• San Francisco General Hospital does not sufficiently analyze the Hospital’s process for billing and collections, and as a result, Hospital management does not have a comprehensive understanding of all the variables impacting collection of patient accounts. Although the Patient Financial Services Division has developed specific codes to identify reasons for adjustments, or "write-offs", to uncollectable accounts, the Patient Financial Services Division combines several reasons for writing off accounts into one code. For example, the Patient Financial Services Division has one code, which totaled $8.5 million in write-offs in FY 2001-2002, to identify two different reasons for writing off Medicare accounts: (a) one because the service for which the Hospital was billing was not covered under Medicare; and (b) the other because of Hospital procedural issues. Therefore, Hospital managers are unable to track the exact reasons for writing off $8.5 million.
  
  
• The Patient Financial Services Division uses summary reports of accounts receivables and collections to monitor overall performance and numerous detailed reports of account balances and activity to monitor individual unit performance. However, performance cannot be evaluated by using only one or two measures or through cursory reviews of detailed transactions and balances.
  
  
• The Patient Financial Services Division should set up formal monitoring of billing and collections and expand the monitoring to include a comprehensive reporting package of performance measures. The Patient Financial Services Division should analyze these measures regularly to establish goals and objectives, and report the results to the Hospital’s Executive Administrator and Director of Finance. If the Patient Financial Services Division improves its reporting and monitoring of billing and collections, then the Division will be able to identify areas requiring performance improvement, resulting in more timely and increased collection of outstanding bills.

Historical Background

Patient Financial Services, which is responsible for the billing and collections of patient accounts, has seen significant changes during the past several years. In the 1990’s and prior years, the Hospital had a long standing relationship with an outside vendor, Health Management Systems (HMS), to perform many of the billing and collections functions and civil service staff were used only to process self-pay accounts for patient charges not covered by third parties. With increasing pressure to reduce costs and make efficiency improvements, coupled with poor vendor performance, a decision was made by Hospital management to bring all of the billing and collections functions in-house. The Hospital engaged their financial system vendor, Strategic Services Group SMS, to perform an assessment of current practices and their report entitled "Revenue Cycle and Systems Review Assessment" was issued in May 2000.

Since that assessment, several key financial management positions have turned over, including the Hospital’s Finance Director, Controller, and the Director of Patient Financial Services. In addition to transitioning to in-house processing of billing and collections, these new managers are addressing a number of significant deficiencies that effect the billing and collections process. Many of these deficiencies are addressed in detail in Section 6 of this report.

Current Monitoring Practices

San Francisco General Hospital’s financial management team uses a variety of tools and the professional experience of its management staff to monitor the performance of its billing and collection function and to identify areas for improvement. Management regularly reviews a number of reports produced by the Invision financial system, prepared manually, or provided by the contractors responsible for specific components of the billing and collection process. Further, Patient Financial Services is able to produce specialized reports on an as needed basis. In addition to reporting, the financial management team relies upon an open communication style at all levels to facilitate identifying and resolving problems. According to management, employee morale has improved significantly in the last few years under the new management team.

Overall Performance

Patient Financial Services primarily uses two measures to monitor the overall performance of the billing and collection function. The Director of Patient Financial Services regularly monitors cash collections and accounts receivable, including accounts receivable days outstanding (AR Days) and aged receivables. Cash collections are an important measure of actual revenues that the Hospital realizes and of cash flow. Accounts receivable reflects the extent to which patient accounts are being financed by the City and County of San Francisco, while an aging of accounts receivable identifies collection trends. Finally, AR Days represents the average length of time that the Hospital must wait after providing services before receiving cash. It is one of the major tools hospitals use to measure billing and collection performance.

The Director of Patient Financial Services uses this data and information to gauge how the Division is performing relative to historical measures and her own knowledge of industry standards. For comparative purposes, Table 5.1 provides selected data from historical Invision financial system reports.

