YELLOW SHEET Office of the State Auditor of Missouri Claire McCaskill

September 26, 2002

Report No. 2002-97

The following problems were discovered as a result of an audit conducted by our office of the University of Missouri Health System - Billing Practices and Other Financial Matters.

From July 1999 through January 2002, the University Hospital and Clinics lost almost $10 million in revenues due to insurance denials and other write-offs that could have been prevented.� The University Physicians (UP) also lost over $2 million �for similar reasons.

Insurance companies and other third-party payers will sometimes deny payment of hospital billings for various reasons, some of which could be prevented.� From July 1, 1999 to December 31, 2001, the University Hospital and Clinics' billing entity, Hospital Patients Accounts (HPA), wrote off over $8.7 million in charges which were either denied due to untimely filing or were not billed because the filing deadline had passed.� During that� same period, the HPA wrote off �$8.4 million in charges due to the services not being preauthorized.� Based on the average collection rate for HPA (46%), we estimate revenues totaling $4 million �and $3.8 million, respectively, were lost as a result of this situation.

While such denials have decreased since fiscal year 2000, problems persist. �For the month of January 2002, denials due to untimely filing and lack of preauthorization resulted in an additional $840,000 in lost revenues. �

In addition, from July 1, 1999 to December 31, 2001, approximately $2.3 million in outpatient charges were written off due to them not being entered into the billing system prior to the final billing being sent.� Based on the HPA's average collection rate, we estimate over $1 million was lost as a result of this situation.� The amount of such write offs has increased significantly since July 1, 2000, in large part due to the HPA's efforts to file more timely billings with insurance companies and other third-party payers. 

The value of Columbia Regional Hospital (CRH) to the university and the Health System has not been maximized because Health System officials have been unable to implement some needed policy and management changes.

In 1999, the University of Missouri System began considering the purchase of CRH. �A consultant was hired to perform a financial analysis of that entity, provide information regarding CRH's value, and recommend a proposed bid price.� The consultant recommended the university submit a bid for CRH in the range of $30-35 million; however, the consultant advised "if the University does not believe it can operate CRH �with proper management and policy oversight, then the University should not submit a bid at any price (emphasis added) �"

The university subsequently acquired CRH in September 1999, and since its acquisition, CRH has consistently posted operating losses.��� It appears CRH has not operated more profitably because the Health System has been unable to implement, or fully implement, some of the key management and policy changes the consultant recommended.��� The consultant had estimated� the implementation of these changes would provide a significant amount of additional revenues annually. 

The HPA accounts receivable records had over $6.3 million in credit balances at December 31, 2001, involving over 15,000 patient accounts, and insufficient effort has been made to resolve many of the older credit balances.� Credit balances generally represent patient accounts where payments received on behalf of those accounts exceed the actual charges.� Credit balances accumulate when there is failure to resolve or refund such overpayments on a timely basis.� Between December 2000 and December 2001, total HPA credit balances ranged between $5 and $6.7 million.

The HPA has taken steps to reduce its level of accounts receivable; however, its overall accounts receivable balances still exceed industry standards.� At December 31, 2001, actual accounts receivable totaled over $99 million compared to an accounts receivable amount of $76 million based on industry standards.� �In addition, other problems were noted regarding the documentation, �follow-up, and write-off of outstanding accounts.

The Health System frequently provides medical services to patients who have limited income, do not have health insurance, and cannot afford to pay the costs of care.� Patients who meet certain criteria can receive those medical services at no charge or at reduced rates.� Such care is referred to as charity care.

The HPA has not handled all charity care cases in a consistent manner and has not fully documented any changes in its related policies/procedures.� We also noted some inconsistencies in the way the HPA and UP handled the same patients, resulting in patients receiving different levels of financial assistance from each billing entity.

In recent years, the University of Missouri System has hired an outside auditing firm to perform internal audits of various university functions.� Since July 2000, that firm has conducted three internal audits related to the Health System and its billing efforts.� �Some recommendations made by those auditors have not yet been implemented and a formal tracking system providing current information �regarding the status of audit recommendations has not been established.

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