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The Unique Alternative to the Big Four®
Accelerating Net Revenue Analysis and the Related Month End Close Process
March 21, 2013AAHAM
The Unique Alternative to the Big Four®
© 2011 Crowe Horwath LLP 2Audit | Tax | Advisory | Risk | Performance
Topics for Today
Introduction and Assumptions Critical Issues & Risks with Net Revenue Revenue Cycle Analytics (RCA) Overview Fundamentals for GPSR & A/R Valuation Accelerated Monthly Closing Process for Net Revenue Perspective from BayCare Health System Questions?
The Unique Alternative to the Big Four®
© 2011 Crowe Horwath LLP 3Audit | Tax | Advisory | Risk | Performance
Challenges Facing Healthcare Finance Executives Soaring patient responsibility
for A/R (growing uninsured, high deductibles/consumerism, etc.)
Increasing number of accounts that are Pending Medicaid and challenges in estimating conversion and related reserves
Difficulty in explaining the impact of changes in prior estimate affecting the current period results How do I explain that we have more
Medicaid contractual than revenue this month?
The Unique Alternative to the Big Four®
© 2011 Crowe Horwath LLP 4Audit | Tax | Advisory | Risk | Performance
Challenges Facing Healthcare Finance Executives
Difficulty in quickly projecting net revenue mid-month
Material year end reserve adjustments can have unpleasant consequences
Reporting come from many data sources
Reserve estimation approach needs to be standardized and consistent yet allow for end-user judgment
The Unique Alternative to the Big Four®
© 2011 Crowe Horwath LLP 5Audit | Tax | Advisory | Risk | Performance
Financial Reporting, Planning & Monitoring
Provides analytics to:Explain & forecast net revenue
Estimate reserves
Accelerate monthly close process
Identify revenue opportunities
Strengthen internal controls
Designed to support external audit
What is Crowe® Revenue Cycle Analytics?
The Unique Alternative to the Big Four®
© 2011 Crowe Horwath LLP 6Audit | Tax | Advisory | Risk | Performance
National perspective on net revenue challenges
The Unique Alternative to the Big Four®
© 2011 Crowe Horwath LLP 7Audit | Tax | Advisory | Risk | Performance
Single source of truth for net revenue
8
Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
Crowe® Net Revenue Reporting modules
1 - Hindsight Analysis
2 - Monthly Reserve Analysis
3 - Variance Analysis
4 - Net Revenue Budgeting
5 – Revenue Cycle Monitor
1 - Hindsight Analysis
2 - Monthly Reserve Analysis
3 – Net Revenue Analysis
4 - Net Revenue Budgeting
5 – Revenue Cycle Monitor
RCA Modules
9
Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
GPSR and Account Receivable Valuation:Hindsight vs. Zero Balance Account Analysis
10
Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
Regular hindsight analysis is fundamental in tracking accuracy of estimation approach and providing supporting data Leverage Historical Data for Real Time Insight Supporting data for current reserves calculation Validation of Historical G/L estimates
Hindsight or “Look-back” Analysis
Hindsight Analysis Overview
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Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
Example: Hindsight Analysis• Take A/R as of June 30, 2005 and show the actual resolution of those
balances over a period of time (e.g., through June 30, 2006)
Analysis Date 06/30/05Activity Through Date 06/30/06Report TypeBad debt write-offs (9,852,475) Charity care (6,011,683) Contractual allowances (43,630,183) Administrative adjustments (1,653,575) Payments (86,975,177)
(148,123,092)
Remaining balances 1,070,683
