Case Analysis Of Sutter Healthcare’s Collection Problem

Background information

The accountability and transparency of Healthcare organizations on how they collect their revenues is essential. Poor accounting principles in healthcare organization have brought inconvenience in the health sectors. The collection of revenue from the uninsured patients has become one of the significant challenges in the Health industry. This is because healthcare organization fails to treat their patients as customers. A report shows that the health care providers’ use over $60 billion annually to cover for the uncollected revenue from uninsured patients. This report will outline how Sutter Healthcare Organization has positioned themselves in solving this issues. This papers shows all the problems in the health sector and the solutions employed by Sutter to solve this issues. It will also outline alternative solutions to the general Healthcare Organizations’ issues. Hansal (2010) through the Healthcare Financial Management Association (HFMA) discussed the challenges of Sutter Health care providers. The HFMA put down the case analysis to help the health sectors.

Sutter health care is a nonprofit organization based in northern California which provide services to thousands of people. Sutter health hospital strives to bring change in the health industry which ensure quality production of health services. This organizations have several branches of hospitals and physician organizations which shares resources and expertise to provide quality health care in the country. Currently, the hospitals serve over three million patients with over 52000 employee and 12000 qualified doctors to provide quality service. The Hospital has evolved with time, and due to quality services being offered, their customers have been growing gradually. Sutter Hospitals have substantially met the high demand for quality services. The accounting principle and practices were different in every hospital of Sutter healthcare. This was one of the significant challenges faced by the company.  The inability to produce real-time reports due to use of different operating systems was quite a problem for the organization.

The community in North California received quality services for Sutter Healthcare facilities. However, despite the quality services received by the community, computing of reports from all the hospitals posed a challenge to the top management because each facility acted individually during the processing of reports. Getting reports in the same formats for interpretation was difficult. This has brought a lot of problems to the healthcare providers during the collection of revenues. When an organizational is unable to meet its targets in the revenue collection, the objectives won’t be achieved as planned. Poor accounting practices has led to increase in patient’s debts due to unavailability of proper revenue collection methods. The availability of the accurate patient information will allow the organization determine what amount of revenue will be collected (Boyle, DuBose&Ellingson, 2014). The organization will be able to position itself according to the revenue collected so as to achieve its goals and objectives.

Short-Term Performance Measures

The table above guides the top management in analyzing data needed for short-term goals of Sutter Hospitals. The objective of improving quality and affordable services is placed on average of $6, 481. This shows that the company is offering affordable services to its customers.  The Quality of service registered in the emergency department indicates that it takes only twenty-three minutes for the hospital to respond to emergencies. The emergency services are available twenty-four hours a day to ensure that all patients are well attended to avoid laxity of the medical personnel. Sutter’s position in providing quality customer services is above the national average. They are focused on providing customer-oriented service that is affordable and available. According to the employees, they are well remunerated, and a good working environment is convenient for them. The accounting practices of Sutter Health Care Organization provides customer satisfaction

The California Sutter Health Approach

The daily account receivables of Sutter health care hospitals differed due to different accounting systems.  Some facilities had account receivables in the range of 110-120 days while other was as low as 70 days. The unavailability of standardized revenue collection was inhibiting the financial performance of Sutter Hospitals. The main issue for Sutter health was the inability to generate real-time reports from all its hospital. This prevented the hospital from collecting debt from patients because the required information was not available. This hindered the top management from prioritizing and planning the schedules effectively. The back end staff members were depended upon to provide the required information to collect payments from the patients. The verification of insurance and what the patient should pay consumed a lot of time and hence brought a lot of delays in the hospitals. This had a negative impact on the number of days of account receivables (Finkler, Jones &Kovner, 2013).

Back-end central business office was used mainly by the hospital in the collection of the revenue. The patient registered in the back end office before receiving services after admission. This system allowed the patient to pay in cash for the services after deducting the insurer portion. Cash collection often took a lot of time because the reports from this system were generated on a monthly basis. This accounting practice was not beneficial to the hospital because it was time-consuming when separating the patient’s pay and the insurer portion (Hansal, 2010). The generation of real-time reports was not supported. Therefore the company took responsibility and empowered the PFS staff members in dealing with customized accounts. The individual employee targets could be traced as well as achievement of the hospital objective. However, this practice did not bring the desired results (Gapenski& Pink, 2011).

