This article was published in March 2005 in Advance for Health Information Executives.

Hospitals across the country are under increasing pressure with escalating debt. According to the American Hospital Association, uncompensated care reached close to $25 billion in 2003. A survey conducted with 130 hospital CFO’s in 2004 revealed that a leading financial priority for hospitals today is to reduce account receivable (AR) days. Although the goal sounds straightforward, the path to reduce AR days is a tough uphill battle for an industry mired in complex external and internal challenges of increased self-pay and uninsured patients, billing errors, insurance underpayments and operational inefficiencies.

The current state of shrinking cash flow and increasing uncompensated care is not anticipated to dissipate anytime soon. What should hospitals due to remedy the situation? What actions should be taken and what solutions are available to help hospitals reduce AR days and increase cash flow?

Reality Check

At an industry conference, a speaker was advising a group of hospital executives on ways to improve their collection efforts. The speaker commented, “Bottom line, you need to spend money, to make money. If you make a $200,000 investment in technology that would allow you to recover $2 million – how can you not afford to do it?” The question sounded logical. But, the speaker was met with silence as one attendee said, “we don’t have $200,000 in our budget.”

This attendee’s comment, although innocent, underscores a level of disconnect between hospitals and the real-world crisis that is threatening the financial viability of these healthcare providers. It is no secret that hospitals often spend more money than they bring in the door. Their priority is providing care, not collecting payments. However, tough financial times are now forcing hospitals to take a reality-check and become as in tune with their operational performance as they are with patient care.

Regardless of financially driven changes to operating procedures, the good news is that both hospitals and healthcare organizations today have more options than ever before for taking control to reduce AR days, increase cash flow and improve bad debt management thereby contributing to overall revenue cycle results.

Focus: Follow-up and Collections

There are many components that make up the revenue cycle. Issues such as disjointed patient communication and incomplete or incorrect data gathering at the front-end have resulted in many hospitals struggling to effectively conduct follow-up and collections. But when it comes to reducing AR days in the immediate short term, no component is more critical or important than the tools and processes utilized for follow-up and collections. Although Patient Accounting Systems (PAS) are used to manage patient information through the delivery of care, it’s tough to say that the same PAS are providing the tools and processes needed for effective post-billing follow-up and collections.

Many hospitals today conduct follow-up and collections using basic technology and essentially manual processes. Reports are run through the PAS providing a list of accounts to contact and multiple systems may be accessed to supplement the information for each account provided by the PAS to prepare for each account follow up call. The staff is tasked with the goal of making as many calls as possible on a daily basis, however, measurement of staff productivity is challenging to obtain and consolidate. Efforts to gain a thorough understanding or visibility into the account base often require support from the IT staff to mine data from the PAS and other systems. It’s not typically an optimized, quick and easy process.

But what if hospitals could do a lot more to increase their follow-up and collections approach to improve AR days and increase cash flow? What if hospitals could augment their current processes with new tools and solutions that would enable them to quickly and efficiently analyze their overall account base and be more strategic in how they approach their collections efforts on a day-to-day basis?

Singing River Hospital System Changes its Tunes

As a director of financial services for Singing River Hospital System, a 515-bed healthcare facility in Pascagoula, Mississippi, Wayne Smith quickly realized that the hospital’s homegrown PAS was not scaling to accommodate the diverse and growing needs of the hospital. “As the hospital grew, we were increasingly looking for a way to track information post-billing to help us have better visibility into our revenue cycle. We wanted to be able to query information in our PAS as well as track account and payment information and transfer accounts from inactive to active and vice versa. But we couldn’t do any of that because the system was not set up to provide that type of information. We soon realized that we were handicapped with the systems we had in place,” said Smith.

Based on the hospital's financial goals, Wayne and his team mapped out the functions they needed in a system that would help them achieve these goals, and then set out to find a solution. What they found was an account receivables management solution that interfaced with their PAS to enable the hospital to achieve everything they needed and wanted to do and beyond. His team of 52 staff members today can conduct follow-up and collect the entire patient balance as well as accelerate payments from insurance payers. Manual processes have been automated, and work cues now help strategize and prioritize the most collectible accounts to be called first – compressing the overall collections timeframe and increasing staff productivity. Information queries can be conducted to obtain all types of data in real-time. Management can organize accounts based on a variety of parameters for follow up – by amount owed, registration dates or zip codes of patients’ addresses – and generate detailed reports without IT assistance.

Overall increase in productivity has enabled the hospital to save millions of dollars on an annual basis. “Being able to automate and perform a wide range of tasks on our own has made a significant difference, and allowed us to be empowered to effectively manage account receivables,” stated Smith.

Create a Plan and Execute

Like Singing River Hospital System, there are many hospitals today that are jumping on the bandwagon to deploy and implement new strategies and technologies to improve their overall management of account receivables and bad debt. However, no technology implementation will be completely effective unless there is a thorough plan and processes in place to ensure successful return on investment.

Therefore, hospitals that are looking to reduce AR days must first take the important step of conducting an internal assessment of existing technologies and procedures, and determine how effective they are in account receivables management and collections. As part of this effort, hospitals and healthcare organizations should start with the basics and ask themselves these kinds of critical, strategic questions:

• What kind of results would my organization ultimately like to have?
• What could my organization do with more effectively managed AR days, increased cash flow and reduced bad debt?
• What kind of opportunities might become open to us with better results in these areas?

Next, hospitals and healthcare organizations should start with these basic tactical questions:

• What kind of tools or technology infrastructure would we need to achieve our goals?
• How well can we really monitor or measure follow-up and collections progress and status?
• Can our management staff automatically create work cues for self-pay and insurance account follow up by frontline representatives?
• Can we generate customized reports without IT staff support?
• What kind of process changes would we need to undertake from a business perspective to achieve our goals?
• If we were to adopt new technology, what kind of process changes would we need to make to support new technology?

Identify what you can and cannot do with your current technology infrastructure and then outline areas for improvement. Determine key goals in reducing AR days and then go out and explore other types of technologies and solutions that will help you accomplish your goals. Then, put together a plan and execute.

Healthcare organizations stand to benefit significantly through the latest account receivables management solutions. Facilities that leverage available technology will be in a much greater position to dramatically impact their financial performance, thereby turning receivables management into a considerable source of increased value that ultimately contributes to optimizing your revenue cycle and to what hospitals and healthcare organizations do best, taking care of patients.

About the Author

Tucker Green is Product Manager for ManageMed, a healthcare receivables management solution.