Institute changes to keep business healthy and hold all team members accountable.
Periodic review of billing procedures and processes often can reveal a lack of internal controls that may negatively affect a company’s bottom line. For small and mid-sized O&P practices that typically do not have an auditor on staff, this exercise can be even more important to a practice’s financial well-being and survival. Instituting internal controls in the billing process and learning to identify some common pitfalls can help companies stay on track to a healthy bottom line.
For O&P companies without any internal auditors or auditing department, identifying an individual on staff to perform audits or oversee internal controls as part of their function is crucial. Such individuals might be a billing specialist or manager, or even the office manager. Although these individuals often will have several roles in the company, one of the hats he or she wears should include instituting and overseeing internal controls.
“Most companies just try to do business. At the end of the day, they go home and they hope that the next day they have customers and there is some cash flow, and they make payroll, and they pay their bills,” Rob Benedetti, controller for De La Torre Orthotics and Prosthetics and consultant for Promise Consulting, said. “We like to go in and say, ‘Can you take 10% of your day and institute some internal controls?’ Overall, there needs to be a layer of control that is implemented in a company so that it can remain profitable.”
One important internal control for companies is to have accountability in billing, regardless of whether there are several individuals who handle the billing or only one person. There needs to be some type of balance check in place to ensure that what gets posted in the computer as payments reaches the bank as deposits, Joyce Perrone, practice administrator for De La Torre Orthotics and Prosthetics and consulting partner with Promise Consulting, said.
“Each month, your billing department should meet with the owner of the company if possible, or with whatever governing structure you have in place, and review everything,” Perrone said. “The more trend-tracking you do, the easier it is to see if your payments are suddenly dropping or if your charges are suddenly dropping.”
Perrone also recommends having another person serve as a part-time adjunct auditor to the company. This adjunct auditor can review the patient schedule on a weekly basis to ensure that every delivery has a charge posted and also that every charge has been properly captured. In addition, any charges posted should be compared to the clinician’s dictation. This process also helps ensure that charts do not float around the office indefinitely and that the charts match what occurred during the patient’s visit.
“Checking the charges can identify a lot of loss that people do not even realize,” Perrone said. “Everybody gets stuck on money being stolen, but money can seep out if charges are not properly captured.”
Financial reports and benchmarks
Generating and reviewing monthly billing reports also serve as another level of internal control. One important monthly report that needs to be scrutinized is accounts receivable.
“We are big proponents of making sure accounts receivables are extremely tight so that you do not have accounts aging out there,” Perrone said. “And sometimes, accounts receivable can actually look too good. It is a matter of tracking this month to month to make sure that it looks like something that makes sense.”
For instance, Perrone noted that in one of her first consulting jobs, she encountered a practice that had zero accounts receivable for public assistance patients. A closer examination revealed all charges for medical assistance patients were automatically written off as uncollectible, thereby causing the practice to lose a significant amount of revenue.
Other billing reports that should be reviewed monthly include charges, payments and adjustments. Assigning a staff member to be responsible for specific reports, such as Medicare accounts receivable, also can be helpful and provide additional information. This also permits a high level of transparency and honesty to occur between the individuals handling the accounts and management or leadership.
“The main thing you want to do is make sure you have a team you can trust, and people you can trust,” Perrone said.
In addition to reviewing monthly billing reports, companies should compile and analyze a variety of financial benchmarks, such as a simple profit and loss statement to monitor revenue, charges and payments per clinician, material costs and revenue per full-time employee. These benchmarks are used to help guide companies financially.
“These are not complicated things; these are just benchmarks and metrics that we have set up in our years of doing consulting work in this industry,” Benedetti said.
One important aspect of establishing internal controls is to have the buy-in and support of the company’s leadership. Benedetti noted that owners and managers must be the driving force behind instituting internal controls.
“You cannot expect your frontline people to implement their own internal controls. It really does have to come down from the top so everybody knows it is important that the company is doing this,” Benedetti said. “Too often, managers and owners do not really follow through in incorporating these internal controls.”
It is also important for a company’s leadership to be aware that they are watched by employees and that employees take their cues from the behaviors of upper management.
“People get cavalier in thinking that their behaviors are not watched,” Perrone said. “If you have an owner who is frivolous with money, who is buying things for personal use, even if he owns it, employees may see that as being frivolous or wasteful.”
Perrone noted employees may become embittered over what they perceive as wasteful behavior in owners and managers, especially if the employees are kept to a different standard and are pressured to hold down minor costs. Employees also can become contemptuous if they perceive that managers do not work as hard as lower paid frontline employees.
“If you have other employees who have turned sour for whatever reason and their behaviors have not been properly dealt with, or if you have people in management who are lazy and who are just in there collecting a paycheck, and then you have somebody else on the front line making a lower wage who looks at that person and thinks, ‘Why should I work so hard when they are not?’” Perrone said. “It is very important that everybody puts their game face on when they come through that door.”
Analyzing a company’s processes can help identify areas where internal controls are needed. A process analysis should be performed as a team, with everyone involved in mapping out processes from beginning to end. Any flaws can be worked out collectively as a team.
“If you have people involved in mapping out the entire process, you will find where the cracks are,” Perrone said. “Where is it that I am dropping the ball? Where is it that we have an opportunity for a problem? Where is it occurring that we are not quite efficient? Where do we need extra steps to close the loop? You would be amazed at what people can come up with when you really sit them down to go through these steps.”
Mapping out processes also can identify any waste or inefficiencies, such as a high cost of goods or sloppy inventory controls, and help everyone understand what processes are involved from delivery of raw materials to delivery of a finished device to the patient. Understanding how the process works, removing any waste and making it as clean as possible will help maximize efficiency and revenue.
Benedetti noted that any flaws identified by the process analysis should be resolved before instituting new systems such as a new inventory or accounts receivable system.
“A flawed process does not go away by throwing money at it; new systems will just cover up a flawed process,” Benedetti said. “We can take any system, whether it is brand new or 10 years old, and implement it and make it work because the people want to be on board with their part of that internal control. Just getting a new system may not change anything.”
Having an outside source review the process analysis also can reveal flaws. Perrone noted that the people involved with the company often are too close to the process to see flaws.
Benedetti identified five main reasons that companies fail to institute internal controls, which could lead to fraud, sloppy reporting or sloppy activity. The first is a lack of controls, with companies being “out of control from a control standpoint.” Benedetti noted such companies do not have the reports or analysis that allows them to take a look at themselves and then institute and implement controls to give feedback on how well they are doing.
The second reason is lack of training. In such cases, staff members do not know what to look for.
The third reason is inadequate follow through. Companies may institute controls for 1 or 2 months but then fail to incorporate the processes into their regular monthly work cycle.
The fourth reason is an understaffed or an improperly staffed office. Benedetti noted that employees sometimes are not being used to their full potential or are being underused. Companies need to examine employees’ workload to make them more effective.
The final reason is lack of motivation. Benedetti noted that in smaller companies especially, employees need to take ownership of the company and their part of the workload for the company to maintain profitability and viability.
Ultimately, however, Perrone noted that having an incredible management team or leadership in place is what makes employees accountable.
Mary L. Jerrell, ELS, is a correspondent for O&P Business News.