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By J. Stuart Showalter
Following the 1997 merger of Omaha's Clarkson and University Hospitals, the newly created Nebraska Medical Center (NMC) had 20 days cash on hand. After the Balanced Budget Act of 1998 took effect, that slim reserve began to shrink even more, and by 2002 it was down to a dangerous 9½ days. That's when NMC's CEO Glenn Fosdick issued an edict: "Hold onto cash as long as you can."
This is a sample article from HFMA's CFO Forum, an online discussion community that encourages networking and sharing among senior financial executives in hospitals and health systems.
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Controller Stephanie Daubert and Leanne Cahill, manager of disbursements, took the challenge to heart. They began by holding bills as long as possible and paying as many as they could with the corporate purchasing card (P-card). The P-card's days payable outstanding (DPO) allowed NMC to realize a much-needed cash flow "bump."
Then Daubert and Cahill analyzed their accounts payable records and saw that 80 percent of NMC's "spend" involved about 20 large suppliers. They approached these companies and asked whether they would accept the P-card in lieu of paper checks, but most refused because they would have to pay the "interchange fee" that credit card companies impose.
Mike Carmody, the representative assigned to NMC's account by one of these large vendors, saw that his company's refusal to take the P-card did not help solve the hospital's problem. At a meeting with NMC CFO, Bill Dinsmoor, an idea was born: create an electronic payment system that would serve the function of the P-card without the high interchange rates that make it cost prohibitive from a vendor's standpoint. Dinsmoor and Carmody reasoned that for large spends an automated payment exchange could bring measurable financial benefit by achieving the following.
Working with a consulting firm and some financial experts, NMC and Carmody began testing the concept in early 2004. The results were so positive that they formed a separate company late that year and called it "H-Card, LLC." Known today as HAP-X (aka "Healthcare's Automated Payment Exchange"), this innovative company now serves more than 100 hospitals in 32 multi-hospital systems across the country.
"There is no risk, no cost, and a lot of upside," Daubert explained recently as she described how HAP-X works. "Say we get a bill for $100,000 worth of supplies. We send it to HAP-X, and they pay the vendor minus a negotiated discount, which might be 1 percent. The vendor receives $99,000 promptly in electronic format without having to worry about collection efforts. Then NMC receives a statement from HAP-X for $100,000 as though it were a credit card bill. We pay the HAP-X bill on its due date, which is a few weeks later than the vendor's invoice due date would have been. In the meantime, we have use of that money."
Cahill, the AP manager, agrees that it's a win-win-win situation. "HAP-X's revenue is the $1,000 vendor discount which, after costs, is shared with NMC in the form of rebates. In return for providing the discount, the vendor gets paid much sooner and avoids the costs and uncertainties of collection. And NMC gets the float, receives a rebate on its spend, no longer needs to cut paper checks, and avoids the headaches of invoice reconciliation."
In addition, because the entire process is electronic, there are fewer opportunities for human error, and NMC has only HAP-X's payment format to deal with rather than a different one for each vendor.
Dinsmoor said that the automated payment system "saved the hospital about $8 million in cash the first year"- the average increase in days payable outstanding (DPO) compared to a 30-day vendor invoice-"and it has continued to save cash each year since as the supply purchases have grown. Plus it generates significant rebates on our spend."
Before the HAP-X system took effect, NMC's days in accounts receivable were higher than the payment period on vendors' invoices. Since they began using HAP-X, the hospital's DPO number has increased and the ratio of receivables to payables is now considerably less than 1. This has had an extremely positive effect on cash flow and on the hospital's bond ratings. NMC has also been able to reduce the staffing level in the accounts payable department by about 10 percent.
The exhibit below reflects NMC's improved days cash on hand.
Access the exhibit: NMC's Days Cash on Hand
NMC's CEO Fosdick is a total believer in the automated payment system, and he believes other CEOs and CFOs should "jump at the chance" to take advantage of automated opportunities. "We were cash poor a few years ago," Fosdick said. "Now, HAP-X saves us money and improves our management of working capital. Plus basically they're paying us to pay our bills for us. What's not to like?"
