This document compares three healthcare entities: for-profit, not-for-profit, and government, detailing their financial structures, unique policies, and financial management practices. It emphasizes that while all entities need to generate profit, the management of finances is particularly challenging in healthcare due to the complexity of third-party payment systems. The document also discusses the implications of policies like the Affordable Care Act on financial management in not-for-profit hospitals.

1. Running head: COMPARATIVE SUMMARY 1
Comparative Summary
Debbie Fernando
HCS/577
March 18, 2013
Sharon Sanders

2. COMPARATIVE SUMMARY 2
Comparative Summary
This paper will compare 3 entities from 3 different types of health care financial
environments, for-profit, not-for-profit, and government. It will describe the financial structure
of the different financial environments. It will also identify policies which are unique to each
particular financial environment. It will identify financial management practices prevalent in the
different financial environments. Lastly, it will touch on the reasons that effective financial
management is more difficult in health care than in other industries.
The first type of entity discussed will be a for-profit entity and the health care financial
environment surrounding this type of entity. A physician’s office is one example of a for-profit
health care facility. Although the main priority in the physician’s office is patient care, the office
must make a profit. There has to be enough revenue to pay the staff, purchase and maintain
office equipment and supplies, pay miscellaneous bills, and have plenty left for the physicians to
pay themselves. Most physicians’ offices accept Medicare, Medicaid, commercial insurances,
and self-pay patients. Most health care providers have set charges for certain services. They also
have rates set that they have negotiated with certain insurance companies as well as rates they
have agreed to accept from the government if they participate in the Medicare/Medicaid
programs. “The difference between the provider’s charge and the negotiated rate is referred to as
a contractual allowance” (Finkler & Ward, 2006, p. 7). The second type of entity is a not-for
profit entity. Although they are commonly referred to as not-for-profit, they still must turn a
profit. Like for-profits, not-for-profits also have to make a profit. They also have bills to pay,
employees to pay, marketing, equipment and supplies, etc… A good example of a not-for profit
is a community hospital. Most of these participate in the Medicare/Medicaid program and also
contract with other third party payers such as insurance companies. They also accept self-pay

3. COMPARATIVE SUMMARY 3
patients. The final entity discussed will be government financial environments. A prime
example of this is a Veteran’s Hospital. The financial environment of a government health care
entity is simply government. The government owns and runs these facilities. They are structured
to handle the health care needs of government employees. Veterans of past wars, present wars,
and anyone who works for the government can use these facilities.
Policies
Policies related to for-profit entities differ from the other two types of entities, not-for-
profit, and government. Physicians’ offices must follow specific regulatory agency policies, yet
they can add their own policies that are unique to their office. The majority of physician offices
have their own billing department that handles the insurance billing and the collections of the
debts. Most like to obtain the co-pay, if there is one, before the patient is seen. The insurance
employees will then bill the insurance for the patient’s visit. After payment is obtained from the
insurance company, they then bill the patient for the balance.
Not-for-profit entities such as hospitals also have to follow specific regulatory
policies. The Affordable Care Act requires non-profit hospitals to have a written financial
assistance policy that clearly spells out what kind of help is available, who is eligible, and how to
apply. Not-for-profit hospitals must make sure this policy is widely publicized in the
communities they serve. Not-for-profit hospitals must also establish a billing and collections
policy, and an emergency medical care policy. These policies must be readily available and easy
for people to obtain. Not-for-profit hospitals must also provide emergency care regardless of the
patient’s ability to pay. The ACA also requires that not-for-profit entities make reasonable efforts
to ascertain a patient’s ability to pay before they start collection efforts (“Community Catalyst”,
2013). None of these apply to for-profit entities. Government entities make their own policies

4. COMPARATIVE SUMMARY 4
regarding their own patient clientele. Policymakers focus on strengthening both the Department
of Defense Military Health System and the Department of VA health care system. These two
systems operate in parallel and in conjunction with one another. They are also working on
policies that ensure an easy transition for service members going from active to non-active duty
(“Kaiseredu.org”, 2011).
Financial Management
The financial management practices prevalent in the for-profit and not-for-profit entities
are the use of ratios. Ratios can let the organizations realize how they are financially in
comparison to their competitors, be it other physician groups or hospitals. They might need to
lower or be able to raise their charges. They also need to look at their assets, both tangible and
intangible. They can use word of mouth to compare their intangible assets with their
competitors. Both not-for-profit and for-profit organizations need to make certain they have a
proper amount of cash on hand. They also need to invest in long-term profitable investments. In
the meanwhile they need to manage their short-term viability. They need to have enough cash
available to pay their bills and their staff. They need to have money for advertising and
participating in community outreach programs. By being active in the community and giving to
charity programs, both for-profit and not-for-profit entities will thrive. Government financial
management lies in the hands of their financial team. They also need to maintain the correct level
of liquidity. This applies to all three types of financial health care environments. The
government uses tax dollars to pay their debts. They can depend on a fairly certain amount of
cash coming in. More difficult to predict is how much they will need to spend on the health care
of the people serving in the military and that have served in the military. This will rely on the
state of our nation. If we are at war, the government will be spending much more on wounded

5. COMPARATIVE SUMMARY 5
servicemen and women, and they might increase our taxes to help them with their finances. This
would affect the other 2 types of financial environments. The for-profits and the not-for-profits
would in turn increase their charges because they would be paying more taxes.
Effective financial management in health care
Effective financial management in health is more difficult than other organizations
mainly due to the third party payment system. No other organizations have a “go-between” when
they buy a service or get paid for a service. A maid gets paid directly from the head of the
household. A taxi driver gets paid directly from his passenger. Neither maid nor taxi driver has to
wait on a third person to decide whether or not they charged too much and how much they
should be paid. Their fee-for-service is all black and white. They perform a service and they get
paid. In health care, it is often over thirty days from the day of service until the provider receives
payment. This effects how the finances must be managed.
Conclusion
Effective financial management in health care is a complex system of third party payers,
government payers, and self-payers. The people that manage the finances in any health care
entity have a difficult job. They have to keep up-to-date on any new laws or pending legislatures
that could affect how they charge and collect. They will soon need to learn the financial situation
of the patients they serve so they will abide by the new coming collection laws. They have to
maintain the right amount of liquidity so they prevent bankruptcy and maintain a huge profit
margin. They have many suppliers of medical equipment, medical supplies, and office
equipment and supplies. These suppliers do not want to wait thirty days to receive payment for
the goods they provide. We can hope that the Affordable Care Act will be a positive act for both

6. COMPARATIVE SUMMARY 6
health care providers and patients and make financial management of health care a little more
friendlily.

7. COMPARATIVE SUMMARY 7
References
Community Catalyst. (2013). Retrieved from
http://www.communitycatalyst.org/doc_store/publications/Summary_Notice_of_P
roposed_Rules_Financial_Assistance_Debt_Collection.pdf
Finkler, S. A., & Ward, D. M. (2006). Accounting fundamentals for health care
management . Sudbury, MA: Jones and Bartlett.
kaiseredu.org. (2011). Retrieved from http://www.kaiseredu.org/Issue-Modules/Military-
and-Veterans-Health-Care/Background-Brief.aspx