This community opinion was contributed by George Fendler. The opinions expressed do not necessarily represent BenitoLink or other affiliated contributors. Lea este artículo en español aquí.
What can be done to improve the healthcare system in San Benito County? First, make sure existing processes are working correctly. My experience in running businesses has taught me that managing Accounts Receivable (AR) can be key to survival. If you are running a business like a hot dog stand, you give the customer the product and he/she hands you the money. AR is not a problem. In the case of a hospital, virtually all of the receivables go into a billing system. Healthcare billing systems are very complicated. Most invoicing is sent to the insurance companies or Medicare/Medicaid (the payer). The amounts are always adjusted according to the discount that the payer has negotiated with the healthcare provider. When everything is working properly, the payer sends the money to the provider with a statement detailing what was billed, what was paid, what was written off and the amount due to the provider by the patient. The patient is billed for that amount.
Most businesses track the AR process as a “dashboard item” because it so important to the cash flow of the business. Most businesses try to keep the average age of receivables between 15 and 30 days. Healthcare businesses are lucky to get that number down to 60 or 75 days. At that point, the financial relationship is between the patient and the provider. This process takes time. A new California law has mandated that that time be shortened. One of the things that CEO Mary Casillas has done was to go to Sacramento and lobby for that bill. That action could help bring the aging numbers lower. CFO Mark Robinson reported in December that the age of receivables was 54.9 days for both month-to-date and year-to-date. I believe that represents good work on behalf of the financial department. With the new changes to California law, which should be moving lower. (see page 82 https://www.hazelhawkins.com/images/SBHCD-BOD-Meeting-Packet-12.19.24.pdf )
As a side note, I know of two patients who had echo cardiogram procedures in August and September and haven’t received any billing from insurance, Medicare or Hazel Hawkins. I don’t know if these two events indicate slowness from payers or providers. It should, however, be checked out. If we don’t bill for the services that we perform, we won’t get paid. For a business to sustain itself, it must be able to take in more revenue than it pays out. To understand the financial cycle of the hospital’s business we need to look at the sources of revenue and the costs of providing those services. Hazel Hawkins has three sources of revenue: Patients, Charitable Contributions and Government Sources. • Patient revenue comes from a combination of payers and out-of-pocket payments from the patients. • Charitable Contributions come from community members and other philanthropic groups mostly through the Hazel Hawkins Foundation. • Government sources are largely from grants and public subsidies.
A relatively small (around $2.5 Million annually) comes from San Benito County real estate taxes. These sources of revenue are used to take care of the expenses. It is not enough to just cover expenses; it is important to accumulate a reserve fund that can be used for unexpected costs (like happens during a global pandemic) and fund growth. The hospital performs three essential services for the community. Emergency Care, Urgent Care and Elective Procedures. Some of these procedures are covered by third party payers, some are an out-of-pocket expense for the patient. While all these services are critical to the community, some are more profitable than others. Many of the services that the hospital needs to provide are performed at a loss. Nevertheless, those procedures need to be provided to the community. The reality is that everything that the hospital does costs money. There is no way to get around that. It is important to constantly analyze the costs of providing the services that you deliver. That process is Cost Accounting. Each procedure requires fixed costs and variable costs. The cost of having the building, furniture, parking lot and common equipment is a fixed cost. Fixed costs are allocated by percentage to all procedures. Variable costs cover specific things that are required for the procedure that is being considered. Variable costs include things like personnel (Doctors, Nurses, Technicians), equipment (MRI machines, CT Scanners, and Da Vinci Robots) and consumables like bandages, gloves, etc. It’s really a little more complicated than that.
But understanding that some procedures cost more than others is important. The profit margin is the difference between the revenue that a procedure generates and the amount that it costs to perform the procedure. To be able to perform low margin procedures and procedures that actually have a negative margin, we should be setting our hospital up with the ability to perform high margin procedures. But be careful because it takes time to build a practice for some of the more expensive procedures. The cash reserves need to be used while the reputation is built. It’s a delicate balancing act to keep sufficient reserves and fund growth.
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