tendency to overem-
phasize any single ratio; instead, they should look at the group
of ratios together. Managers can
compare ratios from the current year with those from previous
years or with averages in the
industry to gain further understanding of the organization’s
financial standing (Reilly, Minnick,
& Baack, 2011).
Figure 6.2 Elements of an income summary
f06.02_HCA340.ai
Sales (Revenues)
–Cost of goods sold
Gross profit
–Operating expenses
Gross operating income
–Depreciation
Net operating income
–Other unusual expenses

+Other unusual income
Net income before taxes
–Taxes
Net Income After Taxes (NIAT)
Patient payments
Insurance payments
Governmental reimbursements
$12,000,000
15,000,000
25,000,000
42,000,000
<12,000,000>
30,000,000
<18,000,000>
12,000,000
<5,000,000>
7,000,000
<1,000,000>

+3,000,000
9,000,000
<1,800,000>
$7,200,000
Working Capital Policy
Financial managers in both nonprofit and profit-seeking entities
have the duty of overseeing an
organization’s cash flow. This includes making sure the
organization maintains sufficient funds to
operate on a day-to-day basis through oversight of current
assets and current liabilities. Working
capital is a comparison of the amount of current assets an
organization has on hand in relation
to its current liabilities. Using the information from a balance
sheet, a financial manager can
compute the organization’s amount of working capital as
follows:
Working capital = Current assets – Current liabilities
Working capital can be generated in many ways, including
through selling new or additional
shares of stock, selling long-term bonds, or securing other types
of loans in order to generate the
funds needed to ensure that the organization remains liquid.
In many healthcare organizations, management of working

capital creates some difficulties,
which often emerge as a result of timing. For example, someone
who receives medical care may
be charged the copayment amount during the actual hospital
visit; however, that copay is only
a small part of the balance due for anything more complicated
than a routine examine. Often, a
considerable amount of time passes before the organization
receives any government or insur-
ance company payment. Only then is the patient billed for the
remaining balance so that payment
can be rendered. As noted earlier, Medicare and Medicaid can
be notoriously slow at rendering
payments. While waiting for this payment, the organization
must pay bills for medical supplies,
payroll expenses, and other costs, all of which are due nearly
immediately. Thus, working capital
requires extra attention by financial managers (McLean, 1997).
Effective management of working capital creates a series of
benefits. First, an effective working
capital policy means the healthcare provider will remain liquid,
which in turn means that the
organization will always have funds available to meet
obligations such as payroll and tax pay-
ments. Second, organizations that routinely pay bills on time
generate goodwill with suppliers,
manufacturers, and other vendors. The net outcome of this
goodwill can be that the hospital
will receive the most attentive care from those vendors. Third,
an effective working capital policy
establishes a line of credit over time, so that the organization
can borrow money in case of finan-
cial emergencies.
Bundled Reimbursements: A Potential New Working Capital

Challenge
In the past, when a person with an acute medical problem
arrived at the hospital, the individual
received the necessary care and was then made ready for
discharge. If the patient required additional
services, such as rehabilitation, a home health facility, or a
skilled nursing facility, each treating unit
(that is, the hospital and every other organization the patient
visits) billed the person and the gov-
ernment (such as Medicare) separately for each service, or
“silo” of care. Under a system proposed in
the U.S. legislature as an addendum to the Affordable Care Act,
the government (Medicare) would
pay one provider—typically the hospital—for the entire patient
episode, from entry into the system
to a return to health. The entity or hospital would then divide
the reimbursement among all orga-
nizations that served the patient. (This addendum has not yet
been passed or enacted.)
The reasoning behind the bundled payment system is to increase
efficiencies in care. Under
this plan, patients would no longer receive multiple billings,
and the government would only
make a single payment—all with the goal of reducing
redundancy in postoperative-care facilities
(Jackson, Greis, & Rawlings, 2009).
Long-Term Financial Governance Chapter 6
However, hospital administrators have raised major concerns
about how such a system would be
administered. Under the plan, each hospital would be placed in
a decision-making role regarding

