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Sutter Health Case Study

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Sutter-Health
22.01.2020
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Introduction

The issue of a collection in the healthcare setting is extremely topical nowadays as many providers face difficulties with this aspect of their job in daily functioning. Delayed collection and failure to pay bills by patients result in immense financial losses incurred by hospitals and clinics. That is why, healthcare service providers have been recently busy with developing and implementing new ways and approaches that would ensure effective and efficient patient collection, hence improving the bottom line of the system. In this respect, Sutter Health that is among the largest providers in the Northern California area has managed to develop and implement a rather simple, yet effective approach to patient collections improvement. An in-depth review of this approach is provided in the article entitled From Bottom to Top: How One Provider Retooled Its Collections by Margie Souza and Brent McCarty, which constitutes a primary source in the current paper. Overall, based on the review and critical analysis of the best approaches to the issue under consideration in the medical industry, as well as with account for financial indicators of Sutter Health, the method adopted by this provider may be considered to be among the most effective and efficient in addition to being suitable for replication by other providers.

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Summary of the Case Study

Sutter Health is one of the largest healthcare service providers in Northern Carolina that is dedicated to providing patients with high-quality services of all kinds and offering a holistic experience without the necessity of looking for personalized care outside the network. Moreover, this provider has established strong connections with other providers and foundations in order to expand its outreach and ensure that its clients get superb services without a need of referring to outside specialists. Sutter Health is also committed to the goals of social corporate responsibility and takes an active part in the community’s life with a view to assisting with its development and well-being. However, all the above-mentioned would be impossible if Sutter Health suffered huge financial losses and had a negative financial performance due to patients’ failure to pay their hospital bills. Sutter Health is a non-profit organization, yet it is a business and consequently, requires money to continue operating in the market and remaining competitive in the industry that has recently become among the most competitive due to the availability of numerous providers and customers’ high demands. Therefore, this provider decided in 2006 to focus on such an important aspect of its functioning as patient collections and ways to minimize losses in this respect. This is the main issue identified and discussed in the primary source mentioned above.

All healthcare facilities operate under the premise of “no margin, no mission”, and a highly significant contemporary strategy relating to an increase of margins consists of a collection of cash from patients (Souza & McCarty, 2007). In fact, self-pay patients represented a large share of all patients in 2006, and the collection of cash from them was of primary importance for healthcare providers. Moreover, in 2006, there were almost 50 million US citizens without insurance, yet it would be wrong to suppose that all these people could not afford to pay for healthcare services that they received (Souza & McCarty, 2007). About 80% of these 50 million had money sufficient for paying for services rendered by hospitals. Thus, it was a problem of providers that they failed these patients to ask for payment in a timely and efficient pay instead of relying on a common and universal approach to billing all patients in the same way. This proved to be an ineffective method that resulted in financial losses for providers and customers’ dissatisfaction. Therefore, Sutter Health’s management decided to move away from common practices and to embrace an innovative approach to the patient collection with a special emphasis on self-pay patients.

Changes in this respect started in 2006 when Sutter Health announced the adoption of a new approach to the patient collection and decided to provide its patient financial services staff in the back and front offices with tools that they would require to improve this aspect of the provider’s functioning (Souza & McCarty, 2007). The first staff members targeted by the new approach included collectors, patient account representatives, and other employees from the central business office who were dealing with this issue. The ultimate goal of the approach was to target the registration staff, thereby transferring a wide range of back-office functions to the front office and making “point-of-service collection the norm” (Souza & McCarty, 2007). The latter aspect was deemed highly controversial at the time because of the lack of surety that patients would be satisfied with it.

However, surveys targeting Americans proved that common citizens had nothing against point-of-service or POS collection as it complied with normal business relationships that they were engaging in on a daily basis (Souza & McCarty, 2007). Besides, it eliminated shock that most patients experience when they received bills several months after the end of treatment that included huge amounts that sometimes might have seemed to be unreasonable from the patients’ perspective. The overwhelming majority of interviewed Americans voiced their approval of changes relating to POS collection since “My mechanic can tell me in advance how much I’m going to owe – why can’t you?” (Souza & McCarty, 2007). Thus, Sutter Health was in line with the most progressive moods prevalent among patients at the time it decided to amend its collection approaches and introduce POS collection prior to the delivery of healthcare services.

Implementation of the new approach started with an analysis of the existing revenue cycle and identification of existing problems, in particular relating to the lack of real-time information concerning accounts receivable and cash collections and inability to analyze particular financial data on demand (Souza & McCarty, 2007). Based on this analysis, Sutter Health set a number of benchmarks to be addressed by the new approach, including cash collections, gross, unbilled, and billed accounts receivable, major payer accounts receivable days, and percentage of accounts receivable over different periods (Souza & McCarty, 2007). The new approach developed and implemented afterward envisioned empowerment of patient financial services staff, front-end collection, and comprehensive training of registration and personal financial services staff (Souza & McCarty, 2007). Under the new approach aimed at solving problems identified with the organization’s revenue cycle, personal financial services staff members, collection managers, and registrars were provided with a set of new tools with a view to granting them access to real-time information, account work lists, patients’ histories, receivables dashboards, as well as performing other tasks that would optimize the process of collection.

