Physician Receivables Credit Balance Management Processes Audit & Management Advisory Services Project B

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1 SAN DIEGO: AUDIT & MANAGEMENT ADVISORY SERVICES 0919 October 10, 2008 SCOTT HOFFERBER Chief Operations Officer UCSD Medical Group 8201 Subject: Physician Receivables Credit Balance Management Processes Audit & Management Advisory Services (AMAS) has completed a review of the UCSD Medical Group credit balance management processes as a part of the approved audit plan for FY This report summarizes the results of our review. Background Patient account credit balances may occur for several different reasons, which include duplicate payments, overpayments, excess payments made by multiple insurance carriers and incorrect charge adjustments. In addition, payments are received by the Medical Group that should have been sent to another provider or do not include the information needed to apply them to a specific patient account. These unidentified payments are held in suspense until additional research can be completed. Medical Group Business Services (MGBS) personnel research each credit balance to determine the cause and to identify the entity to which a refund is due. The degree of research is based on the dollar amount of the credit balance. Current methodology is to work the more significant balances first and then work toward the smaller amounts as time and resources permit. There are two staff members assigned the task of researching credit balances. Research steps may include reviewing the patient s account balance, inquiring with the Medical Center (PCIS), contacting the Collection Team to determine if the patient has been sent to collection, and reviewing the explanation of benefits. Cash posting personnel also complete limited research of credit balances that result at the time the posting is completed to help ensure timely identification. Historically, the Medical Group has retained credit balances in the GE-IDX system for more than a reasonable time period. A review performed by AMAS in 1999, Professional Fee Billing Data Analysis #99-58, identified credit balances that were over 10 years old. A subsequent review in 2003, Medical Group Account Reconciliation Team # , again identified credit balances aged more than 10 years. The 2003 review recommended development of a policy and procedure for the disposition of unidentified and undistributed payments per IDX to allow funds to be utilized in accordance with UNIVERSITY OF CALIFORNIA - (Letterhead for Interdepartmental use)

2 Physician Receivables Credit Balance Management Processes applicable campus policies. A policy and procedure titled Disposition of Unidentified Credit Balances was prepared following the 2005 review; however, it has not been formally approved and remains in draft form (Attachment A). Subsequent to the completion of audit fieldwork, AMAS was advised that a comprehensive review of billing processes, including resolution of credit balances, is planned. Audit Objective, Scope and Procedures The objective of our review was to evaluate certain aspects of MGBS credit balance monitoring processes. Specifically, AMAS was asked to evaluate the feasibility of a process to segregate credit balances from Accounts Receivable allowing the Medical Group to create additional liability accounts for the respective year s credit balances. In order to achieve our objective, we performed the following procedures: Reviewed the draft Disposition of Unidentified Credit Balances policy (Attachment A); Interviewed the Medical Group Operations Manager and the BFS General Accounting Principal Accountant; Evaluated whether credit balances could be retained as liabilities on the balance sheet in lieu of retaining them as part of the Medical Group accounts receivable subsidiary ledger; Obtained a report of all patient credit balances as of October 31, 2007 from the GE-IDX system and performed a high level review of the age and amount of credit balances; and, Selected a judgmental sample of 25 patient invoices to determine whether credit balances were managed effectively. Conclusion Based on our review procedures, we concluded that MGBS employees are aware of their responsibilities relative to researching unidentified payments and credit balances. The methodology practiced prioritizes larger dollar amounts thereby reducing the total amount of credit balances. However, credit balances are not consistently written off in a timely manner. Although not yet fully implemented, the draft Disposition of Unidentified Credit Balances policy provides a good starting point for the preparation of a permanent policy. The various dollar thresholds identified in this document for follow-up are used. However, the guidance for writing off credit balances has not been followed, pending formal acceptance of the policy. As a result, our review identified aged items from as far back as 1993 that have not been written off. Additional information about the number and dollar value of aged credit balances is included on the following chart. Page 2

