Section 8
Monitoring Uncompensated Care Recovery Services

• In December of 2001, the Department of Public Health requested Board of Supervisors approval for a proposed contract with Health Advocates to assist San Francisco General Hospital in collecting unpaid inpatient hospital bills from MediCal and other third party payers for services provided to indigent patients. Under the terms of the contract, Health Advocates is to establish the patient’s eligibility for MediCal, or other third party payer programs. When the Department of Public Health requested approval from the Board of Supervisors for this contract in 2001, the Department reported that the proposed would result in approximately $7.0 million annually in revenues to San Francisco General Hospital. However, the actual collection targets specified in the contract were (a) $3.8 million in calendar year 2002, which is $3.2 million or 45.7 percent less than the reported $7.0 million, and (b) $4.8 million specified in the contract for calendar years 2003 through 2005, which is $2.2 million, or 31.4 percent less than the reported $7.0 million. Actual collections from February of 2002 through October of 2002 were approximately $1.4 million, indicating that in calendar year 2002, Health Advocates did not reach the $3.8 million collection target specified in the contract for 2002 or the $7.0 million target.
• Under the contract, the Department of Public Health pays Health Advocates based on a declining fee schedule, which provides less of an incentive for Health Advocates to collect more difficult accounts. However, under an inclining fee schedule, which would provide performance incentives to pursue collection of the more difficult accounts, the contractor would earn a higher fee for obtaining MediCal eligibility for more difficult accounts, motivating contractor performance. Based on the Department’s estimate of $7.0 million in annual gross revenues, the Department would save $60,000 annually if the fee schedule were inclining using the same rates. If Health Advocates only generates $4.8 million annually in gross revenues as established in the contract for the collection target, then the Department would save $144,000 annually.
• Further, the Hospital’s Patient Financial Services Division is not adequately monitoring the performance of Health Advocates. The Division has neither fully developed performance measures, consistently benchmarked performance to specific goals, nor trended performance over time.
• The Department of Public Health should amend its current contract with Health Advocates to reconfigure the fee structure to an inclining fee schedule. Collection targets should be revised and Patient Financial Services should improve the monitoring of Health Advocates and the Eligibility and Registration unit by improving performance measurement tools and regularly analyzing the results.

Background

The primary objective of the Eligibility and Outpatient Registration Division of Patient Financial Services is to determine who is liable for patient charges. Division eligibility workers are responsible for the follow up and completion of eligibility information and billing recommendations for all admissions to the Hospital. As part of the eligibility determination process, eligibility workers immediately assess all patients admitted to the Hospital for private insurance, MediCal or Medicare coverage. If no coverage is immediately established, they conduct interviews to determine if the patient is potentially eligible for MediCal by establishing MediCal linkage. If there is no linkage, eligibility workers will then decide if an uninsured patient needs a referral to apply for various other programs, including the City’s Sliding Scale Program. The eligibility workers will complete an admission packet with required forms, recommendations, and application referrals. Admission packets are referred to the Department of Health Services MediCal Office if the patient admission packet is complete and has a positive MediCal linkage. If the patient admission packet is incomplete or has a possible MediCal linkage requiring further investigation, the admissions packet is referred to either Health Advocates or the Department of Health Services MediCal Office, depending upon pre-established referral criteria.

Health Advocates is a private contractor selected through a Request For Proposal (RFP) process in July of 2001 to provide uncompensated care recovery services to the Hospital. The vendor assists the Hospital with collecting unpaid inpatient hospital bills for services provided to indigent patients by establishing third party liability or eligibility for programs such as MediCal or Workers’ Compensation. Their services include patient assistance with completing MediCal eligibility applications, and representation and legal assistance for patients appealing MediCal decisions. The term of the contract with Health Advocates is January 2002 through December 2005.

The Department of Public Health estimated during the contract approval process that it will receive approximately $7.0 million annually in gross revenues from Health Advocates obtaining eligibility for MediCal or other third party payments. An estimated $1.2 million per year, or approximately 17.4 percent, will be paid to Health Advocates as compensation based on a declining fee schedule, as shown in Table 8.1:

Table 8.1

Health Advocates Fee Structure

Source: Health Advocates contract expiring 12/31/05

Management asserts that more favorable terms were negotiated in the new contract than existed in the contract with the previous vendor. Improvements include reduced fee percentages that are applied to negotiated base amounts, which are lower than what MediCal is currently reimbursing. However, the declining fee structure, which was carried over from the previous contract, provides less of an incentive to collect difficult accounts. An appropriate fee structure in this situation would be an increasing fee schedule, where the more difficult accounts earn a higher fee, which would motivate performance. Based on the Department’s estimate of $7.0 million in annual gross revenues, the Department would save $60,000 annually if the fee schedule were inclining using the same rates. If Health Advocates only generates $4.8 million annually in gross revenues as established in the contract as the collection target, then the Department would save $144,000 annually. The Department of Public Health should terminate or amend its current contract with Health Advocates and reconfigure its fee structure to an inclining fee schedule.

