What's Hiding in Your Vendor Inventories?
Today, most hospital business offices rely on third party vendors, such as collection agencies, extended business office partners and eligibility firms, to augment their internal collection efforts. Every day, accounts and financial updates flow back and forth between a hospital and its vendors. Despite everyone's best intentions, the current operating routines and processes often result in inconsistencies between the inventory records of a hospital and its vendors.
Always thought to be a relatively minor issue, recent research suggests the inventory reconciliation problem is significant, pervasive and critical. Reconciliation issues between providers and their vendors can lead simply to lost cash and high operating costs or go so far as to create regulatory issues and major public relations problems.
The Magnitude of Inventory Reconciliation Issues Can Be Significant
Based on findings from inventory reconciliation initiatives at multiple providers around the United States, between 5% and 34% of inventory held at vendors had reconciliation issues with the providers' records. (Source: Connance Benchmark Research)
The average reconciliation error rate across this sample of providers was 13%. However, even in situations where the provider had only a single vendor, the reconciliation error rate was high.
Reconciliation issues broke down into five categories. (Source: Connance Benchmark Research)
Vendors also appear to demonstrate different performance on account and inventory reconciliation activities. As the research indicated, some vendors seemed to systematically operate at lower than 90% accuracy while others were close to 98% accurate.
How do Inventory Reconciliation Problems Happen?
For each account, countless financial events such as payments, adjustments, reversals, etc. occur every day both in the hospital business office and in vendor operations. All these events need to be dutifully credited, debited and noted in both provider and vendor inventory records in exactly the same way.
For instance, an event as simple as a patient going to the hospital to pay a past-due bill previously sent to a collection agency creates a string of follow-on events in the hospital's patient accounting system that need to be connected to and mirrored in the collection agency's inventory records. That same check, subsequently failing to clear at the patient's bank, will lead to another series of reversal transactions that need to be mirrored yet again. If the reversal occurs in the next month, it means that all the unwinding activity will be part of a different monthly close effort. As these examples demonstrate, there are multiple opportunities for reconciliation issues to percolate in even the simplest, most common events.
By having the ability to access and benchmark thousands of account placements and recalls every day between providers and vendors around the United States, some trends have emerged. These include:
- Accounts are closed in the patient accounting system, but not recalled from the vendor;
- Accounts are closed by the vendor, but not updated as such in the patient accounting system;
- Accounts on payment plan appear at the vendor, but are not documented as such in the provider's records;
- Vendor is continuing collection efforts on accounts on hold for review at the provider; and,
- "Missing transactions" or transactions that are recorded in the patient accounting system, but are not sent to the vendor, and vice versa.
Over time, the small numbers of account problems compound and mature into the 5% to 34% inventory reconciliation issues noted earlier.
Possible Negative Outcomes from Reconciliation Issues
Not only are the number of accounts involved significant, but these reconciliation problems lead directly to problematic outcomes. Some of the more concerning problems include:
Account open at hospital, but not at agency:
- No work is being done on the account so no money is being collected.
- Patient may incorrectly be told that their financial obligations are complete.
Hospital and vendor have different balance due:
- Vendor is either pursuing too much or too little money, both of which are problematic. Too much exposes the hospital to legal and public relations issues. Too little leaks cash.
- Unexplained changes to the balance due undermine patient confidence in the accuracy of the bill now and in the future. This breakdown delays patient payment as the patient is expecting the billed amount to change.
- Creates unproductive administrative costs at both the vendor and provider when the gap is identified and needs to be explained.
Account closed at hospital, but open at vendor:
- Vendor is requesting payment on an account that has been resolved or otherwise closed.
- In the event that the account has been written off to charity or taken as bad debt on a cost report, significant legal and compliance issues are created.
- Patient goodwill and community relations put at risk.
- Vendor is incurring costs to collect.
Account at wrong vendor:
- Collection efforts may be inappropriate for the type of account. Different agencies are often contracted to operate under different policies, processes, and commission rates.
- Patient satisfaction risked by exposure to more aggressive collection tactics than warranted.
Account at two vendors:
- Patient is pursued by more than one vendor, creating frustration with the provider and potentially excess payment.
- Hospital potentially paying commissions to both vendors.
- Extra collection costs incurred by vendors.
In almost every situation, reconciliation issues are elevating operating costs, distracting management attention and reducing cash recovery. It also creates the opportunity to undermine patient satisfaction, generate negative PR in the local community, and put the provider at risk with regulators, CMS and other oversight organizations.
- How One Health System Saved $3.5M in Benefits Costs
- Federal Appeals Court Mulls Observation Status
- How the Military's EHR Reboot Will Impact Interoperability
- HCA to Acquire CareNow Urgent Care Centers
- Ebola: Lawmakers, Healthcare Leaders Clash Over Quarantines
- 'Leadership Gap' Threatens MU Momentum, Says AMA
- Investing in Population Health Strategies Creates Financial Risk
- Evidence-Based Practice and Nursing Research: Avoiding Confusion
- BCBS Tries New Drug Contracting Model
- Ebola: Nurses Demand 'Tools We Need' to Fight Infection