Case summary: issues faced by Sutter Health, solutions and its outcomes

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Running Head: CASE STUDY - ACCOUNTING

California Sutter Health is a non-profit organization which aims to meet various communities’ health care needs. It primarily serves those who do not have enough money to pay for their medical needs and other related health programs and services. In more than 100 towns in Northern California, Sutter Health has almost 50,000 hospital employees including doctors, nurse, staff, volunteers who offered compassionate care to more than 10 million patients in 2011 (Sutter Health, 2012, para.1). In Souza and McCarty’s article in 2007, From Bottom to Top: How One Provider Retooled Its Collections discusses how Sutter Health System enhanced its income collection by retooling its accounts receivable collection process. This change in collection process resulted to not just by increasing the revenue collection but it has also improved the culture within the departments in charge of patient registration and revenue collections. This paper shows how Sutter Health became one of the leading health care providers in Northern California by improving its accounting practices specifically its revenue collection process. This paper also presents the case summary discussing issues that Sutter Health faced, the solutions used and its outcomes.

Case Summary

In 2006, Sutter Health Systems experienced an alarming trend of increasing accounts receivable days outstanding, decrease in revenue collections and continuous annual debts. During the same year, a combination of increasing unemployment rate and economic downturn contributed to Sutter Health’s financial struggle. To eliminate these financial issues, the organization decided to implement new debt-collection policies to see if improvements could be achieved without having further capital expenditures on new accounting system or department reorganization. Sutter Health considered these two possible solutions as both can have significant financial impact on fixed costs.

Before implementing new strategies to improve Sutter Health’s financial condition, its management identified two main problems. First is about the difficulty to access data on operational and financial metrics such as cash collections and accounts receivable days. As a result, employees typically wait until the end of the month to check progress, place points of reference and even when making important decisions to the company. Moreover, the accounting process of patients in the hospitals does not allow managers to study and segregate data or make information about demand. Therefore, Sutter Health depends particularly on qualified programmer to create this reports, which frequently ended up to postponements when discovering and resolving problems (Souza and McCarty, 2007, p.68). It only means that Sutter Health hired special programmers since they are the only ones who can prepare the reports. It is costly for the company given that the process of identification, review and correction of problems within the reports were much difficult.

The second problem is that Sutter Health’s management do not receive real-time information until the implementation of a new revenue collection strategy. They only made use of available records of outstanding accounts. Consequently, accounting representatives cannot verify the progress of the analytics which they need in order to build up productivity and meet goals (Souza and McCarty, 2007, p.70). To eliminate these two problems, Sutter Health adopted the Patient Financial Services (PFS) which includes effective tools in improving rates of debt collected.

Patient Financial Services Explained

Patient Financial Services or PFS has many benefits to patients. This system includes basic online payment function where patients have a secure and convenient browsing on their billing accounts. It allows patient to review hospital bills, ask for a detailed report, modify insurance information and update personal information in the hospital records. It also allows them to manage their account through the internet by making monthly payments or using a payment plan. The system also includes tutorial to help patients understand Sutter Health’s billing procedures, discounts and financial assistance to some patients. The billing statement given in PFS is different from statements billed by physicians (Sutter Health, 2012).. This pertains to physicians that are directly involved in patient’s treatment but may not have seen the patient in person. For instance, a radiologist may interpret a laboratory test needed for a patient’s treatment. This radiologist is not required to set a personal meeting with the patient in order to analyze and interpret findings. In this case, Sutter Health gives separate billing information.

