Sutter Case Analysis

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An increasing issue within the health care field is the inability to collect debt from the growing population of uninsured or underinsured patients. Healthcare organizations may be struggling to meet operational margins because the industry has never treated its customers like other retail-oriented sectors of the economy. A McKinsy and Company report states that hospitals incur sixty billion dollars in bad debt annually because they typically collect only ten to twenty percent of a total uninsured patient balance after service. (MacKenzie, 2009) This is due to a number of reasons, including poor accounting practices or a lack of patient information. This paper will discuss how one hospital, California’s Sutter Health, has taken steps to correct this issue. It will analyze the accounting practices put into place by Sutter Health and the success of this practice. This author will also provide an alternate solution to the issue of debt collection for self-pay patients as well as an opinion concerning the actions taken by Sutter Health. First it is important to provide background information pertaining to California’s Sutter Health Hospitals. Sutter Health is a non-profit network of community-based healthcare providers. This organization provides care to more than one hundred Northern California communities. (Souza & McCarty, 2007) Sutter Health is composed of hospitals, physician organizations and other health care service providers that share resources and expertise to advance health care quality. While the variety of providers is beneficial to the communities served, it posed an operating issue for the organization. (Hummel, 2004) One of the key problems that Sutter Health was experiencing was that each facility acted as an independent “island” of information. Due to the numerous operating and accounting systems it was impossible to obtain data and reports in the same format from every location. There were no common practices within the organization. (Hummel, 2004) Each facility followed different admitting and billing procedures. This resulted in a few facilities having accounts receivable days in the range of one hundred twenty, while others had fewer than sixty days. The lack of standardized revenue collection and integrated management reporting tools was adversely affecting the financial performance of Sutter Health. (Hummel, 2004) In 2003, during their effort to standardize the operating systems, Sutter Health performed an analysis of the organizations revenue management cycle. The analysis results proved that Sutter’s current information systems were costly to maintain and did not provide the real time information that was needed. (Anonymous, 2005) The analysis provided Sutter with information that was valuable in determining key issues that were affecting their ability to collect debt and lower the facilities account receivable days. Most of the issues arose from the inability to access real time information which in turn affected the actual methods of collection that were being employed. The lack of real time information greatly hindered Sutter Health’s ability to collect debt from patients once a service had been provided. Since the needed information was not immediately available, managers had to wait until the end of the month to set benchmarks, track progress, or make decisions. This delay in information prevented account representatives from being able to prioritize and effectively work on their cases. (Souza & McCarty, 2007) This had a negative impact on the number of receivable days that each facility incurred. Due to the lack of information, Sutter Health had difficulty collecting on patient accounts. Sutter’s collection method focused on the back end staff- the central business office and collectors- rather than the front-end staff member to collect payments. (Souza & McCarty, 2007) Patients were not being asked for their payment in a timely manner. Important information, such as the patient’s portion of...
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