Domos Home Medical Equipment Consulting Group: Ask the Consultants: Answers

Q:	How do I calculate days sales outstanding (DSO) in a way that is meaningful in assessing our billing and collections efforts?
A:	It's fairly easy if you use this simplified formula. Calculate your total gross revenue over the previous 12 months, including anticipated revenue that is holding for billing, and divide that by 365 to get an average of your daily sales. For example, if the total revenue over the last 12 months is 3.65 million dollars your average daily sales figure would be $10,000 per day. Now calculate your total outstanding receivables. That would include the total amount of outstanding revenue on your accounts receivable aging reports, plus the dollar amount of anticipated revenue that has not yet dropped to accounts receivable, such as billings that are holding for CMNs or other documentation. For our example, let’s assume the total is $800,000. Now take that number and divide it by your average daily sales. In this example, 800K / 10K = 80 DSO The industry average DSO is about 85 to 90 days. Less usually means you are doing well, but a DSO that exceeds 120 days is generally an indication that you need to review billing and collections processes. However, keep in mind that measuring DSO in a vacuum can be extremely misleading. You’ll need to take your company’s accounts receivable adjustment practices into account in order for the data to be meaningful. For instance, a high DSO can be misleading if your company makes it a practice to seldom or never write off old AR that has become uncollectible. On the other hand, if your company tends to give up very quickly on accounts that may be collectible, a low DSO may be more a reflection of your willingness to adjust accounts rather than a measure of how well you collect cash. Assuming your company has a logical adjustment process in place, the best use of the DSO calculation most likely lies in trending the results from month to month in order to measure whether billing and collections efforts are improving or falling off pace.
Q:	What is the most effective process for making decisions about writing off uncollectible accounts?
A:	The goal of an effective adjustment process is to write off uncollectible accounts receivable so as not to expend further resources on collection efforts for claims where there is no longer hope of successful reimbursement. In addition, writing off dollars that you have determined are uncollectible will make the collections process more streamlined for your billing staff, and result in improved productivity. Last, but not by any means least, an effective adjustment process provides a clearer picture of actual revenue, allowing management to make good business decisions based on accurate income data. On the other hand your company’s adjustment process should prevent writing off revenue that still has a possibility of being collected simply because the collections process for a particular account has turned difficult and tedious. In other words, an effective adjustment process strikes the correct balance between a reluctance to write off uncollectible claims, and an eagerness to write off claims that still show some promise of being reimbursed. When reviewing accounts for possible adjustment take the time to ask yourself the following questions about each claim: Has the company made an uncorrectable error that is preventing the claim from being paid despite several attempts at collection? Does all available medical necessity documentation fail to demonstrate the medical necessity of the equipment provided to the patient according to the payer’s reimbursement criteria? Have timely filing deadlines passed while attempting to correct and//or obtain necessary documentation for legitimately denied claims? If the answer to any of these questions is yes, it’s probably time to give serious consideration to writing off the claim. To further ensure that claims are not written off prematurely think about putting a process in place that provides for supervisory review of all adjustments so that they are seen by at least two sets of knowledgeable eyes before receivables are written off. A second advantage to adding supervisory review to the process is that it will enable management to be aware of the most common causes for adjustments. To reduce adjustments over the long term, develop “reason coding” for all categories of adjustments. Assign a reason code to each adjustment as it is approved, then aggregate and review the reason code data quarterly. Once you’ve identified the most frequent causes of write-offs you can develop and put processes in place to reduce them.

What are the main things I need to do to make sure my HME is compliant with the HIPAA privacy regulations?

You will need to review your policies and procedures that pertain to patient confidentiality, patient information management, and record retention for compliance with the new regulations. If you don't already have policies in place you'll need to develop them. Most HME providers do have such polices in place, and they probably won't need many changes, but it pays to have a competent professional review them.

You'll want to review how your records are secured to make sure that they are only accessible on a "need to know basis." That means identifying internal staff members' individual job responsibilities and defining what they need to know to accomplish their specific tasks. In addition, you are required to keep a running log to track who has accessed patient information and when.

You'll also want to determine that external sources of patient specific information such as referral sources or caregivers also have consent from the patient to give you the information being provided to your organization. This is accomplished by making sure that all referrals include a release of information form for the patient.

When it comes to your billing system, there are two requirements to keep in mind. The first is a requirement to keep track of who accesses which patient records in the billing system and when - just as you must track staff access to paper based patient files. The second requirement requires that electronic transmissions follow a standard format mandated by CMS. Ask your billing system vendor about their plans for HIPAA compliance next time you talk to them.

Finally, you'll need to put together a short training program for employees to make sure they understand the new privacy regulations. Remember to document the training in case you're called upon to prove that you provided it.

Click here for a HIPAA Q&A from CMS