All Transactions & Remaining Balances (149,193,775)
Summary Aged Trial Balance - Debits 149,607,742
Charge Variance 413,967 0.28%
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Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
Single hindsight analysis – June 30, 2005
Activity as a % of Gross A/R
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
06/05
Bad debt write-off s
Charity care
Administrative adjustments
Remaining balances
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Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
Two years of analysis – June 30, 2004 & 2005
Activity as a % of Gross A/R
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
06/04 06/05
Bad debt write-off s
Charity care
Administrative adjustments
Remaining balances
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Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
3 Reference Points – June 2004, June 2005, April 2006
Activity as a % of Gross A/R
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
06/04 06/05 04/06
Bad debt write-off s
Charity care
Administrative adjustments
Remaining balances
15
Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
Complete Picture -Monthly Hindsight Analysis
Activity as a % of Gross A/R
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Bad debt write-off s
Charity care
Administrative adjustments
Remaining balances
June 2005June 2004
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Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
Example Hospital – 12 Month Hindsight
InpatientAmounts as a % of Gross A/R 08/11 09/11 10/11 11/11 12/11 01/12 02/12Bad debt write-offs 6.1% 6.9% 7.7% 7.6% 8.5% 8.6% 9.1%Charity care 6.2% 8.5% 9.2% 9.7% 10.4% 12.8% 13.3%Remaining balances 6.7% 4.8% 4.8% 4.9% 5.4% 5.5% 5.4%Administrative adjustments -0.2% -0.6% -0.5% -0.7% -1.8% -2.2% -1.9%Denials 7.5% 7.2% 6.3% 5.1% 4.6% 4.6% 4.3%Combined BD and Rem Balance 12.8% 11.7% 12.5% 12.5% 13.9% 14.0% 14.4%Contractual allowances 49.3% 49.2% 49.1% 50.9% 50.2% 48.5% 47.0%Payments 24.1% 23.8% 23.3% 22.6% 22.8% 22.3% 23.0%Bad debt recovery % 1.0% 1.1% 1.3% 1.2% 1.1% 1.2% 1.2%Takeback % -2.6% -2.1% -2.2% -2.7% -2.8% -3.0% -3.1%
OutpatientAmounts as a % of Gross A/R 08/11 09/11 10/11 11/11 12/11 01/12 02/12Bad debt write-offs 8.4% 8.9% 8.7% 9.4% 11.0% 11.0% 10.9%Charity care 5.6% 7.0% 7.9% 7.9% 9.0% 8.7% 8.4%Remaining balances 7.5% 7.9% 8.1% 7.2% 7.5% 7.1% 6.8%Administrative adjustments 0.9% 0.5% 0.2% -0.7% -1.5% -1.6% -1.8%Denials 6.6% 6.8% 6.9% 5.8% 6.0% 5.4% 4.9%Combined BD and Rem Bal 15.9% 16.8% 16.8% 16.7% 18.6% 18.1% 17.7%Contractual allowances 56.2% 54.9% 55.0% 56.7% 54.0% 55.6% 55.7%Payments 14.2% 13.5% 12.7% 12.9% 13.2% 13.3% 14.4%Bad debt recovery % 1.0% 1.0% 2.1% 2.0% 1.9% 1.9% 1.9%Takeback % -0.2% -0.3% -0.3% -0.6% -0.6% -0.5% -0.5%
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Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
Charity Care and Bad Debt considerations• Hindsight data will be best source of supporting data• Determine what is the appropriate hindsight time period
12 months is industry norm Remaining balance should be 3% or less
• Consider updating reserve percentages monthly and no later than quarterly
• Bad debt recoveries Closed A/R should continue to generate cash collections from
agencies Must consider “takeback” in addition to recoveries on Bad Debt and
Inactive Accounts Should mirror Hindsight Ranges
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Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
High Risk Payors• Use hindsight data instead of ZBA data• What are high risk payors?
