Six Steps to Improve Cash Reconciliation

EHR can help provide a clear picture of cash flow by following this stepwise approach.

BY DAN SALAMIE, CPA, MSIE

As physicians continue to push to adopt EHR and prove “meaningful use” to Medicare, their practices have struggled to fully embrace the power of EHR on the business side — that is, to keep track of what comes in from patients and third-party payers and what they haven’t paid, and what goes out to keep the practice running. This is the art of cash reconciliation. Because $1 million or more can be at stake over a number of years, even for a small office, getting the most out of the cash reconciliation function can enable physicians to get the most out of their practices — literally.

Cash reconciliation and accounts receivable (AR) are part of the practice management (PM) software module in most EHR systems. Of the numerous PM tasks, posting cash receipts and maintaining accurate AR balances mutually depend upon each other. Failure to maintain accurate AR balances is guaranteed to reduce cash collections. That can result in extreme cash shortages.

When the Panic Call Arrives

Christine Archibald, founder and CEO of Management Plus EHR software, says a medical practice may not even notice the problem until there is not enough cash in the bank account to make payroll. “That is when we get the panic call,” Ms. Archibald says. “When our support team looks into the office’s PM system statistics, we find the cash shortfall is always related to some failure to maintain accurate accounts receivable. And yet, only about 10% of our clients maintain adequate control over their receivables. Most of those are the ones who have had a cash crisis like embezzlement or a failure to meet payroll.”

This article explains the steps a practice can take to maximize the cash management functions in the EHR system.

Reconcile Internal and External Records

Reconciling internal and external records is the only way to be sure the practice gets reimbursed fully and fairly for the physicians’ efforts. Internally, it is necessary to reconcile billing every business day. Control over cash and AR requires attention to internal details created daily, and balances need to be adjusted periodically based upon external details, namely the lengthy reimbursement cycle. This activity is so important that hospitals have entire departments dedicated to control and maintain balances within patient accounts.

Medical practices, however, must encounter complexities greater than any other type of business. Only a medical practice has to keep track of cash, checks and credit card receipts collected for co-pays and deductibles, plus claims posted to a clearinghouse. Although an automobile body shop has some of the same elements, its relationship with the primary insurer does not involve close scrutiny on each line item, nor does it include secondary and tertiary claim submission.

Additionally, a physician’s office depends upon concordance with a government insurer that is constantly reducing or eliminating payments. Such intrinsic reimbursement problems mean internal accuracy is essential to obtain full third-party reimbursement. If an office is not completely sure of its accounts receivable balances, insurers can obfuscate payments to the practice because the office cannot follow up in a specific and confident manner.

Bluntly speaking, insurers pad their profits by relying upon physicians not being able to call their bluff. Hundreds of thousands of dollars can go uncollected for a single independent ophthalmology practice in a year. The following steps can help organize a billing system around cash reconciliation and patient AR balances.

Step 1: Cross Check Daily

The first step toward reconciling cash and AR balances is to cross check various internal end-of-day totals. After all billing entries are made for a given day, run a report that itemizes each patient encounter, including diagnosis, procedure and treatment codes, performed and billed for the day. This report is often sub-grouped by patient or by order of occurrence. No standard lexicon exists for cash reconciliation functions in a medical office, so let us call the grand total for this report the Daily Transaction Total.

Next, run a report summarizing total billing for each patient seen that day. We’ll call this the Daily Patient Total. Of course, this total must equal the Daily Transaction Total. Although it may seem simplistic, an error here can be critical. These errors are difficult to discover and correct by simply comparing deposit receipts with the bank statement in an end-of-month reconciliation. Unfortunately, errors between these two software-driven reports are rather common. If the Daily Transaction and Patient totals are not equal, contact the software provider to determine the cause.

At the 2012 AAO meeting, I interviewed more than a dozen EHR representatives. Several had to try more than once to produce balanced daily totals, and two could not produce them at all. Even if the PM software can output balanced daily totals, these reports are only as accurate as all users’ data entry. Once the practice establishes the reliability of these two totals over several months, it can perform the reconciliation less frequently than daily — but no less frequently than twice a month — to ensure repeatability.

Step 2: Determine the Daily Billing Elements Total

Billing elements include the sum of cash, checks and credit card receipts collected for out-of-pocket fees, co-pays and deductibles, plus the Daily Claim Total amount the practice submits to the clearinghouse.

