At the end of this week, June 11, is the Feast of Saint Barnabas, so it seems fitting that this is the week I should tell you two tales of Saint Barnabas—the man and the New Jersey Health System. Saint Barnabas, the man, was actually Greek (born Joseph) and back in the first century he was a Christian convert and one of the earliest Christian disciples in Jerusalem. Together with Saint Paul he undertook countless missionary journeys to bring converts into the church. Given the nature of the times, encouraging people to forego their other religious affiliations was risky—even life-threatening—yet driven by fervent belief, Saint Barnabas decided not to let fear for his own safety stop him from acting on God's behalf.
Centuries later and in a totally different field, Saint Barnabas Health Care System in West Orange, NJ, which operates nine hospitals as well as several outpatient, nursing and rehabilitation and assisted living facilities, also decided to push fear aside to convert the financial side of their business. The Saint Barnabas System provides treatment and services to more than two million patients annually and employs 18,200 people (4,600 physicians and 445 residents and interns.)
Though a large facility, the recession certainly hadn't passed the system by, and they were in default on their debt, affecting their investor's service bond rating. Moreover, at one point they were operating with 28.5 days cash on hand. However, they also had some positives working in their favor; the system held 25% market share and it was generating $2.8 billion in revenue annually, with daily cash collections of $7 million. Net accounts receivable was 43 days and just 29% of AR was over 90 days, plus it had a 93% clean claims rate. Many CFOs would've maintained the status quo and rode out the recession, but that's what makes this tale so unique.
You see, to achieve the $7 million in cash collection, the system had outsourced most of its collections processes to vendors and they were spending large amounts to bring in that money. Moreover, all their claims were reviewed manually by billers, making it a very labor intensive and costly endeavor. In May 2009 Jay Picerno, a self-described "typical, conservative CFO", joined the system as its executive vice president and chief financial officer. Upon reviewing the situation, he knew something bold—even fearless—needed to be done to bring the system to higher financial ground.
"We had a lot of outside collection agencies so our overall net back on our cash collections wasn't that good," said Picerno, during a MedAssets conference presentation this past April. "We knew long-term we couldn't continue in that direction. So we took a bold step and said we want to fix our balance sheet."
He tinkered with the idea of bringing more technology or adding a strategic in-house team member, but the ideas didn't seem as though they would move the system in a different direction. It was then that Picerno connected with a consulting firm the facility had used before for software, MedAssets, in Alpharetta, GA. Out of these discussions, a new idea was born: embedded teaming to address the back office.
Embedded teaming is similar to a partnership, however the third-party resides within the organization and works side-by-side with the facility. Additionally, MedAssets' incentives and goals were aligned with how well the overall system performed. Goals and objectives for both the front and back end were laid out as part of the projects management and then tracked to ensure that both sides were on target.
"We looked at this and asked, 'how do you flip the revenue cycle without disrupting the cash flow?' because we couldn't afford to do that," says Picerno. "We told MedAssets they could come in to figure it out, but they couldn't talk to our business office or anyone on the back office, and they had to fix the problem and do it for less money than we were doing it today." It was a challenge, yet the embedded partnership prevailed.