Source: Patient Financial Services Monthly AR Summary reports

(1) Report not produced prior to this date.
(2) Includes accounts not billed due to uncertain MediCal status, lack of treatment authorization by the Utilization Review Division, or other authorizations or documentation not yet received.

As the table demonstrates, there have been some significant changes in accounts receivable during the last two years. Overall, there has been a significant decrease in inpatient accounts receivable days outstanding from 73.0 days to 48.1 days, a 34 percent decline. Most of the decrease, however, is due to a reduction in accounts in collections or "follow up" after billing has occurred. Therefore, these receivables are not necessarily being delayed as billing exceptions.

In the Monthly AR Summary, the audit has identified three stages in the inpatient billing process that denote considerable billing exceptions:

• Charges for Discharged Patients Not Yet Billed

• Pending Unbilled Charges

• Billed Claims Returned for Additional Information

Accounts receivable for these three stages totaled $45.2 million and 30.3 accounts receivable days outstanding as of June 30, 2002, representing 63 percent of total inpatient accounts receivable and accounts receivable days outstanding. While these stages will always contain some accounts receivable purely based on the flow of processing, the flow into and out of these stages is under the control of management. The stages, which can be separated into even more detailed procedural components, are discussed below.

Charges for Discharged Patients Not Yet Billed

Charges for discharged patients that have not yet been billed are split into those accounts that are less than six days from discharge and those that exceed the scheduled six day threshold for when accounts should be ready for billing. The six-day period allows clinics and departments to get all relevant charges, diagnoses, and other information input into the system. Those accounts that exceed the six-day threshold signify billing exceptions.

This area has received significant attention by Patient Financial Services during the past two years. Former management set the threshold at 15 days. In December 2000, the threshold was reduced to nine days and, in October 2001, it was reduced further to six days, which is in line with the industry standard of approximately 5.7 days. Because of this changing benchmark, there is insufficient data to look at detailed trends over the last two years. However, overall, this category has seen a decrease in accounts receivable days outstanding of 4.7 days, from 12.0 days to 7.3 days, while continuing to maintain a relatively constant percentage of total accounts receivable days outstanding. This indicates that while performance improvements have been made in this category, such improvements are consistent with the improvements realized for the entire process.

Since October 2001, the value of accounts over six days has fluctuated significantly, from $1.1 million in October 2001 to $4.7 million in February 2002 to $4.0 million in June 2002. While review of the monthly trend since August 2000 appears to be long term improvement, data since October 2001 indicates a possible deterioration in performance. One explanation may be that as Patient Financial Services’ initial efforts at reducing these exceptions has waned, Medical Records is no longer as diligent at getting this required information into the system. Patient Financial

Services should analyze the recent increase in exceptions to determine where the process is deficient and the Finance Department should develop controls such that these exceptions are minimized.

Pending Unbilled Charges

Pending unbilled charges reflect a significant number of billing exceptions. As shown in Table 6.1, the total category has fluctuated over the last two years and accounts for a large proportion of accounts receivable days outstanding, having increased from 27 percent of total accounts receivable as of 8/31/00 to 47 percent as of 6/30/02. Pending unbilled charges are comprised of the following categories:

• Pending MediCal eligibility approval

• Pending treatment authorization from the Utilization Review Division

• Pending receipt of other supporting documentation

Of these categories, pending MediCal eligibility approval is the most significant, accounting for approximately 72 percent of pending unbilled exceptions as of 6/30/02. This category increased accounts receivable days outstanding by approximately two days during the last two years. Pending treatment authorization and pending receipt of other supporting documentation make up seven percent and 21 percent of pending unbilled exceptions, respectively. While these two categories have been widely variable, they have generally trended downward over the past two years.

Pending MediCal Eligibility Approval

The largest component of accounts receivable days outstanding is accounts that have not been billed because eligibility for MediCal has not yet been determined. MediCal eligibility is assessed by the Eligibility Unit of Patient Financial Services. For accounts that are problematic for one reason or another, an external vendor is utilized for further assessment and follow up. After a lengthy bidding process, the Department of Public Health recently contracted with a new vendor, Health Advocates, to provide these services. However, because the transition from the previous vendor, Paralign, to Health Advocates was lengthy and contentious, the Hospital was forced to perform this function in-house from May 2001 through January 2002. In February, accounts began to be transferred to Health Advocates for processing.

