Texas State-of-the-Art Surgical Facility Achieving a 5.7% Increase in Monthly Cash

Texas City is home to the Texas State-of-the-Art Hospital. The institution is well-known in the community as a one-of-a-kind facility. The hospital is notable for being the only one in town that provides cutting-edge surgical treatments. The Hospital employs cutting-edge medical equipment to provide a wide range of surgical operations such as plastic surgery, spine surgery, cancer, and obstetrics (Citadel 1). The hospital is known as a patient-first facility that sets the benchmark for what a medical facility should look like. The hospital has twelve large operation suites. These suites include; touch screen controls (digitization of operations), high-efficiency video displays, as well as digital information and data storage (Citadel 1). All these technologies have been embraced in the healthcare facility with an aim of increasing patient flow, avoiding overreliance on mobile equipment, and also to increase the patient outcomes (increase in treatment success). Besides, the hospital also provides emergency services to the patients for example who have been involved in accidents and intensive care units (ICUs) which have staffs twenty-four hours a day. in a nutshell, the hospital has 54 inpatient wards (private), 10 VIP rooms (suites), 2 special procedure suites (endoscopy), six ICU beds staffed fully, and CT and MRI scan, full-service imaging and ultrasound, among other high-quality services aimed at offering bets patient experience (Citadel 1).

Initial Challenges in Shared Services

Initially, the hospital was centralized such that it was privately owned and managed. Its management and ownership were condensed into shared service center (SSC). The SSC was responsible for the collection of account receivables and the billing of the five other affiliate facilities. However, each of the facilities affiliated with the Texas state-of-the-art hospital created an A/R which was not suitable to an SSC environment. Each of the hospitals in the SSC had different patient demographics, different areas of specialty, and uniqueness of the physician contribution to other differences. In addition to the aforementioned factors, the high rate of employee turnover experienced within the SSC and the vacancies in the key positions especially within the managerial and technical areas, proved to be contributing factors to the financial performance challenge which the Hospital’s management had experienced for quite some time and therefore needed a lasting solution to avoid further recurrence and losses realized.

The Hospital therefore through its Chief Executive Officer, by understanding his duties and service line, coupled with the past hospital financial challenge experience as well as payer mix, was not satisfied with the performance. He was not convinced at all that the SSC was at its financial peak and this made him have a feeling that revenue was not being collected.

Revenue Cycle Assessment

Since the CEO of the Hospital was not so convinced about the perceived financial performance of the facility, he contacted a neutral and unbiased auditing company, The Business Office Team at Citadel so as to perform a unbiased and real-time assessment and analysis of the hospital’s revenue cycles, the current operations, and also to look into the perceived financial performance at the hospital. The Citadel Company agreed to perform the assessment and analysis for the hospital. The activities of the financial company were led by the Citadel’s Vice President responsible for Revenue Services, Mr. Bonnie Holland (Citadel 1). First, the resorted to conducting an onsite revenue cycle processes as well as performance within the SSC. To ensure efficiency and success of the process, the entire executive chiefs and other managers helped Citadel auditors. The main aim of including the executive chiefs of the hospital was to realize financial health, improvement of the business office operations, as well as increasing reimbursement for patient care. Holland in one of the interviews said; “This hospital is an amazing provider in Texas with a great reputation. We are eager to conduct an analysis of their revenue cycle operation to and help determine additional areas of improvement to help support their commitment to delivering ultimate patient experience” (Citadel 1).

Areas of Evaluation Findings from Citadel’s assessment

Citadel conducted their assessment and analysis of the key areas and the following were their findings;

The basic Account Receivables calculations using the end-month financial data provided by the SSC coupled with the standards best practice methodologies did not coincide with the financial reporting availed by the SSC and distributed to the individual affiliate facility CEO or the Chief Financial Officer’s (CFO’S) every month as it had been the culture. There were evident discrepancies which the Citadel could pinpoint from the monthly financial reports submitted to the top managerial tables.

Secondly, it was found out that there was more than average staff turnover at the operator and/or collector level within the SS. The four vacant positions noticed by the Citadel contributed to almost 40% of the total staffing vacancy.

Finally, it was also perplexing that the Hospital’s (SSC System) Director of Revenue Cycle (DR C) had only been on the job for four months. This is an obvious show that he might not have gained full momentum on how the Hospital’s financial management was being conducted. These were, therefore, the number of faults that were unearthed by Citadel when they conducted an in-depth analysis and assessment of the Hospital’s financial performance.

What Citadel’s Review of the AR Uncovered

There were frequent delays in the adjustment on large scale of the high account balances. The adjustments were not being posted on time where some were delayed even for 90 days after the payment had been made.

The compensation inventory for workers was subcontracted to the third parties. There were both balance discrepancies and as well as active inventory discrepancies an indication that there was no work being done on the accounts to a resolution by all the parties leading to missed revenue which the CEO earlier on got worried about.

There were inconsistencies in the collection follow up. In addition, there were delays in the follow-up and inappropriate and inadequate payer escalation to provide resolution for the balance.

