Bonus incentives can work in the business office

Bonus incentives can work in the business office – hospitals’s patient accounting departments

Michael G. Bernard

Jackson-Madison General Hospital, Jackson, Tenn., is the flagship hospital of an 800-bed healthcare system with revenues in excess of $200 million.

The hospital’s patient accounting department is structured as follows: * The admissions department is

under the direction of the admitting

manager. This area encompasses

all aspects of patient accounting

from preadmission

through generation of the discharge

demand bill. * The billing department is under

the direction of the patient accounts

manager. Billing is divided

into Medicare initial billing,

third-party billing and follow

up, and payment processing.

Third-party collectors are responsible

for both inpatient and outpatient

billing. * The credit department is responsible

for all self-pay collection efforts

as well as placing delinquent

accounts with outside collection

agencies. Once an account balance

is due entirely from the patient,

the account is transferred

from the billing department to

the credit department.

Two years ago, department staff began reviewing ways to improve accounts receivable. At that time gross days revenue outstanding levels were a little above average for this type of facility. The staff works as a team, with an average amount of management supervision.

The staff team speculated as to why gross days revenue outstanding levels failed to go beyond the slightly above average rating. The following factors were identified: * The extent of work by collectors

and the expected outcomes of

their performance was unclear. * Collectors lacked the motivation

necessary to effectively perform

their duties. * Base salaries were too low, a fact

that had been verified by the personnel

department through surveys

of other facilities. * Employee turnover was too high.

The staff team then decided to develop a program to address these deficiencies, with an incentive bonus based upon performance standards serving as the foundation of the program. The staff team presented its findings to the hospital’s administration, which approved the incentive program concept subject to development and final approval.

The team then developed an action plan designed to: * Involve employees * Evaluate layers of supervision * Assess overall and individual

management style to ensure a

self-motivated environment * Keep performance standards simple * Upgrade base salaries * Establish monthly individual and

team goals * Reinforce the program by celebrating

goals attained and recognizing

teams and individuals * Implement a three-month “dry

run” period after finalization and

approval of the plan

The team felt that the inability to motivate staff properly warranted the greatest opportunity to institute change. Employees were surveyed individually about their attitudes toward workload. In addition, the results from an employee opinion survey conducted every eighteen months were reviewed.

One of the major concerns of employees was that no one worked their ledger in their absence, except to do the initial billing. This created work backlogs and a feeling that they were punished for time off. They also felt the work environment was too structured and that self-motivation was not promoted. They basically verified what was already known: that too many supervisors were creating inconsistencies due to different management styles.

As a result of this evaluation process, the number of billing department supervisors was reduced from five to three. One of the three positions was recast as a collection specialist whose primary responsibility is to fill in during absences. When no one is absent, this person assists the accounts receivable supervisor. The reduction in supervisory staff also enables all third-party collectors to report to one supervisor.

The goal in establishing performance standards was to keep them simple so employees could understand and adapt quickly. Gross days revenue oustanding was monitored for third-party billers and cash collections for self-pay collectors because everyone already understood these measurements.

Performance standards for the third-party collectors were based on three consecutive months of accounts receivable history. The billing and third-party collection follow-up functions are equally divided alphabetically between 15 third-party collectors. Outstanding days of revenue per collector was calculated using the following formula: * Each of the 15 ledgers is averaged

by using the total outstanding

billed accounts receivable dollars

by collector for three months. * The three-month average by collector

is then divided by the

three-month average daily revenue.

This established the average

median of 3.33 days of revenue

outstanding per collector

($1,5000,000). The formula may

be explained in these terms:

Bonus incentive level II = 2.45 and below outstanding days of revenue

Bonus incentive level I = 2.46 through 2.89 outstanding days of revenue

Expectancy level = 2.90 through 3.33 outstanding days of revenue

Unacceptable level = 3.34 and above outstanding days of revenue

Establishing individual and team goals, performing monthly individual evaluations, and providing additional training and counseling were all determined to be essential for program success. The patient accounts manager, accounts receivable supervisor, and the credit manager established the protocols to provide all the above.

Development and implementation of the program took six months – three months for development and securing administrative approval and three months for a “dry run” period prior to the kickoff.

Gross days revenue outstanding served as the basis of a performance standard for third-party collectors. One advantage to this approach is that performance levels do not have to be upgraded when rate increases occur. The expectancy level was computed by calculating the average gross days revenue outstanding in all ledgers for the previous 12 months. This average then served as the baseline to establish the other levels.

Monthly cash collections served as the basis of a performance standard for self-pay collectors. Before finalizing these performance standards, historical data for two years were used to test accuracy and fairness. It was determined that using a three-month average is fairer and more consistent for the collectors.

The following are the cash incentive amounts based upon the level of performance attained: Bonus incentive level I * $50-First month attained * $75-Second consecutive month

attained * $100-Third consecutive month

attained Bonus incentive level II * $100-First month attained * $125-Second consecutive month

attained * $150-Third consecutive month


The third consecutive month of either level I or level II performance determines the amount of incentive to be paid monthly unless performance drops below either bonus incentive level. Then the process reverts back to the original amount of $50, $75, $100, or $100, $125, $150.

The staff team submitted the program plan, complete with first year accounts receivable goals, maximum cost exposure, and positive cash flow projections, to hospital administration for approval.

The program’s first-year goal was to decrease billed accounts receivable by seven days gross revenue outstanding. Billed accounts receivable were actually reduced by 10.4 gross days revenue outstanding.

The changes made to streamline the supervisory structure and to provide a more self-motivated working environment have been extremely successful. The employees themselves have solved problems that in the past management could not have solved as effectively.

Employee turnover has declined dramatically. More importantly, employees are beginning to realize that they play a significant role within the organization.

The first year was a learning experience. The staff team met regularly to assess the program’s progress and address its deficiencies. Using the original formula, performance levels were established for the second year. Bonus increases based on consecutive months of performance attainment were eliminated. While consideration of duration of performance attainment served its purpose in the past, it was demoralizing for the best collectors. In its place a minimum amount of cash was added to the gross days revenue outstanding request at each incentive bonus level. In addition, level I and level II bonuses were raised to $125 and $225 respectively.

The department made excellent progress the first year and continues to improve each day. The incentive bonus program has been a major contributing factor to its success. However, the change to a self-motivated, less structured, teamwork environment has proved even more beneficial.

Michael G. Bernard, FHFMA, CPA, is vice president for business affairs and chief financial officer at Jackson-Madison General Hospital, Jackson, Tenn.; Felton Elder, Jr., is business office director.

COPYRIGHT 1992 Healthcare Financial Management Association

COPYRIGHT 2004 Gale Group