Examples Self Pay Primary Medicaid Pending Self Pay After Insurance State or local programs
• Focus on historical net realizable value• We typically see 5-10% realization on Self Pay Primary• We typically see 25-35% realization on Self Pay After Insurance• Medicaid Pending realization should be somewhere between Self Pay
Primary and approved Medicaid
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Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
Supporting Data for Current Reserves Calculation181-270 $ 181-270 % 271-360 $ 271-360 % 361+ $ 361+ % Total $ Total %
GROSS A/R $132,858 0.00% $150,128 0.00% $750,517 0.00% $11,716,057 0.00%
ADMI N ADJ USTMENT & DENI AL
($45,696) -34.39% ($28,648) -19.08% ($511,957) -68.21% ($739,712) -6.31%
BAD DEBT & REMAI NI NG BALANCE
($9,178) -6.91% ($2,187) -1.46% $7,086 0.94% ($184,995) -1.58%
CHARI TY $0 0.00% $0 0.00% $0 0.00% ($35,350) -0.30%
CONTRACTUAL ($44,421) -33.44% ($83,881) -55.87% ($172,114) -22.93% ($6,031,412) -51.48%
PAYMENT ($33,563) -25.26% ($35,412) -23.59% ($73,532) -9.80% ($4,724,589) -40.33%
VARI ANCE $0 0.00% ($1,087) -0.72% ($1,436) -0.19% $86,083 0.73%
GROSS A/R $760,907 0.00% $188,955 0.00% $214,711 0.00% $6,809,544 0.00%
ADMI N ADJ USTMENT & DENI AL
$83,639 10.99% $46,157 24.43% $31,566 14.70% $589,543 8.66%
BAD DEBT & REMAI NI NG BALANCE
($397,185) -52.20% ($104,299) -55.20% ($95,364) -44.41% ($3,223,615) -47.34%
CHARI TY ($189,293) -24.88% ($102,491) -54.24% ($94,232) -43.89% ($2,925,791) -42.97%
CONTRACTUAL ($205,493) -27.01% ($28,139) -14.89% ($43,413) -20.22% ($995,635) -14.62%
PAYMENT ($52,575) -6.91% ($183) -0.10% ($13,267) -6.18% ($254,047) -3.73%
VARI ANCE $0 0.00% $0 0.00% $0 0.00% $147,788 2.17%
GROSS A/R $880,381 0.00% $336,044 0.00% $622,342 0.00% $3,376,879 0.00%
ADMI N ADJ USTMENT & DENI AL
($33,867) -3.85% ($32,236) -9.59% ($39,919) -6.41% ($178,703) -5.29%
BAD DEBT & REMAI NI NG BALANCE
($649,355) -73.76% ($224,437) -66.79% ($319,096) -51.27% ($1,976,647) -58.53%
CHARI TY ($106,978) -12.15% ($16,624) -4.95% ($32,002) -5.14% ($360,968) -10.69%
CONTRACTUAL $66,062 7.50% $4,879 1.45% ($58,846) -9.46% $59,197 1.75%
PAYMENT ($156,243) -17.75% ($67,626) -20.12% ($172,479) -27.71% ($919,758) -27.24%
VARI ANCE ($160,072) -18.18% ($13,441) -4.00% $115 0.02% ($206,713) -6.12%
SELF PAY (SELF)
Self Pay After I nsurance (SPAI )
MEDI CARE PPS (MC)
20
Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
Validation of Historical G/L estimatesRCA Hindsight Analysis Trend
* Note Activity is for a one year period and remaining balance is as of one year after period.
Analysis Date 11/30/05 12/31/05 01/31/06 02/28/06 03/31/06Activity Through Date 11/30/06 12/31/06 01/31/07 02/28/07 03/31/07
CONTRACTUAL ALLOWANCE RECONAR7 Contractual allowances (40,516,131) (43,288,305) (48,394,779) (50,796,666) (53,877,022)AR9 Administrative adjustments (2,298,510) (1,638,347) 1,870,696 (2,644,296) (2,475,747)
Total (42,814,641) (44,926,653) (46,524,083) (53,440,963) (56,352,769) G/L AU 1000 Acct 1150-1189 (37,813,807) (40,814,008) (45,030,837) (48,368,244) (52,794,991)
Difference (5,000,834) (4,112,645) (1,493,246) (5,072,719) (3,557,778) % Difference 13.22% 10.08% 3.32% 10.49% 6.74%
CHARITY CARE ALLOWANCE RECONAR5 Charity care (5,485,095) (5,440,271) (5,878,264) (6,361,148) (6,794,930) G/L AU 1000 Acct 1190 (2,987,857) (2,890,226) (2,915,173) (4,023,116) (5,081,727)
Difference (2,497,239) (2,550,045) (2,963,092) (2,338,032) (1,713,203) % Difference 83.58% 88.23% 101.64% 58.11% 33.71%
