Sutter Health

Sutter Health Case Study Analysis

The health care field has experienced an increasing issue involving the inability to collect debt from the growing number of people who are uninsured or underinsured. The reason that health care organizations may be struggling to meet operational margins is because it has never treated its patients like other industries such as those who are retail-oriented. It is estimated that sixty billion dollars of debt is incurred in the hospital system annually due to the fact that they generally collect between ten to twenty percent of the balance accrued by uninsured patients (Healthcarefinancenews.com, 2009). Poor accounting practices and the lack of patient information is partially the cause for the debt, but other factors exist. This paper will discuss how California's Sutter Health has taken steps to correct issues like the aforementioned. It will analyze Sutter Health's accounting practices and how theses practices has help their organization succeed. This paper will also contain an alternate solution of debt collection, as well as an informed opinion concerning the actions taken by California Sutter Health.

Sutter Health is an organization that gets its name from native Californian, John Sutter, whose fort was one of the earliest settlements in Sacramento. When the influenza epidemic broke out in 1918, the community leaders built the first Sutter Hospital in the vicinity of the fort. This hospital replaced the dilapidated adobe house that previously served as a makeshift hospital (Tutorgig.com, 2009).

Sutter Health, officially created in 1981, is a network of non-profit health care service providers. The organization started out as a small independent healthcare facility that has grown to encompass acute hospitals, physician organizations, medical research facilities, home health services, hospice and occupational health networks, and long-term care centers; all of which share resources and expertise to ensure advancement in health care quality. Sutter Health provides care to more than one hundred Northern California communities (Souza & McCarty, 2007). The expansion of Sutter Health took many years to develop, however, they seen a challenge and acted upon it.

When Sutter Health analyzed reports, they identified three key problems. The first problem that they identified was the fact that patient financial service staff members (PFS) could not view real-time information pertaining to key financial and operational indicators. This problem did not allow the company to make immediate decisions to react to adverse numbers. They had to wait until the month's end to "set benchmarks, track progress, or make important business decisions" (Souza & McCarty, 2007). The second thing they noticed was that managers in hospitals could not isolate and analyze certain data or generate reports on demand, due to existing accounting systems. As a result, hospitals had to pay a specially trained programmer to create these reports. The third thing that Sutter Health identified was that the central business office could not access real-time information as well. This was a problem because they did not have access to the correct documentation to prioritize and plan effectively (Souza & McCarty, 2007).

Sutter Health decided to turn things around by implementing several steps to increase their point-of-service collections and improve revenue. Such steps included: measuring performance by using a handful of specific benchmarks (gross A/R days, cash collections, unbilled A/R days, billed A/R days, percentage of A/R over 90, 180 ,and 360 days, and major payer A/R days), empowering staff to assume responsibility for every account handled, ensuring that each registration is analyzed before patients leave the front desk, and ensuring that staff receive appropriate training to be proficient under the new system (Souza & McCarty, 2007). Sutter Health's approach to improving each one of these steps lead to the implementation of the Lean program (Lichtig, 2005).

The Lean program is a program that utilizes Five Big Ideas to focus on customer value. The Five Ideas which consist of: collaborate, really collaborate, optimize the project not the pieces, tightly couple learning with action, increase relatedness, and projects as networks of commitment, form the framework for approaching all aspects of the Sutter Health project (Lichtig, 2005). Its goal is to provide perfect value to the customer through a perfect value creation process with absolutely no waste (Lean Enterprise Institute, 2009). To achieve this, implementing lean would alter the focus of management from optimizing separate technologies, assets, and vertical departments to optimizing the output of products and services through an entire value stream that flows horizontally across technologies, assets, and departments to customers (Lean Enterprise Institute, 2009). The process by which waste is eliminated by entire value streams, "creates processes that need less human effort, less space, less capital, and less time to make products and services at far less cost and with much fewer defects" (Lean Enterprise Institute, 2009). This leads to accurate information management, due to the fact that companies are able to react to customer desires with low cost, and with high quality and variety (Lean Enterprise Institute, 2009).

One of the main problems that Sutter Health was faced with was the fact that each facility acted as if they were an "independent island" of information (Hummel, 2004). Sutter Heath recognized the issue and knew that integrating financial operations with a common standard for a single facility was a challenge in its own; however, they accepted the challenge and strategized to integrate the same type of financial operation for 26 licensed hospitals across 33 different campuses (Hummel, 2004). Their goal was to maximize best practices, streamline operational training, establish standards through a common system, and find a vendor able to interface with their existing lab system (Hummel, 2004).

Another problem that Sutter Health was facing was the fact that patient financial service staff members were not asking if uninsured patients had the means of paying for some or all of their health care (Souza & McCarty, 2007). However, Sutter Health knew that this type of question was going to have to be asked in a way that would elicit the most positive response. Knowing that the best time to collect payment is at the time service is rendered, Sutter Health knew that it was essential to get registration staff accustom to asking for the money. They realized that once they got the front end staff trained, it would take a lot of responsibility off the shoulders of the central business office and collectors (Souza & McCarty,