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Complex billing makes reducing receivables difficult Hospital's average days revenue in receivables (the standard industry measure of accounts receivable management effectiveness) has increased by 18 percent or 11.3 days during the past eight years--a present-day negative cash flow effect of more than $8 billion dollars.

What has caused the hospital industry's current cash flow crisis? Why have hospital accounts receivables increased to such an extent that financial viability is threatened for many hospitals?

The answers to these questions are simple; the solutions to these problems are complex.

Two of the primary causes of the current cash flow difficulty are cost containment initiatives generated by the zealous efforts of Congress to meet Gramm-Rudman-Hollings Federal deficit reduction targets and the ever-increasing complexity of third-party billing requirements.

MEDICARE. Recent American Hospital Association statistics show that Medicare accounts for nearly 49 percent of an average hospital's gross patient revenue. With this in mind, it is easy to understand why any change in Medicare payment rules has such a dramatic effect on the financial health of hospitals.

During the past several years, Medicare has implemented a series of Medicare Secondary Payer (MSP) provisions that require hospitals to bill other third-party payers (rather than Medicare), under certain circumstances, for primary payment of the hospital's bill.

Determining whether Medicare patients have other insurance coverage is not an easy task, and other payers are not always prompt or cooperative in recognizing their primary payment responsibility.

The Health Care Financing Administration has established a $1.4 billion MSP savings goal for the Medicare program for FY 1989 from these secondary payer requirements. This equates to a $1.4 billion reduction in Medicare payments to hospitals.

Two other significant changes to Medicare payment policy occurred on July 1, 1987, and July 1, 1988. Provisions of the Omnibus Budget Reconciliation Act of 1986 eliminated Medicare's periodic interim payment (PIP) program for most hospitals effective July 1, 1987.

HFMA's Survey of Medicare Accounts Receivable Trends (SMART) indicated that on average hospital receivables increased 5.3 percent because of the elimination of PIP, while hospitals in New York and Illinois experienced an average 33 percent and 29 percent receivables increase, respectively.

Additionally, Congress legislated a 10 day payment "floor" for Medicare intermediary claims processing beginning July 1, 1988. The payment floor increased to 14 days on Oct. 1, 1988.

The intended savings to the Medicare program as a result of the 10 day floor was $521 million--simply by delaying payments to hospitals. HFMA's SMART survey reported that the 10 day floor legislation caused an 8 percent increase (4.8 days) in hospital Medicare days revenue in receivables with a comparable increase expected from the further delay to 14 days.

Many other Medicare claims processing and prepayment requirements have been implemented in the past five years, including Medicare Code Editor requirements, the "clean" claim criteria, and most importantly, Medicare's prospective price setting (PPS) system.

These changes have added to an already complex set of Medicare billing instructions and have resulted in increased Medicare receivables and diminished cash flow.

MEDICAID. On average, 7 percent of a hospital's revenue is generated from services provided to Medicaid recipients. Medicaid receivables represent a growing concern for healthcare financial managers. Many state Medicaid programs do not meet the Federal 60 day prompt payment requirement. Hospital groups in several states, including Illinois, Washington, Texas, and Louisiana, have filed lawsuits against state Medicaid programs for slow payments.

Ten states have implemented Medicaid payment systems based on diagnosis related groups (DRGs); 10 percent of all Medicaid enrollees are now covered through capitated health maintenance organization (HMO) plans; and 34 state Medicaid programs currently are experimenting with payment methods other than the traditional cost-based method.

As Medicaid programs continue to implement new payment systems, hospitals will continue to feel the pressure of slow aggregate Medicaid payment levels.

CHAMPUS. Revenue generated from services provided to beneficiaries of the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) is significant for a few hospitals.

Hospitals located near large military installations serve a disproportionate share of CHAMPUS patients and are keenly sensitive to the recent drastic changes in the CHAMPUS payment method, including the CHAMPUS DRG-based payment system, implementation of mental health per diem payments, and the creation of a children's hospital differential payment method.

With the advent of these recent CHAMPUS program changes and experimentation with a triple option coverage plan for CHAMPUS beneficiaries, hospitals have been uncertain about the regularity and dependability of CHAMPUS payment levels.

# posted by Medical Information : 3:04 AM