DOUBTFUL ACCOUNTS ALLOWANCE RECONAR3 Bad debt write-offs (10,140,360) (10,042,184) (10,554,405) (10,796,899) (11,576,133)AR17 Remaining balances (1,457,008) (1,159,877) (1,534,008) (1,493,015) (2,133,792)
Total B/D (11,597,368) (11,202,061) (12,088,413) (12,289,914) (13,709,926) G/L AU 1000 Acct 1200-1219 (17,351,570) (16,983,926) (17,172,655) (19,214,466) (20,882,733)
Difference 5,754,201 5,781,866 5,084,243 6,924,552 7,172,807 % Difference -33.16% -34.04% -29.61% -36.04% -34.35%
NET AR RECONAR13 Payments (73,298,939) (74,085,633) (82,253,294) (84,665,576) (86,906,355) G/L Net A/R (74,593,867) (74,909,264) (82,299,183) (85,248,954) (84,795,586)
Difference (1,294,928) (823,631) (45,889) (583,378) 2,110,769 % Difference 1.74% 1.10% 0.06% 0.68% -2.49%
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Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
Zero Balance Account (ZBA) Analysis Performed on Accounts with Dates of Service in given time period
Generally not less than Three to Six Months, or up to 1 Year. Total Charges = Total Charges to provide robust data sample Parameters used to Increase and Decrease Sample
Large Dollar Account Threshold Inpatient/Outpatient Co/Deductible Threshold Minimum Account Threshold
Must Consider Pricing/Realization Changes• Use of contract modeling system should be considered in the
estimate
RCA Reserve Approach: Hindsight vs. ZBA
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Example ZBA data (based on date of service)
Total Charges Payments Payment Percent
Allowance Contractual Percent
Inpatient Aetna (AE) $1,905,281.93 ($1,146,144.92) -60.16% ($691,647.33) -36.30%
BLUE CROSS MANAGED CARE (B) $9,883,564.44 ($4,517,849.34) -45.71% ($5,201,189.20) -52.62%
BWC (WC) $807,472.51 ($315,858.96) -39.12% ($491,424.95) -60.86%
Cigna (CI) $716,527.25 ($421,521.92) -58.83% ($272,600.94) -38.04%
COMMERCIAL TRADITIONAL (CT) $377,850.43 ($167,212.54) -44.25% ($104,360.24) -27.62%
Healthspan (HS) $2,142,776.38 ($1,097,876.13) -51.24% ($1,017,186.93) -47.47%
Humana (HU) $5,039,775.78 ($2,738,267.80) -54.33% ($2,201,457.99) -43.68%
MEDICAID (MD) $2,439,112.91 ($710,587.98) -29.13% ($1,681,962.83) -68.96%
Medicaid HMO (PW) $5,058,116.60 ($1,821,354.90) -36.01% ($3,234,367.73) -63.94%
Medical Mutual (MM) $1,937,489.18 ($969,361.35) -50.03% ($927,821.01) -47.89%
MEDICARE (MC) $40,745,085.89 ($13,870,705.81) -34.04% ($26,707,095.11) -65.55%
MEDICARE HMO (MB) $13,908,555.78 ($4,763,764.79) -34.25% ($8,966,768.34) -64.47%
OTHER (OT) $185,888.66 ($59,327.88) -31.92% ($126,560.78) -68.08%
OTHER MANAGED CARE (OM) $858,835.36 ($537,961.37) -62.64% ($301,916.25) -35.15%
PENDING MEDICAID (PM) (PM) $960,227.64 ($229,379.62) -23.89% ($586,388.81) -61.07%
Self Pay (SP) $2,368,945.21 ($58,369.34) -2.46% ($80,185.52) -3.38%
United Healthcare (UH) $4,305,907.08 ($2,096,523.24) -48.69% ($2,150,105.22) -49.93%
InpatientTotal $93,641,413.03 ($35,522,067.89) -37.93% ($54,743,039.18) -58.46%
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Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
Allowance category Source data
Contractual allowances Zero balance account (ZBA) activity, unless accounts are contract modeled
Administrative adjustments & denials
ZBA activity or hindsight activity (if considerably different from ZBA)
Charity Care Hindsight (trending) data
Bad Debt Hindsight (trending) data
Reserve Approach: Hindsight vs. ZBA
An integrated calculation approach is best practice.
