Cost and Revenue Glossary

Total gross charges

The sum of “Gross fee-for-service charges” and “Gross charges for patients covered by capitation contracts.”

Total medical revenue

The sum of “Total net fee-for-service collections/revenue,” “Net capitation revenue,” and “Net other medical revenue.”

Total medical revenue after operating cost

The difference between “Total operating cost” and “Total medical revenue.”

Total medical revenue after operating and advanced practice provider cost

“Total operating cost” plus “Total medical revenue” minus “Total advanced practice provider cost.”

Total net fee-for-service collections/revenue [4300-4330, 4350-4420]¹¹

The total technical and professional net fee-for-service revenue. If the practice used accrual basis accounting, “Total net fee-for- service collections/revenue” equals “Gross fee-for-service charges” minus “Adjustments to fee-for-service charges,” minus “Bad debts due to fee-for-service activity.”

Gross fee-for-service charges (excludes capitation charges)[4100-4130]¹¹

The full value, at the practice’s undiscounted rates, of all services provided to fee-for-service, discounted fee-for-service, and non-capitated patients for all payers.

Included:

• Professional services provided by physicians, advanced practice providers, and other physician extenders such as nurses and medical assistants;
• Both the professional and technical components (TC) of laboratory, radiology, medical diagnostic, and surgical procedures;
• Drug charges, including vaccinations, allergy injections, immunizations, and chemotherapy and anti-nausea drugs;
• Charges for supplies consumed during a patient encounter inside the practice’s facilities. Charges for supplies sold to patients for consumption outside the practice’s facilities are reported as a subset of “Revenue from the sale of medical goods and services”;
• Facility fees. Examples of facility fees include fees for the operation of an ambulatory surgery unit or fees for the operation of a medical practice owned by a hospital where split billing for professional and facility services is utilized;
• Charges for fee-for-service services allowed under the terms of capitation contracts;
• Charges for professional services provided on a case-rate reimbursement basis; and
• Charges for purchased services for fee-for-service patients. Purchased services for fee-for-service patients are defined as services that are purchased by the practice from external providers and facilities on behalf of the practice’s fee-for-service patients.

For purchased services, note the following:

• The revenue for such services is included in “Total net fee-for-service collections/ revenue”;
• The cost for such services is included, as appropriate, in “Clinical laboratory,” “Radiology and imaging” or “Other ancillary services”; and
• The count of the number of purchased procedures for fee-for-service patients are included in Total Procedures

Not included:

• Charges for services provided to capitation patients. Such charges are included in “Gross charges for patients covered by capitation contracts”;
• Charges for pharmaceuticals, medical supplies and equipment sold to patients primarily for use outside the practice. Examples include prescription drugs, hearing aids, optical goods, orthopedic supplies, etc. The revenue generated by such charges is included in “Revenue from the sale of medical goods and services”; or
• Charges for any other activities that generate the revenue reported in “Revenue from the sale of medical goods and services.”

Adjustments to fee-for-service charges(value of services performed for which payment is not expected) [4200-4240, 4500-4600]¹¹

The difference between “Gross fee-for-service charges” and the amount expected to be paid by or back to patients or third- party payers. This represents the value of services performed for which payment is not expected.

Included:

• Medicare/Medicaid charge restrictions (the difference between the practice’s full, undiscounted charge and the Medicare limiting charge);
• Third-party payer contractual adjustments (commercial insurance and/or managed care organization);
• Charitable, professional courtesy or employee adjustments; and
• The difference between a gross charge and the Federally Qualified Health Center (FQHC) payment. This could be a positive or negative adjustment.
• Refunds for overpayments, duplicate payments or for amounts which should not have been collected.

Adjusted fee-for-service charges

The difference between "Gross fee-for-service charges” and "Adjustments to fee-for-service charges.”

Bad debts due to fee-for-service activity (accounts assigned to collection agencies) [6900-6920]¹¹

The difference between “Adjusted fee-for-service charges” and the amount collected.

Included:

• Losses on settlements for less than the billed amount;
• Accounts written off as not collectible;
• Accounts assigned to collection agencies; and
• In the case of accrual accounting, the provision for bad debts.