3 Physician Receivables Credit Balance Management Processes Aged Credit Balances as of October 31, 2007 $1,600,000 $1,400,000 $1,200,000 $1,000,000 Amount $800,000 $600,000 $400,000 $200,000 $ (19) 1994 (105) 1995 (115) 1996 (80) 1997 (102) 1998 (161) 1999 (424) 2000 (616) 2001 (549) 2002 (785) 2003 (894) 2004 (2,293) 2005 (4,495) 2006 (7,139) 2007 (10,476) Year (Count) Observations and Management Corrective Actions A. Aged Credit Balances MGBS does not always write off aged credit balances in a timely manner Per the draft policy Disposition of Unidentified Credit Balances, credit balances less than $100 may be written off after two years and all others may be written off after five years. In addition, no research effort is required for balances less than $100 and minimal effort is required for balances less than $1,000. Because the policy has not been formally approved and communicated, there has been a lack of guidance in this area that may have contributed to numerous aged credit balances remaining in the system. Our review of 25 invoices with credit balances as of October 31, 2007 revealed that nine (37.5%) had aged beyond reasonable timeframes. There were six invoices of less than $100 aged more than two years with the oldest identified aged almost nine years. There were also three invoices of at least $100 aged more than five years with the oldest identified aged almost 14 years. Page 3

4 Physician Receivables Credit Balance Management Processes We also performed a high level review of invoices appearing on the October 31, 2007 query of credit balances and identified the following: The report evidenced credit balances dating back to June The total value of credit balances as of October 31, 2007 was $3,043,012. The invoices that could have been written off had a value of $547,602 (18.00%). Of the 28,253 invoices in the GE-IDX system with a credit balance, 8,941 (31.65%) could have been written off using the guidance in the draft policy. There were 2,956 invoices that were older than five years (2002 and older) and an additional 5,985 invoices of less than $100 were more than two years old (2005 and older). Credit balances remain in the accounts receivable subsidiary ledger until they are refunded or written off. As a result, the overall accounts receivable balance is reduced by the amount of pending credits, which impacts the transparency of financial reporting. In addition, unidentified credits that have been completely researched by staff are in effect a potential liability until the proposed five year holding period has expired and should be reclassified to a balance sheet account. A consistent credit balance policy and operational guidance will ensure that credits are timely refunded to patients and payers and unidentified credits are appropriately retained and written off in accordance with policy. Management Corrective Actions: MGMB management will: 1. Finalize the draft policy titled Disposition of Unidentified Credit Balances as a Medical Group policy after appropriate revisions are added; and approvals are obtained. 2. Write off all credit balances of less than $100 that have aged beyond two years and all credit balances of at least $100 that have aged beyond five years. Appropriate due diligence will be performed prior to writing off credit balances to ensure they will not adversely affect other accounts. 3. Work with General Accounting to: a. Develop and document a process for the annual reclassification of aged accounts into separate liability accounts based on the age of the account; b. Establish five liability accounts for balances of at least $100 that would be aged one to five years; and, c. Establish two liability accounts for balances less than $100 that would be aged one to two years. This would assist in identifying aged credit balances and Page 4

5 Physician Receivables Credit Balance Management Processes writing off the entire liability account balance as soon as it ages beyond the prescribed timeframe. B. Medical Group Credit Balance Operating Procedures MGBS has not established and communicated written credit balance management procedures. As discussed above, because the Medical Group credit balance policy has not been formally adopted, standard credit balance management procedures have not been written. Work flows have been established in GE-IDX to assist staff with completing credit balance followup responsibilities. There are also various other procedural aids in use by the staff. However, a department credit balance management procedures are needed to communicate write-off authority levels and to ensure that consistent processes are established that address expected timeframes for completing certain tasks, etc. Without procedures that outline a business process, establish roles and responsibilities across departments, and provide performance expectations, management objectives for the business process may not be met, and employees may not understand their roles and the interrelationships with other processes and departments to perform effectively. Management Corrective Action: After the policy Disposition of Unidentified Credit Balances has been formally adopted by Medical Group management, MGBS will publish written procedures accessible by all employees to communicate the processes, roles and responsibilities, and management expectations related to the credit balance process. Written procedures will contain a metric that includes the age and dollar value of the credit balance along with other key criteria that can be used to work and resolve credit balances more quickly in the future. Ongoing responsibility for managing credit balances will be clearly defined. Audit & Management Advisory Services appreciates the cooperation and assistance provided by MGBS staff during the review. Because we were able to reach agreement regarding corrective actions to be taken in response to the audit recommendations, a formal response to the report is not requested. The findings included in this report will be added to our follow-up system. While management corrective actions have been included in the audit report, we may determine that additional audit procedures to validate the actions agreed to or implemented are warranted. We will contact you to schedule a review of the corrective actions, and will advise you when the findings are closed. Page 5