Special Attention Provided to “High Risk” Payors
24
Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2009 Crowe Horwath LLP
Accelerating the Month End Close Process and
Net Revenue Reporting
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© 2011 Crowe Horwath LLP 25Audit | Tax | Advisory | Risk | Performance
Fundamentals for the Month End Close Reporting Process
Identify Appropriate Month End Close Team Should Include Finance, PFS & MC Resources IT maybe necessary depending on source of data Make inquiries of revenue cycle & managed care
Develop and Outline Standard Process Process should included Timeline & Checklists Assignment of Reporting & Close Model
Completion Assign Roles & Responsibilities with back-ups Separation of Duties: Preparer vs. Reviewer
Leverage Technology to Accelerate Process Automate, Update & Refresh Assumptions Recast New Assumptions against Prior Period AR Decrease time spent “building” models Increase time spent analyzing and prescribing
People
Process
Technology
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Example Month-End Timeline for 2 - 5 Day Close
11/26/2008 - 11/27/2008Update hindsight
trending, prepare
ZBA comparison
11/27/2008 - 11/28/2008Conduct pre-close
meeting with:- Accounting
- Reimbursement- Managed Care
- PFS
12/1/2008 - 12/2/2008Preparereserveanalysis
11/28/2008 - 12/1/2008Update tables and configuration
based on pre-close meeting results
12/2/2008 - 12/3/2008Present analysisto management,
determine follow-upitems and questions
11/26/2008Pre-close planning
12/6/2008Books closed
12/3/2008 - 12/6/2008Adjust reserve analysis (if needed),resolve follow-up questions/issues
12/1/2008Month-end
begins
Opportunity area where close process could be further
condensed
Continuous net revenue monitoring
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Crowe Healthcare Advisory Services
RevenueManagement
Revenue Cycle ManagedCare
Finance Budget development & monitoring
Service Group Pricing & Payer Parity
Net Revenue Yield Variance
Managed Care Portfolio Mgmt
-Rate
-Volume
General Ledger
Net Revenue Reporting
Charity Care Reporting
Open A/R valuation
Bad debt write-offs & recoveries
Daily cash management
A/R Performance Contract Inventory Revenue Enhancement- Open A/R -Expected Pmt - Discrepancies- Bad Debt Mgmt -Payer Mapping - Underpayments- Denial Mgmt - Product parity
People: Revenue Management Team
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Trouble rolls down hill…
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Who’s fault is it?
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Process: Standardize Pre-Close ActivitiesRevenue Management Team Meeting: “Pre-Close” Discussion
Determine Regular Meeting Time – 5 Days Prior to Day 1 Standardized Agenda designed to Address Potential Area of Risk Meeting minutes should be taken and shared
Most common issues discussed: Patient volumes/Payer mix Revenue cycle process changes; ie new initiatives Payer realization rates/Pricing Changes
Finance can do “heavy lifting” in Pre-close Phase Update all reserve assumptions: Hindsight & ZBA Analysis Re-Cast: Run New Assumptions against Prior Period AR to
Isolate/Understand Impact Large Balance Account Review Net Revenue Monitoring Throughout Month
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Fundamentals of net revenue reporting Permanently store reserve estimates at the patient account level
Standardization of payors across multiple different entities
Calculates current month gross revenue by payor (should tie very closely to G/L)
