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Posted on April 20th, 2014, by

Article Analysis

Today, the problem of the enhancement of the accounting of health care organization is one of the major challenges many hospitals, health centers, and other health care organizations are facing at the moment. The effective accounting is an important factor that contributes to the stable development of health organizations and to the provision of health care services of the high quality. However, today, many health care organizations suffer from the shortage of financial resources, while growing health care costs along with the large number of uninsured Americans raise the problem of the enhancement of the payment collection, especially from the part of uninsured Americans. In fact, even insured Americans may cover a part of their health care costs from their pocket. Consequently, the accounting system of health care organizations should function perfectly to provide health care organization with sufficient financial resources to cover their growing costs. In this respect, it is possible to refer to the experience of California Sutter Health, the company which has implemented a new approach to its accounting system that has proved to be very efficient and bring immediate benefits, although long-run perspectives of the new accounting approach are questionable and needs the detailed analysis.

Similarly to many other companies operating in the health care industry, Sutter Health faced a problem of the poor collection of funds and the poor paying discipline among patients and customers of the company. In face of the problem of the shortage of financial resources, California Sutter Health needed badly changes in its accounting system to increase the collection of payments from patients and to enhance its accounting system or more accurate and in-time accounting. The problem of the poor collection and raising of funds threatened to the stable performance of the company and, more important, put under a threat the future of the company.

In fact, the accounting system of California Sutter Health was ineffective and not always accurate, since the company could not process its entry journals and account revenues and spending of the company at the moment. Instead, the company relied on the accounting system that was slow and needed much time to conduct the accounting analysis and processing of the accounting information to find out possible errors and to assess accurately revenues and expenses of the company. The existing accounting system was too complex and inaccurate that actually forced the company to introduce changes that would enhance its accounting performance.

Another problem California Sutter Health faced in regard to its accounting system was the fact that accounting was time consuming. In fact, accounting was not only inaccurate but also time consuming because accountants of the company could not process the accounting information fast, while the gap between the back-end and front-end staff raised the problem of poor payments to the extent that when all the accounting information was processed, the company could reveal substantial financial gaps because the accounting staff could not stay at the front-end and take the money from patients. In case of a health care organization, time is crucial and contemporary accounting systems focus on the minimization of the time spent between obtaining the accounting information and its processing, while the accounting information should be collected fast and sent to the accounting department for the further processing. Before, California Sutter Health did not have such a fast-working system.

On analyzing the problems identified above, California Sutter Health naturally focused on the introduction of changes that could have enhanced the accounting system of the company. The introduction of such changes was essential in the context of growing health care costs. In addition, the inaccurate accounting system threatened to the financial position of the company and its marketing development of the company. In fact, California Sutter Health could not keep progressing and perform its operations successfully, if its accounting system stumbled.

The major change introduced by Sutter Health was moving accounting from back-ends to front-ends. Registration staff was not accustomed to asking for money. Therefore, the company transferred that responsibility to the front-end staff that increased consistently the collection of money and, thus, increased revenues of the company substantially. Moreover, the company has made the point-of-service payment a norm. This step was crucial for the change of the accounting system of the company. After the introduction of this change, the back-end staff did not to remind patients of the necessity of payments and the amount of money they have to pay. Instead, all the accounting staff was moved front-end to make patients pay for health services they receive just immediately after they receive the services. As a result, the company has managed to collect all the money customers have to pay for the services they received from the company.

Furthermore, California Sutter Health has integrated all data elements in the revenue cycle management (Souza & McCarty, 2007). In such a way, the company obtained all the data concerning revenues the company received at the moment. In other words, the company accounting department obtained the data on the company’s revenues in the real time. As a result, the accounting department could process the obtained data fast to obtained the accurate information on the current financial position of the company and financial resources available to the company at the moment. The use of real time revenue cycle management and integration of all data elements into the revenue cycle management allowed the company to manage its financial resources more effectively. At this point, it is worth mentioning the fact that in the past, the company had to spend a considerable time on processing the collected data but after the introduction of changes, the processing of information has become the matter of hours.

In addition, the company made PFS staff accountable for their own results (Souza & McCarty, 2007). In such a way, the company has increased the responsibility of PFS staff and, at the same time, the company should not spend time on the processing of the collected financial information since the accounting department could process the obtained information as soon as the information was received by the department.

The company concentrated on obtaining accurate and complete information along with cash upfront (Souza & McCarty, 2007). In fact, this step contributed to the faster and more effective processing of accounting information and effective use of cash flows. The company could change the cash flow, if necessary, respectively to its current needs. For instance, before, the company needed time to find resources to cover urgent costs. As the accounting information moved upfront, the company could use the available cash and other financial resources to cover the most urgent costs.

