Back to basics: collecting accounts receivable - column

Healthcare Financial Management, Dec, 1990 by Davis Hartley Le Moine

Back to basics: Collecting accounts receivable

As a corporate staff representative for a national healthcare system, I often am asked, "What makes the difference between hospitals that are successful and those that are not?" My answer is: "Management that understands and applies the basics."

The ability to apply the basics is absolutely essential to accounts receivable management. For some hospitals, gross receivables account for more than 20 percent of assets.

Receivables have been growing at an alarming rate. According to HFMA's Financial Analysis Service data, days in accounts receivable increased from 69.9 days in 1986 to 77.3 in 1989. Increasing days in receivables can mean that providers are ineffectively using current assets. This is illustrated by the current asset turnover ratio, which stood at 3.29 in 1989 and continued its steady five-year decline.

These statistics suggest that financial managers need to pay more attention to accounts receivable issues. We must focus on the basics of collecting accounts. And we need a clear understanding about where the responsibility for effective cash flow should rest.

Chief financial officers (CFOs) should establish clear expectations for accounts receivable management with the assistance and support of patient financial services (PFS) directors. PFS directors must be prepared to fill positions that are increasingly important to the vitality of healthcare organizations. The CFO and PFS director must work as a team to apply the basics of collecting accounts receivable.

These basics should begin with determining the cash value of receivables. Remove accounts deemed to be of limited or no value--and concentrate on accounts with payment potential.

I strongly believe we need to obtain more details on receivables. Analyze receivables by payer and set goals to decrease days in accounts receivable for each payer. HFMA's Receivables Analysis Service tracks hospital subscribers' receivables for eight major payers and compares the information to hospitals with similar payer mixes.

Healthcare organizations also need to get an immediate grip on Medicare bad debts. After 25 years of Medicare, the industry still has difficulty documenting its collection efforts so that payment can be received from Medicare. Another basic is effective communication of receivable concerns. Information on key issues should flow between financial executives and chief executive officers, members of the medical staff, and boards of directors. Meet with payers to understand their requirements for timely payment. Visit with fiscal intermediaries' (FI) staffs to learn how FIs work and to head off payment delays.

During meetings with payers and FIs, CFO-PFS teams may be moved to put their own houses in better order. An effective claims process is central to collecting accounts receivable. Make prompt submission of clean claims a corporate goal. Meet individually with departments (such as the pharmacy) that offer basic information for claims.

Another basic involves setting goals for employees. CFOs should advocate development of productivity standards. These standards are essential for PFS employees, who should be evaluated according to how well and how quickly they collect receivables.

Productivity is the topic of an HFMA seminar designed for CFOs and PFS managers. The Feb. 27, 1991, session directly follows the annual CFO Exchange and kicks off HFMA's new Patient Accounts Exchange. I believe productivity is a key word for the 1990s.

The Patient Accounts Exchange also will feature a meeting of PFS Forum members. With more than 300 subscribers, this forum offers PFS representatives from across the country timely information and opportunities for peer networking. And it is encouraging that nearly 10 percent of PFS Forum subscribers are CFOs who want to keep current in areas they oversee.

Patient Accounts newsletter, books, and articles in Healthcare Financial Management keep members informed about accounts receivable and related issues.

In addition, a National HFMA Matrix Committee on PFS, led by Leila F. McGehe of New Britain Hospital, New Britain, Conn., will review HFMA patient accounts management products and services.

As healthcare accounts receivable issues have increased in importance, CFOs and PFS members must respond to the challenge. Clearly, the ability of financial managers to apply the basics of accounts receivable collection always will be a key measure of a healthcare organization's success and in some cases its survival.