Unfortunately, practices customarily add the Daily Claim Total to secondary and tertiary clams plus resubmitted rejected claims to arrive at the Grand Claim Total amount. However, that won’t provide an accurate accounting of cash and receivables. Instead, subtract any secondary and tertiary claims and resubmitted rejected claims to obtain the correct Daily Claim Total.

The Daily Billing Elements Total must equal the Daily Transaction Total and the Daily Patient Total. This important cross-check is the central control point for the entire cash reconciliation and patient AR balance system. If this cross-check fails, work with your PM provider until you both come up with a procedure to consistently and accurately resolve the problem — either internal controls for the office, a patch or a custom report for the software.

Perform this cross-check at the end of every day. Establishing accurate Daily Transaction Totals and Daily Claims Totals is the only way to track rejected claims, billing adjustments and secondary/tertiary claims from previous days throughout the reimbursement cycle.

Step 3: Account for Rejected Claims

Although rejected claims are a function of the clearinghouse, the problem remains part of the practice’s internal reconciliation process. What’s more, rejected claims are not only a reconciliation problem; they also represent a significant rework cost.

For example, suppose a practice sees 100 billable patients in a day. At the end of the day, it submits 100 patient claims to the clearinghouse. Suppose the clearinghouse rejects 10. The rejection notice will contain the clearinghouse’s codes explaining the reason for each rejection.

Now the practice’s billing office must go through each of these 10 rejected claims and determine the reason for rejection and the underlying cause for the mistake, correct the mistake and resubmit the 10 claims. (See box at left). The Daily Total Claim cross-check must be working without fail before the external accounts receivable reconciliation process can be considered reliable.

Step 4: Post Payments Only When They Clear

External reconciliation is the most difficult part of cash management. Third-party payers usually send a detailed confirmation total for a batch of patient claims before they directly deposit the reimbursements in the practice’s bank account.

Many billing departments cannot resist posting the confirmation immediately upon receipt of the notice. However, a hard and fast accounting rule is to never post a credit against patient transaction until the reimbursement amount clears and the bank account verifies it.

Another difficult aspect of external cash and receivable reconciliation is the unpredictability of reimbursement amounts and timing of payments. Payers can take up to a year before they pay a claim. This further justifies the need for accurate Daily Patient Totals and the related crosschecks; they are essential to maximize reimbursement. The older the receivable, the less likely it will be collected.

Step 5: Track Reimbursement Elements for Each Patient Encounter

Reimbursements are complex and unpredictable. They represent the most difficult pieces of external cash reconciliation to AR. Just as the Daily Billing Elements represent each patient visit, so does each patient visit represent a corresponding set of Reimbursement Elements.

For any given set of patient Reimbursement Elements, the practice must post each patient transaction code line by line with careful attention to changes in the previously determined co-pays and deductibles. The amount allowed for each transaction code may require a write-off, as agreed to in the payer contract, or amounts that the practice must resubmit to the clearinghouse as secondary or tertiary claims.

These adjustments create the need to modify the Claim Grand Total to obtain the Daily Total Claim, as previously described in the essential cross-check. The cumulative effect of this complexity costs the typical ophthalmology practice about four times the amount of effort to evaluate and post corrections to patient visit balances than it took to record the patient visit balances in the first place, based on my business observations and comments from participants in management seminars at the 2012 AAO meeting.

These tasks include key entry of the amounts applicable to each transaction code and manual adjustments to bill the patient for corrected co-pay and deductibles, adjustments, write-offs, plus preparation of the secondary/tertiary claim. They do not include efforts to obtain additional collections from the patient. Often, the ophthalmologist does not collect the additional co-payment and deductibles until the patient comes in for a subsequent appointment.

Step 6: Revisit the PM Module

Although reimbursements can be unpredictable, some PM software can post co-pay and annual deductible adjustments and write-offs, as well as prepare and submit secondary and tertiary claims. These software platforms electronically deliver explanation-of-benefit documents. Some even automatically sort through e-mails to achieve its function.

PM software that posts these corrections automatically may be worth considering in a cost-benefit analysis. Because the matrix of evaluating and manually posting corrections can be so overwhelming and complex, mistakes that can cost thousands in lost reimbursements are bound to happen.

The increase in cash flow may offset the additional cost for PM software that automatically posts reimbursements with adjustments, corrections and claim resubmission. Although these software platforms still require a staff member to proof and manually correct claims, they eliminate the manual task of posting claims, and do it with greater accuracy and reliability. OM