Accounting Case Studies Essay Sample on Fundamentals of Health care Financial Management

Case Study Analysis

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            The article by Souza & McCarty (2007) explains how Sutter Health managed to improve its revenue cycle by changing its collections approach. In so doing, the organization did more than changing its procedures and processes. It transformed the culture of those departments that were responsible for registration and collection. This paper seeks to analyze the problem as presented in the case, analyze the facts, solutions employed, and the results attained. Based on the analysis, the paper offers alternative solutions that can be applied by organizations facing similar challenges.

Summary of the Case

            As was the case with many healthcare organizations, in 2006, Sutter Health one of the largest healthcare providers in Northern California was faced with a serious problem of increasing days outstanding in accounts receivable (A/R) and reduced dollar amounts collected. The problem was caused by a number of factors including the high deductible health plans that employers offered and the growing unemployment rates occasioned by a sagging economy. The health facility decided to examine its procedures and policies to identify any improvements that could be made without spending in a new accounting system or completely reorganizing the department dealing with revenue collections.

            The problem identification exposed two critical issues that could be addressed without necessarily disrupting the existing organizations. The first issue was the provision of relevant information to workers who were charged with the responsibility of collecting revenue. The organization realized that to get useful management reports, specific requests had to be made and a trained programmer had to prepare the reports using complex codes. Because of this, requested reports were delayed and by the time they were ready, they were no longer useful. The second issue is that admission employees lacked training and knowledge on how to collect the substantial amounts from patients. They simply did not know how to ask for the money from patients.

            After the two problems were identified, Sutter Health introduced a two-prolonged approach to improve its collection problems and reduce the number of days outstanding in A/R. The first area of focus was in managing the metrics that would permit managers to make decisions in a timely manner and take necessary actions. This entailed developing a set of managerial reports that were applicable to the actions managers were empowered to take. Information can only be useful if it supports the right decision making. A number of metrics were developed for reporting purposes, which included billed, gross, and unbilled A/R days, percentage of A/R in aging categories, major payer sources and the A/R days related to them.  Once the appropriate reports were defined, an automated report writer was put in place and each account manager had a tailored dashboard for tracking individual and team goals. They could also generate ad hoc reports without submitting special requests.

            Secondly, Sutter Health paid specific attention to people management aspect at the facility and offered the skills training to the employees to improve how they communicate and improve their understanding of the information collected in order to forward “clean claims” to the insurance companies for payment. It was particularly important to re-orient front-end workers dealing with registration to enable them collect payments from patients before or at the time of admission. A complete training program was introduced that incorporated three-hour hands on course and self-paced on-line competency tests that the workers had to complete as a prerequisite to remain in employment. The training significantly improved the competency of existing personnel without increasing salary ranges.

            Between the time when the project was started to the time when the first stage of implementation was completed, A/R days outstanding had reduced from the original 65 to 59, and given that the average collections per day reduced was about $13 million, the collections increased by approximately $78 million. The actual amount invested was not detailed enough, but given the facts of the case, the investments were mainly in a report writer and training resources and the organization`s management was satisfied with the results (Souza & McCarty,2007).

Development of Alternative Solution

            In developing an alternative solution, it important to consider other best practices that has been used by other healthcare organizations in addressing similar problems. In 2008, Greenville Hospital System managed to reduce its accounts receivable from 66 days to 57 days over a period of nine month (Powell, Hindman & McMillan, 2009). Greenville Hospital faced a similar problem; the organization`s A/R days was on an upward trend and the collection of patients revenues was declining. Using analytics, the organization developed accounting management tools and trained its personnel to collect payments before admission. Because of these initiatives, it managed to generate $45 million from the reduced A/R days (Powell et al., 2009). Another example relates to Crozer-Keystone, a healthcare organization in Pennsylvania. The hospital decided to consolidate its four different hospital admission units into one offsite pre-encounter which it named the offsite pre-encounter. Before being admitted, patients visited the center and all the pre-registration activities were done at the center. These included verification of insurance eligibility and benefits, pre-service collections and payer authorizations. Similarly, payment counselors were located at the center to help patients who were not prepared or could not afford all the services at the time they were registering. Through this initiative, the organization reduced insurance denials from $400,000/month to less than $150,000/ month over the period July 2009 to May 2010. In addition, the hospital`s collections increased by $5,000 on a monthly basis (Butcher, 2012).

            Taking into account the strategies adopted by the three different healthcare organizations, the alternative solution would incorporate elements of the three solutions to create an alternative solution. The first component in the new solution is the use of metrics in developing management reports. This is because information is key to improving any revenue cycle. Out dated account management systems such as those at Sutter Health are quite prevalent in healthcare environments. The industry lags behind in terms of IT investment. According to Berger (2005), the manufacturing industry spends up to 4.5% of its operating costs on IT development; the insurance industry spends 5.2% and the banking industry 6.1%. However, the healthcare industry only spends 2% of its operational costs on IT development. The failure to remain up to date with IT development has cost implications for healthcare organizations as evidenced in terms of the collection challenges that Sutter Health faced. The solution lies in investing in state of the art accounting systems that have the ability to collect, analyze, store data and generate reports that can be used to make timely decisions. Nonetheless, the future will be characterized by electronic medical records and this will transform how charges and services are billed and recorded.

            The second component of the alternative solution involves creating and deploying of dashboards tailored to the needs of specific departments but set up as a single reporting mechanism. The dashboards should have the ability to be updated in real-time such that up to date is available at all times to all the workers. This permits departmental managers to be able to identify short-term changes and take appropriate actions before the end of an accounting period. Similarly, all employees in a given department have to be trained in the use of these tools. However, big data also comes with the need to improve privacy because private financial information about the patients can easily leak out to outside organizations or provided to competitors by former employees.

            Similarly, the training techniques employed by the different organizations-Sutter Health, Cozer-Keystone, and Greenville Hospital should also be incorporated into the proposed solution. Through proper training, employees are not only informed, but they also get empowered to be successful in their respective roles and they become loyal to the organization. However, appropriate care should be exercised so that workers who are not able to demonstrate that they have acquired the new knowledge and skills do not receive financial rewards. However, it is worth noting that when workers receive specialized training, they are vulnerable of being poached by external organizations (competitors). As a result, part of the plan is to remunerate the employees based on their competency level. Improved competency level is a significant asset to an organization; the asset must be safeguarded by compensating the workers in a manner commensurate with their skill set.

            A study by Rauscher, Wheeler & Hilleary (2008) investigated the prospect of having an inverse correlation between the speed of collecting revenues and the amounts of revenue collected. The authors used statistical analysis to see if the null was true. In their findings, no evidence of correlation was found; however, they found that hospital organizations that had higher speed in collecting their revenues had a tendency of providing higher levels of charity care (Rauscher, Wheeler & Hilleary, 2008). The authors did not explain the reasons behind this finding; however, one possible reason could be that these healthcare organizations did not seek alternative payment sources for accident or indigent patients. An additional or complementary solution lies in setting up a unit with the collections department with a specific role of seeking third party liability payers and other charitable organizations, for example the victims of violent crimes funds.

            Koenig (2010) explored the link between high unemployment levels and the resultant increase in the number of self-pay patients with limited ability to pay. His main argument is that the increase in the number of people paying for their care out of pocket is a direct result of the high unemployment levels and the shift in costs from the employers to the workers in the form of high co-pays and deductibles.  His arguments buttress the experience of healthcare organizations such as Sutter Health, Cozer-Keystone, and Greenville Hospital that suffered from increased accounts receivable days’ outstanding and reduced level of collection from patients. The author attributes the problem to four major reasons. Firstly, CFOs do not have the requisite metrics that they need to effectively analyze the situation. Secondly, there are particular methods accepted by the healthcare industry and used across the globe, which denies organizations the opportunity to implement solutions tailored to their specific needs. Thirdly, employees lack adequate training in collecting money and are more concerned that such a move may compromise patient relationships. Finally, the resources available at the Central Business Office (CBO) are largely inefficient or inadequate and therefore cannot deal with self-pay accounts.