Going back to the point of view of Sutter Health, PFS system strengthened the entity’s Accounts Receivable accounts for the reason that PFS permits future constructive changes. Hence, PFS gives room for more quality progress in future. This program gives Sutter Health’s management a chance to develop helpful solutions to the difficulties it faces daily. One of the major problems which the entity faced was the difficulty to access data on operational and financial metrics. Under PFS, managers focused on managing these metrics that will allow them to make timely decisions and create suitable courses of action. It includes development of managerial reports that managers need in decision-making process. For reporting purposes, several metrics were set including billed and unbilled A/R days, A/R percentage using aging categories and the A/R days related to key payer sources. Upon the designation of relevant reports, the installation of computerized report writer takes place and each assigned manager has a modified set of reports organized for use as a control panel to check progress toward goals. Moreover, they can also create informal reports without the need to submit a special request.

Another problem faced by Sutter Health is lack of real-time information. The new PFS introduced more tasks to employees which require them to focus on each patient accounts so that there will be real-time analysis on registration processes. This essential requirement assured that difficulties coming from the process were properly identified, analyzed and corrected real-time which is before discharging a patient in the hospital. For that reason, the creation of supplementary component to the system took place in order to lessen the recurring claims as observed in the Accounts Receivable section. The creation of the Denial System allowed the PFS personnel to discover in real-time, any form of setback that could have taken place in the process of both registration and authentication of patients in the hospital. This system is useful in certain cases wherein there is lack of patient information since patients’ underwriters were below 18 years old which makes them not qualified to accept any form of patient accountability and in cases where the patients are widows as recorded in their marital status but listed a relative as spouse. Therefore, the new PFS system differs from the old PFS in terms of time required to access patient financial information in the hospital. The new PFS system permits employees to raise awareness on instances where patient’s accounts need particular levels of attention since employees can access information on a real-time basis.

Achieved Results

Sutter Health put emphasis on the human resources management as it established skills training programs to develop effective communications skills and an enhanced understanding of the collected data in order to give reliable information to third parties especially insurance companies for disbursement. In implementing new PFS system, it is necessary to re-orient the registration staff members about the collection of patient responsibility fees earlier or during admission. The new PFS system required training program which includes intense three hour, practical course followed by a study of on-line competency modules that had to be finished as a pre-requisite before an employee receives a user ID. It is necessary for PFS employees to learn how to properly use the tools and perform the functions on new software. The first hour of the three-hour practical training teaches employees the significant theories and principles of successful receivables management such as how to recognize problems and make independent courses of action in solving them, how to discover trends and use that data to improve performance, and how to use performance response-based outcomes rather than just activity.

PFS employees have taken this program in order to stay employed. As a result, this training improved the competency levels of the PFS employees without the need for salary increase of more than $20 per hour. In addition, there is no need for Sutter Health to employ more formally educated PFS staff members.

PFS has different set of tools that allowed its staff to carry out unique measures considered helpful in increasing general revenue-collection performance. First, the tools helped PFS staff to focus on accounting procedures that work on computerization of accounts work files. As a result, there is a significant reduction on workload build up. The tools allowed the PFS employees to process and arrange patient-accounts in different and unique ways such as classification by dollar totals, length of work and the client details. Another result showed in Accounts Receivable department as the arrangement and posting of income is set in a much faster rate compared to the traditional policies of debt collection. Lastly, PFS tools assisted employees in the course of placing patient-accounts in order to determine the percentage-attained.

PFS allowed a convenient way to calculate the average daily profits within a week and a month. This procedure guaranteed that general goals were met during the operation considering that urgent changes were made for them to establish set-goals. PFS also allowed the management to create timely reports featuring the aging-analysis and the use of temporary Discharge Bill Analysis which assured that problems were discussed and solutions were provided right away.

One of the achieved results in implementing PFS system is the reduction of A/R days outstanding from 65 days to 59 days which is three months. Reduction in average collections per day resulted in around 13 million dollars per collection or an increased total collection of $78 million dollars. The amount of the actual investment incurred was not examined in detail in Souza’s article but it showed as made up of training capital and a report writer. Upon the increase in average collection of A/R in spite of expenses incurred using the new PFS system, Sutter Health’s top management was very satisfied with its performance.