Determines deductions on current month gross revenue, based on: Transactions posted during the month on current month revenue Reserves estimated on current month revenue
Separately determines changes in prior estimate based on: Changes in reserves on open accounts Differences in actual transaction experience versus prior reserves Separately categorizes changes where primary insurance did/did not change
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Technology: Finance Continually Monitors Net Revenue Biggest barrier to accelerated close is
review and explanation of net revenue variances
Continuous monitoring can surface issues and causes for variance well before close process actually begins
Daily or (at least) weekly reporting can help to facilitate the quick analysis of fluctuations in net revenue during a period of time
Actively monitor and project net revenue to avoid surprises during close
Segregation of current period activity from prior period
Determine cause of fluctuations
Solving the mystery…
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Many of the material changes in prior estimates where there is a difference between estimate & actual can be explained by revenue cycle process issues
Issues with contract modeling system Posting errors Inconsistent write-off practices Re-classing prior activity from bad debt to charity or administrative
adjustments Interim billed accounts Charge removals or late charges
Change in Reserve Estimates - Primary Insurance Unchanged
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Change in Reserve Estimates - Primary Insurance Changed Accounts frequently flip payors during the month will change reserve estimates
or actual activity (particularly if posting discounts at time of billing)
Most common example is Pending Medicaid Reserves will be a blend of contractuals, charity, and bad debt If account flips to Medicaid, reserves will be mostly contractual (hit to contractuals, pick
up in bad debt and charity) If account flips to Self Pay, reserves will be mostly charity and bad debt (hit to charity
and bad debt, pick up to contractuals)
No current period gross revenue, yet net revenue is impacted
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Net Revenue Analysis – Summary level11/30/2012
Inpatient Outpatient Total
$ % $ % $ %
Gross Revenue $19,822,026.00 18,1102,253 $37,939,279.93
Contractuals Allowances ($11,082,452.27) -55.91% ($10,614,959.98) -58.61% ($21,697,412.25) -57.20%
Admin Adjustments ($20,370.13) -0.10% ($179,885.85) -0.99% ($200,255.98) -0.53%
Charity Care ($1,861,897.02) -9.39% ($558,489.80) -3.08% ($2,420,386.82) -6.38%
Bad Debt ($297,798.82) -1.50% ($419,309.75) -2.32% ($717,108.57) -1.89%
Current Period Net/Net Revenue
$6,559,507.81 33.09% $6,337,608.50 34.99% $12,897,116.31 34.00%
Changes In Prior Estimate $602,495.57 3.04% ($1,181,624.47) -6.52% ($579,128.90) -1.53%
Total Net/Net Revenue $7,162,003.38 36.13% $5,155,984.04 28.47% $12,317,987.41 32.47%
Cash Collection $7,662,320.87 38.66% $6,073,045.64 33.53% $13,735,366.51 36.21%
Bad Debt Recoveries $28,210.26 0.14% $55,823.72 0.31% $84,033.98 0.22%
Total Cash Collected $7,690,531.13 38.80% $6,128,869.36 33.84% $13,819,400.49 36.43%
Difference $528,527.75 $972,885.32 $1,501,413.08
Cash to Net/Net Revenue 107.38% 118.87% 112.19%
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Net Revenue Analysis – Payor levelFinancial Class Gross
RevenueMix % Gross
Revenue with Pricing Reduction
Current Month Net Revenue %
Change in Prior
Estimates
Realization % - VA1