There was the improper utilization of the patient accounting system which hosted the collector worker ques. This resulted in premature account follow-up, failure to conduct follow-up to almost 6 months and over, unproductive follow-ups which end up being too costly in terms of resource acquisition, and over touching accounts.

There was no party put in place responsible for the resolution of payment variances. Similarly, there was no special account identifier responsible for the flagging of the very accounts for proper follow up.

There was inconsistency, incompleteness, and little value in the denial reports.

Finally, the SSC did have a special customer service person that was primarily focused without other duties other than customer service in place to handle calls from patients and listen to the issues raised by the clients of the hospital.

Results and Financial Outcomes

The hospital decided to make a decision based on the assessment results presented by Citadel, regarding the participation with the SSC. The SSC was replaced by SSC which now acts as the “business office” for the hospital. Citadel now performs all the functions of the business office of the hospital starting from billing to zero balance accounts. The strategic decisions which were yielded include;

• In the 7th month of Citadel partnership with the Hospital, there is 107.9% realization of monthly cash goals and the highest ever recorded being 133% of the cash goal.

• There is also an estimated 5.7% increase in the monthly cash.

• Accounts receivables (AR) was reduced by 58.52% (that is from $20,129,786 to $8,403,489).

• There was also 83% decrease in the AR days.

The CEO of the hospital recognized the importance of contracting Citadel to manage its financial operations. He acknowledged that the hospital was able to experience a tremendous turnaround in all the revenue cycle which made 2015 end with stellar results. He further noted that the overall AR greater than ninety days is now less than half what it initially was. For example, the cash collection by Citadel for a period of six months was 108% more than the anticipated percentage and bad debt decreased by 40%. In actual sense, the CEO acknowledged that Citadel brought light to their Hospital once again before it could plunge into financial crisis (Citadel 2).

Hospital financial state within the SSC before the Citadel’s Intervention

Open AR = $20,129,786

Days in AR = 59

Credit Balances = 4.5 days

DNFB – 5.8 days

Average Age on open AR = 151 days from DOS

AR aging = 48.1% over 90 days

Work Comp Inventory Aging over 90 = 73.2%

Case Study Questions

Question 1

For a given level of receivables, what factors influence the carrying costs of receivables? (Making an assumption that quarterly ending balances are equivalent to average balances for the quarter).

Which customer contributes most to receivables’ carrying costs? Why does it contribute the most?

Question 2

What does the 58% reduction in the A/R mean to the financial prosperity of the hospital?

Question 3

What are the key learning points from this case study?

Case Study Solutions

Solutions1

There are a number of factors which determine or affect the carrying costs of receivables at any given level. First and foremost, it is known that receivables are the sales made by a firm or company to its customers on credit basis. These factors therefore include; the level of sales made by the company, the condition and nature of the business, the firm’s credit policy for the example the adopted policy to extend the credit period for the customer, and the terms of credit. In the case of Texas Hospital, the investment receivables is the product of volume of credit sales and the collection period (credit period) normally worked in days for example, if the hospital made credit sales of $ 40,000 per day and the credit period for the collection of dues is 40 days, then the average investment in the accounts receivables would be calculated as;

40,000*40= $1,600,000.

The average A/R for the hospital per day in the period of 59 days given that the open receivables for that period were $20, 129,786 is therefore obtained by getting the dividend i.e. $20,129,786/59 gives $341182.796. If this amount was reduced to open receivables of $8,403,489 and maintaining the same credit period, then the average daily A/R would be $8,403,489/59 yielding $142432.017.

Solution2

The longer the period your customers take with the dues, the less likely the dues will be collected and the consequence of this is that there will be no revenue collected. Additionally, there will be no cash to expand the business and all these will have negative implications with regards to the prosperity of the business. The business can also incur administrative costs associated with the collection of debts for instance if a collection agency has to be contacted there are cost implications which will be involved. For Texas Hospital, the reduction of the A/R percentage to 58% means that such costs will not be incurred since servicing of the DSO will take the shortest duration possible.

Solution3

From the case study, the following have been learned; the rates at which customers pay and the business follow up have financial consequences. For example, there will be an increase I the collection duration for the credits, there will an escalation of carrying costs, and the ratio of receivables to sales will also increase and all these associated with slowness in payment of dues by customers as witnessed in the Texas Hospital case. Additionally, a business must put in place all the necessary mechanisms to tackle any challenge or issues that are raised by their customers. For example, Texas Hospital did not have permanent customer service personnel to address the concerns of the patients. This can offer a gap for competitors to invest in to attract clients who were already loyalists of Texas Hospital.

Work Cited

Citadel. How a Texas State-of-the-Art Surgical Hospital Is Achieving 108% of Monthly Cash Goal and Experiencing a 5.7% Increase in Monthly Cash. Social Science Research Network, 2016: pp.1-2. Retrieved from http://www.citadelosg.com/how-we-help/healthcare-revenue-cycle-case-studies/texas-hospital-case-study/