Results of the solution implemented were available already after the first three months and proved the effectiveness and efficiency of the new approach. Thus, Sutter Health managed to reduce accounts receivable days for nine hospitals in the Sacramento/Sierra region, which became the initial region for the implementation of the approach, to 59 from 65 (Souza & McCarty, 2007). This was a considerable achievement as one day amounts to $13 million, which meant that the provider managed to collect $78 million over the period thanks to the new approach to patient collection (Souza & McCarty, 2007). Besides, claims denials were significantly reduced over the period and patients reported higher satisfaction with the services, which in turn implied that they were highly likely to be return customers. Training of the existing staff allowed avoiding potential expenses associated with the employment of specialists, as well as increasing employees’ satisfaction, loyalty, and self-esteem due to higher productivity and appraisal from the top management (Souza & McCarty, 2007). Hence, the new approach brought not only significant results in the form of additional revenues and averted potential losses, but also had intangible results connected to higher satisfaction of both customers and employees.

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Accounting Practices of California Sutter Health Relating to Collection Problems

The above section of the case study analysis presents a brief summary of the new approach implemented by Sutter Health with respect to accounting practices and collection. Figure 1 below summarizes the approach in the form of the graph and shows that there are four main directions of the program to be implemented by the provider.

Thus, as seen in Figure 1, the first essential part of the new approach to accounting practices and collection concerns personal financial services staff and their empowerment through the provision of peculiar tools and software. These new tools enable the staff to perform their duties in a more effective and efficient way, in particular with respect to prioritization and automation of account work lists, sorting lists in all possible ways, and checking of performance as compared with set targets and other colleagues (Souza & McCarty, 2007). The second part of the new approach concerns the improvement of collection managers’ performance through the provision of tools and receivables dashboards. These new tools assist them with calculations; monitoring revenues, accounts receivable, payments, and other essential indicators; assessment of performance and achievement of targets, analysis of accounts receivables, generation of reports, access to real-time information, and other significant tasks that are aimed at improving accounting, collection practices, and the revenue cycle in general (Souza & McCarty, 2007).

The third aspect identified in Figure 1 above concerns POS collection and is probably the most innovative and important part of the new approach adopted by Sutter Health. As mentioned above, point-of-access collection can become an effective and efficient process for cash collection and revenue generation in hospitals in addition to reducing the amount of claims denials and avoiding the aging of bills and accounts receivable. Under the new approach, registration staff is tasked with ensuring compliance with new rules, avoiding errors and problems with payment, and asking clients to pay for services before their rendition. Sutter Health has provided registrars with a list of possible errors and problems that can hinder payment of services in the future and that has to be clarified for their elimination; for instance, including such problems as incorrect address of the patient, lack of information about employment, insurance, etc. (Souza & McCarty, 2007). New tools also allow registrars to check quickly all problems from the list and tag accounts that need special attention, as well as attaching alerts to peculiar accounts so that a respective action is then taken. In this way, the front office acquires some of the functions that have been previously untypical for them and ensures avoidance of patients’ problems with collection in addition to performing cash point-of-service collection.

Finally, the new approach envisions comprehensive training for PFS and registration staff due to the introduction of new tools and new tasks that they have to perform. Each group of employees undergoes a specialized training program tailored to their duties and tools that they have to work with. Theoretical three-hour training sessions are accompanied by 30-minute practical training in the system for a week (Souza & McCarty, 2007). It has been revealed that this training has brought somewhat unexpected results as Sutter Health’s employees have been extremely willing to use new tools and switch to new accounting and collection practices without any tangible rewards. Instead, they consider “the boost in autonomy and effectiveness as reward enough to embrace the system wholeheartedly” (Souza & McCarty, 2007). In addition to the above parts of the new approach, it has enabled the top management to assess the performance of employees in a more accurate and individual way.

Alternative Solution

Based on the review and critical analysis of information available on the topic of accounting and collection practices adopted by healthcare providers in the USA and in the world in general, it seems that there are little options as to alternative solutions to existing problems identified above. The matter is that self-pay collections have been recognized as the most promising source of revenue for healthcare providers due to vast opportunities associated therewith (Eller, 2008). However, this kind of collection is also connected with some serious difficulties that should be accounted for when developing and implementing new accounting and collection practices. Thus, there are some ways to improve Sutter Health’s approach to self-pay collections.

First and foremost, Sutter Health should not treat all self-pay patients in the same way. The primary source under review lacks sufficient information to analyze this aspect of the new program, but it seems that registrars are provided with universal tools that deem all patients’ cases to be similar. Nonetheless, it would be more effective and efficient to employ predictive modeling and train registrars on differentiating all patients into four key segments based on the likelihood of payment. Such an approach would divide all clients into the following four segments: Segment A with “a high likelihood of payment and low account balances”; Segment B with “high original balances, but also a high likelihood of payment”; Segment C with “large balances and low expected collection rates”; and Segment D with “low balances and low expected collection rates” (Eller, 2008). These four segments need individual treatment and peculiar approaches to be used by the registration staff.