Displaying his interest in the details and the potential savings, Fosdick pointed out that another benefit of using the automated payment exchange is a reduction in the cost of check processing. "It costs a heck of a lot to cut a manual check," he said, "and this automated process saves us having to write more than 20,000 checks a year. It's all done electronically."
A 2010 study by the Aberdeen Group showed that the cost of cutting a paper check is about $7.15, compared to $3.96 for each commercial card transaction (Pezza, S., et al, The E-Payables Solution Selection Report: A Buyer's Guide to Accounts Payable Optimzation, Aberdeen Group, October 2010). Cahill agrees with those estimates, and she calculates that NMC has eliminated about 20,700 paper checks a year. That being so, the hospital saves more than $66,000 in check-processing costs annually by using the automated system.
All the NMC personnel feel their new system is a prescription for success. "It may seem too good to be true," Fosdick said, "but that doesn't mean it doesn't work."
J. Stuart Showalter, JD, MFS, is a contributing editor to HFMA's Forums.
Interviewed for this article:
Stephanie Daubert, controller, Nebraska Medical Center, Omaha, Neb., and a member of HFMA's Nebraska chapter (firstname.lastname@example.org).
Leanne Cahill, manager of disbursements, Nebraska Medical Center (email@example.com).
Bill Dinsmoor, CFO, Nebraska Medical Center, and a member of HFMA's Nebraska chapter.
Glenn Fosdick, CEO, Nebraska Medical Center.
Publication Date: Thursday, September 15, 2011
In this Business Profile, Bruce Haupt, president and CEO of ClearBalance, discusses how a patient loan program can increase patient collections, reduce bad debt, and speed cash flow.
In this Business Profile, Jerry Bruno, principal with Deloitte Consulting LLP, discusses the importance of choosing revenue cycle solutions that help an organization meet the challenges of a quickly evolving healthcare environment.
In this business profile, Lane Jackson, a partner in the Grant Thornton LLP Health Care Advisory Services practice, with extensive experience in overseeing system implementations and revenue cycle reorganizations, discusses best practices for elevating revenue cycle performance during an EMR implementation. Grant Thornton LLP is a sponsor of the Large System Controllers Council Affinity Group.
In this business profile, Amy Gross, senior vice president of Key Government Finance, discusses the benefits of private placement transactions to support large-scale financing projects.
In this business profile, Doug Polasky, executive vice president at Xtend Healthcare, explains the importance of having sound workflow processes in a consolidated business office to ensure optimal performance and reduce costs.
In this business profile, sponsored by SSI, Jay Colfer, vice president of sales and marketing, shares how patient access solutions are reversing the trend toward increased bad debt resulting from the rise in high-deductible consumer health plans.
In this business profile of Deloitte Consulting, Matthew Hitch and David Betts explore the potential benefits of elevating the customer experience and outline strategies to change service delivery.
TriMedx helps health systems control costs and uncover savings opportunities by optimizing the clinical engineering function.
Patient financial engagement is more challenging than ever – and more critical. With patient responsibility as a percentage of revenue on the rise, providers have seen their billing-related costs and accounts receivable levels increase. If increasing collection yield and reducing costs are a priority for your organization, the metrics outlined in this presentation will provide the framework you need to understand what’s working and what’s not, in order to guide your overall patient financial engagement initiatives and optimize results.
No two patients are the same. Each has a very personal healthcare experience, and each has distinct financial needs and preferences that have an impact on how, when and if they chose to pay their healthcare bill. It’s no longer effective to apply static billing techniques to solve the complex challenge of collecting balances from patients. The need to tailor financial conversations and payment options to individual needs and preferences is critical. This presentation provides 10 recommendations that will not only help you improve payment performance through a more tailored approach, but take control of rising collection costs.
