Sutter Health Care Case Analysis ACC 281: Accounting Concepts for Health Care Professionals Arlene Rivero May 21st, 2011 Sutter Health Care Case Analysis With the current recession, health care organizations have seen in increase in the inability to collect debt from self-pay, uninsured, and underinsured patients. This has caused a struggle on the organization to meet operational margins, and profits. There are a number of reasons for this new increase in patient debts, the more common are, poor accounting practices, lack of patient information and correct patient demographics.

Obtaining the correct patient information plays a large part on non collectable debt because patients are not able to be reached. Even though there are uninsured individuals, “more than 80 percent of uninsured people come from working families (Souza, 2007)”. Many of theses people have the means to pay for hospital services but are not requested to pay out the funds. This paper will discuss how one health care organization, California’s Sutter Health, has taken steps to correct this issue. It will analyze the accounting practices put into place by Sutter Health and the financial achievement the facility has created.

This author will also discuss a different solution to the issue of debt collection for self-pay patients as well as an opinion concerning the actions taken by Sutter Health. Sutter Health is a not-for-profit health system that provides health care to over 100 Northern California cities and towns (Souza & McCarty, 2007). Sutter Health is composed of hospitals, physician organizations and other health care service providers that share resources and expertise to advance health care quality. They have grown from a small independent health care facility in Sacramento to one of the largest health care providers today.

Due to the increase in costs and the inability to collect payments, there have been many attempts to repair the budgeting and patient collections. As a result, they have been working on transforming and redesigning all of their management and account processes and approaches while striving to keep the health care consistently affordable for their patients. Sutter Health has focused on affordability, that in 2009 over 100 million dollars was eliminated from its cost to help reduce health insurance premium increase (sutterhealth. org).

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Along with this reduction, Sutter health provided 104 million dollars in charity health care to patients with the inability to pay. Even though they are considered one of the top health care providers in Northern California, they had there share of negative publicity. Sutter Health had a class action lawsuit filed against them regarding pricing and collection practices for the uninsured patients at their facilities. This lawsuit was part of several hospital systems that were accused of charging uninsured patients more than the Medicare rates (Colliver, 2008).

Sutter Health organizations agreed for three years, to maintain discounted pricing polices for uninsured individuals, develop more compassionate collection policies to protect those individuals who fall behind on payments, and assure that the discounted prices are fair (Lawrx. com). The value of the settlement was never determined, but Sutter health “believed very little money will actually change hands (Kasler, 2006)”. During those three years of developing collection policies, Sutter Health revamped its entire patient collections department to create an up front collections department.

They began this process in 2006 with the patient account representatives, collectors and employees of the central business office. Eventually they made their way to the registration staff to “ultimately transfer, many of the back-end functions to the front end (Souza & McCarty, 2007). ” They reduced their accounts receivable cycle by six days and increased their revenue by an additional 78 million (Medassets. com). Sutter health took steps to increase its point of service collections and improved their overall revenue cycle (Souza & McCarty, 2007).

In any organization collectibles is an important part of every business that allows them to be a valuable asset to its owners. Most corporations enjoy having a profitable accounting system and dislike having their debt ratio too high. When a company has to high of a debt ratio, they are not a solid investment and have a hard time securing funding to grow the business. As in health care, regardless if the facility is for profit or not, they need to have some form of profit so that they can continue to purchase new technology to keep up with medical advances.

There are many ways for a health care organization to obtain positive results, in the case of Sutter Health; they incorporated new management revenue software that allowed real time information on key metric indicators. The staff was able to measure performance quicker and have accurate numbers. The ability to create detailed reports in minutes allowed receivables managers to isolate and analyze data for each payer (Medassets. com). This resulted in “faster problem resolution and increased leverage in negotiations (Medassets. com)”. The central billing office was able to detect errors in days versus weeks.

This allowed Sutter Health to improve its cash position. When Sutter Health switched to this new accounting strategy, they put more ownership on their entire patient financial team. Each team member was responsible for the capturing of the collectibles that came across their desks. This allowed the staff to make autonomous decisions and to identify trends to boost performance. Each individual was in charge of their own business. Each team was given access to a horizontal analysis of its aged trial balance. They were able to see their progress in meeting the individual and team benchmarks.

The accounting strategy that Sutter health was trying to impart on its front end registration staff involved increasing collections, reducing A/R days and empowering staff members to be responsible for each account they come in contact with. Once the situation was turned around, employees were trained on the new system, the organization focused on the accounts receivable. Gross A/R days, cash collections, unbilled A/R days, billed A/R days, major payer A/R days, and percentage of A/R over 90, 180, and 360 days were areas of focus. Each associate was able to prioritize and automate their account work lists.

They were able to see their rank amongst the entire team. This empowered the staff to work successfully and find their areas that would have the greatest impact on the key benchmarked areas. In 2006, with the increase in revenue collections, new found completive sprit, and renewed sense of ownership, the central business office “received Sutter’s Business Processes Excellence Award for outstanding achievement (Souza & McCarty, 2007). ” Sutter health reorganized its central business office and allowed its patient registration staff to become part of the collections process.

This author applauds their achievement and the increase in revenue it has brought to their facilities. However, many for profit systems have up front collections and financial counselors in place to help capture the revenue for self-paid patients. They also have charity systems in place to help with those who are uninsured. These systems are not part of large discussions as they are for profit health care. We seem to not pay as much attention to health care organizations that are for profit then those that are non-for profit.

With a non-for profit health care organization, there are funds that are provided by the government and the tax payers of the community. This is why the non-for profit facilities are under more financial scrutiny. This writer would develop a simple yet effective way to increase collections without jeopardizing accuracy. Allowing each individual to have a goal of a collection amount assigned to them would give them empowerment to match said goal. However, without education the staff or giving them the tools to succeed the point is useless.

