Darlene Best
Brad Byars
Janice C. Grankowski
Teresa McSpadden

The four hospitals in Providence Health & Services' California region went from meeting a mere 29.6 percent of revenue cycle targets to surpassing 77.8 percent of goals. The winning trifecta: standardization, performance measurement, and industry-tested process improvement approaches.

At a Glance  

  • Standardization across hospitals fosters accountability and productivity, facilitates the dissemination of best practices, and provides for comparable measurement.  
  • Managing by metrics allows leaders to drive targeted projects, achieve desired results, and sustain the improvements made.  
  • Strong sponsorship is key to successfully deploying Six Sigma black belts to partner with process owners and drive process improvement.  

In 2006, the four acute care hospitals in the California region of Providence Health & Services were not meeting target revenue cycle metrics. Differences in performance measures, reporting practices, and business office systems were producing variations in data across the hospitals as well as poor compliance with national benchmarks. Only 32 (29.6 percent) of 108 business services metrics exceeded 2006 goals for all the hospitals. At individual hospitals, only six to 10 (5 to 9 percent) of the business service metrics were higher than operational targets for the year.

The metrics revealed systemic issues throughout the revenue cycle-from charge posting to collections:

  • Days in accounts receivable (A/R) were 64.
  • Gross days in unbilled A/R were between 13.2 and 18.3, significantly higher than the 6.0-day national benchmark based on data from Hospital Accounts Receivable Analysis (HARA) and HFMA.
  • Charge error rates ranged from 5.8 to 10.2 percent across the hospitals.

In 2007, the California region of the not-for-profit Providence system began replacing individual hospital-centered business office functions with a single, consolidated, centralized regional business office approach to revenue cycle management. Over the next three years, the region created core revenue cycle teams with hospital representatives from admitting, health information management, nurse auditing, chargemaster management, case management, and operational excellence.

The regional teams completed 26 regional process improvement projects related to revenue cycle management that had an impact of $9.4 million. The projects led to dramatic improvements:

  • Net days of revenue in A/R were reduced to 50 days.
  • Gross days of revenue in unbilled decreased to 5.7 days.
  • Cash collection increased by $200 million.
  • The overall clean claim rate increased to more than 90 percent, from less than 75 percent.

Between 2006 and 2009, 99 of 108 (92 percent) of revenue cycle metrics improved; some improved by as much as 90 percent. Overall, 77.8 percent of the metrics exceeded goals for 2009.

Process Improvement Approach

A large and diverse team was needed to achieve a high level of success across the entire California region. The regional business office assembled core revenue cycle teams from 10 departments across all the hospitals. Team members were selected on the basis of their knowledge of the revenue cycle; their understanding of the rules and regulations governing the billing and collection of Medicare, Medi-Cal, and commercial payers; and their ability to drive projects to completion.

Team members from the regional business office as well as nurse audit, chargemaster management, admitting, health information management (HIM), and case management were key players. CFOs provided strategic input and assured staff that there would be sufficient resources to meet goals. Newly hired regional directors of revenue cycle management as well as billing support services (nurse audit/chargemaster) and the director of front-end revenue cycle management drove accountability and standardization across the region. Directors and managers from admitting, HIM, case management, and billing leant their subject matter expertise.

Most process improvements were developed following the Six Sigma and Lean methodologies. Operational excellence team members, with embedded Six Sigma black belts and master black belts, directed project improvement efforts. (The belts in Six Sigma are yellow, green, black, and master black.) The Work-OutTM format encouraged input from team members and empowered front-line staff to participate in decision-making. Work-Out is a team-based decision making process that empowers the employees by giving them a say in the improvement.

Projects were prioritized based on the impact to the organizations in the region and focused on every aspect of the revenue cycle from beginning to end. Data from each ministry were gathered and analyzed to uncover inconsistencies in the definition and application of metrics as well as in the operation of policies, procedures, and practices among the hospitals. Data were analyzed to identify underlying problems and improvements in processes that could solve them.

Regional teams identified a hospital to pilot-test process improvements. After testing and validation at the pilot location, the process improvement was translated to other hospitals. Improvements identified during the pilot and translation phases of implementation were then shared with the other California regional hospitals, along with lessons and best practices obtained from other hospital systems, hospital associations, and Providence regions.

Improvement Priorities

Improvements have been achieved in six key areas across the California region.

Discharged not final billed. A principal focus at the outset of the regional effort was gross days of revenue in unbilled or discharged not final billed (DNFB). In 2006, the California region hospitals had more than twice the average number of gross days of revenue in unbilled than hospitals nationwide. The industry average in 2006 was 6 days; the averages for the four hospitals in the California region were 13.2, 14.4, 17.9, and 18.3.

