Automated collection systems improve cash flow - includes related article on consistent follow-up

Healthcare Financial Management, Dec, 1989 by Edward F. Robinson

Hospital teams shopping for automated collection systems should find out how long potential vendors have been in business and whether they are financially viable. They should ask for the number of similar systems each vendor has installed. The team also should determine whether the package has been developed specifically for hospital use or if it needs extensive and expensive modifications for this use.

Hospital representatives should visit vendors' offices to meet behind-the-scenes people who will work on their systems. Above all, they should ask for user references and visit a user site to see the system in operation.

Because automated collection systems also require an investment in hardware, hospitals should know who is responsible for equipment maintenance, and they should gather information on the repair firm's track record.

PITFALLS. In purchasing a new system, hospitals should determine how much flexibility is built into the vendor's software. They should avoid a system that gives few or no options for tailoring the software to specific procedures.

For example, hospital business offices may have different criteria for assigning acocunts for follow up. Some hospitals may send one, two, or three notices before making follow-up calls. Others may send none. By selecting a system that offers a wide range of options, hospitals avoid paying for unnecessary system modifications.

Other problems can arise if software is purchased from another hospital that has developed its own receivables system, no matter how good it is. The purchasing hospital should investigate whether the original developers can provide ongoing short-term and long-term support. Professional software support is particularly critical for custom coding the interface between the main hospital information system and the receivables system.

COSTS. In most cases, hospitals with as few as 100 beds can justify automating their receivables functions by using a cost-benefit analysis. Educated assumptions must be made on how increased productivity in the business office will affect days in receivables and bad debt.

The following analysis is based on a five-day decrease in days in receivables and a half percent decrease in bad debt. For a hospital with $365 million a year in self-pay and commercial receivables, the five-day reduction can translate into $5 million. If the cost of capital is 10 percent, this hospital may save $500,000 annually.

The half percent reduction in bad debt can bring another $1.8 million. A decrease in outside collection fees also should be included.

These savings should be weighed against the costs of the hardware and software as well as outside system maintenance. No new personnel should be required as a result of installing the system.

(a.) 1988 Collection Techniques Survey Report. American Collectors Association, November 1988, p.3.

PHOTO : Edward F. Robinson is president of Dexel Systems Corporation, a computer software and support company based in Vienna, Va.