To implement the new system, the company provided the staff with additional training and made manuals available to employees, so they could use them any time they needed. The training was essential because the new accounting system mover accounting front-end (Souza & McCarty, 2007). As a result, employees, who have never dealt with accounting before, had to ask for payments and to provide or obtain other relevant accounting information. Naturally, to perform their new functions well, employees needed additional training. The training has had a positive impact on their performance, while the availability of manuals helped them to tackle problems, which arouse in the course of their work with clients.

Hence, PFS staff and other accountants of the company did not need to wait for an IT specialist, who could manage applications and process the information collected. Such a change contributed to the consistently faster processing of accounting information and, thus, to the higher productivity and efficiency of the accounting department performance. The accounting staff could process available information fast and accurately. At this point, it is worth mentioning the fact that the company focused on real time accounting and avoided delays and inaccuracies. The fast accounting processing in short time and the low level of inaccuracies has contributed to the consistent improvement of the company’s performance and California Sutter Health obtained over $80 millions in the matter of a few weeks.

Alternatively, it is possible to suggest Sutter Health to use accrual accounting. Even though the accrual accounting is not so fast and fails to mirror the real time transactions but this approach to accounting allows the company to develop a long-run strategy. In fact, the approach used by California Sutter Health has proved its efficiency but still this approach is not absolutely effective, especially when its application is analyzed in a long-run perspective. The company could suffer from errors being made in the course of the information transfer and processing. Even the low risk of errors cannot prevent the company from errors. However, if errors occur in such accounting system as the one California Sutter Health has, effects of such errors will be more serious and negative compared to companies using the accrual accounting approach. In case of error, the company will fail to identify the error fast, while the fast information processing will lead to the accumulation of problems in a long run. For instance, if a patient pays less than he/she has to pay for health services he receives from the company, the company will not receive substantial amount of money, if the patient uses health services regularly and underpays regularly because of an error that has once occurred.

Even though the applied method has brought Sutter Health considerable benefits, the company may face problems in a long-run perspective, if errors start to occur. The company may have difficulties with identification of errors and their elimination, while financial losses in case of such errors will be more significant compared to accrual accounting. Therefore, the accrual accounting could be better for California Sutter Health because, in such a case, the company could benefit from the accrual accounting because this approach takes into account expected revenues and expenses and allows the company to develop long-run plans and conduct regular analysis of possible errors to eliminate them in the future, if they once occur.

California Sutter Health’s approach to accounting has proved to be effective. However, this approach raises a number of problems, among which the risk of error is the major one (Solovy, 1995). As it has been already mentioned above errors are very dangerous in case of the application of the accounting method developed by California Sutter Health. The company should maintain the permanent control over its accounting, revenues and expenses.

Another problem is the staff training. In fact, the costs and time spent on training may be substantial and it is unclear whether the costs justify ends. In other words, benefits of changes introduced by California Sutter Health may fail to outweigh their costs. Moreover, the company is likely to need to keep its front-end employees training since they will have to exercise accounting skills, which are not a part of their professional skills they have to possess (Ghodeswar & Vaidyanathan, 2007). In addition, while performing functions of accountants, front-end employees decrease the efficiency of their performance because, instead of their professional functions and responsibilities, they perform those of accountants.

Instead, the accrual accounting could have been more reliable in a long-run perspective, although this approach would not allow the company to obtain immediate benefits as was the case after the implementation of changes developed by California Sutter Health. In fact, the accrual accounting approach aims at the maintenance of the stable financial and marketing performance of the company (Miller, 2000). Accrual accounting allows the company to develop long-run plans and marketing strategies and make forecasts concerning its further development. Instead, California Sutter Health uses short-run accounting strategy which forces the company to focus on short-run goals solely.

On the other hand, the company should implement changes after the assessment of its current problems, available resources and marketing strategy (Scott, 2001). Thus, the company could have made the right choice of changes in its accounting system and the choice made by California Sutter Health could be right, if it meets the company’s marketing strategy, vision and mission (Lawrence, 1993). For instance, probably short-run benefits are more important for the company at the moment, than long-run ones. In such a situation, the company’s choice of accounting approach is justified. Otherwise, the company would better choose the accrual accounting approach.

Thus, California Sutter Health has introduced a new accounting approach based on moving accounting from back-end staff to front-end one. The new approach includes a number of changes which include the reduction of accounts receivable, the time spent on obtaining and processing information. The company focuses on the real time accounting information processing. However, this approach is not effective in a long-run perspective. In this regard, it is possible to recommend California Sutter Health accrual accounting instead, which is more efficient, when the company focuses on the development of a long-run marketing strategy.

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