A CFO's Worst Nightmare? Seeing Red.

Karen Minich-Pourshadi, July 12, 2010

As a hospital financial leader you analyze the financials all the time. But how far do you really dig into them—are you looking for problems or overlooking them? Perhaps you realize one day that your cash flow is inconsistent. You check your days cash on hand and see it dropping to a low of 58 days. You notice your receivables are averaging 170 days and sometimes hitting highs of 198 days, and your bad debt is gobbling up over 12% of revenue.

There's a problem. So, you reach out for help from a consultant and his solution is to bleed the hospital more by writing off $13 million in receivables so you can start with a "clean slate." It's enough to make you run in horror, but you'd better stand and face those numbers.

It's the worst of all scenarios, and it was the case for Vail Valley Medical Center, in Vail, CO, an 84-bed facility with net revenue of $278 million. But Vail Valley isn't an anomaly—more than a few hospitals have found their finances in this situation in the last couple of years. So, how does a hospital in such an affluent area of the country get in so deep, and more importantly, how were they able to get out of this financial mess?

John H. Wilson, director of patient accounts at Vail Valley Medical Center, explains that after joining Vail Valley Medical Center in 2008, he began to uncover a few process-related problems, such as fewer than 50% of all claims were being submitted electronically because there was no process in place to determine if an electronically submitted claim actually made it through to the payer's system. It turned out that many of the claims that were making it through were being denied, but the Medical Center didn't have a locked-down process for dealing with denials.

His analysis of the process of claims going out the door was that it was erratic. There was no way to tell which ones were going electronically. Vail Valley thought it was submitting claims to a clearing house before they were going to the payer, but that was the case for less than 50%. Vail Valley's technology was fouling up the finances. Wilson says getting the technology up to date became a primary focus.

"We definitely had a couple of issues with our claims processing system," Wilson says. "Clean claims weren't going out the door. Then we found out that part of the problem was with the company we had outsourced this to. They just weren't doing any follow up on the claims, so a lot of our claims were being lost to ‘timely filing’ denials." The outsourcing company was let go, though the financial damage was done. Translation: Lost money—nearly $10 million.

Moreover, due to its location, Vail Valley Medical Center has a large volume of international patients, therefore the facility was frequently in contact with international insurers. If you thought your TPAs were challenging, consider that these insurers frequently called to request discounts, and the hospital had no defined process for offering them. Members of the Medical Center's team were providing discounts as high as 25%—and these discounts weren't tied to a specific "pay-within" time period.

"On an international insurance call, if the company was willing to pay us something, my people might give a 30% discount and while another might give a 25%," he notes. Translation: More lost money.

Karen Minich-Pourshadi Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media. Twitter
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