My re-introduction to healthcare was through a client who was experiencing major financial loss. Convinced it was a result of healthcare reform, they engaged our services to re-negotiate insurance contracts.
As I began digging into the financials, I noticed several areas of concern. Most obviously, the practice’s financial statements reflected income of $4.2m through June. However, reports provided by the revenue cycle management company reflected $5.25m in collections through June.
It’s not unusual for some minor variance to exist; however, a 30% variance is significant. It was the first indicator of a major issue.
Why Variances Exist:
It’s very difficult for most healthcare businesses to track and reconcile their income. Payments are received over the counter via check, credit card, and even cash. Payments from insurance carriers are received electronically, check, or even credit card. There are so many various forms of payments, it’s difficult to have confidence about the accuracy of payments and the task is daunting.
To further complicate matters, revenue cycle management (RCM) teams receive an electronic remittance advance (ERA) or explanation of benefits (EOB). The ERA’s and EOB’s are similar to receipts; they outline the details behind payment. The payment itself may/may not settle into your bank account the same day as the ERA or EOB. However, the RCM functions are posting these collections assuming the deposits will be made according to the document received.
Many RCM teams do not have access to your bank account to verify that what a payer outlined as a payment actually was deposited into your account. This same methodology is true for over the counter collections at your office or surgery center. There’s what the cash register says – the billing or practice management system, and there’s what the bank account says.
In the situation with the medical practice I mentioned above, four years of discrepancies ensued. After digging in further, we found hundreds and thousands of patients and insurance fees were never deposited into the medical practice account.
To make matters worse, the client received a notice from the IRS that the 1099 income reported from the payers totaled significantly more than the income the client reported on their tax returns.
In an alternate situation, we found that thousands of Medicare payments were never deposited into our client’s account though years of ERA’s indicated payments. Updated checking account information was never provided to Medicare and deposits were rejected from the bank due to an old account number (again, the importance of proper credentialing).
What Can You Do?
Avoid theft and errors by performing a monthly exercise to reconcile your bank account to the billing reports. This cumbersome and time consuming exercise is the only way to check what is being collected in the office, and by the RCM team, against your real life deposits. This exercise should be performed outside of the office by yourself, colleague, healthcare consulting team or CPA. It is intricate and complicated but essential to avoid loss.
Our data reflects one in three of our clients have experienced theft – real money diverted.
Ask your RCM team to provide a list of deposits posted into the account and verify in your bank account that each deposit matches. This is single-handedly the most important exercise you’ll perform for your healthcare business.