February 4, BETSY GROSSMAN Director Revenue Cycle Administration 8911

SAN DIEGO: AUDIT & MANAGEMENT ADVISORY SERVICES 0919 February 4, 2011 BETSY GROSSMAN Director – Revenue Cycle Administration 8911 Hospital Receivabl...
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SAN DIEGO: AUDIT & MANAGEMENT ADVISORY SERVICES 0919

February 4, 2011

BETSY GROSSMAN Director – Revenue Cycle Administration 8911 Hospital Receivables – Credit Balance Management Audit & Management Advisory Services Project 2010-15

Subject:

The final audit report for Hospital Receivables – Credit Balance Management, Audit Report 2010-15, is attached. We would like to thank all members of Patient Financial Services for their cooperation and assistance during the audit. Because we were able to reach agreement regarding corrective actions to be taken in response to the audit recommendations, a formal response to the report is not requested. The findings included in this report will be added to our follow-up system. We will contact you at the appropriate time to evaluate the status of the corrective actions. At that time, we may need to perform additional audit procedures to validate that actions have been taken prior to closing the audit findings.

Stephanie Burke Assistant Vice Chancellor Audit & Management Advisory Services

Attachment

cc:

D. L. T. T. J. M. S.

Brenner Donaldson Jackiewicz Perez Sainmervil Sonnenshein Vacca

UNIVERSITY OF CALIFORNIA - (Letterhead for Interdepartmental use)

AUDIT & MANAGEMENT ADVISORY SERVICES

Hospital Receivables – Credit Balance Management February 2011

Performed by: Gabor Herman, Auditor Terri Buchanan, Manager Approved by: Stephanie Burke, Assistant Vice Chancellor

Project Number: 2010-15

Hospital Receivables – Credit Balance Management Audit & Management Advisory Services Project 2010-15

Table of Contents

I.

Background ..................................................................................................................... 1

II.

Audit Objectives, Scope, and Procedures ....................................................................... 5

III.

Conclusions ..................................................................................................................... 6

IV.

Observations, Management Corrective Action, and Recommendations ........................ 7

A.

Credit Balance Management ........................................................................................ 7

B.

Credit Balance Contractor .......................................................................................... 10

C.

Cash Accounting and Tracking System (CATS) ........................................................ 11

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Hospital Receivables – Credit Balance Management Audit & Management Advisory Services Project 2010-15 I.

Background Audit & Management Advisory Services (AMAS) has completed a review of UCSD Medical Center (UCSDMC) credit balance management functions and systems as a part of the approved audit plan for Fiscal Year 2009-10. This report summarizes the results of our review. Due to the complexities associated with the billing and collection processes, patient accounts receivable (A/R) credit balances arise as a normal revenue cycle function. Transactions that create credit balances include, but are not limited to: The posting of any transaction that exceeds the account balance, including an overpayment, an excessive contractual adjustment, or a duplicate payment; The application of a payment without a corresponding charge; and, The application of a payment to the wrong account. While credit balances represent only a small percentage of A/R as a whole, they are nonetheless the focus of occasional audits performed by federal and state payers including the Center for Medicare and Medicaid Services (CMS), Tricare, and Medi-Cal. The Office of Inspector General1 has included audits of Medicare credit balance management in its 2010 Work Plan. As account balances age, they are typically more difficult to research. Effective credit balance management typically requires an adequate allocation of staff that are knowledgeable about current billing and collection issues. A 2009 Healthcare Financial Management Association (HFMA) White Paper on Credit Balance Management suggests that, on average, one employee can resolve 1.5 credit balance accounts per hour2. The White Paper further suggests that a “large teaching hospital” may require “up to 10” dedicated support staff to analyze and resolve credit balances on a timely basis. Payer Requirements Periodic review and remediation of credit balances helps ensure that regulatory or contractual requirements associated with certain payers are met. In some circumstances, CMS requires that refunds be remitted within 60 days of the credit balance appearing on the account. Specifically Title 42 of the Code of Federal Regulations Part 489.20(h) states: “If the provider receives payment for the same services from Medicare and another payer that is primary to Medicare, the provider is to reimburse Medicare