Because DNFB statistics from individual hospitals had not been broken down into component parts, it was difficult for the regional business office team to determine if the statistics were being calculated in the same manner across all hospitals or to learn where changes could be made. The regional business office, therefore, gathered data from each ministry on specific aspects of DNFB, including coding, authorization for services from Medi-Cal, revenue management categories, and patient registration. This data analysis revealed that the high DNFB was due to:

  • Problems in medical record coding
  • Delays in obtaining treatment authorization requests (TARs) for Medi-Cal patients
  • A lag in communication between hospitals and the regional business office on accounts in process
  • Inaccuracies in patient registration that caused extra work at the end of the billing cycle
  • Outdated chargemasters with inaccurate Current Procedural Terminology (CPT) and Healthcare Common Procedure Coding System (HCPCS) codes

Net days in A/R. In 2006, net days in A/R were high, ranging from 52.8 to 71.6 for the hospitals in the California region. Because billing and collections were done at multiple locations, billing and collection practices were inconsistent, and claims had to be reworked at the end of the billing cycle before they could be submitted to payers. The hospitals also lacked standardized reporting tools, productivity goals, and strong leadership. At the end of 2009, net days ranged from 37 to 62 with an average overall of 50.

Documentation, charge capture, and coding. In 2006, hospitals in the California region had no standardized approach for analyzing problems in charge accuracy. Audits of charge accuracy were not routinely performed across all the hospitals. Nurse auditing was outsourced at two hospitals. The chargemaster at two hospitals did not have the most up-to-date codes.

Today, charge-producing departments are responsible for reconciling their charges and managing their charge rejections. Monthly reports are sent out to leaders to monitor accuracy. Late charges and charging discrepancies are also tracked monthly on performance metrics. 

A central in-house nurse audit team routinely performs charge accuracy audits, working an array of reports to identify charging discrepancies and issues. The nurse audit team works closely with the regional business office to resolve billing edits, such as National Correct Coding Initiative edits. The chargemasters are managed centrally to ensure timely updates, accuracy of coding, and drug multipliers.

As a result, charge accuracy, compliance, and reimbursement have improved:

  • Performance in charge errors/nurse audits improved by 11.5 percent between 2006 and 2009.
  • Unresolved charge rejections dropped from $2.2 million in 2007 to $3,082 in 2009.
  • Accurate and up-to-date chargemasters helped improve the clean claim rate from 74 percent in 2006 to 92 percent in 2009.

Billings and collections. In addition to the overall absence of productivity metrics, the California hospitals were not required to submit billing and collection metrics reports to audit in 2006, or to provide supporting data. Multiple IT systems were used for billing and collection. Accounts amounting to $500 or less were not pursued in a timely manner, resulting in write-offs.

Today, each hospital must meet regional billing and collection productivity targets and provide information for standardized regional reports, including daily flash reports that provide tallies for each ministry on various measures, including A/R, charges, receipts, adjustments, refunds, amounts billed, bill counts, and number and amounts uncoded.

Hospitals have now converted to a common IT platform. In addition, a small balance team developed a standardized approach for handling accounts that have a total balance of less than $2,500.

These actions have allowed regional revenue cycle teams to:

  • Identify problem areas in collection in a timely manner: Registration accuracy, which includes more than 60 individual required elements, improved by 15 to 20 percent.
  • Improve productivity and billing accuracy: Clean claim rate increased from 74 percent in 2006 to 92 percent in 2009.
  • Increase collections and reduce denial write-offs for small-balance accounts: Denials for untimely follow-up of small-balance accounts decreased from $4.4 million in 2006 to zero in 2009.
  • Increase cash collections: Cash collections for the region totaled $709,224,085 in 2006; collections grew to $911,755,692 in 2009, and the amount of collections rose by 29 percent.

Service. Although many of the improvements in revenue cycle management may not be felt directly by patients and physicians, standardization of the processes has affected some aspects of customer service, such as registration and appointment scheduling wait times as well as price quotations for patients and physicians. Wait times for patient registration have decreased significantly. For example at one hospital in 2006, wait times were as long as an hour. Registration for more than 90 percent of patients is now completed within 15 to 20 minutes. The average wait time for scheduling appointments today is 49 seconds. Price quotes for patients and physicians' offices are provided typically well within one hour.

Impact on uninsured patients. By reducing days in A/R and improving cash flow, Providence hospitals in the California region can continue the system's mission for good health. Standardized and affordable emergency department rates for uninsured patients have been instituted at all five hospitals. A regional charity care program with uniform policies and procedures, including scripting and a standard application form, have increased the number of patients who qualify for financial assistance. The number of charity care applications given to patients at the time of registration increased from 1 percent of all registrations to 13 percent at one hospital and 20 percent at another.

Sustainability Through Measurement

Maintaining process improvement controls is essential to ensure continued financial benefit from standardization of the revenue cycle. Ownership of the revenue cycle improvement process, monitoring of performance metrics, and communication with employees are the keys to successfully maintaining process controls and sustaining the gains. Ownership was secured by developing cohesive, collaborative teams of highly skilled and talented leaders.