the amount each connected unit should receive for a patient’s
care. Many healthcare administra-
tors have expressed concerns about conflicts with other
organizations, lowered levels of reim-
bursement, and the confusion created by the paperwork of such
a system.
This new proposal has elicited two suggested responses. The
first is a vertical integration system,
in which the hospital would purchase or establish the linking
levels of care under its ownership,
thereby keeping all payments within one billing entity. An
example of a vertical integration sys-
tem is a hospital that purchases a rehabilitation facility and an
extended-care organization. A
patient who becomes incapacitated would first stay in the
hospital, would then use the services
of the rehab center, and might finally be placed in an extended-
care setting. When the person is
finally discharged, the hospital would bill that patient for all
activities at once. The hospital would
then distribute monies received to each aspect of its operations.
The second response involves the development of network
embeddedness systems, in which
informal networks of organizations would divide
reimbursements on a routine basis (Dacin,
Ventresca, & Beal; 1999). An example of an embedded network
is an informal combination of
healthcare organizations under separate ownership in which
each receives reimbursements and
then the payments are distributed among the members.
In the bundled payment approach, the organization that receives
the payment often faces a chal-
lenge in deciding on the amount to be allocated to the other

units involved in the patient’s care.
One way to solve this problem is to devise a transactions cost
approach, in which each activity
is assigned a cost to be reimbursed as a percentage of the total
payment to the primary provider.
The percentage should take into account the costs and the
allowable reimbursements for each
unit that treated or cared for the patient.
Another continuing challenge with the bundled payment
approach involves working capital
issues. Each unit incurs expenses associated with the patient’s
care that are entitled to reim-
bursement. Unfortunately, a substantial amount of time might
pass before any payment is sent
by the primary organization (that is, the organization that
received the full bundled payment)
to the individual unit. Furthermore, disputes among managers
from individual units may arise
regarding exactly how much each unit should be granted as a
percentage of the patient’s total care
package. Estimating and keeping on hand the amount required
to maintain cash flow and make
payments under such a system adds an additional complication
to a system that already experi-
ences significant problems (Shay, 2013).
6.2 Long-Term Financial Governance
In addition to working capital policy, another major
responsibility held by financial managers in
both nonprofit and profit-seeking ventures involves ensuring
that the organization tries to achieve
consistent outcomes across all time horizons. This process
requires the manager to mesh short-
term operational duties with long term strategy making. In the
areas of finance and accounting,

managers work to integrate activities by obtaining funds for and
managing the organization’s
monetary well-being so that the organization’s top management
team can create effective strate-
gies that lead to future success. In the long term, two major
concerns of financial managers are
dealing with pricing issues and creating long-term financial
instruments.
Pricing
Pricing includes institutional marketing and financial
considerations. In some instances, govern-
ment programs determine the prices charged for medical
systems. For example, the Medicare
prospective payment system (PPS) method of reimbursement
establishes prices and payments
based on predetermined, fixed amounts. Payments for individual
services are based on the PPS
classification system for each service. The Centers for Medicare
and Medicaid provides separate
prospective payment systems for individual diagnostic related
groups (DRGs), such as acute inpa-
tient hospitals, home health agencies, hospice, hospital
outpatient, inpatient psychiatric facilities,
inpatient rehabilitation facilities, long-term care hospitals, and
skilled nursing facilities (Centers
for Medicare and Medicaid Services, 2013c).
In marketing, methods for setting prices may be based on costs,
profit goals, supply and demand,
or competition. Each approach assists the finance team in

