Today, most hospital business offices rely on third party vendors, such as collection agencies, extended business office partners and eligibility firms, to augment their internal collection efforts. Every day, accounts and financial updates flow back and forth between a hospital and its vendors. Despite everyone's best intentions, the current operating routines and processes often result in inconsistencies between the inventory records of a hospital and its vendors.
Always thought to be a relatively minor issue, recent research suggests the inventory reconciliation problem is significant, pervasive and critical. Reconciliation issues between providers and their vendors can lead simply to lost cash and high operating costs or go so far as to create regulatory issues and major public relations problems.
The Magnitude of Inventory Reconciliation Issues Can Be Significant
Based on findings from inventory reconciliation initiatives at multiple providers around the United States, between 5% and 34% of inventory held at vendors had reconciliation issues with the providers' records. (Source: Connance Benchmark Research)
The average reconciliation error rate across this sample of providers was 13%. However, even in situations where the provider had only a single vendor, the reconciliation error rate was high.
Reconciliation issues broke down into five categories. (Source: Connance Benchmark Research)
Vendors also appear to demonstrate different performance on account and inventory reconciliation activities. As the research indicated, some vendors seemed to systematically operate at lower than 90% accuracy while others were close to 98% accurate.
How do Inventory Reconciliation Problems Happen?
For each account, countless financial events such as payments, adjustments, reversals, etc. occur every day both in the hospital business office and in vendor operations. All these events need to be dutifully credited, debited and noted in both provider and vendor inventory records in exactly the same way.
For instance, an event as simple as a patient going to the hospital to pay a past-due bill previously sent to a collection agency creates a string of follow-on events in the hospital's patient accounting system that need to be connected to and mirrored in the collection agency's inventory records. That same check, subsequently failing to clear at the patient's bank, will lead to another series of reversal transactions that need to be mirrored yet again. If the reversal occurs in the next month, it means that all the unwinding activity will be part of a different monthly close effort. As these examples demonstrate, there are multiple opportunities for reconciliation issues to percolate in even the simplest, most common events.
By having the ability to access and benchmark thousands of account placements and recalls every day between providers and vendors around the United States, some trends have emerged. These include:
Over time, the small numbers of account problems compound and mature into the 5% to 34% inventory reconciliation issues noted earlier.
Possible Negative Outcomes from Reconciliation Issues
Not only are the number of accounts involved significant, but these reconciliation problems lead directly to problematic outcomes. Some of the more concerning problems include:
Account open at hospital, but not at agency:
Hospital and vendor have different balance due:
Account closed at hospital, but open at vendor:
Account at wrong vendor:
Account at two vendors:
In almost every situation, reconciliation issues are elevating operating costs, distracting management attention and reducing cash recovery. It also creates the opportunity to undermine patient satisfaction, generate negative PR in the local community, and put the provider at risk with regulators, CMS and other oversight organizations.