1

The mission of the OIG, as mandated by Public Law 95-452, is to protect the integrity of Health and Human Services (HHS) programs, as well as the health and welfare of the beneficiaries of those programs. 2 Credit Balances – Spotlighting a Little-Known Area of Risk and Opportunity, HFMA, 2009, (http://www.cdrassociates.com/docs/hfma_whitePaper.pdf )

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Hospital Receivables – Credit Balance Management Audit & Management Advisory Services Project 2010-15 any overpaid amount within 60 days.” The issue of prompt credit refunds is also discussed in the Medicare Claims Processing Manual, Chapter 1, Sec. 30.1.2, Provider Refunds to Beneficiaries, which states in part “…the provider agrees to refund as promptly as possible any money incorrectly collected from Medicare beneficiaries or from someone on their behalf.” In addition, Medicare requires that a quarterly disclosure be submitted to help ensure that monies owed to Medicare are repaid timely. A certified Medicare Balance Report (CMS838) must be filed by all providers. This Report defines reportable accounts in the following instructions: A credit balance is an improper or excess payment made to a provider as result of patient billing or claims processing errors. Examples of Medicare credit balances included instances where a provider is: Paid twice for the same service either by Medicare or by Medicare and another insurer; Paid for services planned but not performed or for non-covered services; Overpaid because of errors made in calculating beneficiary deductible and/or coinsurance amounts; or A hospital that bills and is paid for outpatient services included in a beneficiary’s claim. California law imposes additional requirements regarding timely communication between providers and payers regarding claim payments. Specifically, California Code of Regulations, Title 28, Managed Health Care, §1300.71(d)(5) requires that upon notification of an overpayment by a payer, a provider has 30 days to contest overpayment or refund the payment in question. Assembly Bill (AB) 1455 includes health plan requirements related to unfair payment practices that govern disclosures and communications related to claim payment. UC Guidance for Credit Balance Management UC guidance for managing credit balances is addressed in the UC Accounting Manual, Section H-576-60: Medical Center: Patient Account Receivables. Relevant excerpts from the Manual include: Another integral aspect of the collection effort is the review and disposition of credit balances. Each medical center must establish procedures which ensure that each patient account showing a credit balance is analyzed monthly to determine whether cash payments and clinical support funds have been properly applied to the account. o The accounts receivable records should be searched to determine whether the patient has another account with the medical center. Page 2

Hospital Receivables – Credit Balance Management Audit & Management Advisory Services Project 2010-15 o If there is a possibility that the patient had an account that was written off, a search of prior bad debt expense should be made. o

If there is any other account to which the credit balance can be applied, the medical center should assume the right to offset.

o After it has been determined that there are no other patient accounts, the overpayment must be refunded promptly under established University disbursement procedures. o If the overpayment resulted because more than one insurance company paid for the medical center service, the medical center may be required to refund the overpayment to one of the insurance carriers. Note: If it is determined that the refund is to Medicare, the refund must be made within 60 days of the credit balance appearing on the account. Payments that cannot be identified to the proper patient accounts upon receipt are deposited and credited to an undistributed cash account. The medical center is responsible for the prompt identification and disposition of any unidentified cash receipts. UCSD General Accounting has also established the Local Policy on Disposition of Unidentified Credit Balances, which became effective June 1, 2010. The purpose of this campus policy is to provide standard guideline for managing and resolving unidentified and undistributed payments. UC and UCSD policy include guidelines for refunds to the Medicare program, but similar guidance is not provided for managing refunds to commercial payers. PFS Credit Balance Management Patient Financial Services (PFS) management and staff are responsible for UCSDMC A/R billing and collection processes including the identification and remediation of credit balances. In the Fall of 2008, Deloitte Consulting completed an engagement to evaluate UCSDMC revenue cycle operations. At that time, Deloitte recommended that a credit balance unit be created to dedicate resources to reducing and managing account credit balances. The credit balance unit was not created due to competing priorities. However, PFS management began focusing on credit balance strategies. As credit balance management became an area of focus, PFS determined that the number of credits was increasing due in part to erroneous automatic account adjustments posted to A/R by the Siemens Contract Management application. The Contract Management application was turned off on March 24, 2009, which helped to stop the increase of credits based on inaccurate account adjustments. Page 3