Lack of a proper system that could generate real tie reports with ease is another major problem affecting Sutter Healthcare. For the efficient and effective running of the hospitals real-time reports need to be available when needed. Sutter system works independently, that is every facility operates on a different system. Therefore, it makes it harder for all the reports to be combined into one because of the difference in formats. The computing of daily reports has proven to be quite difficult; therefore each facility computes its report then it is combined with time. This has often brought delays when information is needed for decision making. The collection of revenues has been difficult because the uninsured patients could not be easily identified in the system. This led to loose of dollars through uncollected debts(Gregoriou& Finch, 2012).

Sutter Healthcare focused on a way of automating the accounting system and arrange accounts in the order of priority. The information technology infrastructure library (ITIL) developed a framework that allowed Sutter health care to be one step ahead of all their competitors. Sutter health focused on the consistency of service delivery and customer satisfaction with affordable prices. Medseries4 (MS4) software was chosen by the company to automate its processes in all the branches and facilities under Sutter Healthcare(Hollar, 2018). This software is cost effective and user-friendly which exceed the existing functionality also it supports the Real-time generation of reports. Medseries4 was adopted and implemented in all the facilities to standardize all the accounting processes of Sutter health hospitals and facilities.

Short-Term Performance Measures

Sutter Hospitals and facilities employees’ can now focus on front-end collections rather than back-end collection of revenue. The front-end employees will ask for payment from the patients before they receive their services(Lahmiri, 2016). This will ensure an effective and efficient way of receiving payment from the underinsured and uninsured patients. In that connection, Sutter Hospital trained their employees on effective communication and how to use the software. Performance rankings and employee appraisal have been put in place to motivate employees to offer quality services to the customers. The staff is in a position to prioritize revenue collection activities using the Medseries4 (MS4) software. The solution to change the collection of revenue back-end office to the front-end office has been successful and proven to be the most effective and accurate way to collect revenues from the patients.

The patient information captured in the front-end desk is authentic and accurate because of the tools used by employees in obtaining the data. Sutter health automation system creates an account for each patient registered which helps in tracking of the person responsible for the account.  The registration staff can know what amount will be paid by the insurance and what to be paid by the patient (Nowicki, 2008). The CarePricer tool used in the hospital provides the most accurate estimate to be paid by the patient. The patients were educated on the importance of paying on the front desk, and to the surprise of the organization, there was a positive response. After the implementation of the Medseries4 (MS4) software, the company was able to register a profit of $70 million in the first three months.  The account receivables were also reduced by half, i.e., from hundred and twenty to sixty. Revenue collected has been increased since the implementation of Medseries4 (MS4) software(McLean, 2003).

Horizontal analysis is used by the finance department to examine the performance of a specific financial statement. This help in tracking the fluctuation of account receivables, whether it is increasing or reducing. The horizontal analysis helps Sutter health hospitals in determining the effectiveness of revenue collection methods (Charmel& Frampton, 2008).The problem of accounting of uncollectible accounts was solved by the help of horizontal analysis which helps in estimating the amount of revenues that cannot be collected. When analysis determines that the account receivables were increasing, Sutter could be in a position to evaluate the amount of money that will be lost and adjust accordingly. Sutter implemented methods which help to reduce the account receivable days. Few account receivable days’ means that the revenue collected by the company will be more (Nowicki, 2015).

According to Kirigia (2011) receivable segmentation is another method employed by Sutter hospitals to ensure maximum revenue collection. Receivable segmentation provides that the individual’s accounts should be audited to determine the financial risk each account poses. This method uses different factors such as credit history, income, insurance status, etc. to assess the ability of the patient to pay for the services offered. The financial department can predict the amount of revenue they will receive from their customers(Rachlin&Sweeny, 2006). The patients with the ability to pay are treated as assets of the company while the patients with inability to pay become a liability. Therefore the company will be in a position to focus on the patients with the ability to pay. The collection department will estimate the more accurate income of the organization which will help in the process of decision making(Young, 2008).

