Bonus incentives can work in the business office - hospitals's patient accounting departments

Healthcare Financial Management, July, 1992 by Michael G. Bernard, Felton Elder, Jr.

Jackson-Madison General Hospital, Jackson, Tenn., is the flagship hospital of an 800-bed healthcare system with revenues in excess of $200 million.

The hospital's patient accounting department is structured as follows: * The admissions department is

under the direction of the admitting

manager. This area encompasses

all aspects of patient accounting

from preadmission

through generation of the discharge

demand bill. * The billing department is under

the direction of the patient accounts

manager. Billing is divided

into Medicare initial billing,

third-party billing and follow

up, and payment processing.

Third-party collectors are responsible

for both inpatient and outpatient

billing. * The credit department is responsible

for all self-pay collection efforts

as well as placing delinquent

accounts with outside collection

agencies. Once an account balance

is due entirely from the patient,

the account is transferred

from the billing department to

the credit department.

Two years ago, department staff began reviewing ways to improve accounts receivable. At that time gross days revenue outstanding levels were a little above average for this type of facility. The staff works as a team, with an average amount of management supervision.

The staff team speculated as to why gross days revenue outstanding levels failed to go beyond the slightly above average rating. The following factors were identified: * The extent of work by collectors

and the expected outcomes of

their performance was unclear. * Collectors lacked the motivation

necessary to effectively perform

their duties. * Base salaries were too low, a fact

that had been verified by the personnel

department through surveys

of other facilities. * Employee turnover was too high.

The staff team then decided to develop a program to address these deficiencies, with an incentive bonus based upon performance standards serving as the foundation of the program. The staff team presented its findings to the hospital's administration, which approved the incentive program concept subject to development and final approval.

The team then developed an action plan designed to: * Involve employees * Evaluate layers of supervision * Assess overall and individual

management style to ensure a

self-motivated environment * Keep performance standards simple * Upgrade base salaries * Establish monthly individual and

team goals * Reinforce the program by celebrating

goals attained and recognizing

teams and individuals * Implement a three-month "dry

run" period after finalization and

approval of the plan

The team felt that the inability to motivate staff properly warranted the greatest opportunity to institute change. Employees were surveyed individually about their attitudes toward workload. In addition, the results from an employee opinion survey conducted every eighteen months were reviewed.

One of the major concerns of employees was that no one worked their ledger in their absence, except to do the initial billing. This created work backlogs and a feeling that they were punished for time off. They also felt the work environment was too structured and that self-motivation was not promoted. They basically verified what was already known: that too many supervisors were creating inconsistencies due to different management styles.

As a result of this evaluation process, the number of billing department supervisors was reduced from five to three. One of the three positions was recast as a collection specialist whose primary responsibility is to fill in during absences. When no one is absent, this person assists the accounts receivable supervisor. The reduction in supervisory staff also enables all third-party collectors to report to one supervisor.

The goal in establishing performance standards was to keep them simple so employees could understand and adapt quickly. Gross days revenue oustanding was monitored for third-party billers and cash collections for self-pay collectors because everyone already understood these measurements.

Performance standards for the third-party collectors were based on three consecutive months of accounts receivable history. The billing and third-party collection follow-up functions are equally divided alphabetically between 15 third-party collectors. Outstanding days of revenue per collector was calculated using the following formula: * Each of the 15 ledgers is averaged

by using the total outstanding

billed accounts receivable dollars

by collector for three months. * The three-month average by collector

is then divided by the

three-month average daily revenue.

This established the average

median of 3.33 days of revenue

outstanding per collector

($1,5000,000). The formula may

be explained in these terms:

Bonus incentive level II = 2.45 and below outstanding days of revenue

Bonus incentive level I = 2.46 through 2.89 outstanding days of revenue

Expectancy level = 2.90 through 3.33 outstanding days of revenue

Unacceptable level = 3.34 and above outstanding days of revenue

Establishing individual and team goals, performing monthly individual evaluations, and providing additional training and counseling were all determined to be essential for program success. The patient accounts manager, accounts receivable supervisor, and the credit manager established the protocols to provide all the above.