Net capitation revenue

The difference between “Purchased services for capitation patients” and “Gross capitation revenue.”

Gross charges for patients covered by capitation contracts [4170]¹¹

Also known as fee-for-service equivalent gross charges. The full value, at a practice’s undiscounted rates, of all covered services provided to patients covered by all capitation contracts, regardless of payer.

Included:

Fee-for-service equivalent gross charges for all services covered under the terms of the practice’s capitation contracts, such as:

• Professional services provided by physicians, advanced practice providers, and other physician extenders such as nurses and medical assistants;
• Both the professional and technical components (TC) of laboratory, radiology, medical diagnostic, and surgical procedures;
• Drug charges, including vaccinations, allergy injections, immunizations, and chemotherapy and antinausea drugs;
• Charges for supplies consumed during a patient encounter inside the practice’s facilities. Charges for supplies sold to patients for consumption outside the practice’s facilities are reported as a subset of “Revenue from the sale of medical goods and services”; and
• Facility fees. Examples of facility fees include fees for the operation of an ambulatory surgery unit or fees for the operation of a medical practice owned by a hospital where split billing for professional and facility services is utilized.

Not included:

• Pharmaceuticals, medical supplies, and equipment sold to patients primarily for use outside the practice. Examples include prescription drugs, hearing aids, optical goods, orthopedic supplies, etc. If such goods are not covered under the capitation contract, the revenue from these charges is included in “Revenue from the sale of medical goods and services”;
• The value of purchased services from external providers and facilities on behalf of the practice’s capitation patients. The cost of these purchased services is included in “Purchased services for capitation patients”;
• Charges for fee-for-service activity allowed under the terms of capitation contracts. Such charges are reported as “Gross fee-for-service charges”; or
• Capitation revenue.

Gross capitation revenue (per member per month capitation payments, capitation patient copayments) [4700-4770]¹¹

Revenue received in a fixed per member payment, usually on a prospective and monthly basis, to pay for all covered goods and services due to capitation patients.

Included:

• Per member per month capitation payments including those received from an HMO, Medicare AAPCC (average annual per capita cost) payments, state capitation payments for Medicaid beneficiaries, and capitation payments from other medical groups;
• Portions of the capitation withholds returned to a practice as part of a risk-sharing arrangement;
• Bonuses and incentive payments paid to a practice for good capitation contract performance;
• Patient copayments or other direct payments made by capitation patients;
• Payments received due to a coordination of benefits and/or reinsurance recovery situation for capitation patients; and
• Payments made by other payers for care provided to capitation patients.

Not included:

• Payments paid to a practice by an HMO under the terms of a discounted fee-for-service managed care contract. Such payments are included in “Total net fee-for-service collections/revenue.”

Purchased services for capitation patients [7810-7828]¹¹

Fees paid to healthcare providers and organizations external to the practice for services provided to capitation patients under the terms of capitation contracts.

Included:

• Payments to providers outside the practice for physician professional, advanced practice professional, clinical laboratory, radiology and imaging, hospital inpatient and emergency, ambulance, out of area emergency and pharmacy services; and
• Accrued expenses for “incurred but not reported” (IBNR) claims for purchased services for capitation patients for which invoices have not been received.

Net other medical revenue

The difference between “Cost of sales and/or cost of other medical activities” and “Gross revenue from other medical activities.”

Gross revenue from other medical activities

The sum of “Incentive-based revenue,” “Other medical revenue” and “Revenue from the sale of medical goods and services.”

Not included:

• Interest income, which is reported as “Nonmedical revenue”;
• Income from practice nonmedical property such as parking areas or commercial real estate, which is reported as “Nonmedical revenue”;
• Income from business ventures such as a billing service or parking lot, which is reported as “Nonmedical revenue”;
• One-time gains from the sale of equipment or property, which is reported as “Nonmedical revenue”; or
• Cash received from loans, which is not reported anywhere in this survey.

Incentive-based revenue [4800-4860]¹¹

Payments received from insurance companies and government agencies for incentive-based activities such as pay-for-performance, risk-sharing, shared savings, quality and technology.

