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Accounts Receivable Alert: The Significant Impact Potential of New Medicare Payment Reforms

Dan Hobbs and Sarah Herring, for HealthLeaders Media, February 19, 2008

Medicare and Medicaid Services finalized two payment reforms in August 2007 that took effect Oct. These changes could have a significant impact on your organization's accounts receivable and medical records processing. In order to lessen their impact, it is important to understand the nature of the reforms and make appropriate alterations to your internal processes.

The Inpatient Prospective Payment System applies to discharges occurring on or after Oct. 1. The Present On Admission Indicator took effect on the same day, and it requires Medicare providers to submit a POA Indicator for every diagnosis on inpatient acute-care hospital claims. Critical-access hospitals, Maryland waiver hospitals, long-term care hospitals, cancer hospitals, psychiatric hospitals, inpatient rehabilitation facilities and children's inpatient facilities are exempt from this requirement.

What to Watch For

No more than five days of revenue should be held in the accounts that are discharged-not-billed. Listed below are some key processes that should be monitored to avoid challenges. Each facility is encouraged to check these as well as hospital-specific processes.

Action Steps to Take

  • Be aware that Discharge Not Billed due to coding greater than five days (including records pending physician query) increases overall DNB.
  • Track and trend physician queries by physician and diagnosis. Have you identified issues related to inconsistent, missing, conflicting or unclear documentation that must be resolved by the provider?
  • Monitor physician queries older than seven business days.
  • Work with practicing physicians to explain the importance of their role in these new requirements. POA reporting requires a joint effort between the healthcare provider and the health information management professional coding the information to ensure complete and accurate documentation, code assignment, and reporting of diagnoses and procedures.
  • It is important to understand that POA codes will be reported to CMS and will eventually be used for payment/reimbursement purposes by CMS.
  • Update annual coding accuracy data for each coder by conducting an external coding audit.
  • Examine whether the number of claims rejected by the electronic claims management system due to medical records issues has increased.

How to Measure DNB

Measure Days Revenue Outstanding in DNB. Divide the total dollar amount (gross) of patient accounts that are discharged but not billed by the average daily (gross) revenue. The result should not exceed five. If you are over five days revenue outstanding, you may not have cause for concern because this number can fluctuate. However, if you are consistently above 10 DRO, extraordinary measures are needed.

Measure the average age of accounts at bill time. Your ECM systems should offer a "discharge to bill time" report. Otherwise, request this report from HIS. The average discharge to bill time (measured in calendar days) should be seven days or less. This report should include at least 30 days of claims.

Avoid Common Mistakes When Calculating DNB

  1. Do not include accounts that are "in-house" (nondischarged).
  2. Use gross revenue and gross AR data.
  3. Include all accounts, even accounts in your system's "hold days," in discharged not billed.
  4. Do not mistake an "uncoded" report for DNB. There may be many reasons for DNB other than coding.

Paying close attention to these internal practices will help you minimize the effect of these substantial Medicare and Medicaid reforms.


Dan Hobbs is the director of patient financial services for QHR Consulting Services and Sarah Herring is the senior consultant for health information management for QHR Consulting Services in Brentwood, TN. They may be reached at dan_hobbs@qhr.com or sarah_herring@qhr.com respectively.

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