6 Physician Receivables Credit Balance Management Processes UC policy requires that all draft audit reports (copied on tan paper for ease of identification) be destroyed after the final report is issued. Because draft reports can contain sensitive information, please either return these documents to AMAS personnel or destroy them at this time. If you have any questions regarding this report, please call me at Stephanie Burke Director, Audit & Management Advisory Services cc: R. Espiritu T. Jackiewicz G. Matthews T. McAfee P. Reed Page 6

7 Audit & Management Advisory Services Physician Receivables: Credit Balance Management Processes, Project B Draft Local Policy on the Disposition of Unidentified Credit Balances Attachment A ******************************** ***DRAFT*** PROPOSED PPM ***DRAFT*** For this DRAFT, deletions from the original UC Accounting Manual are shown in strikeover type, with most additions in blue italics. ******************************************************** LOCAL POLICY ON DISPOSITION OF UNIDENTIFIED CREDIT BALANCES (including unclaimed and uncashed checks, undistributed cash, unidentified wires and ACHs, unidentified credit balances in A/R subsystems, outstanding ( unclaimed and uncashed ) checks, etc.) I. REFERENCES Accounting Manual C Cash: Deposits and Other Credits C Unclaimed and Uncashed Checks H Health Care Services: Professional Fees H Medical Centers: Patient Accounts Receivable R Receivables Management Business and Finance Bulletin (BFB) Bus-49 Cashiering Policy & Procedure Guidelines II. BACKGROUND Undistributed Cash and other credits are addressed in the UC Accounting Manual at C , Cash: Deposits and Other Credits, II.B. Separately, Accounts Receivable is discussed in Accounting Manual chapters H-214-7, H , and R However, there is no provision for disposition of aged undistributed cash, unidentified wires/achs, unidentified credits in patient and other accounts receivable subsystems, and other unidentified credits. UC Accounting Manual chapter C , Cash: Unclaimed and Uncashed Checks provides University procedures concerning unclaimed and uncashed checks. Section VI addresses the write-off of these credits. Section I indicates that A written standard should be prepared for any campus policies that deviate from the standards set forth in this chapter. Accordingly, this PPM 1

8 Audit & Management Advisory Services Physician Receivables: Credit Balance Management Processes, Project B Draft Local Policy on the Disposition of Unidentified Credit Balances Attachment A modifies the write-off policies in UC Accounting Manual C for the credits created by unclaimed and uncashed checks, and expands those policies to cover Undistributed Cash and other credits. III. POLICIES AND PROCEDURES (Where practical, the Section numbers and Paragraph numbers of the underlying UC Accounting Manual chapter C have been provided in parentheses.) A. Follow-up action/follow-up effort (AM Section III. B.) For the local campus, the guidelines for follow-up efforts are as follows: Amount of Check Effort to Contact Payee $1,000 and over Maximum effort, such as phone calls or letters to last known location (see Appendix II for sample letter), consultation with the department originating the transaction, consulting directories, etc. $100 to $999 Moderate effort, including at least one attempt to contact the payee (or the payer, in the case of Undistributed Cash and other credits). $35 to $99 Effort made as time permits. Less than $35$100 No effort made to contact the payee (or payer) except in certain cases (such as Payroll), as determined by the accounting office. The above follow-up action guidelines apply to both unclaimed and uncashed checks, for the campus, the Medical Group, and the Medical Center. These guidelines should also be applied to Undistributed Cash items arising from unidentified checks, wires, ACHs, or other electronic receipts, including those which have been credited to an account receivable sub-system without being identified to a specific patient or account. 2