Table 5.1
Selected Performance Measures

Source: Invision financial system report "Administrative Operating Summary – Daily"

The reports suggest that significant improvements have been made in the past two years. AR Days have decreased 48.3 days or 39 percent from 122.7 AR Days to 74.4 AR Days and the dollar value of total accounts receivable has decreased $30.8 million or 22 percent. Annual collections have increased $25.6 million or 22 percent.

A review of the detail, provided by Patient Financial Services’ manually prepared Monthly AR Summary report, which segregates inpatient accounts receivables into the various billing and collection stages, allows some insight into these improvements. Most of the improvement in inpatient accounts receivables is the result of decreases in the number of receivables in collection and decreases in unbilled accounts due to incomplete diagnosis coding. Improvements in outpatient accounts receivables, however, cannot be characterized because outpatient accounts are not segregated into the various stages of the billing and collection cycle.

While clearly there has been improvement in accounts receivables and collections, measures shown in Table 5.1 alone do not provide a comprehensive picture of billing and collection performance. There is underlying information and data that impact accounts receivables and collections due to causes other than improved performance. Accounts receivables and collections are the product of several variables, including services provided, patient rates, and adjustments to patient charges, including adjustments for per diem rates or other pre-established payment structures, bad debt, and charity care.

Adjustments to Patient Charges

The most significant variable is adjustments to charges because it poses the greatest risk in terms of dollar amount and management control. Such write-offs have no financial benefit to the Hospital. Contractual adjustments refer to variances between charges for services and what is expected to be collected based on either contractual agreements with commercial payers or pre-established payment structures for Federal and State programs such as MediCal and Medicare. Bad debt refers to payments that should be collected, but are not after reasonable collection attempts have been made. Bad debts primarily relate to individual persons responsible for patient charges or commercial payers. Finally, charity care refers to variances between charges for services and what is collected due to forgiveness of the liability because of a patient’s inability to pay based on financial circumstances.

A cursory analysis of adjustments to receivables, shown in Table 5.2, roughly shows that total adjustments have increased $112.1 million or 39 percent from fiscal year 1999-2000 to fiscal year 2001-2002. Charity care, which is only a fraction of total write-offs, has increased by 35 percent. Bad debts, also a fraction of total adjustments, were relatively stable. Write-offs specific to contractual agreements with commercial payers or payment structures for Federal and State programs are not summarized by Patient Financial Services.

Table 5.2
Summary of Adjustments to Accounts Receivables

Source: Invision financial system report "AR – Transaction Summary"

According to management, adjustments, especially those related to Medicare and MediCal contractual adjustments, are monitored by General Accounting, not Patient Financial Services. However, Patient Financial Services does review the monthly detail of adjustments, which are comprised of 183 individual codes, for reasonableness. Further, a manual report is prepared and utilized by Patient Financial Services and the Finance Director to monitor bad debt.

Of the 183 adjustment codes, several codes do not necessarily meet the definition of the routine adjustments identified above, e.g. contractual, charity care, or bad debt adjustments. These adjustments typically capture write-offs caused by a variety of performance or processing issues. Some of these adjustments are detailed in Table 5.3 below. According to management, Patient Financial Services created at least three new codes in the last two years to track adjustments due to operational issues. One new code was created to track write-offs caused by missing diagnosis codes. Another code was created to track write-offs caused by errors in physician identification numbers (UPINs). Both of these issues are discussed in detail in Section 6 of this report. Prior to being segregated, these adjustments were combined with the Medicare uncollectable accounts adjustment code. This adjustment code captures any adjustments to Medicare charges that are not contractual adjustments. According to management, these write-offs may be caused either by procedural issues which result in the Hospital no longer being able to pursue collection or by the determination that the service provided was not billable and could not be shifted to an alternative payer. However, the distinction between the two causes is not made by tracking them in one adjustment code. In fiscal year 2001-2002, this adjustment code totaled $8.5 million in write-offs.

