How Aspen Valley Hospital Increased Days Cash on Hand More Than 100-Fold

When Terry Collins arrived at Aspen (Colo.) Valley Hospital in December 2004 as CFO, the hospital was in a great deal of financial distress.

Accounts receivable was deteriorating rapidly. Days in A/R approached 175 (most hospitals shoot for around 50 days). Bad debt expenses escalated to $7.2 million on $65 million of revenue. Payors were rejecting between 35 and 40 percent of claims. Perhaps most shockingly, Aspen Valley's cash situation almost fell into a black hole.

TerryCollins"When I first came here, there were four days of cash on hand," Mr. Collins says. "Receivables were pretty much out of control."

Aspen Valley is a 25-bed critical access facility, and many other rural hospitals like Aspen Valley have endured financial hardships over the past several years.

However, Mr. Collins explains Aspen Valley did have one major, positive attribute in its favor: a strong commercial payor mix based in a relatively affluent ski resort community.

"We have a relatively low proportion of Medicare and Medicaid patients," Mr. Collins says. "Because of that, you'd think we have the potential for very good cash flow, but that wasn't the case when I got here. And that didn't change over night."

Mr. Collins and Aspen Valley partnered with Firstsource, a business process outsourcing firm, on revenue cycle operations, and over the past seven years, the hospital's finances have improved leaps and bounds. Days in A/R went down to 34 from 175, bad debt expenses dropped to $2.6 million on $84 million of revenue, only 3 percent of claims were rejected and days cash on hand ballooned more than 100-fold.

"At the end of Sept. 30, days cash on hand totaled 438," Mr. Collins says. "Over time, we've been able to reach our potential in terms of cash flow because we were collecting a lot of the revenue we generate simply because of our good payor mix."

Mr. Collins says there were three main reasons why the hospital's cash flow got back on track.

1. Obtained skilled labor.
As is the case for many rural hospitals, it is hard to recruit the skilled labor necessary to carry out a hospital's various tasks. The physician shortage is closely linked to rural hospitals, but the same applies to nurses, frontline staff and, in this case, credentialed billers and coders.

"This is a relatively small population base with only 6,000 residents," Mr. Collins says. "The whole Aspen Valley only has 25,000 people. It was hard to find people who had the right skill level [for hospital billing]."

By using an outsourced agency, Mr. Collins says Aspen Valley Hospital had the essential, properly trained revenue cycle staff members who were less likely to let revenue slip through the cracks.

2. Updated billing processes. As Mr. Collins mentioned, Aspen Valley had a high rejected claims rate from payors, which led to the explosion of A/R days and a lack of cash on hand. Previously, the hospital did not problem solve to see why so many claims were biting the dust, and Mr. Collins explains the longer a claim goes unresolved, the less likely the hospital will collect.

In addition, he says Aspen Valley needed a major technological renovation of its obsolete billing office. "Introducing a number of electronic processes that streamlined billing and improved accuracy brought our business office into the current century," Mr. Collins says.

Taking the time to review all regulatory and contractual requirements — for Medicare, Medicaid and commercial payors — is the biggest and most important step a hospital CFO can take when it comes to reducing claims rejections. Mr. Collins suggests hospitals make the short-term investment to digitize the billing process as well.

3. Found a partner. It has become increasingly difficult for small, standalone hospitals to do everything on their own. In comparison, bigger, surrounding systems have economies of scale and generally more resources to withstand revenue hiccups and healthcare reform.

In some cases, like Aspen Valley's, finding a partner to help out with a process that was fading quickly was necessary. Mr. Collins encourages other hospital executives to look for the right revenue cycle partner if a situation becomes dire or even if they are merely trying to boost their long-term liquidity.

More Articles on Hospital Finance:

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