Alternative Solutions

The healthcare industry in the United States is frequently flooded by patients’ unpaid bills and outstanding medical expenses. These issues add particularly to the increasing cost of healthcare. For a non-profit organization such as Sutter Health, the lack of patient’s financial information makes it complicated to assess whether a certain patient-debtor can afford to pay his/her bill. To improve debt collection process for this situation, implementing an Adaptive Neuro-Fuzzy Inference System (ANFIS) is effective (Shi, Zurada, & Guan, 2014, p. 2888-2897). This technology offers data analysis and assessment of records by healthcare company where there is understatement in bad debt accounts. According to a research made by Shi, Zurada, & Guan (2014), ANFIS is a practical system that has proved its accuracy when it comes to classifying possible bad debts for healthcare companies. It is also useful in detecting unusual cases or transactions that can be a potential source of accounts receivable recovery.

Due to increasing reports about aggressive billing practices, healthcare companies must re-evaluate its collection policies. For the same reason, the American Hospital Association (AHA) advocated to its members to reassess their billing and collection procedures and customs in 2003 (Healthcare Financial Management Association, 2014, p. 2). AHA recommends its members to have certain revisions on policies and evaluate how the process takes place through employees who work with patients.

Figure 1. Patient Friendly Billing System. Retrieved from http://www2.simplee.com/product/patient-friendly-billing/>

Specifically, AHA recommended Patient Friendly Billing system which offers tools and procedures to help recover from the issue of negative reports. Figure 1 shows the process of how patients access and review their hospital bills through the Patient Friendly Billing System (Simplificare Inc., 2014).

Conclusion

This paper showed how Sutter Health became one of the leading health care providers in Northern California by improving its accounting practices specifically its revenue collection process. This paper presented the case summary discussing issues that Sutter Health faced such as the difficulty to access data on operational and financial metrics and the lack of real-time information. This paper showed Sutter Health’s solutions such as giving PFS employees intense three-hour training program, creation of supplementary component to the system which is the Denial System, and setting up of useful metrics. The outcomes of these solutions successfully contributed to make Sutter Health System become one of the most effective techniques in debt collections in the United States.

Sutter Health System is a vast and complex healthcare entity. In conclusion, the concepts they have applied to rebuild their collection procedures and transform the organization culture includes elements that are highly recommended and practiced in the healthcare industry. Having identified the benefits of PFS, it is now clear that each account units in Sutter Health develop operational strategies that focus on single-working units rather than different departments’ partition of data. Moreover, this paper showed that PFS has impact to all parties involved in health care transactions such as the management, employees, stakeholders and patients who are the main receiver of the PFS system’s benefits. In analysis of the training program in Sutter Health systems, its benefits to employees and organization culture are long-term in nature. Lastly, PFS has brought newer accounting principles which have increased different department’s accountability. As a result, the risk to misappropriate resource funds is at minimum.

References

Guan,J., Shi,D., &. Zurada,J., (2014). A Neuro-fuzzy Approach to Bad Debt Recovery in Healthcare.47th Hawaii International Conference on System Sciences, pp. 2888-2897. Retrieved from http://doi.ieeecomputersociety.org/10.1109/HICSS.2014.361>

Healthcare Financial Management Association (2014).Bad Debt Rising: When to Sell Your Accounts Receivable. Retrieved from Premium Asset Recovery Corp. website: http://www.healthleadersmedia.com/content/138293.pdf>

Simplificare Inc. (2014). Know the Difference! See what's next in Patient Friendly Billing® | Simplee. Retrieved June 11, 2014, from http://www2.simplee.com/product/patient-friendly-billing/>

Souza, M. & McCarty, B. (2007). From bottom to top: How one provider retooled its collections [Electronic version]. Healthcare Financial Management, 61(9), 67-73

Sutter Health (2012).Sutter Health Care Network - Sutter Health 2011 Annual Report. RetrievedJune10, 2014, from http://www.sutterhealth.org/annualreport_2011/sutter-health.php>

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