This white paper, written by Apex Vice President of Solutions and Services, Carrie Romandine, discusses the importance of patient segmentation and messaging specifically related to the patient revenue cycle. Applying strategic messaging that is tailored to each patient type will not only better educate consumers on payment options specific to their billing needs, but it will maximize the amount collected before sending to collections. Further, targeted messaging should be applied across all points of patient interaction (i.e. point of service, customer service, patient statements) and analyzed regularly for maximized results.
This white paper, written by Apex President Patrick Maurer, discusses methods to increase patient adoption of online payments. Providers are now seeking ways to incrementally collect more payments due from patients as well as speeding up the rate of collections. This white paper shows why patient-centric approaches to online payment portals are important complements to traditional provider-centric approaches.
Increased electronic engagement between healthcare providers and patients provides significant opportunities for improving revenue cycle metrics and encouraging patients to access EHRs. This article, written by Apex Founder and CEO Brian Kueppers, explores a number of strategies to create synergy between patient billing, online payment portals and electronic health record (EHR) software to realize a high ROI in speed to payment, patient satisfaction and portal adoption for meaningful use.
Faced with a rising tide of bad debt, a large Southeastern healthcare system was seeing a sharp decline in net patient revenues. The need to improve collections was dire. By integrating critical tools and processes, the health system was able to increase online payments and improve its financial position. Taking a holistic approach increased overall collection yield by 10% while costs came down because the number of statements sent to patients fell by 10%, which equated to a $1.3M annualized improvement in patient cash over a six-month period. This case study explains how.
With the ICD10 deadline quickly approaching and daily responsibilities not slowing down, final preparations for October 1 require strategic prioritization and laser focus.
Read how Gwinnett Medical Center provides clear connections to financial information, offers multiple payment options for patients, and gives onsite staff the ability to collect payments at multiple points throughout the care process.
Read how Orlando Health was able to perform deeper dives into claims data to help the health system see claim rejections more quickly–even on the front end–and reduce A/R days.
To maintain fiscal fitness and boost patient satisfaction and loyalty, healthcare providers need visibility into when and how much they will be paid–by whom–and the ability to better navigate obstacles to payment. They need payment clarity. This whitepaper illuminates this concept that is winning fans at forward-thinking hospitals.
Financial services staff are always looking for ways to improve the verification, billing and collections processes, and Munson Healthcare is no different. Read about how they streamlined the billing process to produce cleaner bills on the front end and helped financial services staff collect more than $1 million in additional upfront annual revenue in one year.
Effective revenue cycle management can be a challenge for any hospital, but for smaller providers it is even tougher. Read how Wallace Thomson identified unreimbursed procedures, streamlined claims management, and improved its ability to determine charity eligibility.
Before launching an energy-efficiency initiative, it’s important to build a solid business case and understand the funding options and potential incentives that are available. Healthcare leaders should consider taking the steps outlined in the whitepaper to ease the process of gaining approval, piloting, implementing, and supporting sustainability projects. You will find that investing in sustainability and energy efficiency helps hospitals add cash to their bottom line. Discover how hospitals and health systems have various options for funding energy-efficient and renewable-energy initiatives, depending on their current financial structure and strategy.
Health care is a dynamic mergers and acquisitions market with numerous hospitals and health systems contemplating or pursuing formal arrangements with other entities. These relationships often pose a strategic benefit, such as enhancing competencies across the continuum, facilitating economies of scale, or giving the participants a competitive advantage in a crowded market. Underpinning any profitable acquisition is a robust capital planning strategy that ensures an organization reserves sufficient funds and efficiently onboards partners that advance the enterprise mission and values.
The success of healthcare mergers, acquisitions, and other affiliations is predicated in part on available capital, and the need for and sources of funding are considerations present throughout the partnering process, from choosing a partner to evaluating an arrangement’s capital needs to selecting an integration model to finding the right money source to finance the deal. This whitepaper offers several strategies that health system leaders have used to assess and manage capital needs for their growing networks.