Table 5.3
Selected Adjustments to Accounts Receivables

Source: Invision financial system report "AR – Transaction Summary"

Because they are not easily categorized and can be used as a catchall for write-offs, these types of adjustments are at greater risk for being unsubstantiated or uncontrolled. Table 5.3 provides detail of additional two adjustments identified during the audit, "Administrative" and "Liability Accounts" adjustments. Each adjustment increased substantially over the last two fiscal years and resulted in a total of $948,489 ($594,732 + $353,757) written off in fiscal year 2001-2002.

Write-offs have a significant impact on accounts receivable and can provide valuable insight in billing and collection performance. Adjustments should be summarized and analyzed, at a minimum, by meaningful categories. A reasonableness check of 183 individual adjustment codes is not sufficient to provide a clear and comprehensive understanding of adjustments, especially over time. Further, adjustments caused by performance or processing issues should be segregated, analyzed and closely monitored. Fully understanding adjustments and their trends over time will enable Patient Financial Services to identify excessive write-offs and performance issues.

Patient Rate Increases

Another variable that impacts both accounts receivable and collections is patient rates. Total patient charges increased $108 million or 25 percent from $429 million in fiscal year 1999-2000 to $538 million in fiscal year 2001-2002. While services provided, including patient days, are a component of total charges, rate increases were substantial, including approximately 10 percent in July 2000, 15 percent in January 2001, and 12 percent in July 2001. Despite stable MediCal and Medicare reimbursement rates, which typically would reduce collection rates as gross charges increased, the total collection rate also remained stable at 26 to 27 percent during this time.

By factoring in these variables, then, the overall performance of Patient Financial Services can be assessed. Table 5.4 analyzes the changes in relevant measures over the last two years and indicates that there has been an overall improvement in performance.

Table 5.4
Analysis of Overall Patient Financial Services Performance Using the Change in Select Performance Measures Between
Fiscal Year 1999-2000 and FY 2001-2002

(1) Variance due to rounding.

Individual Unit and Staff Performance

One integral component to monitoring the performance of the billing and collection function is how individual units and staff performance is measured and monitored. Supervisors are responsible for monitoring the performance of their staff and do so through the use of numerous Invision financial system and manually prepared reports that primarily reflect either detailed account status or summary transactions, i.e. bills processed, returned, or corrected. The emphasis is on monitoring MediCal and Medicare billing and collections because they comprise the greatest component of both billings and collections.

Additionally, Patient Financial Services manually prepares a report of accounts receivable called the Monthly AR Summary. In this report, inpatient accounts receivables are segregated into discrete measures by placement of the receivables at various stages in the billing and collection process. The report provides substantial information on the flow of accounts through the billing and collection process and can provide valuable insight into performance issues within the various units of Patient Financial Services. This report and some of these issues are discussed in further detail in Section 6 of this report.

The Monthly AR Summary provides detail only for inpatient accounts and not outpatient accounts. Accordingly, there is no mechanism to systematically analyze the outpatient billing and collections process. Management states that providing such a report for outpatient accounts is not feasible given the volume of outpatient accounts processed each month. However, much of the outpatient billing and collection process is automated and should be easily captured through system reports. The data and information that would enable management to assess the performance of its outpatient account processing includes the measures of bills withheld for various reasons, bills in the automated edit process, the efficiency of collections, etc. This data and information, if provided by payer and monitored over time, would be a valuable tool for management to identify weaknesses in its processes and opportunities for improvement.

Need for a More Structured Reporting Format

This discussion is not intended to discount the significant improvements made by Patient Financial Services in the last two years to improve the billing and collection function. This discussion is intended to explain the complexities of the hospital billing and collection function. The trends identified in this analysis are reflective of any number of significant changes to the billing and collection process, systems, or regulatory and payer requirements. The current reporting structure does not clearly isolate and identify billing and collection performance issues. Performance cannot be evaluated simply by measuring only accounts receivables and collections or through cursory reviews of detailed transactions and balances. There is an intermediate level of analysis and reporting which is missing from Patient Financial Services that should provide a clear and comprehensive understanding of the billing and collection process.