Monitoring relies on dashboards and control charts that track six measures on a monthly basis:

  • Registration quality assurance results
  • Clean claim rates
  • Patient satisfaction scores for courtesy of admitting personnel
  • DNFB days
  • Point-of-service collections
  • Medical record delinquency rates

Control plans were created at the end of each project to give the process owner an action plan if the process begins to get out of control. Leadership developed dashboards that track these key metrics, allowing them to quickly respond.

View Exhibit  


Key Lessons Learned

In the four years since the California region launched its revenue cycle transformation initiative, a number of lessons have been learned.

Let the data drive the decisions. To ensure that improvements in the revenue cycle could be sustained, decisions had to be based on facts and data. In some cases, information had to be carefully analyzed to understand the underlying causes of problems so potential solutions could be formulated.

For example, delays in the TARs process for Medi-Cal patients contributed significantly to DNFB. The state authorization process, which does not authorize payment for services until after a patient is discharged, is prolonged. Even so, TAR processing within hospitals also was excessively long. To learn why it took so many days to process a TAR, an operational excellence team lead by black belts in the revenue cycle analyzed every step taken by case managers, admitting, and medical records personnel in each hospital. The review showed that the hospitals did not have a standard tracking system that flagged TAR status or a uniform way to submit TARs to the State of California. Data entry was done manually. A method to automate the data load and greater collaboration between case managers and medical records personnel led to improvements in gross days of revenue in A/R for Medi-Cal of 40 percent or more in the hospitals in 2009.

Use a multidisciplinary approach. The process of revenue cycle transformation applied Catholic social teaching by including employees in decision making who are closest to the process. Utilizing the Work-Out methodology, a team of individuals with detailed process knowledge, influence with peers, or the ability to make direct decisions, created a method of billing that cut the average time of requesting an invoice involving an implant from 57 days to two days.

Standardize the revenue cycle measurement system. Performance cannot be assessed realistically nor can it be improved effectively unless metrics are defined and calculated in the same way from institution to institution. Hospitals now have common methods of determining and collecting key performance indicators so they have a strong foundation on which to build the future.

A Continuing Journey

Although significant improvements have been made over the past three years, revenue cycle improvement is a work in progress. Revenue cycle teams meet or confer at least monthly to update policies and procedures and standardize them across all hospitals. Front-line staff who are accountable for performance review benchmark dashboards bimonthly and work with the regional business office to identify the issues that may be undermining performance and the resources needed to get back on track. The teams seek out and apply best practices from individual hospitals as well as external sources over the entire region.

To build for the future, the California region launched an extensive green belt model in 2009. Five employees from the revenue cycle were selected to participate in the program and given training in both Six Sigma and Lean tools, as well as instruction in change acceleration and Work-Out for facilitators. After completing two projects with the guidance of a black belt mentor and passing an exam, the employees will be certified as green belts.

The California region achieved the goals of reducing A/R to 50 days, reducing DNFB to 5.7 days, and improving clean claim rates to 92 percent by standardizing processes across the region analyzing how key metrics drive the overall business performance and leading targeted process improvement projects.

Darlene Best is the regional director of billing support services (nurse audit and chargemaster management), Providence Health & Services, California Region, Torrance, Calif.

Brad Byars is master black belt for the revenue cycle, finance and supply chain, Providence Health & Services, California Region, and a member of HFMA's Southern California Chapter (bradley.byars@providence.org).

Janice C. Grankowski is regional director of revenue cycle management, Providence Health & Services, California Region, Torrance, Calif., and a member of HFMA's Southern California Chapter (Janice.Grankowski@providence.org)

Teresa McSpadden is director of front-end revenue cycle management, Valley Service Area, Providence Health & Services, California Region, and a member of HFMA's Washington-Alaska Chapter (Teresa.McSpadden@providence.org).

About Providence Health & Services

Providence Health & Services is a faith-based, not-for-profit healthcare system that provides hospital, physician, and outpatient care as well as other services in five states: Alaska, California, Montana, Oregon, and Washington. Based in Renton, Wash., the health system has 27 hospitals, more than 35 non-acute care facilities and physician clinics, and a health plan.

The California Region of Providence Health & Services includes:

  • 431-bed Providence Saint Joseph Medical Center, Burbank
  • 254-bed Providence Holy Cross Medical Center, Mission Hills
  • 356-bed Providence Little Company of Mary Medical Center, San Pedro
  • 245-bed Providence Tarzana Medical Center
  • 317-bed Providence Little Company of Mary Medical Center, Torrance

Because the Tarzana Medical Center joined Providence Health & Services in 2008, its revenue cycle metrics have been excluded from this report.

Publication Date: Friday, October 01, 2010

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