Finance vs. PFS: Finding a Solution to the Communications Challenge

When a patient presents in the Emergency Department (ED) who is not fluent in English, the ED staff will utilize an interpreter or language line to facilitate communications with the patient. This communication will lead to an appropriate diagnosis and treatment of the patient. Throughout our careers, we have found ourselves in need of an interpreter when the Patient Financial Services Department (PFS) and the Finance Department attempt to communicate. It does appear that, more often than not, the Finance and PFS Departments speak totally different languages. They will discuss and agree on a solution to an issue, leave the meeting and go back to their respective Departments and do two completely different things. In fairness to both Departments, this does not happen as a result of malice; rather, it occurs because of the differences in experience, systems and job duties between the Departments.
The challenge with managing the communications between these Departments stems from the backgrounds of the individuals. The individuals in the Finance Department tend to be accountants by training and profession and the individuals in the PFS tend to have varying backgrounds. This results in perceived common nomenclature having totally different meanings in each of the two areas. Once one becomes aware of the language barriers between the two areas, it becomes vital to make sure everyone understands the issues being discussed. 

Some of the examples of the differences in nomenclature are highlighted below.

In the accounting world, a debit is a debit and a credit is a credit. Having said this, when the Finance and PFS Departments discuss debits and credits, it is important to realize that both Departments have a different understanding of these terms. For example, a patient account receivable is reflected as a debit on the general ledger and reflected as a credit on the patient accounting system. When a patient makes a payment, the billing system is debited and the general ledger is credited. If the hospital is overpaid by a patient, the general ledger either has a credit in accounts receivable or accounts payable and the billing system reflects a debit balance in the patient account.

Net patient services revenue and accounts receivables are another area that creates confusion between the two Departments. When the PFS director looks at the hospital's financial statements and compares the net patient services revenue and accounts receivable from the billing system to the financial statements, the amounts tend to be materially different. This is usually the result of contractual allowances, reserves and off billing system revenue that the PFS Department does not address. Examples of these items are contractual allowances on in-house or DNFB accounts, accruals for charity care, reserves for RAC audits and cost report reserves, etc. These differences result in a point of frustration between the two Departments. Moreover, the Finance Department traditionally looks at days in accounts receivables as a means to judge the effectiveness of the PFS Department. However, due to the differences noted above, the days calculated on the billing system by the PFS Department tend to be materially different than those calculated by the Finance Department. In addition to being materially different, on a monthly basis, they can move in different directions. It is not uncommon to have a discussion with the PFS director about the reasons why days were up in a particular month and have the PFS director state that her days were actually down for the month.

Bad debt reserves are another example of the differences between the two Departments. In the PFS world, bad debt expense is determined under the direct write-off method. In the accounting world, bad debt expense is determined under the allowance method. In our collective experiences, the two methods have never yielded the same answer. Moreover, this can create confusion when the PFS director informs the Finance Department about some large bad debt write offs and the Finance Department indicates that these write offs will not have an impact because the amounts have already been reserved.

Patient refunds or debit balances are another issue that has an impact on cash collections and days in accounts receivable. Overpayments are usually included in the cash collection amounts by the PFS Department until the accounts are worked and the refunds or payer take-backs are processed. In addition, these balances will incorrectly reduce accounts receivable and days in accounts receivable. The Finance Department should consider these overpayments to be liabilities of the organization, not negative accounts receivable. This issue can create, depending on the materiality, additional conflict between the two Departments.

The issues noted above can result in significant over or under valuing of the respective accounts receivable balances. These incorrect valuations may result in significant audit adjustments at year end in addition to incorrect operational decisions being made throughout the fiscal year due to these differences.

The items noted above can lead to unnecessary and avoidable conflicts between the two Departments. It is not uncommon to hear that Finance "makes the numbers up" or that the PFS Department "just doesn't understand financial reporting." When this occurs, it makes it very difficult for the two Departments to work together toward the common goals. These issues can result in more time being spent on blaming each other rather than working towards common solutions.

In order to effectively address these issues, the Finance liaison, either the Controller or the Chief Financial Officer, in addition to the Director of Patient Financial Services needs to make a concerted effort to address these issues. It is usually productive and educational to have both the Finance Department and the PFS Department develop and present educational sessions for the other Department. These sessions, ideally, will be detailed enough so that both Departments gain a better understanding of their and each other's respective process. Although, in the short-run, there will likely be a need for longer joint meetings of revenue cycle work groups to enable this in-depth discussion, this time spent up front will pay dividends in the long term as the 2 groups are able to collaborate more effectively on financial reporting and patient accounting initiatives.
In summary, clear and concise communications between the PFS and Finance Departments is essential to ensure accurate financial reporting and decision making. To achieve this, sufficient time will need to be spent on learning, questioning, teaching and understanding each Department's role and specific nomenclature. This process will be on-going and will lead to better communication, team building and fewer errors in these important areas.

This article was written by Ron Camejo, a former Patient Accounting Director, Mindy Kilroy, a former Director of Patient Access and Ed Ladely a former Chief Financial Officer. Each of us has experienced the communication issues noted above and have shared some of our experiences that we believe will help both the PFS and Finance Departments.
We are pleased to have the opportunity to present this information to you. If you have any questions or need assistance, please call IMA Consulting at (484) 840-1984.

Best Regards,
Ron Camejo
Mindy Kilroy
Ed Ladely