9 Audit & Management Advisory Services Physician Receivables: Credit Balance Management Processes, Project B Draft Local Policy on the Disposition of Unidentified Credit Balances Attachment A B. Timing of transfer to old outstanding check account (Section IV., E.) Undistributed Cash and other unidentified credits. Since there is no need to ensure availability of money to cover checks being cashed, there is no need to transfer Undistributed Cash and other unidentified credits to an outstanding credit account, as in the case of unclaimed or uncashed checks. However, just as the University honors old checks presented for payment, any department which receives a credit from the write-off of undistributed cash or other unidentified credits would have a potential liability in the unlikely case of a legitimate claim for the credit. C. Fund to be credited when checks are written off from old outstanding check account, or when Undistributed Cash and other credits are written off. (AM Section VI. A.) Checks are held in the outstanding check accounts for four years. Since a check is seldom claimed by the payee after this time, it can be written off; however, there is no legal significance to the four year period. At campus option, checks of $100 or less may be written off one year after they have been transferred to the outstanding check accounts. In accordance with Don Alter s letter of January 20, 1988, campus Undistributed Cash items are to be written off after five years, with items under $100 being written off after two years. Unidentified wires, ACHs, and other unidentified credits should follow that same timing.) D. NON-FEDERAL FUND SOURCE CHECKS Since the year when campuses became responsible for their own bad debts (instead of charging OP/General Funds), the bad debts have been charged to fund 67523A BFS-GA Contingency Funding. Concurrently, the writeoffs of campus non-federal checks have been credited to fund 67523A in order to help fund the bad debts. However, since Medical Center is generally responsible for its own bad debts, the Medical Center s checks are still credited back to the Medical Center. Although a specific department cannot be identified as the owner, it is expected that Undistributed Cash and other unidentified credits validly belong to UCSD. Accordingly, their write-off should be handled similarly to the write-off of unclaimed and uncashed checks. Campus items will be written off to fund 67523A. Items from the Medical Center will be credited to the Medical Center. Medical Group items that appear to be related to 3

10 Audit & Management Advisory Services Physician Receivables: Credit Balance Management Processes, Project B Draft Local Policy on the Disposition of Unidentified Credit Balances Attachment A patient receivables will be credited to the Medical Group. (Non-patient related items normally will have been transferred to the campus undistributed cash at an earlier date.) Original Fund Source Fund to be Credited Agency Funds Credit original fund source in ) all cases. Loan Funds Checks drawn on these funds ( ) should not be credited to an Endowment and Similar outstanding check account, as Funds Principal provided in UC AM Section IV.D. ( above. Checks credited to except principal such accounts in error should appropriated) be credited back to the fund from which they were originally drawn. In transferring checks to the original fund source, revenue accounts should be credited if suitable ones are available; otherwise, unexpended balances should be credited directly, using the transaction code for miscellaneous additions. (Except for plant funds, most miscellaneous additions codes have been closed.) E. FEDERAL FUND SOURCE CHECKS At least once a year, checks to be written off from accounts and (for outstanding vendor and payroll checks originally charged to Federal funds) must be totaled for each account; one check should then be prepared for the grand total. The check, made payable to the order of the United States Treasury, should be sent to: Director Division of Cost Allocation Department of Health and Human Services 50 United Nations Plaza, Room 347 San Francisco, CA Unclaimed and uncashed checks are very clearly identified as belonging to Federal funds. However, it is expected that Undistributed Cash and other unidentified credits validly belong to UCSD, even though the specific department has not been identified. So, in the absence of reason to believe the money does not belong to UCSD, unidentified checks, wires, 4

11 Audit & Management Advisory Services Physician Receivables: Credit Balance Management Processes, Project B Draft Local Policy on the Disposition of Unidentified Credit Balances Attachment A etc., received from the federal government will be treated similarly to other unidentified non-federal items. Campus items will be written off to fund 67523A. Items from the Medical Center will be credited to the Medical Center. Medical Group items that appear to be related to patient receivables will be credited to the Medical Group. (Non-patient related items normally will have been transferred to the campus undistributed cash at an earlier date.) 5