Included:

• Pay-for-performance payments for reporting quality, efficiency, or patient satisfaction metrics for patients insured under feed-for-service payment contracts;
• Risk pool insurance;
• Shared savings payments (i.e. Accountable Care Organization (ACO)); and
• Incentive payments for adopting Certified EHR Technology and/or meeting quality standards (i.e. MACRA/MIPS).

Other medical revenue (research contract revenue, honoraria, teaching income) [4900-4950, 4970]¹¹

Other source of medical revenue such as grants, research/clinical studies, educational subsidies, donations, honoraria and more.

Included:

• Payments received for the reproduction of patient records;
• Medical directorship revenue received by the practice and not a specific individual for providing medical administration to hospitals, skilled nursing facilities, long-term care facilities, and other healthcare organizations;
• Grant revenue from federal, state, or local government or private foundation grants for research, provision of patient care to the indigent, or case management of the frail and elderly;
• Research and clinical studies revenue from pharmaceutical studies, medical device studies, and other research activities conducted by the practice;
• Educational subsidies received by the practice for graduate medical education and training of medical, nursing and medical technician students;
• Any endowment or gift received by the organization;
• Revenue for medical-related activities such as honoraria, education seminars, expert witness testimonies;
• Payment to the practice for physicians working in a hospital emergency room; and
• Contract revenue from a school district for physician services in conducting physical examinations or other service.

Not included:

• Charges for the delivery of services made possible by subsidies or grants were included in “Gross fee-for-service charges” and/or “Gross charges for patients covered by capitation contracts”;
• Operating and nonoperating subsidies received from a parent organization such as a hospital, health system, PPMC, or MSO. Such items should be included in, “Financial support from parent organization (subsidies)”; or
• Paycheck Protection Program (PPP) loan forgiveness payment. Such items should be included in, “Extraordinary nonmedical revenue.”

Revenue from the sale of medical goods and services [4340-4349]¹¹

Income from the sale of medical products and revenue paid to the practice for professional services provided by practice physicians and staff members.

Included:

• Revenue from pharmaceuticals, medical supplies and equipment sold to patients primarily for use outside the practice. This amount should be net of write-offs and discounts. Examples include prescription drugs, hearing aids, optical goods, orthopedic supplies, etc.;
• Compensation paid by a hospital, skilled nursing facility, or insurance company to a practice physician for services as a medical director;
• The hourly wages of physicians working in a hospital emergency room;
• Contract revenue from a hospital for physician services in staffing a hospital indigent care clinic or emergency room;
• Contract revenue from a school district for physician services in conducting physical exams for high school athletes;
• Revenue from the preparation of court depositions, expert testimony, postmortem reports, and other special reports; and
• Fees received from patients for the photocopying of patient medical records.

Not included:

• Capitation revenue used to pay for covered goods and services for capitation patients. Such revenue is included in “Gross capitation revenue.”

Cost of sales and/or cost of other medical activities [7900- 7919]¹¹

Cost of activities that generate revenue included in “Revenue from the sale of medical goods and services,” as long as this cost is not also included in “Total operating cost” or “Nonmedical cost.”

Included:

• Cost of pharmaceuticals, medical supplies and equipment sold to patients primarily for use outside the practice. Examples include prescription drugs, hearing aids, optical goods, and orthopedic supplies; and
• Any provider consultant cost(s).

Not included:

• Cost of drugs used in providing services including vaccinations, allergy injections, immunizations, chemotherapy, and anti-nausea drugs. Such cost is included in “Drug supply”; or
• Cost of medical/surgical supplies and instruments used in providing medical/surgical services. Such cost is included in “Medical and surgical supply.”

Net nonmedical income or loss

The sum of (“Nonmedical revenue,” “Extraordinary nonmedical revenue,” and “Financial support from parent organization”), minus (“Goodwill amortization,” “Nonmedical cost,” and “Extraordinary nonmedical cost”).