Hospital Receivables – Credit Balance Management Audit & Management Advisory Services Project 2010-15 In the Fall of 2009, the dollar value of credit balance accounts reached approximately $25M. Shortly thereafter, PFS management assigned an analyst to focus exclusively on credit balance management activities. Analyst job responsibilities included evaluating the population of credit balances to identify trends, developing processes to prevent credits from occurring and analyzing and remediating high dollar credit balances. The analyst was also assigned responsibility for monitoring and reviewing the work performed by staff from Collaborative Decision Resources Associates (CDR), a company that specializes in identifying refunds due on commercial payer accounts. Other staff involved in credit balance account analysis on a limited basis included two analysts who reported jointly to PFS and UCSD Transplant Programs and focused on analyzing credit balances on transplant accounts; and PFS staff working in the Medicare, Medi-Cal, and Commercial Contracts/Managed Care units who analyzed credit balance accounts in addition to their other work responsibilities. Since the Fall of 2009, credit balances have decreased from approximately $25M to $19.9M. In addition, the population of accounts with credit balances have been reviewed and stratified based on age. The graph below provides a summary of credit balance accounts as of November 16, 2010. The data is presented based on (1) the age of the account, and (2) the age of the credit balance associated with the account. The charts below indicate that most of the accounts associated with credit balances (43%) are over two years old. An additional 27% of the accounts associated with credit balances are one to two years old. Similarly, about $5.3M (27%) of the $19.9M in credit balances is over two years old, and $5.5M (28%) of the $19.9M in credit balances is one to two years old.

Aging Comparison Account Balance Age to Credit Balance Age 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 0-90 da ys

91-180 da ys

181-365 da ys

Credit ba la nce Age

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1-2 yea rs

Account a ge

2+yea rs

Hospital Receivables – Credit Balance Management Audit & Management Advisory Services Project 2010-15

Account age

Aged Credit Balances Age of Account Compared to Age of Credit Balance

0-90 days 91-180 days 181-365 days 1-2 years 2+years Total Percent

0-90 days ($926,117) (1,537,294) (908,661) (514,744) (216,840) ($4,103,656) 21%

Credit balance age 91-180 days 181-365 days 1-2 years (368,118) (1,021,175) (553,963) (101,208) ($2,044,464) 10%

(1,242,192) (1,231,657) (3,103,770) (428,139) (2,375,888) ($2,901,989) ($5,479,658) 15% 28%

2+years

Total Percent ($926,117) 5% ($1,905,412) 10% ($3,172,028) 16% ($5,404,134) 27% (5,345,191) ($8,467,267) 43% ($5,345,191) ($19,874,957) 100% 27% 100%

PFS utilizes two different data sources to manage and report credit balances. Credit balance information on the A/R management dashboard is obtained from the FMS InfoPac Report CMS00728, Listing of Payments by Payer File Type. This report captures only the credit balances that reside at the account level, meaning the net sum of payer, patient, and unit balances present on the account must be less than $0. PFS also obtains A/R credit balance data using the revenue cycle tools to prepare a data extract. The extract includes credit balances at the account or unit level. A unit within an account will be reported as a separate and unique “account” with a credit balance if that specific unit within the account is in an overall credit balance. The variance in the credit balance total between the October 31, 2010 CMS00728 report ($18.3M) and the A/R data extract compiled on November 16, 2010 ($19.9M) is approximately $1.6M. For management reporting purposes, AMAS considered $18.3M to be the more appropriate of the two figures to use for benchmarking purposes. UCSDMC manages unidentified and/or undistributed payments and adjustments in the Cash Accounting and Tracking System (CATS), which was developed in-house in 1994 by UCSDMC Information Systems (IS) and PFS to ensure that payments posted to the A/R subsidiary ledger can be reconciled to the deposits recorded in the general ledger. Staff in the Cash Posting department are responsible for analyzing and resolving unreconciled CATS transactions. Currently, both payments and payer remittance advices (RA) are entered into CATS and reconciled before they are posted to the FMS A/R subsidiary ledger. II.