An analysis of the accounts receivables pending MediCal eligibility reflects a number of changes that have occurred over the last two years.

Table 6.2

Pending MediCal Eligibility Approval
Accounts Receivable and Accounts Receivable Days Outstanding

Source: Patient Financial Services Monthly AR Summary reports

First, Paralign greatly reduced outstanding accounts receivables in fiscal year 1999-2000. According to management, Paralign closed a significant number of accounts between August and December of 2000 and became more aggressive in its processing of accounts after Hospital management noted its poor performance and due to the pending expiration of its contract.

Second, in July 2001, Patient Financial Services began to report patient accounts pending MediCal eligibility at the full patient charge amount. Previously, the accounts were reported net of contractual adjustments. This resulted in a gradual inflation of account receivables. Adjusting for this reporting change, receivables for accounts pending MediCal eligibility were stable from 6/30/01 to 6/30/02.

Overall, pending MediCal eligibility accounts processed by San Francisco General Hospital increased from an average of 17 percent of total accounts when Paralign was the contractor, as measured from August 2000 through April 2001, to 49 percent as of June 2002. While this increased percentage may be the result of the commencement of the Health Advocates contract only five months prior, management reports that it takes approximately five to six months for Health Advocates to process these accounts from identification to payment. Accordingly, by June 2002, accounts should be approaching a stabilized level. Further, management’s goal is to process approximately 66 percent of pending Medical eligibility accounts in-house. The monitoring of Health Advocates and Patient Financial Services Eligibility and Registration Division performance is discussed in detail in Section 8. Clearly, these accounts have a significant impact on total accounts receivables and they should be analyzed to identify areas where processing may be delayed or otherwise deficient.

Pending Treatment Authorization from the Utilization Review Division

Inpatient billings may also be delayed due to delays in receiving proper authorization for services. A major component of this is MediCal authorizations coordinated by the Utilization Review Division and provided by MediCal field nurses. According to the Monthly AR Summary, these delays have fluctuated significantly, but averaged $4.1 million in accounts receivable and 3.0 days in accounts receivable days outstanding between August 2000 and June 2002. See Chart 6.1 for the historical trend over the last two years.

Chart 6.1

Pending Treatment Authorization

Source: Patient Financial Services Monthly AR Summary reports

The Utilization Review Manager reported that typically there are 80 to 100 cases waiting for a MediCal review. Generally, MediCal field nurses are on sight two days a week to complete their reviews. However, they typically focus on review of current and open cases which are concurrently being reviewed by the Hospital’s own Utilization Review staff. When the backlog starts to increase, the Manager will request that MediCal provide additional field nurses to review closed cases.

As of October 18, 2002, there were a total of 128 closed cases totaling $3.8 million waiting upon a medical chart review for treatment authorization. While not all of these cases pertain to MediCal field nurses, according to staff in Patient Accounting, a majority represents MediCal cases. After our inquiry, Utilization Review requested and obtained an additional field nurse review on October 23, which resulted in a drop of backlogged cases to 79 cases and $2.4 million in outstanding accounts receivables. Depending upon the variation in the regular weekly review of open cases, it appears that the extra field nurse review was able to reduce the backlog by approximately 49 cases and $1.4 million in one day.

In order to decrease the residual backlog of 80 to 100 cases, Utilization Review should make a one-time request of an additional day of MediCal field nurse reviews. Further, Utilization Review should decrease its threshold for backlog to what a field nurse can reasonably review in one day’s visit. While this may vary from field nurse to field nurse, it has been reported that field nurses do not necessarily remain on sight for a full day and a lower threshold would not necessarily be inappropriate. On the low end, which is supported by the last review, it appears that 50 cases could reasonably be handled in one day. By reducing the threshold, the Hospital would immediately release approximately $1.5 million from accounts pending treatment authorization. However, it should be noted that not all of this amount will be realized as revenue, since there may be MediCal denials, which require either an appeal or a write-off to bad debt.