Monitoring Vendor Performance

Patient Financial Services should closely monitor the performance of the vendor to ensure that acceptable service is being provided, particularly since Health Advocates is a new vendor. Patient Financial Services should ensure that only appropriate accounts are being referred, collection targets are set at appropriate levels, and these targets are being achieved.

Performance Measurement

The vendor contract states that the "Contractor shall participate as requested with the City, State or Federal government in evaluative studies designed to show the effectiveness of Contractor’s Services. Contractor agrees to meet the requirements of and participate in the evaluation program and management information systems of the City." A review of the original contract showed no evaluative studies were written into the contract. According to management, because the vendor contract only recently began, no evaluative studies have been designed to date. In addition, management could not describe any future plans for any evaluative studies.

Patient Financial Services reported that Health Advocates is monitored in three ways: the amount collected, inpatient days converted to MediCal or other third party payment, and account status. Patient Financial Services did not provide any documentation supporting that performance measures were used on a regular basis, consistently benchmarked to specified goals, or trended over time.

Collections

First, the contract establishes annual collection targets based on the previous vendor’s actual collections. The collection targets are the actual base payments received by the Hospital prior to the deduction of vendor fees for service. The annual targets are $3.8 million in calendar year 2002 and $4.8 million in calendar years 2003 through 2005.

The Director of Patient Financial Services stated that because the contract only recently began, to date, there has been no review of Health Advocates’ collection amount in comparison to the collection target. The Director advised that both the Director and the Hospital Eligibility Manager were responsible for reviewing Health Advocates’ collection amounts in comparison to the collection targets. However, the Hospital Eligibility Manager appeared unaware of such a responsibility.

The collection targets were established to ensure that Health Advocates maximizes revenues for the Hospital. However, the collection targets in the contract are much less than the $7.0 million estimated annual collections provided by the Department of Public Health when the contract was approved. According to the October 2002 Health Advocates invoice, collections to date were approximately $1.4 million. It is unlikely the Health Advocates will reach the $3.8 million target as specified in the contract or the $7.0 million asserted by management for 2002. While the variance may be due to delays in the receipt of collections, this appears to have been considered in the contract target, as the 2002 target is substantially lower than the targets for subsequent years. Further, delays in start up do not appear to be an issue given that accounts began to be referred in February 2002.

Targets should be revised based on analysis of total expected referrals and other relevant data and information, such as historical experience. Without a systematic monitoring of collections compared to realistic collection targets, this basic measure of performance is unknown. Patient Financial Services should, on a monthly basis, review Health Advocates collection amounts prior to the deduction of contingency fees, and investigate any anticipated variations from the annual target amount.

Inpatient Days Converted to MediCal or Other Third Party Payment

Currently, the Hospital monitors inpatient days converted to MediCal or other third party payment by preparing what is called the Financial Class 3 Report. The Financial Class 3 Report shows the monthly conversion of inpatient days to MediCal or other third party payment by Health Advocates, the prior vendor and the Department of Health Services. Management states that the total days converted by Health Advocates is compared monthly to a benchmark of 440 days, which was reportedly the previous vendor’s highest monthly level. However, this benchmark is not included in the contract.

The Financial Class 3 Report does not compare inpatient days converted to MediCal or other third party payment with the total inpatient days referred to Health Advocates. Information on total referrals, if included, would allow management to better gauge the performance of Health Advocates. Total referrals would allow the Patient Financial Services to not only monitor workload, it would also allow ratio analysis, which would show if changes in the number of days converted were the result of fluctuating referrals. An example of such a report is provided in Table 8.2. This percentage rate can be compared to a target rate, such as the previous vendor’s or the Department of Health Services rates, in order to measure the Health Advocates’ success.

Table 8.2

Example Report:
Conversion of Patient Days
To MediCal or Other Third Party Payment (1)

(1) Data provided in the table is for illustrative purposes only.