Nonmedical revenue (investment and rental revenue) [9100-9140, 9160-9170, 9190]¹¹

Included:

• Interest and investment revenue such as interest, dividends, and/or capital gains earned on savings accounts, certificates of deposit, securities, stocks, bonds, and other shortterm or long-term investments;
• Gross rental revenue such as rent, or lease income earned from practice-owned property not used in practice operations;
• Capital gains on the sale of practice real estate or equipment, etc.;
• Interest paid by insurance companies for failure to pay claims on time;
• Bounced check charges paid by patients; and
• Gross revenue from business ventures such as a billing service or parking lot. The direct costs of such ventures should be reported as “Nonmedical cost.”

Not included:

• Cash received from loans, which is not reported anywhere our survey.

Extraordinary nonmedical revenue [9150, 9700]¹¹

Revenue that is unusual in nature and infrequent in occurrence.

Included:

• Legal settlement receipts;
• Environmental disaster recovery funds; and
• Paycheck Protection Program (PPP) loan forgiveness payment.

Not included:

• Revenues included in “Nonmedical revenue.”

Financial support from parent organization (subsidies) [4960, 9180]¹¹

Medical practices may receive financial support from a parent organization such as a hospital, health system, PPMC or MSO.

Included:

• Operating subsidy income provided to the practice from a parent organization such as a hospital, health system, PPMC or MSO; and
• Nonoperating subsidy income received from parent organization such as a hospital, health system, PPMC or MSO. (i.e. Capitalization projects such as a facility construction).

Not Included:

• Payments received by the practice and not a specified individual for providing medical administration to hospitals, skilled nursing facilities, long-term care facilities, and other healthcare organizations. Such items should be included in “Other Medical Revenue”.

Goodwill amortization [9250]¹¹

The annual amortization or impairment cost of goodwill. When an IDS, hospital, or PPMC purchases a medical practice, the purchase price can be thought of as having two components — the value of the tangible assets and the value of the goodwill. Goodwill is the premium paid in excess of the value of the tangible and identifiable intangible assets. If financial statements are maintained in accordance with the income tax basis of accounting, goodwill may be amortized over a period of time. If financial statements are reported in accordance with generally accepted accounting principles, goodwill is periodically reviewed for impairment. The tangible and identifiable intangible assets are typically depreciated/amortized over a period of time.

Not included:

Depreciation of tangible or identifiable intangible assets such as the building or equipment. These depreciation costs are reported as a component of “Information technology” cost, “Building depreciation” cost, “Furniture and equipment depreciation” cost, “Clinical laboratory” cost, “Radiology and imaging” cost, and “Other ancillary services” cost.

Nonmedical cost (income taxes) [9200-9210, 9230-9240, 9260, 9300-9530]¹¹

Included:

• Income taxes based on net profit that is paid to federal, state, or local government. For cash basis accounting, income taxes equal the cash payment or refund for the most recent tax year paid or received in the most recent tax year plus, periodic withholding paid for those taxes. For accrual accounting, the income tax equals the total tax liability for the most recent tax year regardless of when the tax was paid, or refunds were received;
• All costs required to maintain the productivity of income producing rental property and parking lots;
• Losses on the sale of real estate or equipment and losses from the sale of marketable securities;
• Other nonmedical cost;
• All direct costs related to business ventures such as rental property, parking lots, or billing services, for which gross revenue is reported as “Nonmedical revenue”; and
• State taxes on medical revenue.

Extraordinary nonmedical cost [9220, 9600, 9800]¹¹

Cost that is unusual in nature and infrequent in occurrence.

Included:

• Legal settlement cost; and
• Environmental disaster recovery cost.

Not included:

• Cost included in “Nonmedical cost.”

Net income, excluding financial support (all practices)

Also referred to as: Investment per physician, loss per physician
 

“Total medical revenue” minus “Operating cost” minus “Provider cost” plus “Net nonmedical income or loss” for all practices, regardless of whether they received financial support for operating costs or not.

Net income, practices with financial support

Also referred to as: Investment per physician, loss per physician
 

“Total medical revenue” minus “Operating cost” minus “Provider cost” plus “Net nonmedical income or loss” for all practices that reported a value for “Financial support for operating cost.”

Net income, practices without financial support

Also referred to as: Investment per physician, loss per physician
 

“Total medical revenue” minus “Operating cost” minus “Provider cost” plus “Net nonmedical income or loss” for all practices that did not report a value for “Financial support for operating cost.”