Pending Receipt of Other Supporting Documentation

This category represents billings that are delayed for further documentation or authorization. According to the Monthly AR Summary, these delays have averaged $5.4 million in accounts receivable and 3.8 days in accounts receivable days outstanding between August 2000 and June 2002. However, for the first six months of 2002, the delays are increasing, averaging $6.3 million in accounts receivable and 4.2 accounts receivable days outstanding. Each account is annotated in the system identifying the reason for the delay. However, at this time, this detailed information is not systematically reported and analyzed. It is recommended that Patient Financial Services track and monitor this data and analyze its components to determine how these exceptions can be minimized.

Billed Claims Returned for Additional Information

Finally, the Monthly AR Summary provides data on accounts receivables where bills have been returned and collections have been delayed because additional information is required by the payer. According to the Monthly AR Summary, this amount has decreased to $254,906 in accounts receivable and only 0.2 accounts receivable days outstanding as of June 2002. This category has seen a precipitous drop since it reached its two-year high of 1.9 accounts receivable days outstanding in November 2001. This finding indicates that bills are complete before they are sent for payment.

In summary, Patient Financial Services has a valuable tool for assessing inpatient billing exceptions, the AR Summary Report. Management states that the AR Summary report is reviewed weekly for reasonableness. However, the data and information provided is not systematically analyzed over time and proactively utilized to address process issues related to billing exceptions.

Outpatient Billing Exceptions

Unlike inpatient accounts receivable, there is no management report that provides the detail of outpatient accounts receivable. While the front end of the billing and collection process is more automated for outpatient than inpatient charges, overall the billing and collection cycle is the same and many of the billing exception issues noted for inpatient accounts receivable also apply to outpatient charges, such as accounts pending MediCal eligibility. There are several significant areas in the outpatient billing process that have experienced problems. While the emphasis of the Hospital is on inpatient billings, outpatient billings, which comprised 30 percent of total charges, still realized over $39 million in revenues in fiscal year 2001-02. Further, given the issues discussed in detail below, this amount appears to be less than optimum revenue collections.

No Diagnoses Recorded in System

According to Patient Financial Services, one of the main reasons that outpatient accounts may not be billed timely is due to a lack of a diagnosis being recorded in the system, which is required for payment by third party payers, (i.e. MediCal, Medicare, and commercial insurance companies). These exceptions are caused by either procedural or system problems. Historically, accounts would be forwarded to billing even without the diagnosis coding, and billing staff would provide a generic diagnosis in order to commence billing. However, this practice, for liability purposes, was stopped by the current Patient Financial Services Director and instead these accounts are held until appropriate diagnoses are entered by qualified clinic or departmental staff. Patient Financial Services started monitoring these exceptions weekly in May 2002 and, at that time, there were a total of $3.2 million in charges with no diagnosis code. Monthly reports are now forwarded to the clinics and departments for follow up.

Recognizing this as a major issue and an impediment to the timely production of billings, a continuous quality improvement (CQI) committee was formed in February 2002 with the goal of analyzing the process and making recommendations for improvements. A report of recommendations was issued in May and, at that time, the Diagnostic Coding Task Force was created to address implementation issues. Task Force members include management representatives from Patient Financial Services, Information Systems, the Compliance Department and several Hospital clinics such as the Laboratory and Radiology. Presently, the Task Force is using one problematic clinic as a pilot project and concurrently working with clinic physicians across the organization to address their concerns about procedural issues. Clinics and departments as well as Hospital management, including the Executive Administrator, receive monthly no diagnosis statistics. However, there is no formal reporting on the Task Forces’ progress.

Physician and clinic participation are critical to ensure billings are accurate and timely. Yet, physicians have little incentive for procedural improvements in the billing function and paperwork oftentimes is a very low priority when the mission of the Hospital is to provide care, regardless of cost. With the establishment of the Task Force and the inclusion of physicians and clinic staff in the improvement process, the Hospital has made significant strides toward improving this area of the billing process. However, as of October 14, 2002, there were a total of $4.2 million in charges with no diagnosis code, an increase of approximately $900,000 since these charges began to be tracked in May 2002. Clearly, with many issues yet to be resolved and Task Force recommendations not yet implemented, the full effects of this effort remain to be seen. This issue should remain a top priority for Hospital management and the Task Force should continue to actively pursue implementing the recommendations of the CQI committee. Further, implementation status, process improvements and no diagnosis exceptions should be reported monthly to the Hospital’s Executive Administrator in a formalized report.