In addition, there is no methodical analysis or comparison between the performance of Health Advocates and the prior vendor’s performance. The Hospital should revise its current reports or develop additional reports to allow for a more meaningful analysis of Health Advocates’ performance.

Account Status

Finally, Eligibility and Outpatient Registration management reviews status reports of active and closed accounts. These reports provide detail on each account including patient name and number, admission and discharge date, total charges, and status or reason account was closed, if applicable. However, reports showing the status of each account referred are not summarized sufficiently to allow analysis. One of the primary purposes to review account status is to verify cases are being worked and are closed in a timely manner, because collections increase and cash flow improves the earlier billing occurs and collection is attempted. Monthly statistical analysis reports should be developed that aggregates account status into meaningful categories. For example, an aging report of referred accounts, similar to an accounts receivable aging report, would show the length of time accounts are active and, accordingly, would show the aggressiveness with which Health Advocates either works the accounts or writes them off. An example of an aging report is provided in Table 8.3.

Table 8.3
Example Report:
Aging Report of Referred Accounts (1)

(1) Data provided in the table is for illustrative purposes only.

As noted in the sections above, the three performance measures used by Patient Financial Services do not adequately evaluate the effectiveness of Health Advocates. Without timely and ongoing evaluative studies, or systematic performance measurement, there is an increased risk that the performance of Health Advocates will be unchecked and ineffective. Patient Financial Services should methodically document and review performance measures over time and against pre-established benchmarks. Further, the framework for an evaluative study should be immediately established with a specified timeline for periodic evaluations throughout the contract term.

Monitoring Referrals to the Vendor

The policies and procedures manual for the Eligibility and Outpatient Registration Division lists specific criteria for referring a patient’s account to Health Advocates, such as homeless or short stay patients. Patient Financial Services tracks all referrals made to Health Advocates by acute medical and acute psychiatric categories, but does not track referrals made by more detailed categories such as by which referral criteria were met. For example, Patient Financial Services does not know how many disability-linked accounts or homeless accounts were transferred to Health Advocates or the proportion of these accounts that ultimately resulted in collections.

Without tracking such data and information, Patient Financial Services cannot monitor the performance of the Eligibility and Outpatient Registration Division or its individual eligibility workers, nor can it monitor the effectiveness of Health Advocates at processing specific categories of accounts. It is unable to determine if referrals are excessive or to determine if some cases would be more cost effective to process in-house.

Monthly, Patient Financial Services should track and monitor referrals and the number of accounts converted to MediCal or other third party payments by referral criteria. An example of the detail required for analysis is shown in Table 8.4.

Table 8.4
Example Report:
Analysis of Referrals Based on Established Criteria (1)

(1) Data provided in the table is for illustrative purposes only. Actual data is currently not available.

The results should be analyzed and compared to established benchmarks for each criterion. This analysis would allow Patient Financial Services to examine eligibility worker and Division performance, the appropriateness of the policies and procedures guidelines for making referrals to the Health Advocates, and to make adjustments when necessary. It would also allow for an assessment of Health Advocates’ performance in processing specific categories of accounts and would allow for the targeted resolution of problems.

Conclusions

The Eligibility and Outpatient Registration Division of Patient Financial Services makes the initial determination of liability for patient charges. The Division follows up with patients, completes eligibility assessments, and makes billing recommendations for all admissions to the Hospital. Eligibility workers check patients for linkages to MediCal and may refer patient accounts to the Department of Health Services MediCal Office or a private contractor, Health Advocates, to apply for state and federal programs, in order to obtain third party reimbursements for uninsured patients. Referrals to Health Advocates are based on pre-established criteria.

Our review noted that vendor performance is not systematically monitored with meaningful measurement tools. Further, referrals to Health Advocates, based on the established criteria, are not tracked, inhibiting the ability of management to measure the performance of the Eligibility and Outpatient Registration Division and its individual staff.

Recommendations

The Department of Public Health should:

Costs and Benefits

Minimal costs will be incurred for the development of comprehensive performance measurement tools and for the on-going monitoring of Health Advocates and the Eligibility and Outpatient Registration Division performance and existing resources should be used. Benefits potentially include improved vendor and Eligibility and Outpatient Registration Division performance, resulting in increased revenues and more timely collections. Further, by restructuring the vendor payment structure, the Hospital would save $144,000 annually based on the Hospital’s current projections of vendor collections.