Nursing Home A is a healthcare facility based in the suburbs of a large Midweste
ID: 390477 • Letter: N
Question
Nursing Home A is a healthcare facility based in the suburbs of a large Midwestern city. The home is a small to medium sized facility that is privately owned and been in operation for many years. Technology sophistication is limited and many administrative processes are labor intensive. Nursing Home A provides a variety of healthcare services to its patients including skilled nursing care that is covered under the Medicare program. Historically reimbursement for services rendered by a skilled nursing facility like Nursing Home A can be difficult to obtain. However, with the proper training and processes in place payment can be received quickly and easily. At Nursing Home A, this is not the case.Currently, Nursing Home A is experiencing cash flow problems. Their vendors are pushing them to pay on time although their payments are historically late. Nursing Home A would prefer to take advantage of early pay discounts but does not have the cash flow to do this. The main reason for this is that their receivables owed from its customers are historically very late in paying bills.
Typically, residents of Nursing Home A pay via 4 sources. First is Public Aid (government assistance) , 73% of residents have some form of Public Aid but only 53% of the sales revenue is generated from Public Aid reimbursement. The next source of payment is private funds (from the patient themselves). This accounts for 15% of the residents and 14% of sales revenues. The next source is Medicare. Medicare is 9% of the residents but 26% of the sales revenues. The final source is via other miscellaneous funds.
Nursing Home A recognized that a key bottleneck in cash flow was tied up in the 26% of revenue from Medicare. They determined if they could have significant improvement on Medicare receivables, there cash flow could be dramatically improved on a day to day basis.
What would you do if you were Adam, new to the company and tasked with improving the Medicare billing process? How would you have attacked this project?
Do you think Adam wasted time with simple process changes? Because much of the process is still very manual, should he have gone to technology suggestions to automate the manual processes?
If Adam did not know about Nursing Home B what else could he have done to prove his business case?
Is this effort scalable to other initiatives? Could Adam apply what he did here to other projects?
Explanation / Answer
Collating the Case Facts:
- Nursing Home A provides Healthcare services including care that is covered under Medicare program
- A lacks proper training and systems to have control the receivables from their patients, hence having cash flow problems
- Patients Pay via 4 sources:
o Public Aid which is Government assistance – 53% Sales revenue comes from this
o Private funds which is Out-of –pocket payments by patients – 14 % Sales revenue comes from this
o Medicare – 26% of the Sales revenue comes from this
o Miscellaneous fund – remaining
- The 26% revenue from Medicare is the key bottleneck, need improvement on Medicare receivables
Solution to the Issue at hand –
We can divide the issue on two fronts – 1. The Patient facing data collation and 2. The receivables side from different entities
Patient Facing -
As a process change, data collation at the time of admittance to the Nursing Home should be upgraded. The patients coming in should be clearly tagged under the various heads of Payments – Public Aid, Private funds, Medicare or Miscellaneous.
Once the tagging is sorted, collection of funds after treatment can be better directed and organized.
Right at the onset, when a patient is admitted, based on the source of payment, the respective entity who would make the payment should be briefed about the treatment and an estimation of the treatment cost must be shared with them. This should be done keeping in mind the Lead time for response from the respective source.
Though these process changes would bring about some gradual improvements, to totally cut down on errors and delays due to human intervention technology should be used. A proper Customer Relationship Management software (CRM) with an Enterprise Resource Planning (ERP) software should be put in place.
The CRM and ERP together would work in tandem and once the necessary data is filled by a manual operator at the time of admittance, the systems would automatically send in the communications to the respective sources of funds with a clear timeline keeping in mind their respective lead times of response.
Receivables Side –
As mentioned in the case, it is generally the Medicare receivables that causing much of the delay and cash flow issues. Generally, Medicare is funded by the Social Security Administration. Discussions can be held with the concerned administration to understand the entire process flow a little better in order to ensure timely payments at their end. The suggested model or format should be incorporated in the ERP system and all future communications would be sent in that format. This would ensure the standards are met as per the claiming is concerned.
Once this is sorted, the receivables timeline would be clear from all the sources and the ERP would plan the payments to the suppliers accordingly in order to ensure a smooth and healthy cash flow.
This effort absolutely scalable, with the proper technology in place the system would be capable of taking far higher entries than the current manual entries to the Nursing Home.
Cash flow management is a task in all industries and such activities to improve the cash flow for the firm would help Adam in all other projects across industries.
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