MediCal Outpatient Billing Exceptions

Weekly, MediCal outpatient billings that have exceeded the 15 day waiting period, and that are not held back for some reason, are forwarded to Health Management Systems (HMS), an outside vendor, for processing. This transfer of data occurs for most billings before any manual review by Hospital staff. HMS edits the bills provided, forwarding clean billings to MediCal for payment and returning any billing exceptions to the Hospital for resolution. Exceptions may occur for one of three reasons:

1. Error in the data submitted
2. Provided services are not covered
3. Additional documentation or information required

There are two staff assigned to following up on these exceptions. Typically, they have one or two days before the files are again processed by the weekly download to HMS. According to the Director of Patient Financial Services, bills that are deemed by the edit process conducted by HMS to not be covered by MediCal are cursorily reviewed and then routinely submitted again for processing with the expectation that MediCal will deny payment. By obtaining a MediCal denial, Patient Financial Services is able to write-off the patient charges as charity care, which is partially offset by State funding. Patient Financial Services receives monthly reports from HMS that provide statistics on MediCal outpatient billing exceptions. Included in the HMS reporting package is the exception rate for new claims processed, a subset of all claims being edited each week. Since HMS first started reporting the exception rate in October 2001, it has remained relatively constant and averaged 29.3 percent. Additionally, HMS provides a report that presents monthly exceptions segregated by the staff person responsible for the account. This report also includes several categories of exceptions that have been segregated by Patient Financial Services for tracking and monitoring, such as no diagnosis recorded in the system and hard copy bill required to be sent. Other than these exceptions, causes for exceptions are not routinely identified, tracked and analyzed to determine procedural causes.

However, the Hospital does obtain a system report that provides detail on the causes of all exceptions identified by the edit process. While historical reports are not maintained by Patient Financial Services, one weekly exception report dated 10/23/02 was obtained for analysis, and exceptions were coded to one of the three categories by the Director of Patient Accounts. As shown in Table 6.3, analysis of the week provided indicates that 43 percent of exceptions were due to errors in the initial data submitted by the Hospital. Forty percent of exceptions were due to further documentation or information required by MediCal. Finally, 17 percent were due to expected MediCal denial of services provided by the Hospital.

Table 6.3

MediCal Outpatient Billing Exceptions

Source: Health Management Systems Medi-Cal Outpatient Inventory Report

In each of the categories, there were a small number of reasons that accounted for the majority of the exceptions. For Data Errors, there were six exception explanations that accounted for 75 percent of the total data errors. The explanations were primarily comprised of invalid or missing data, including diagnosis, procedure, quantity, place of service, and even patient sex. Invalid quantity, distinct from quantity being greater than the maximum allowed, is the largest grouping, totaling $807,547, but only 304 errors. Patient sex missing or invalid, an obvious data error, accounted for $203,935 and 379 errors. Place of service code missing accounted for $160,330 and 2,021 errors.

Three Provided Services Not Covered exceptions accounted for 74 percent of that category. The exceptions include procedures not payable for date of service ($308,036 and 1,300 errors), Short Doyle diagnosis not billable ($262,713 and 614 errors), and quantity is greater than maximum allowed ($262,513 and 679 errors).

Finally, five explanations account for 73 percent of exceptions due to additional documentation or information required. The largest of these exceptions at $754,242 and almost 3,000 errors is the result of missing Treatment Authorization Request (TAR) numbers. An additional $154,349 and 642 errors are due to missing TARs specific to occupational therapy, audiology and speech services. Two of the largest exception groupings are related to required itemization and information on administered or injection drugs, totaling $775,877 and 742 errors.

In all, the weekly report identified over 20,000 exceptions from a total batch of 8,857 claims. Clearly, any given claim can have several exceptions and one correction may resolve multiple exceptions. However, the report does not provide statistics on the number of claims or the dollar amount from the batch that were rejected.

MediCal outpatient billing exceptions should be tracked and monitored by cause. Significant exceptions in terms of dollar amounts as well as volume should be investigated in all exception categories including Provided Services Not Covered. According to management, MediCal outpatient accounts are not billed if exceptions, other than Provided Services Not Covered, have been identified. However, these result in delays for which small procedural changes may result in significantly improved performance. Further, the large number of exceptions related to data errors indicates that complete and accurate information is not being input into the system up-front. It is recommended that Patient Financial Services develop front end process improvements, especially in the departments and clinics where these errors are occurring or in high volume, MediCal outpatient departments.