AGENCY (AGEN) $263.3 0.63% $263.3 16.26% $78.9 46.23%
AHCCCS (AHCC) $3,484.5 8.31% $3,484.5 16.78% ($398.4) 5.35%
AHCCCS SENIOR PLANS (AHCCSR)
$3,865.1 9.21% $3,865.1 25.62% ($75.1) 23.67%
STATE DEPT OF CORRECTIONS (ADOC)
$0.0 0.00% $0.0 0.00% ($0.2) 0.00%
BCBC INDEMNITY PLANS (BCBSIND)
$19.2 0.05% $19.2 27.30% $0.2 28.11%
BCBS HMO PLANS (BCBSHMO)
$0.0 0.00% $0.0 0.00% $3.7 0.00%
BCBS PPO PLANS (BCBSPPO)
$1,674.8 3.99% $1,674.8 32.43% ($23.0) 31.05%
CHAMPUS (CHAM) $221.3 0.53% $221.3 19.88% $32.6 34.61%
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Net Revenue Analysis – Account level
ATB ListingAccount Number Period Date Account Balance Total Charges Aging Bucket Current Financial Class Primary Insurance Provider
AcctXXXX 1/31/2013 $37,804.48 $37,804.48 DNFB CHARITY CHARITY-MISC
AcctXXXX 2/28/2013 $37,804.48 $37,804.48 31-60 Medicaid UNIVERSITY FAMILY CARE/Medicaid
Transaction Listing
Account Number Posting Date Transaction Amount Transaction Code Transaction Type Transaction Sub Type Transaction Description
AcctXXXX 2/2/2013 ($370.00) ASELF ADMIN ADJUSTMENT Not Specified SELF PAY ADJUSTMENT
AcctXXXX 2/5/2013 $370.00 ASELF ADMIN ADJUSTMENT Not Specified SELF PAY ADJUSTMENT
AcctXXXX 2/28/2013 $0.00 PUFC1 PAYMENT Insurance UFC ELECTRONIC PAYMENT
ATB ListingAccount Number Period Date Account Balance Contractual Estimates Admin Adj Estimates Charity Estimates Bad Debt Estimates
AcctXXXX 1/31/2013 $37,804.48 $0.00 $0.00 $37,804.48 $0.00
AcctXXXX 2/28/2013 $37,804.48 $30,031.88 $215.49 $638.90 $434.60
Activity On Account
Reserves On Account
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Periodic Triangulation
Three high-level indicators to validate net/net revenue reporting:
Hindsight analysis – do historical cash collections equal net A/R? Source: Hindsight trending template
Cash to Net/Net Revenue – over a period of time, are cash collections tracking with reported net/net revenue?
Current A/R valuation – is current ratio of net A/R to gross A/R at or below historical hindsight payment rate?
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Accounts Receivable Analysis – Payor level 181-270 271-360 360+ Total
Transaction Type $ % $ % $ % $ %
MEDICARE PPS (MC) Total Gross A/R $63,947 $61,564 $20,249 $8,674,043
Contractual $9,009 14.09% $0 0.00% $0 0.00% $3,783,264 43.62%
Administration Adjustment $19 0.03% $18 0.03% $6 0.03% $85 0.00%
Net A/R (After C/A & AA) $54,918 85.88% $61,545 99.97% $20,243 99.97% $4,890,695 56.38%
Charity $3,185 4.98% $905 1.47% $146 0.72% $31,221 0.36%
Bad Debt $4,872 7.62% $2,567 4.17% $18,337 90.55% $183,003 2.11%
Net A/R (Less BD & Charity) $46,862 73.28% $58,073 94.33% $1,761 8.70% $4,676,470 53.91%
SELF PAY (SELF) Total Gross A/R $1,315,169 $580,189 $1,028,019 $6,522,286
Contractual $151,113 11.49% $48,736 8.40% $34,130 3.32% $807,419 12.38%
Administration Adjustment ($123,100) -9.36% $4,467 0.77% ($9,766) -0.95% ($897,937) -13.77%
Net A/R (After C/A & AA) $1,287,156 97.87% $526,986 90.83% $1,003,655 97.63% $6,612,804 101.39%
Charity $398,233 30.28% $113,659 19.59% $260,603 25.35% $2,623,620 40.23%
Bad Debt $801,918 60.97% $370,707 63.89% $677,948 65.95% $3,554,813 54.50%
Net A/R (Less BD & Charity) $87,005 6.62% $42,620 7.35% $65,104 6.33% $434,371 6.66%
Self Pay After Insurance (SPAI) Total
Gross A/R $809,242 $418,211 $1,125,551 $3,339,479
Contractual $136,034 16.81% ($1,715) -0.41% $78,676 6.99% $223,081 6.68%
Administration Adjustment $56,000 6.92% $40,065 9.58% $127,525 11.33% $298,817 8.95%
Net A/R (After C/A & AA) $617,209 76.27% $379,861 90.83% $919,350 81.68% $2,817,581 84.37%