pricing healthcare products and
services.
Costs
When calculating price based on cost, the first determination
involves the difference between
fixed costs and variable costs (Higgins, 2011). Fixed costs are
expenses incurred that are not
affected by the volume of sales; the provision of healthcare
services; or revenues from the patient,
the insurance company, and the government. Examples of fixed
costs include building payments
(fixed loan or lease payments), annual salaries, and utility bills.
An important component of fixed
costs involves deciding how much to allocate to each service.
For example, if a physician’s prac-
tice spent $200,000 per year on fixed costs, and the physician
had 8,000 appointments per year,
then the fixed cost per appointment would be $25 per
appointment ($200,000 ÷ 8,000). If the
physician were able to increase the number of appointments to
10,000 per year, the fixed cost
per appointment would drop to $20 per year ($200,000 ÷
10,000). Fixed-cost allocation applies to
hospitals, physician clinics, and any provider of medical
supplies or equipment.
Variable costs are directly related to volume or revenues. In
healthcare, variable costs include
billings for physician services; diagnostic procedures, such as
reading an X-ray or conducting a
blood test; medical supplies, including materials for bandages
and stitches; and other per-patient
or per-visit expenses. A greater number of patients incurs a
higher total variable cost, although
regardless of the number of patients, the variable cost per

patient remains relatively stable. Only
when a hospital pays extra expenses—such as overtime wages to
nurses and support staff mem-
bers in the case of a major emergency like an accident that
injures a great number of people—
would variable costs per patient rise.
Total costs are calculated by adding total fixed costs to total
variable costs. Total cost per patient
results from adding fixed costs per patient to variable costs per
patient. These figures may then
be used to set prices based on costs. Two forms of cost-based
pricing are markup pricing and
cost-plus pricing.
A markup pricing approach assigns a percentage to be added to
the total cost per item. Assume,
for example, that the total cost per patient visit is $40 ($25
fixed costs + $15 variable costs). The
practice believes that a 50% markup represents a reasonable
amount. Therefore, the patient would
be charged $60 for the office visit ($40 × 0.5 = $20; $40 + $20
= $60).
Another option is to assign markup to total costs rather than to
costs per visit. Suppose a walk-in
clinic’s total fixed costs amount to $500,000 per year, and its
total variable costs are $100,000 per
year. Its total costs would be $600,000 per year. If the
organization used the same 50% markup,
then it would add $300,000 ($600,000 × 0.5) to total charges,

resulting in a total amount of
$900,000. The $900,000 would then be divided by total patient
visits. If 100,000 patients visited
the clinic during the year, each would be charged $90 per visit
($900,000 ÷ 100,000). Such an
approach is unlikely, however, due to the wide variance in
variable costs per visit and per patient.
For example, an infection would incur one set of variable costs,
whereas setting a leg fracture,
complete with X-rays and other services, would lead to much
higher variable costs.
The main advantage of markup pricing is precision in pricing
for each action. The disadvantage is
the extra time involved in making calculations for each
individual item or service.
Cost-plus pricing adds a fixed amount to the total cost per
patient. Suppose the total cost per
patient visit is $40. The unit decides to charge each patient an
additional $25 per visit. Thus, the
charge for the visit would be $65 ($40 + $25).
Cost-plus pricing based on total costs adds a fixed
amount to total costs. If total costs equal $600,000
for the year, and the organization charges a total of
$400,000, then total charges would be $1,000,000. For
100,000 patients, the visit charge would become $100
($1,000,000 ÷ 100,000).
The primary advantage of cost-plus pricing is the ease
of calculation. The disadvantage is that some patients
might feel overcharged, while others are undercharged.
For example, one patient visit may take a physician 30
minutes or more to resolve, while another only takes
5 minutes, yet the two patients are charged the same