Suggested Reporting Package

Patient Financial Services should create and maintain a formalized performance measurement program that establishes metrics for both the billing and collection processes. Reporting should include internal measures of performance, which use data and information specific to the Hospital and compares it to historical as well as expected performance. The reporting package should also include external measures that compare the Hospital’s performance with other hospitals and industry averages.

Internal Measures

Patient Financial Services should develop a reporting package that is routinely prepared, analyzed, reviewed and discussed among management and staff. To enhance management’s current monitoring of the billing and collection process, Patient Financial Services should isolate, monitor, and analyze the following additional data and information:

• Monthly AR Days for outpatient receivables by stage in the collection process, similar to how AR Days are presented for inpatient receivables

• Monthly AR Days by payer category or other meaningful sub-category if appropriate (i.e. different MediCal programs)

• Quarterly adjustments to accounts receivables summarized by meaningful category such as contractuals, bad debt, charity care, or other sub-category and detailed quarterly adjustments to accounts receivable for non-routine write-offs and adjustments segregated to analyze operational problems

• Monthly collection amounts and collection rates by payer category or other meaningful sub-category if appropriate (i.e. large commercial payers)

• Quarterly aging of receivables by payer category or other meaningful sub-category if appropriate (i.e. large commercial payers)

The Invision financial system currently maintains the level of detail to provide most of these measures. However, clearly, obtaining the summarized data and information in a desirable format will require programming resources. Because Patient Financial Services currently is working with the system vendor in its transition to bring all billing and collections functions in-house, it is an opportune time to assess and augment the current system reporting package so that it is applicable to the new processes

External Measures

Patient Financial Services relies informally upon industry benchmarks to gauge its own performance. This process should be formalized by establishing benchmarks from comparable institutions and by performing quarterly analysis. Resources for such data and information are available from a common source. The Office of Statewide Health Planning and Development (OSHPD) provides measures such as total accounts receivable days outstanding, collection ratios by major payer categories, gross and net revenues per day, adjustments by major payer categories, etc. SMS, in its May 2000 report, compared San Francisco General Hospital to data provided by the Hospital Accounts Receivable Analysis, another industry benchmark. SMS’ comparison reviewed total accounts receivable days, days in Medical Records, days from discharge to billing, aging accounts receivable, adjustments as a percentage of gross revenues, open accounts per collector, and staffing levels. Patient Financial Services should review these resources and develop a comprehensive performance measurement package that will assist them in monitoring their operations.

By strengthening the tracking, analysis and reporting of key performance measures, Patient Financial Services will have the ability to improve the efficiency and effectiveness of its billing and collection function. This in turn will result in increased revenues, cash flow, and savings from the more efficient use of resources. Because Patient Financial Services is bringing the billing and collection function in-house, now is a critical time to establish such a performance measurement program. Without one in place, the Hospital will be unable to determine the success of this endeavor. Accordingly, the performance measurement program should be established in conjunction with the transition and be implemented by June 30, 2003.

Conclusions

There have been significant changes and challenges in Patient Financial Services over the last several years that have impacted the billing and collection function and its performance. Current monitoring efforts rely upon the use of a few key metrics and the professional experience of management staff. However, given the complexities of hospital billing and collections, these do not present a sufficient representation of the underlying processes to draw conclusions about performance of billing and collections as a whole or for its various components. This inhibits the ability of management to identify process deficiencies or opportunities for improvements.

Recommendations

San Francisco General Hospital’s Patient Financial Services division should:

Costs and Benefits

By strengthening the tracking, analysis and reporting of key performance measures, the Patient Financial Services division will have the ability to improve the efficiency and effectiveness of its billing and collection function. This in turn will result in increased revenues, cash flow, and savings from the more efficient use of resources.