Medicare Outpatient Billing Exceptions

Medicare outpatient billings, like other outpatient billings are produced after the 15-day waiting period. Once bills are created by the system, a data file is transferred to an HMS sub-contractor, which edits the file ensuring that the information submitted is sufficient for payment. Then, the clean billings are electronically forwarded to Medicare for payment. Any exceptions are followed up by staff in Patient Financial Services. According to Patient Financial Services management, unlike MediCal, there are few eligibility issues or requests for additional documentation.

However, Medicare outpatient billings are another area where Hospital management has identified significant processing problems. Medicare requires a unique, pre-certified identifier of the physician providing care. The Hospital’s data files of physician identification numbers have not been maintained, resulting in significant errors when billings are forwarded for payment. While the data files are the responsibility of the Information Systems Division, Patient Financial Services is extensively impacted as a user of the data. Because of this issue and the billing errors that result, Medicare outpatient billings are processed only once a month. Ideally, the files would be processed daily as billings reach the 15-day threshold.

A task force led by the Compliance Department has been established to address this issue. Currently, the Hospital is in the process of purging the files of bad data. Additionally, they have made system improvements that may also reduce exceptions, such as linking medical residents or interns to attending physician identification numbers. Further, the task force is establishing a process to control access to and provide annual reviews of system tables. The error rate has decreased from 65 percent in March 2002 to 48 percent in June and to 24 percent in October 2002. The actions of the Hospital in addressing this issue are appropriate and require no further recommendations other than to move forward so that Medicare outpatient accounts can be billed daily as they pass the 15 day threshold.

In summary, the Hospital and Patient Financial Services utilize a variety of reports to monitor outpatient billings in general. Further, management has identified two significant issues in outpatient billing processing and they are addressing those issues with enhanced tracking and monitoring. However, outpatient billing exceptions are not comprehensively tracked, monitored, and analyzed over time. Patient Financial Services does not have a mechanism in place to capture outpatient billing exceptions as they occur through the billing and collection process similar to that created for inpatient billings. Section 5 of this management audit report recommends that the Monthly AR Summary provide the same level of detail for outpatient billings as it does for inpatient billings. Implementation of this recommendation would provide system resources for proper management controls. This would allow Patient Financial Services to identify areas where process improvements could make a significant impact in reducing billing exceptions.

Billing Exceptions Identified After the Billing Process

Finally, once billings have been sent and collections are being attempted, billing exceptions inevitably will be identified. For MediCal and Medicare, these exceptions would be classified by denials of payment, which is addressed in detail in Section 7 of this report. For self-pay and commercial accounts, these exceptions would be identified in the Collections Unit of Patient Financial Services. The Collections Supervisor indicated that billing exceptions are not uncommon and may consist of such errors as services were not provided or an inappropriate payer was billed. For example, the patient may have been billed when there was really a third party payer.

While the Collections Unit has staff dedicated specifically to fielding patient service calls and walk-ins, the Unit does not methodically track patient complaints or billing exceptions. Data on all patient complaints and billing exceptions should be collected, aggregated and analyzed so that, again, deficiencies in the billing process can be identified and process improvements can be made.

Management reports that the Collections Unit does not receive numerous patient complaints or phone calls and any significant patient issues are forwarded to the Patient Relations Department. Rather, management states that patient inquiries are typically for explanation or clarification of bill details. However, Patient Financial Services would benefit from tracking these types of patient inquiries as well because it would enable Patient Financial Services to enhance either the bill or the bill process to reduce patient confusion or misunderstanding.

Conclusions

Deficiencies in the billing process have been the focus of Patient Financial Services for the past two years. While some of the larger issues are currently being addressed, billing exceptions are not comprehensively tracked, monitored, and analyzed. Significant issues remain where process improvements would lead to fewer billing exceptions. Reduced billing exceptions, in turn, reduce rework, increase collections, improve cash flow, and maximize resources.

Recommendations

The Finance Department and Patient Financial Services should: