Week 2: Operating Revenue – You Decide
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Scenario Summary: Accounts Receivable Crisis
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It is the second Monday night in October and it is now 3 a.m. You cannot sleep.
You are the CFO of Marysville General Hospital, a 300-bed community hospital in the Midwest. Your hospital board meets at noon on the second Tuesday of each month. You have a truly awful report to give the board, and you are dreading it more than anything else you’ve done in your 15-year career as a hospital senior manager.
The target for days in accounts receivable (which the board and CEO set some years ago) is 55 days. When AR days are at 55, cash flow to the hospital is strong and you can meet all monthly obligations while putting some money away into investments for the hospital’s future.
It has been several years now since the hospital has seen its AR at 55 days. There have been many factors, but AR has been in the 70–80 day range for some time now. Last month it crept up over 90 days, and this month you have the painful task of reporting to the board and CEO that the hospital is carrying 100 days in accounts receivable.
You must come up with a plan to bring AR days back in line, and you will not be able to accomplish that alone. It will take cooperation from the medical staff, the clinical departments, health information management, the business office, and many others. But it must happen and it must happen soon, or your community could actually lose its hospital.
Come up with a plan to bring AR days back in line. It will take cooperation from the medical staff, the clinical departments, health information management, the business office, and many others, so include how you will involve these departments in devising a solution.
As you prepare your process improvement plan, keep the following in mind.
- What further data collection will you conduct before beginning to write your plan?
- What will be the elements of your plan?
- For each element, who will be the key players and what will be their roles?
- What resources outside of senior management will you engage?
- How will you present your plan at the board meeting?
- And how will you know that your plan has been effective?
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Bill Walker
(Bank President)
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Mack Wilson
(Board President)
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Dr. John Evans
(Chief of Staff)
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Katrina Eaton
(CEO)
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Martina Jackson
(Medical Staff Coordinator)
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Linda Freed
(Business Office Manager)
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You
(CFO)
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Brian Billings
(CIO)
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Nancy Stritmatter
(CNO)
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Becky Santos
(HIM Director)
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At the board meeting, you give your financial report. You actually have a small profit to show for the month on the income statement, but as you are going over that report in the board packet, you notice that all six board members have already turned past the income statement to the accounts receivable report. One board member actually has his mouth open, jaw dropped, and another is looking at you over his glasses. This is not good.
Your board members are community representatives; they care about the hospital, and they know how important the hospital is to the town of 35,000 people. They are all very worried. They know what has happened to other communities when their hospitals have failed financially. Everyone in this room has a tremendous stake in the survival and success of the hospital.
After you give the accounts receivable report, there is a prolonged silence. You wish somebody would just yell at you and get it over with, but that does not happen.
You know exactly what he means, and you answer:
With the cash on hand, you can meet the hospital payroll completely only once without pulling money from the hospital investments. Those investments are reserved to replace and improve the technology of the hospital, to expand facilities when needed, and to replace the hospital itself someday if that becomes necessary or appropriate. Dipping into those investments to meet payroll is a really bad sign for any hospital.
Mack turns to your CEO Katrina Eaton:
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What are we gonna do Katrina? Now I’m officially scared.
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Mack, the senior managers are getting together right after this meeting to come up with a plan. No excuses, AR is out of control, and I am scared right with you. I’d like Bill (bank president) to stay after the meeting for a few minutes; I think that we should talk about a credit line for the hospital until we can turn this thing around. Board members, we will be back to you at the November meeting with a detailed plan to get AR back in line for this facility. Whatever it takes, we are going to start bringing cash in the door here. And we may tick some people off in the process, so please get ready for the phone calls.
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The board completes the rest of the its business; nothing eventful—reappointing doctors, monthly reviewing statistics, accepting donations from the foundation, planning a holiday open house, and welcoming a new cardiologist to the staff. Lots of positive things going on at the hospital, but nobody in the room can really focus on any of that. They are all still looking at the big “100.47 Days” at the bottom of the AR report. The meeting adjourns.
Gathered in the CEO’s office are the CNO Nancy Stritmatter, CIO Brian Billings, Business Office Manager Linda Freed, HIM Director Becky Santos, Medical Staff Coordinator Martina Jackson and Chief of Staff Dr. John Evans, and yourself. Dr. Evans does not routinely attend management meetings, but he was at the board meeting and followed the group into Katrina’s office. He comments:
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I like you folks a lot, all of you, and we have good things going on at Marysville General these days. But I need to tell ya, I’ve known this board for some years, and they are nervous right now. And if they don’t see some real improvement in cash fast, they really might start over with management. They get phone calls and mailings all the time from that outfit in Nashville that buys and manages community hospitals. Nobody wants to see that happen. I’m rooting for you, and I’ll do whatever I can to help. Gotta round on my patients now.
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Waiting in the lobby outside Katrina’s office is Bill Walker, president of First United Bank. He sees Dr. Evans leave and calls out.
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I’m out here when you’re ready for me Katrina.
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The group overhears CEO Katrina chatting with Bill at the office door.
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I never thought I would have to ask you Bill, but can you give me a rate quote on a $250,000 credit line, just in case we need it for payroll? I am confident in this team and their ability to turn the cash flow problem around, but I am not sure how quickly that will happen.
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Will do Katrina, and I agree that a credit line would be better than selling off investments if we get that tight. Back to you by COB tomorrow.
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Bill departs, leaving the management team to its task. Katrina looks at you.
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You own the process here. We are all with you, but you are going to have to lead the change. I have a doctor and his family in for a visit today, and they are arriving in a few minutes, so gotta go. Please give me a report by end of week.
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Katrina hands you a black marker. You step up to a flip chart and begin to write.
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We need a process improvement plan, folks; a good one.
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Everyone nods and looks at the dry-erase board:
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DRY-ERASE BOARD
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- Secondary Billing/Patient Follow-Up
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Linda, as business office manager, you own the admissions process. How is that going? Is there room for improvement?
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Lots of room for improvement, especially in getting current insurance information. We have some inexperienced people doing admissions, especially in the evening, and they are just not great at checking to see if the patient’s insurance information has changed. And from 11 p.m. to 7 a.m., the ER nurses are taking down registration information. I know that they are trying, but sometimes we cannot read the copies that they make of patient insurance cards, and they also forget to ask about coverage changes. If my department is billing an old insurance company or we have the incorrect plan codes, we have no chance at all of collecting. Under the admissions heading, I’d say those are the two biggest problems—bad insurance information and unreadable data from the night shift. I’ve wondered if it would actually pay for itself to have an experienced admission clerk on duty all night.
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Gosh that would be tremendous. The nurses are so busy, and no matter how much we preach the importance of insurance information, the nurses will always give patient care priority. I think it would be good for business and good for staff morale to have a clerk here 24/7.
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Ok, thanks for the insights on admissions. We know we have some problems to solve there. Moving ahead to charting now. Becky, you, and your HIM team own the charts. How do you feel about that aspect?
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Overall, charting is good these days. We’ve implemented electronic medical records (EMR) and that has definitely helped, but we have two docs, Dr. Linscott in family practice and Dr. Patel in internal medicine who are just not great at documenting. I know that we are losing money there. We can’t code the highest legitimate diagnosis for the patient, because there is not enough detail on their charts. As you know, Dr. Patel is our number one admitter to the hospital! If we could get her to chart more thoroughly, it would be worth hundreds of thousands of dollars a year in my opinion. And then of course we have the Dr. Nielson problem (everyone groans). Patients love him and he is just the nicest man, but he will not complete his charts on time and we cannot code the charts for billing until he does. That really slows down billing and cash flow.
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Got it, two docs with charting issues, and our time honored with trying to get Dr. Nielson to do his charts. How late is he right now Becky?