            Koenig (2010) argues that if these shortcomings can be addressed, collections can improve significantly because nearly 80% of self-pay patients are able to pay part or the entire cost of their healthcare. However, this analysis may have missed one important component. Given the high unemployment levels, the assumption that many patients can afford to meet the cost of their care may be evidently erroneous. This is a critical issue given that many healthcare organizations keep a charge master from which they offer discounts as high as 60% or 70% when entering into contracts with third party payers. When care is provided to patients without insurance, full charge master rates are applicable, which is not sustainable. For instance, assuming a patient covered by company X is hospitalized for 4 days, the hospital bills company X $22,000 (estimate). However, based on company X`s rates with the hospital, the patient will only pay $5,000 and the balance of $17,000 has to be written off. However, assuming the patient has no insurance, the patient will be billed the entire $22,000. A patient who is presented with a bill of $22,000 may just say he/she cannot afford to foot the bill and walk away without paying the entire bill. By permitting such behavior, the hospital not only damages the patient`s credit, but also forfeits its revenues. The best solution should be to charge the insured person an average contracted rate and offer a payment plan that attracts low or no interest. A patient may recognize that he can reasonably foot a bill of $5,000 compared to paying a bill of $22,000 that may seem unattainable.

            The Healthcare Financial Management Association in collaboration with industry stakeholders has developed a program dubbed MAP meaning measuring performance, applying evidence-based practices, and performing to the highest standards The MAP framework is developed based on the Six Sigma principles:

• Defining the problem
• Measuring important aspects of the current process and collecting the relevant data.
• Analyzing the data to investigate and verifying cause-effect relationships. Seeking out root cause of the problem being investigated.
• Optimizing the present process based on data analysis. Standardizing work to develop a new process.
• Controlling the future state process as a way of ensuring that any variations from target are rectified before they cause defects. Implementing control systems to monitor the process continuously.

This program incorporates all the techniques and principles that can address the problems highlighted in the Sutter Health case. The MAP system offers healthcare organizations a template that they can implement to improve their revenue cycles.

Conclusion

            Sutter Health System is a big and complicated healthcare organization. The organization was able to reengineer its collection processes and transform the culture in all the departments associated with collection. The elements of the strategy used are highly recommended to any organization within the healthcare industry. One issue that is yet to be comprehensively addressed is the huge variation in the rates hospitals charge self-pay patients and the rates they charge third party payers. Healthcare organizations should not charge more to self-pay patients compared to what they charge third party payers because such a practice is unsustainable.

References

Berger, S.  (2005). Fundamentals of health care financial management (2^ndEdition). San Francisco, CA. Jossey-Bass, ISBN 0-7879-5980-4.

Butcher, L. (2012). Centralizing registration boosts collections, patient experience at crozer-keystone. Retrieved on 18 June 2015 fromhttp://www.hfma.org/Publications/E-Bulletins/Patient-Friendly-Billing/Archives/2012/January/Centralizing-Registration-Boosts-Collections,-Patient-Experience-at-Crozer-Keystone.

Koenig, S. (2010).  A prescription for turning self-pay accounts into revenue. Journal of Health Care Finance, 37(1), 30-34. 

Powell, L., Hindman, A. & McMillan, B. (2009).Responsibility-based A/R reporting how one health system drove performance with analytics. Healthcare Financial Management, 63(9), 54-8, 60.

Rauscher, S., Wheeler, J. & Hilleary, G. (2008). Effective hospital revenue cycle management: is there a trade-off between the amount of patient revenue and the speed of revenue collection? Journal of Healthcare Management, 53(6), 392-404.

Souza, M., & McCarty, B. (2007). From bottom to top: How one provider retooled its collections. Healthcare Financial Management, 61(9), 67-73. Retrieved on 18 June 18, 2015 from http://search.proquest.com/docview/196385246?accountid=32521.

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