Audit Objectives, Scope, and Procedures The objectives of our review were to evaluate the effectiveness of UCSDMC credit balance management practices, and to identify additional opportunities for process improvements that would help to ensure that credit balances are analyzed and remediated timely. To achieve our objective, we performed the following audit procedures: Reviewed applicable laws and regulations, including: Page 5

Hospital Receivables – Credit Balance Management Audit & Management Advisory Services Project 2010-15 o 42 U.S.C. Section 1395cc(a)(1)(C); o 42 Code of Federal Regulations (CFR) Sections 489.20(b), 489.40, 489.41; o Medicare Financial Management Manual (100-06), Chapter 3; o Medicare Claims Processing Manual (100-04), Chapter 1, Section 30.1.2; o Medicare Claims Processing Manual (100-04), Chapter 1, Section 40.2; and, o The OIG’s Compliance Program Guidance for Hospitals, February 1998; Reviewed OIG audit report number A-06-09-00102, Review of Medicaid Credit Balances at Arkansas Health Center as of June 30, 2009; Evaluated California AB1455, “Time Limits and Measurements” to determine its applicability to credit balance remediation criteria; Reviewed relevant UC and UCSD policies including: o UCOP Accounting Manual, Medical Centers H-576.Sec. II.C. Receipts and Disbursements; o H-576-60 Medical Center: Patient Account Receivables; and, o UCSD Policy on Disposition of Unidentified Credit Balances; Interviewed PFS staff in the following units or departments who are charged with processing A/R credit balances: o Medicare; o Cash Posting; and, o Transplant Program Accounts; Evaluated credit balances aging reports, and reviewed InfoPac reports FMSS820-D and CMS00728 for April 30, 2010 and October 31, 2010 as well as criteria used to prioritize accounts for review; Interviewed a CDR staff member; Reviewed UCSDMC Revenue Cycle Executive Dashboards for April and September 2010; Completed an analysis of CATS to determine whether pending CATS transactions had an impact of the number and dollar value of credit balances; Reviewed a limited sample of CATS transaction batches with the Cash Posting department; and, Evaluated the overall processes and workflow for managing credit balances. Audit work focused on evaluating the current status of credit balance processes and systems from a control perspective, and did not include detailed testing of credit balance accounts or validation of the standard procedures for remediating credit balances. III.

Conclusions During the past two years, improvements to credit balance management processes implemented by PFS have resulted in a significant overall reduction in credit balances. However, additional focus on the resolution of aged credit balances is needed and procedures for resolving credit balances should be updated and documented. As of November 16, 2010 approximately 27% of credit balances were more than two years old, and included credits associated with federal and/or state payers. Page 6

Hospital Receivables – Credit Balance Management Audit & Management Advisory Services Project 2010-15 We also noted that exclusive reliance on CDR contract staff to assist with resolving commercial account credit balances was not an optimal solution and in the best interest of UCSDMC. PFS management has limited authority to direct the CDR scope of work. We further concluded that while it is unlikely that pending CATS transactions would significantly increase the dollar amount or number of FMS credit balance accounts requiring refunds, managing payer adjustments in CATS does not appear to be an effective use of staff resources. Consideration should be given to utilizing CATS only for its original purpose: balancing cash payments posted to patient accounts with cash deposits recorded in the general ledger. Opportunities for process improvements are discussed in the remainder of this report. IV.

Observations, Management Corrective Action, and Recommendations A.

Credit Balance Management Recent PFS credit balance management efforts have resulted in a significant reduction in credits. However, a remediation strategy is needed to resolve credit balances over 12 months old. As discussed in the background section of this report, the number of accounts with credit balances has been decreasing in proportion to the total number of accounts in the A/R since the Fall of 2009. A credit balance benchmark of $10M was established. As of October 2010, total credit balances had been reduced from approximately $25M to approximately $18.3M, using comparative data from the CMS00728 reports for each period. The overall decline in credit balances can be attributed to PFS implementation of improved management practices. The following graph provides a comparative trend analysis.

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Hospital Receivables – Credit Balance Management Audit & Management Advisory Services Project 2010-15 A/R Credit Balance Trend Analysis

700

30

600

500

A/R Trend ($M)

20 400 15 300

10 200

A/R Credit Balance Trend ($M)

25

5

100

-

-

A/R Balances (Net/Gross, Excluding Credits)

A/R Credit Balance

Although the credit balance resolution trend is favorable, a large percentage of accounts are over 12 months old. The following schedule is based on the November 16, 2010 FMS data extract, and includes only credit balances that are over 12 months old by payer type.

Ref. 1 2 3 4 5

Number of Accounts Bulk 2 Commercial/Managed Care 11,518 Government 5,427 Non-covered/Self 11,560 Operational 30 Total 28,537 Type

%