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Today he has 27 inpatient charts over 30 days post-discharge. I’d estimate that at $120,000 in revenue if we could bill them.
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(EVERYONE) Geez… holy smokes… unbelievable… well there’s a big part of the problem right there.
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Ok, how about charge capture, Nancy. We used to lose a small fortune in lost charges. Has the new computer system helped that?
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It is just remarkable everyone. The IS folks under Bill’s leadership are helping us to capture charges like never before. The old stickers getting thrown away on disposable items and missed charges for tests and treatments are almost eliminated now. If a particular procedure is ordered by the doctor, the IS system knows to look for certain charges to go with it, and it won’t give up until we give it some. The new computer is a persistent little guy or gal or whatever it is.
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So glad to hear that things are better now Nancy. The new MedXL computer system has probably paid for itself already in my view, and we’ve only had it for 10 months now.
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Ok, so charge capture is not the problem. How about claims processing? Linda and Bill, you both own pieces of that.
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Too many rejected claims folks. Definitely could be better. Every insurance company has different requirements, and it is so hard for my staff to keep up with that. Even within the same company, their rules seem to change every time we turn around. I’d say that we have between $700,000 and $800,000 a year in rejected claims.
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I think I can help with that. MedXL has an optional “Clean Claims Module” that might make sense for us. The people at MedXL load the claims requirements for the 150 most common insurance companies into our system, and then update it monthly for us. It is about $10,000 up front and then $2,000 a month for support.
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Ok, something to consider then. We must improve performance on clean claims. How about payment posting, Linda?
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Just not a problem anymore. MedXL helps us to get payments into the right places when they arrive, and it reminds us to bill secondary insurance or the patient. Not an area of concern.
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Ok, helps to know that. How about billing secondaries and patients?
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It won’t surprise you that collections on self-pay patient accounts are just awful, right around 15 cents on the dollar. We are writing off so much to bad debt these days that it’s killing us.
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I have a suggestion there if you don’t mind. Several of the busiest doctors on staff are doing something in their own offices that might help the hospital. They are offering a 25% discount to patients who pay their bills within 10 business days. Many patients are taking advantage of that and paying their bills quickly.
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I’d probably take advantage of that also, but 25% strikes me as a pretty big discount!
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Let me put it to you the way Dr. Evans puts it—I’d rather have 75% now than 60% a year from now when the collection agency finally gets paid.
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That is a valid point. We have so much going out to collection agencies now, and they charge us 40% right off the top for what they collect on our behalf.
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Ok, something else to consider. Any other ideas?
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One thing that would really help is if we could actually talk to the patients about their bills.
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Gosh, we are making our own calls to try and collect aren’t we, Linda.
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Yes, but we mostly just talk to answering machines. The business office is open from 7 a.m. to 6 p.m. and with husbands and wives working these days, we play a lot of phone tag with people, even with sincere people who probably would make payment arrangements with us if we could just chat with them.
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Ok, one more thing to solve then. Folks, I’ve greatly appreciated your help and I am going to put together a draft process improvement plan for all of you to look at. Katrina wants something from us by Friday, and our plan must be pristine by the November board meeting. Watch your e-mail for a draft plan tomorrow or Thursday, and shoot me some feedback as soon as possible.
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Come up with a plan to bring AR days back in line. It will take cooperation from the medical staff, the clinical departments, health information management, the business office, and many others, so include how you will involve these departments in devising a solution.
Present your comments in a 1–2 page paper explaining how you will proceed.
Grading Rubric:
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Category
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Points
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Description
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Understanding
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20
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Demonstrate a strong grasp of the problem at hand. Demonstrate understanding of how the course concepts apply to the problem.
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Analysis
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20
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Apply original thought to solving the business problem. Apply concepts from the course material correctly toward solving the business problem.
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Execution
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30
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Write your answer clearly and succinctly using strong organization and proper grammar. Use citations correctly.
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Total
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70
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A quality paper will meet or exceed all of the above requirements.
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