Sutter Health worked with MedAssets and their financial revenue management software to create user friend data with real time access for their representatives. This enabled them to have all the financial information needed to collect at a moments notice. There are ways to embrace collecting co-pays, deductibles and coinsurance amounts that do not involve a complete financial software system overhaul. Creating a collection contest with simple charting is a quick and simple way of providing ownership to front end staff.

It is important to share the financial picture with all members that are in contact with financials. This allows for the staff to become engaged in the collection process. If they are given a “what if we collected 75 percent of our cash owed to us at registration “scenario they would see how important it is to collect monies owed. This writer would make sure that the front-end registration staff is trained in collections. They would also have an understanding as to the big financial picture; they will see what they bring to the organization when they are collecting monies up front.

Changing the patient registration culture is difficult as in any change, but providing information is critical to have success. Creating a collection contest is simple and rewarding to any department, or company. A simple graph can be used to display how many co-pays, deductions, and co-insurances have been collected by each front end staff member. There could be a small prize at the end of a tracking period so that the winner will feel compensated for a job well done. As the collections increase, so can the award at the end of the period.

If the department does not like prizes, then a small bonus can be created for the collection departments. All that would be required for this would be a set goal of monies to collect and then the entire team’s collection would be counted towards the goal. Once the end of the period arrives, depending on the percentage the team was over, they could qualify for a small cash amount. If the facility is not agreeable to a bonus or cash prize, then they could reward the department with something that is not cash related.

There could be department against department with a trophy that travels to the winners; there could be a day off with pay for the highest producer, a premier parking spot, or first choice for vacation request. Simple ideas like these can create a contest and an excitement for collectables. The important step to any contest is to make sure that the information that is obtain is correct so that the collections department will have accurate numbers to work with. All registration employees should be held accountable for accurate information so that billing is not compromised.

Accurate patient demographics allows for clean billing. This will also insure that any bills that are mailed out to a patient, they will have a correct mailing address. If each employee would be responsible for investigating incorrect information, they would eventually input correct information in the beginning to avoid the intense detective work involved. A data integrity department would make sure that all information entered is accurate and provide each department manager with a report of each employees work.

There should be a percentage of correct information to incorrect information that is considered passable and required for each employee to meet. For example, if 100 patients are registered by a registration employee, and 75 of them have correct demographics, the registration employee would be at a 25 percent integrity rate. The integrity rate should be in the high 90’s so that each billing will be accurate. This way only ten percent of bills would be incorrect causing a small amount of non collectables. The ultimate goal for each patient registration staff should be 100 percent. This would eliminate any missed monies to the facility.

The registration department could also make it a policy that each employee is allowed to have three low scores in a quarter and if they pass more than three there will have to be a meeting of the employee and supervisor to decide on a correction method. Establishing incentives for collections, worked aging reports and customer satisfaction are additional ways to increase collectibles. Granted the results may not be as enormous as Sutter Health but it is a way to start for smaller facilities that are not able to afford such expensive software that Sutter Health purchased to increase their collection revenue.

Establishing quality collection guidelines can help any health care organization. As with any company that provides a service, there should be an establish collection policy in place so that the customer understand what they are being held responsible for. When an individual enters into a grocery store or a gas station for that matter, they are expected to pay for their items. Why is it that when it comes to health care, individuals feel that they are not responsible to pay what it owed for the services they are rendered.

In the case of an emergency, it is an understood that an individual will have to be treated prior to paying for services. In the case of a non emergency, the individual should have an idea as to what financial arrangements will be available for any balances owed prior to service. If a finance office has set guidelines in place, then the front end staff will know in advance what to charge the individual who is arriving for service. Once the front end has its correct collection amount, then they can take part in the contest by collecting.

Health care facilities need to “adopt a new mindset of active price transparency and front-end collections (Cleude, 2009)”. Tools and processes must be in place to capture every available dollar in the beginning stages of patient registration. Individuals today have an idea as to what their insurances covers, co-pays and deductibles. If a health care facility were to give an estimate as to the type of service prior to registration, then the patient would not be shocked at time of registration. The patient would be prepared and have said monies at time of service.

With today’s technology, any health care organization could have a financial calculator on its website so that patients could even figure monies out in advance. Once all of the tools and training are given, it is imperative that the health care facility makes payments easy. . Discounts should be available to those who have financial need. Access to all forms of tender including debit transactions should be available. There should be easy to set up payment plans as early as possible for the patient. Payment plans normally increases the likelihood that patients will pay in advance and in full (Cleude, 2009).

With the sputtering economy, health care organizations are struggling to collect debt from self-pay, uninsured, and underinsured patients. Collecting upfront payments from self pay patients can be difficult but not doable. To ensure their financial viability, many health care organizations are shifting the focus on front end collections. One of the most discussed cases is the California Sutter Health organization. Sutter Health took a huge step in creating new collection practices. In the end, they were successful and able to increase there collections.

Although they used a management software, the results were fantastic and increased awareness across the board on the importance of collecting up front. References Cledue. (2009, November) Up front collections: A hospital’s lifeline. Healthcare Finance News, retrieved May 19, 2011 http://www. healthcarefinancenews. com/news/front-collections-hospital%E2%80%99s-lifeline Victoria Colliver. (2008, February) Unisured pay more to hospitals: They’re charged higher rate than patients on Medicare, study says. San Francisco Chronicle Retrieved May 19th, 2011 Margie Souza, & Brent McCarty. (2007, September). From bottom to top: how one


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