Hospital CFO speaks to revenue cycle

It was a short action agenda Tuesday night for the Hot Springs County Memorial Hospital Board of Trustees, which voted unanimously to approve the infection prevention policies, as well as the Human Resources policies. Both sets of policies were provided electronically to board members prior to the meeting.

Also during the meeting, Chief Financial Officer Shelly Larson provided more information regarding the revenue cycle and services provided through First Party Receivables Solution (FPRS).

Larson explained the revenue cycle involves the term of the patient account, from its creation to the payment of the account. Among the steps in the cycle are scheduling and reservations, pre-admission and pre-registration, admission and registration, hospital stays and services, patient charges, discharge, medical records and coding, billing and contractual allowances, collection and follow-up, and account resolution.

In the multi-step process, Larson noted, each step affects the next and can impact the entire process. When the steps are performed correctly, it means there is an accurate, timely bill that is paid promptly. Any problems in the cycle can cause some big ripples.

As for how the cycle is determined to be performing well, Larson said there are two key indicators — the net accounts receivable days and the cash on hand days.

Net account receivable days represent the number of days revenue is tied up in unpaid patient accounts. Looking from June 2008 to June 2016, Larson pointed out there is a good, downward trend — which is what the hospital wants — from 87 days to 54 days.

Cash on hand days represent the number of days the hospital could operate without cash receipts, utilizing existing cash on hand. Using the same timeframe — June 2008 to June 2016 — the number of cash on hand days has trended positively from nine to 72.

As to what makes hospital billing so complex, Larson explained it is not as simple as going to the store, paying for an item and getting a statement. Rather, the story of the services provided at the hospital is told via claim forms using standard coding.

“We’re telling a story in code,” she said, and the initial steps in the revenue cycle are about gathering information for that story, which culminates in a claim to an insurance company.

Larson also wanted to address some myths she’s heard, the first of which is the hospital outsources all of its billing. The hospital does the billing for all third party payers, such as Medicare, Medicaid and Blue Cross, and a very small portion — about 7.5 percent — is outsourced to FPRS, which does the billing and follow-up on self-pay balances.

As to why the decision was made to outsource that small amount, Larson said at the time the option was considered the hospital had a total accounts receivable outstanding balance of $2.6 million, with an average age of 616 days for the accounts. There were over 4,300 active accounts, and there was consistency lacking in the procedures for billing and follow-ups.

Larson said FPRS was chosen because this type of work is their business, and they have the staff and resources in place to handle it. The company also works closely with the hospital’s business office, providing daily reports and responding to any urgent issues that come up.

Another myth Larson addressed is that the hospital is paying $380,000 per year for FPRS services; in actuality, about $78,000 is paid annually. In comparison, the cost to the hospital to have the staff, equipment, software, postage and other items, in order to provide the services FPRS does, would be $184,000.

Larson noted FPRS is paid on a percentage of collections — if they don’t collect any balances, they’re not paid for their efforts. FPRS has each account for 120 days, during which patients will receive four statements and three phone calls, unless payment arrangements have been made.

With the services of FPRS services, the average age of accounts receivable is 184 days, and there are just under 2,000 active accounts, Larson noted, and there is consistency with policy and procedures.

A third myth Larson wants to debunk is that FPRS is a collection agency. She explained the company has 120 days to collect balances, unless other arrangements are made. They do not report to any of the credit agencies, nor do they take legal action against patients. Rocky Mountain Collections is the hospital’s collection agency. With regard to how much is written off and sent to collections, Larson said it averages about $1.3 million. She stressed that write off is not sold to Rocky Mountain Collections; they receive a fee as part of the payments — if they don’t collect, they don’t receive any payments. The number of days that pass before Rocky Mountain Collections takes any legal action can vary depending on patient circumstances.

The decision to utilize FPRS was not made without plenty of thought and research, Larson said, and she feels it is a good decision, noting the number of accounts receivable days have decreased and the cash on hand days have increased.