Issues of Sutter Hospitals

Receivable segmentation also helps the hospital in producing the list of patients that will need charity aid. This method provides accuracy and efficiency because only the need people on the list will be identified and helped accordingly. This will save time for collection of substantial evidence for those patients to receive financial aid. The low income patients, the underinsured and the uninsured patients will receive financial help without corruption or too much struggle. Sutter health Hospital focuses on providing patient focus payment ability. All the patients before receiving services from the hospital should understand payment ability and options of payment. If the patients understand the payment mode, they are willing to pay for the required services without difficulty(Reinke, 2017).

In my own opinion, Sutter Hospital implemented a good system that automated all the process in the hospital and facilities. The standardization of the software to be used in all the facilities of Sutter hospital was a bold move because it will ease the generation of real-time reports and sharing of information. The use of one standardizes system provides that all facilities will store their data in similar formats, which will make it easier for computation. I feel that most of the patients will encourage storage and sharing of information rather than repeating the same information whenever the patient visits the hospital. Therefore the systems that stores account information of an individual patient is very efficient and effective to be used in the hospital(Ward, 2012).

The implementation of a front-end collection method has been a great milestone for Sutter hospital because the back-end collection of revenue was not efficient. In my own opinion, the standardization of the system will help in decreasing the number of account receivable days. The reduced account receivable days will promote the collection of maximum revenue from the customers. The front-end collection system is preferred because the patient pays first before they receive any services unlike in back-end collection system where some of the debts are uncollectable. Another alternative for the collection of revenue is the receivable segmentation. This is whereby the organization separates the patient with the ability to pay, and those with the inability to pay, for example, the uninsured and underinsured patients are put in their segments and computed differently. The health provider will be in a position to tell what income they will expect from the other patients. The receivable segmentation uses a lot of factors in separating the patients.

Conclusion

In conclusion, poor accounting principles and standards are very costly to health financial management. The use of back-end office has led to the loss of dollars due to uncollectible debts incurred. Sutter healthcare has managed to control the problems involved in its day to day operations. Despite the challenges involved, the standardization of all the system facilities into one has proven to be an effective way of solving health care issues in Sutter Hospitals. The use of accounts segmentations and reductions of account receivable days have brought efficiency and effectiveness in service delivery. However, I propose the government should pass legislation to protect its citizens from exploitation from the health providers. An international body should also be formed to look into problems in the health sector and make recommendations on how to solve the same.

References

Boyle, P., DuBose, E., &Ellingson, S. (2014)Organizational ethics in health care.

Charmel, P., & Frampton, S. B. (2008). Building the business case for patient-centered care. Healthcare Financial Management, 62(3), 80-85.

Finkler, S., Jones, C., &Kovner, C. (2013). Financial management for nurse managers and executives. St. Louis, MO: Elsevier.

Gapenski, L., & Pink, G.(2011)Understanding healthcare financial management.

Gregoriou, G., & Finch, N. (2012). Best practices in management accounting. New York, NY: Palgrave Macmillan.

Hansal, J. (2010). Hospital Accounting and Secretarial Practice. Public Health, 47, 402. doi: 10.1016/s0033-3506(33)80279-4

Healthcare Financial Management Association (HFMA). (2010) managing the self-pay circle retrieved from https://www.emdeon.com/eNewsletters/Compass/Spring10  

Hollar, D. (2018). Trajectory analysis in health care. Cham, Switzerland: Springer.

Kirigia, J. M. (2011). The essence of governance in health development. International archives of medicine, 4(1), 11.

Lahmiri, S. (2016). Features selection, data mining and finacial risk classification: a comparative study. Intelligent Systems In Accounting, Finance And Management, 23(4), 265-275. doi: 10.1002/isaf.1395

McLean, R. (2003). Financial management in health care organizations. Australia: Thomson.

Nowicki, M. (2008). The financial management of hospitals and healthcare organizations. Chicago, IL: Health Administration Press.

Nowicki, M. (2015) Introduction to the financial management of healthcare organizations.

Rachlin, R.& Sweeny, A. (2006). Accounting and financial fundamentals for nonfinancial executives. New York: AMACOM.

Reinke, W. (2017). Health planning for effective management. New York: Oxford University Press.

Ward, W. (2012). Health care budgeting and financial management for non-financial managers. Westport, Conn.: Auburn House.

Young, D. (2008). Management accounting in health care organizations. San Francisco: Jossey-Bass.

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