Charity $149,629 18.49% $48,973 11.71% $121,897 10.83% $535,871 16.05%
Bad Debt $339,119 41.91% $233,901 55.93% $727,582 64.64% $1,768,433 52.96%
Net A/R (Less BD & Charity) $128,461 15.87% $96,987 23.19% $69,871 6.21% $513,277 15.37%
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Accounts Receivable Analysis – Summary level
A/R % Increase/(Decrease)Accounts Receivable - Debit Balance Feb-2013 Jan-2013 Change Feb-2013 Jan-2013 % ChangeInpatient $66,859,353 $66,472,967 $386,387 0.58%Outpatient $64,138,287 $63,304,534 $833,754 1.32%Total Accounts Receivable $130,997,641 $129,777,500 $1,220,140 0.94% Contractual Allowances % of GrossInpatient RCA Contractual $28,860,523 $29,259,945 ($399,422) 43.17% 44.02% -0.85%Inpatient Unapplied Contractual Discount $296,578 $417,395 ($120,817) 0.44% 0.63% -0.18%Outpatient RCA Contractual $36,248,619 $35,573,294 $675,325 56.52% 56.19% 0.32%Outpatient Unapplied Contractual Discount $776,120 $780,619 ($4,499) 1.21% 1.23% -0.02%Total Contractual Allowances $66,181,840 $66,031,253 $150,588 50.52% 50.88% -0.36% Admin Adjust Allowance Inpatient ($142,243) ($211,161) $68,917 -0.21% -0.32% 0.10%Outpatient $561,423 $953,956 ($392,533) 0.88% 1.51% -0.63%Total Admin Adjust Allowance $419,179 $742,795 ($323,616) 0.32% 0.57% -0.25% Bad Debt Inpatient $9,845,740 $9,400,423 $445,317 14.73% 14.14% 0.58%Outpatient $12,927,259 $12,850,046 $77,213 20.16% 20.30% -0.14%Other Bad Debt Reserves $61,695 $64,798 ($3,104) 0.05% 0.05% 0.00%Total Bad Debt $22,834,694 $22,315,267 $519,427 17.43% 17.20% 0.24% Charity Inpatient $10,144,930 $10,370,269 ($225,339) 15.17% 15.60% -0.43%Outpatient $6,001,558 $5,875,696 $125,862 9.36% 9.28% 0.08%Other Charity Allowances $82,788 $14,293 $68,495 0.06% 0.01% 0.05%Total Charity $16,229,276 $16,260,258 ($30,982) 12.39% 12.53% -0.14% TOTAL RESERVE $105,664,989 $105,349,573 $315,417 80.66% 81.18% -0.52%
BayCare Health System
Background
RCA Implementation
RCA Next Steps
About BayCare
Leading community-based healthcare system in Tampa Bay, Florida Network of 10 not-for-profit hospitals, outpatient facilities
& services including imaging, lab, behavioral health and home health care
More than 200 locations throughout Tampa Bay Founded in 1997 as integration of 3 Community
Health Alliances (CHA)
1. St. Joseph’s Baptist
2. Morton Plant Mease
3. St. Anthony’s
RCA Implementation
April-June 2012 = 12 Week Installation for 9 hospitals
July 2012 to December 2012 =
“Deep Dive” of data inside RCA tool
July 2012 to present
1. Perform parallel review of RCA and BayCare allowance
methods
2. During certain months, we applied different allowance assumptions and completed more than one scenario
method is acceptable
RCA Implementation (cont.)
February 2013 = Concluded that Crowe RCA allowance
method is reasonable and started
transition with some adjustments
May 2013 = Will book to Crowe RCA
allowance method in the
general ledger
RCA Next Steps
March 2013 = Consider the implementation of
Budget Module of RCA
for usage of rolling
18 month net revenue
Forecast
July 2013 = Begin
implementation of
Winter Haven Hospital
Contact Information
Mindy Arroyo
Revenue Management Specialist
BayCare Health System
(727) 519-1742
Mindy.Arroyo@baycare.org
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Crowe Horwath LLP Disclosure
Crowe Horwath LLP is a member of Crowe Horwath International, a Swiss association. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2011 Crowe Horwath LLP
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