Reducing AR Days: Performance Improvement through Rapid Cycle Change

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1 Reducing AR Days: Performance Improvement through Rapid Cycle Change April, 2010

2 HCT Staff: Project Directors Nancy Thorlton Ali Philander Editorial Review Jacob Kupietzky

3 Table of Contents Introduction 4 The Challenge 5 Understanding the Challenge 5 Addressing the Challenge 6 Who is responsible 6 Results 7 Sustainability 7 Key Takeaways 8

4 Introduction One of the largest assets a hospital has is its accounts receivable. Net accounts receivable may represent half of total assets for a typical hospital. An average of AR days is typical of hospitals, and reflects that a hospital is performing well. More than 50 days may indicate poorly negotiated managed care contracts, an unfavorable market, inefficient collection processes, or a delay in claims being billed. Reducing net AR days is critically important to a hospital s financial health. Although it may be difficult to influence a poor market or immediately renegotiate managed care contracts, hospitals can immediately address collection processes. This white paper is an examination of process improvement in collection strategies implemented in a real hospital, in the business office department. The problem, solution and results are all factual.

5 April, 2010 Page 5 The Challenge In this hospital, the current net AR days was 120.4, indicating significant delay in collections. The budgeted AR days for the hospital was 56. Understanding the Problem Beginning with our signature rapid cycle improvement process, consultants conducted an assessment that consisted of data collection and observations. First, consultants looked at net AR days over the previous 24 months, to understand how long and deeply the problem had persisted. The team looked at denial by reason to understand the root of most denials. Denials were mainly due to the lack of pre-authorization or the failure to authorize any additional days of the stay. With this information, the team knew what areas were in most need of redesign. The data collected by the hospital to track collections was minimal, requiring a period of time during which hard data was collected and soft data was gathered through observations and shadowing. After the data collection, analysis was performed on collections by collector. After a short period of time (2-3 weeks), this data revealed which collectors needed help with processes. Weekly AR reports were developed to determine collections by Accounts worked by each collector by day and average per week Collector - accounts by carrier, AR days and amount AR collection report by week Through shadowing and observations of current work flow, consultants mapped the current processes and identified areas and gaps where improvement was possible. Through meetings and interviews with staff, information was gathered on why the processes seemed to be slowed and suggestions were solicited from the staff on how to fix it. Collectors, billers and patient access staff performance was monitored by: Reviewing individual work flow processes and stats Advising on appropriate staffing levels Evaluating strengths and deficiencies Providing necessary staff training in collection procedures

6 Page 6 Addressing the Challenge For many hospitals, collection problems are a simple matter of process improvement. Through iterative working sessions with staff, HCT consultants worked with the business office to design an improved process. The working sessions centered on the following key measures to ensure efficiency and sustainability: Reestablished priorities in the business office, making collections a higher priority Created tool to measure collections on a daily basis. (Some hospitals have purchased software to measure collections, but the data can be simply collected on paper or electronically. The importance of data collection is not the forum or sophistication of data collection. The importance is that data is collected and shared. Transparency is key to sustainability.) Drafted process redesign and shared with all collectors for feedback. Processes modified with the input of the business office staff. Specific redesign processes included: Specific training for staff: Redistributed workload more evenly Held collectors to benchmark standard of 40 to 60 claims per day Re-prioritized some of the day-to-day job functions Addressed some staff resistance to the changes within the department Re-established relationships with the carriers Worked closely with employees to establish responsibility and accountability Who is Responsible The newly developed action plan was put into place by the Hospital Revenue Cycle Department under the guidance of the HCT consultants. Internally, the implementation was under the operational guidance of the Revenue Cycle Director, Manager of Billings and Collections, and Collections Supervisor.

7 April, 2010 Page 7 Results There were significant savings achieved in the redesign of this hospital s collections process. In addition to achieving the budgeted net AR days goal, the following other processes and goals were affected*: Achieved goal of 4 days of gross revenue in DNFB accounts Achieved goal of 2 days gross revenue in credit balances Achieved the Financial Class > 60 aging goals Medicare goal 10% - reached 4.9% Medicaid goal 30% - reached 28% HMO/PPO goal 15% - reached 9.5% Unbilled days goal 5 reached 2.1 Net AR days goal 56 reached 54.7 Cash % Adj. Net Revenue MTD goal 102% - reached 102.6% Cash % Adj. Net Revenue YTD goal 102% - reached 102.4% Bad Debt % Adj. Net Revenue MTD goal 23.8% - reached 19.8% Bad Debt % Adj. Net Revenue YTD goal 24.2% - reached 23.5% * Final data collection occurred 10 months after baseline data collection Sustainability Transparency is the key to accountability. For weekly AR days reports, the baseline, goal and current operations must be documented by collector. Consistently collecting and sharing data is an essential motivation for collectors to reach higher standards. This data can then be shared on an online intranet, or on a public white board in the department. Additionally, organizations can choose to recognize and reward high performance or penalize low performance. The creation of a bonus structure for exceptional performance can be effective. An alternative performance motivator is penalizing poor performance; some organizations may choose to have consequences for lack of compliance, such as warnings or mandatory retraining sessions. The most important factor for sustainability is culture change. The initiative must be championed by management and leadership, and staff must agree that the initiative fits into the hospital mission and improves the hospital. Linking the initiative to the hospital mission is a great motivation for staff members that believe in the mission and goal of the hospital. There are different ways to establish transparency and friendly competition. The important takeaway is that organizations need to have tailored, creative ways to establish accountability for staff in the business office. Net AR days reduced from to 54.7, a 120% improvement

8 Key Takeaways The following are takeaways for a successful and sustainability transformation in the Business Office: Dedicate a champion to undertake the initiative and rally the staff in favor Assess current state through observation, shadowing and interviewing of staff in Business Office Collect data on accounts worked by carrier, and hospital employees Create a tool to provide measurement on a daily basis Establish accountability through metrics and rewards or penalties Engage staff in all phases to gain staff buy-in in the initiative

9 HCT Consulting HealthCare Transformation, LLC Three First National Plaza 70 West Madison Suite 1400 Phone: Fax: Our mission is to help hospitals improve their quality and financial performance, so that they may become more profitable and more competitive in an increasingly consumer-driven marketplace. We do this (primarily) by means of a comprehensive intervention that involves virtually all aspects of patient care and several key areas of hospital operations, in an intensive and highly interactive partnership centered around our unique "Hospital Transformation Intervention " for quality, service, and performance improvement.