amount. To some, this might seem unfair, even though
the real charge is for a doctor’s expertise more than for
his or her time.
Costs and Healthcare Pricing
Each type of healthcare provider can use costs to
develop charges (or the “price” of a service). The form of
pricing is adapted to the type of healthcare being pro-
vided. For example, dentists, physicians, psychiatrists,
and others might use markup or cost-plus pricing to establish
rates for office visits. Then, they
might examine individual services to set charges using one of
the two methods. The charge could
be based on the level of expertise and precision required,
combined with a charge for less-direct
costs, or an activity-based costing system (Canby, 1995). For
example, a dental procedure, such
as a root canal, would carry a higher price than a typical dental
visit due to the expertise required
to perform the procedure. In addition, the procedure requires
specialized equipment, the cost of
which would be partially allocated to the procedure. In this
case, variable costs include a charge
for the assistance of a dental technician, as well as the costs of
a numbing injection, gauze or cot-
ton, and other items.
When determining activity-based costs, financial officers bear
in mind that an established price
or charge will be subject to a variety of forces, including the
following:
• Provider discounts
• Provider write-offs
© Stockbyte/Thinkstock

▲▲ Medical services, such as computed tomography
(CT) scans, can be priced using markup or cost-plus
methods.
• Third-party payment agreements
• Patient copays and coinsurance
• Low- versus high-payer source
• Fairness concerns
• Payer mix and cost shifting
These items affect the actual revenue stream that the
organization receives. Payer source con-
stitutes a primary concern for many healthcare providers: A
low-payer source is an entity that
makes payment for a medical treatment, yet the amount is less
than remuneration paid by other
entities. Three examples of low-payer source funding include
Medicare, Medicaid, and many
managed-care plans. High-payer source organizations include
some insurance policies and ben-
efits from workman’s compensation plans. Some evidence
suggests that low-payer source patients
make fewer visits to healthcare facilities and, upon discharge
from treatment, are often less func-
tional, meaning they have not had a complete recovery or are
still not healthy (Nof, Rone-Adams,
& Hart, 2007).
With regard to fairness concerns, the American Medical
Association (AMA) advocates accurate
valuations of all physician services. The AMA designed the

resource-based relative value scale
(RBRVS) to ensure that every physician service and specialty is
represented with regard to pay-
ment policies and systems. The RBRVS figures are based on
evaluations and recommendations
of the AMA and its Specialty Society Relative Value Scale
Update Committee and include any
new or revised services. The committee undertakes broad
reviews of the RBRVS every five years
(AMA, n.d.-c).
In addition, the Centers for Medicare and Medicaid (2013a)
provide the Healthcare Common
Procedure Coding System (HCPCS), a numeric coding system
maintained by the AMA. The
uniform coding system “consists of descriptive terms and
identifying codes that are used pri-
marily to identify medical services and procedures furnished by
physicians and other healthcare
professionals. These healthcare professionals use the system to
identify services and procedures
for which they bill public or private health insurance
programs.” The objectives of the system are
uniformity and fairness.
A payer mix refers to the amounts provided as payments by
various providers, including govern-
ment sources and insurance. The mix determines total revenues
that the healthcare organiza-
tion receives. Cost shifting, which is the practice of charging
private payers, such as insurance
companies, more in response to shortfalls in public payments,
has long been part of the debate
over healthcare policy. Although some evidence suggests that
the amounts of such shifts are not
dramatic, the subject remains controversial (Frakt, 2011).

An organization such as a pharmaceutical company might use a
form of pricing that is entirely
different from the activity-based approach. The development of
individual drugs often takes years
of research and testing, followed by government approval (by
the Food and Drug Administration).
Only then can the drug be released to the general public. In
addition to these costs, advertis-
ing and personal selling costs also accrue. The pharmaceutical
company’s management team
remains acutely aware that a window of 12 years is in place for
the organization to charge as much
as is needed to recover startup costs (12 years is the length of a
medical patent). After that win-
dow, other companies can manufacture generic versions of the
drug and offer them at much lower
prices. Thus, managers try to set prices that capture all startup
costs, plus a reasonable return
on investment in that 12-year period. This explains why new
drugs to the market are often quite
expensive for patients and hospitals.
In summary, the management team, working in conjunction with
the finance and accounting
departments, can set charges or prices using fixed and variable
costs as the starting point. Each
situation remains unique, however, and the pricing approach is
adjusted according to the type of
provider and the types of services being rendered.
Pricing Based on Profit Goals

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