Announcements from several commercial payers and the Centers for Medicare and Medicaid Services (CMS) early in 2015 around increased efforts to form value-based contracts with providers seemed to point to an impending rise in risk-based contracting. Rather than wait for disruption from the outside in, health care providers are now making inroads on collaborating with payers on various risk-based contracting models to increase the value of health care from within.
Yuma Regional Medical Center (YRMC) is a not-for-profit hospital serving a population of roughly 200,000 in Yuma and the surrounding communities.
Before becoming a ZirMed client, Yuma was attempting to manually monitor hundreds of thousands of charges which led to significant charge capture leakage. Learn how Yuma & ZirMed worked together to address underlying collections issues at the front end, thus increasing Yuma’s overall bottom line.
Kindred Hospital Rehabilitation Services works with partners to audit the market and the facility’s role in that market to identify opportunities for improvement. This approach leads to successes; Kindred’s clinical rehab and management expertise complements our partners’ strengths. Every facility and challenge is unique, and requires a full objective analysis.
As the critical link between patient care and reimbursement, health information enables more complete and accurate revenue capture. This 5-Minute White Paper Briefing shares how to achieve cost-effective revenue integrity by your optimizing HIM systems.
Speedier cash flow starts with better CDI and coding. This 5-Minute White Paper Briefing explains how providers can improve vital measures of technical and business performance to accelerate cash flow.
Qualified coders are getting harder to come by, and even the most seasoned professional can struggle with the complexity of ICD-10. This 5-Minute White Paper Briefing explains how partnerships can help improve coding and other key RCM operations potentially at a cost savings.
The point of managing your revenue cycle isn’t just to improve revenue and cash flow. It’s to do those things effectively by consistently following best practices— while spending as little time, money, and energy on them as possible.
How Lucile Packard Children’s Hospital Stanford increased payments received within 45 days by 20% and reduced paper submission claims by 70% by using ZirMed solutions.
The reasons claims are denied are so varied that managing denials can feel like chasing a thousand different tails. This situation is not surprising given that a hypothetical denial rate of just 5 percent translates to tens of thousands of denied claims per year for large hospitals—where real‐world denial rates often range from 12 to 22 percent. Read about how predictive modeling can detect meaningful correlations across claims denials data.
Emergency Mobile Health Care (EMHC) was founded to be and remains an exclusively locally owned and operated emergency medical service organization; today EMHC serves a population of more than a million people in and around Memphis, answering 75,000 calls each year.
Since the Physician Quality Reporting Initiative (PQRI) introduction, CMS has paid more than $100 million in bonus payments to participants. However, these bonuses ended in 2015; providers who successfully meet the reporting requirements in 2016 will avoid the 2% negative payment adjustment in 2018, so now is the time to act! Included in this whitepaper are implications of increasing patient responsibility, collections best practices, and collections and internal control solutions.
Getting paid what your physician deserves—that’s the goal of every biller. Yet even for the best billers, achieving that success can be elusive when denials stand in the way of success, presenting challenges at every turn. Denials aren’t going away, but you can learn techniques to manage and even prevent them.Join practice management expert Elizabeth W. Woodcock, MBA, FACMPE, CPC, to: Discover methods to translate denial data into business intelligence to improve your bottom line, determine staff productivity benchmarks for billers, and recognize common mistakes in denial management.
Physician practices must improve organizational efficiency to compete in this era of reduced reimbursement and escalating administrative costs.
Many healthcare organizations are pursuing next-generation health information systems solutions. Learn more about Navigant's work with University of Michigan Health System.
The proper implementation of healthcare information technology systems is crucial to an organization’s financial health.
Drive down costs while improving quality in a reform environment.
Receive expert insights and how-to action to achieve and maintain peak revenue cycle performance.
Access expert insights on financial forecasting/planning, strategic partnerships, capital allocation, and more.
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