Besides, it seems reasonable to task the registration staff with screening incoming patients for their eligibility to participate in some government programs and charity programs. In this way, future failure on payments on behalf of problematic customers may be avoided if a large share of their bill is to be covered by the government or a charity organization. This step can also increase customers’ satisfaction with services rendered and ensure that a provider is viewed as a responsible and caring actor interested in the well-being of the community. Such social responsibility is compliant with Sutter Health’s program of social corporate responsibility (Sutter Health).

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Analysis of the Approach Used by California Sutter Health

The above section suggests some ways to improve the new accounting and contribution approach adopted by Sutter Health in 2006 and followed since that time. However, these suggestions can hardly be deemed as an alternative solution as Sutter Health’s approach is compliant with the best practices available in the healthcare service industry. Besides, Sutter Health’s approach has proved its effectiveness and efficiency, which is evidenced by data retrieved from audited financial statements of the organization and summarized in Table 1 below. For the purposes of the current paper, indicators relating to patient accounts receivable and patient service revenues have been retrieved from the official website of Sutter Health for years 2005–2014. The only gap year not included in Table 1 is 2011 due to the lack of information in free access, yet this lack does not seem to be significant as it cannot distort the overall picture.

Hence, Table 1 shows that patient account receivables and patient service revenues have been steadily increasing since 2006, i.e. the year when the new approach was implemented, and till 2014. When comparing the years 2005 and 2006, it is obvious that patient service revenues increased, while provision for bad debts decreased, hence proving the effectiveness of the new approach. Table 1 shows that doubtful accounts were slightly increasing from 2006 to 2013, thereby significantly decreasing in 2014. However, this increase may be attributed to a growing number of patients as the provider expanded its outreach in the Northern California area through agreements with other providers and foundations. Besides, a decrease in 2014 proves that Sutter Health managed to cope with a growing number of patients without compromising its revenue cycle.

In US dollars, in millions

2005

2006

2007

2008

2009

2010

2012

2013

2014

Patient accounts receivable (net of allowance for doubtful accounts)

825

890

947

998

1,024

1,058

1,086

1,196

1,105

Doubtful accounts relating to patient accounts receivable

(164)

(169)

(200)

(223)

(228)

(277)

(302)

(314)

(197)

Patient service revenues

5,313

5,787

6,186

6,874

7,129

7,858

8,612

8,771

9,025

Provision for bad debts

(251)

(239)

(258)

(269)

(316)

(332)

(376)

(410)

(189)

Patient service revenues net of provision for bad debts

5,062

5,548

5,928

6,605

6,813

7,526

8,236

8,361

8,836

Table 1. Patient Accounts Receivable and Patient Service Revenues of Sutter Health for years 2005 – 2014 (except for 2011) (all data retrieved from audited financial statements available at the official website of Sutter Health)

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Furthermore, it should be noted that the new approach adopted by Sutter Health is compliant with its social corporate responsibility program and general development strategy pursued since the time of the organization’s establishment. Hence, the organization has been “relying on the expertise of professionals to fine-tune the integrated financing and delivery vehicle they hope will speed them ahead of the competition” (Cerne, 1994). Therefore, it is obvious that the organization has regarded the financial component to being an integral part of its functioning, attempting to integrate it into its activities. Since the 1980s, Sutter Health has embarked on the “seamless continuum” of reorganization and constant improvement based on the analysis and identification of existing problems and their subsequent elimination (Cerne, 1994). In terms of social corporate responsibility, Sutter Health is a vital part of the community and does its best to ensure its satisfaction and well-being. The new collection approach is designed to increase customers’ satisfaction and improve the organization’s revenue cycle. Generated revenues are then directed at improvement of the community, for instance, through the donation of $15 million with a view to extending the nursing program in the Sacramento Sierra region (PR Newswire, 2003). This program is highly topical as there is a shortage of about 1,000 nurses and Sutter Health’s donation can assist with educating 500 nurses per year in the region (PR Newswire, 2003). Therefore, revenues generated as a result of the new collection approach depicted in Table 1 above are used for the improvement of the community where the organization operates.

Conclusion

All things considered, the case study of Sutter Health provides valuable information on how healthcare service providers can change their accounting and collection practices to remain competitive in the market and provide customers with superb services. Critical analysis of the primary source and the best approach identified from other sources have shown that Sutter Health’s approach is among the most effective and efficient, as well as being suitable and recommended for replication by other providers facing similar problems. Withal, POS collection seems to be the best solution to existing collection problems experienced by healthcare service providers. Thus, the case study of Sutter Health describes the innovative approach that can prove to be extremely valuable in the industry.

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