2010 UBO/UBU Conference

Title: Accounts Receivable

Sessions: T-1-1000 T-3-1330

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Accounts Receivable – Agenda

Accounts Receivable Policy Background Current Status for the Service Medical Activity (SMA) Current Status SMA Components

– SMA-Army– SMA-Navy– SMA-Air Force

Goals and Objectives– Accounting– Assertion (Auditability)

Accounts Receivable Management Accounts Receivable – Going Forward

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Accounts Receivable Policy/Implementation

Accounts Receivable Policy Memorandum – Policy signed on May 8, 2008 – http://tricare.mil/ocfo/mcfs/ubo/policy_guidance/letters

.cfm Purpose

– Establish policy for the recognition (“as rendered”), classification, recording, aging, collection, disposition and reporting of accounts receivable in order to improve the accuracy of financial statements and prepare the Defense Health Program (DHP)–funded activities for audit readiness

– Compliance with Federal Management Regulation and Generally Accepted Accounting Principles

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Accounts Receivable Policy/Implementation (cont’d)

Implementation and Current Status – 1 October 2009 (for Fiscal Year 2010 reporting

purposes)– All Service Components are currently reporting

Medical AR as of 4th Quarter, FY 2010– Gross Public Accounts Receivable Balance as of 4th

Quarter, FY 2010, is nearly $500 Million compared with 4th Quarter, FY 2009, in the amount of $174 Million

– Net Public Accounts Receivable (Gross Accounts Receivable less Allowance for Doubtful Accounts) Balance as of 4th Quarter, FY 2010, is $347 Million compared to 4th Quarter, FY 2009, in the amount of $157 Million

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Accounts Receivable Policy/Implementation (cont’d)

Title 10 United States Code, Chapter 55, Section 1095– This policy does not modify the ability of the Services

to use monies collected in the fiscal year collected– 10 U.S.C. 1095(g) reads as follows: “Amounts

collected under this section from a third-party payer or under any other provision of law from any other payer for health care services provided at or through a facility of the uniformed services shall be credited to the appropriation supporting the maintenance and operation of the facility and shall not be taken into consideration in establishing the operating budget of the facility.”

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Current Status Accounts Receivable

TMA TPOC A/R Reports – Deployed March 2010– Currently developing the consolidation of TPOC data

DFAS Accounts Receivable Development and Implementation– Workgroup with DFAS–Indianapolis AR Standards

and Compliance along with Components (Finance and UBO) to document the AR processes and provide more accurate AR

Discussions with SMA components to address CHCS receivable and write-off issues

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Current Status SMA-Army

Net Public Accounts Receivable (Gross Accounts Receivable less Allowance for Doubtful Accounts) Balance as of 4th Quarter, FY 2010, is $260 Million compared with 4th Quarter, FY 2009, in the amount of $112 Million

Military Treatment Facilities (MTFs) pull Accounts Receivable data from TPOCS and CHCS. Regional Medical Command consolidates MTFs Accounts Receivable data. MEDCOM Headquarters submits consolidated Accounts Receivable report to DFAS–Indianapolis via the AR Tool

MEDCOM now has visibility of over 520,000 accounts Bad debt write-off procedures and processes review in FY

2011 Clean-up of old debt to be addressed in FY 2011

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Current Status SMA-Navy

Net Public Accounts Receivable (Gross Accounts Receivable less Allowance for Doubtful Accounts) Balance as of 4th Quarter, FY 2010, is $17 Million compared with 4th Quarter, FY 2009, in the amount of $9 Million

Implementation of the Medical Accounts Receivable policy was completed in July 2010

MTFs currently recognize receivables and calculate Allowance for Doubtful Accounts. Medical Accounts Receivable is entered into Standard Accounting and Reporting System-Field Level (STARS-FL) monthly

Successful completion of new processes and procedures to record Net Medical Accounts Receivable Gross Accounts Receivable less Allowance for Doubtful Accounts) in STARS-FL

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Current Status SMA-Air Force

Net Public Accounts Receivable (Gross Accounts Receivable less Allowance for Doubtful Accounts) Balance as of 4th Quarter, FY 2010, is $70 Million compared with 4th Quarter, FY 2009, in the amount of $36 Million

Extensive research was performed on SMA-Air Force aged AR. In FY 2010, worked with DFAS–Columbus to successfully evaluate and develop a more accurate methodology for reporting Allowance for Doubtful Accounts for DCMO debt

Continuing to evaluate DCMO debt and allowance balances Third Party Collections (TPC) program is currently executed

by two distinct contractors that provide quarterly AR reports to Air Force Headquarters

SMA-Air Force continues to evaluate contractor processes for TPC AR reporting

Reporting AR via AR Tool to DFAS–Columbus

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Goals and Objectives – Accounting

Workgroup with DFAS–Indianapolis AR Standards and Compliance

Recording TPOCS receivables to the core general ledgers at field level (SMA-Navy is currently recording to the general ledger)

Workgroup to develop central server for TPOCS accounts receivable transactions for a consolidated view to provide reconciled subsidiary receivable ledgers

Establish Allowance for Doubtful Accounts methodology for Bad Debt and Contractual Allowances in accordance with GAAP

Analysis of current accounts receivable data for all Components and facilitate “clean up” of existing balances

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Goals and Objectives – Accounting (cont’d)

Continued work to improve DoD Metric scores Future initiatives:

– Enhance the accounts receivable reporting in CHCS– Recording of interest, penalties, and administrative

fees for full compliance with the Financial Management Regulation

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Goals and Objectives – Assertion

Define accounts receivable population records and related transactions that provide adequate audit trail

Identify all AR feeder files and document audit trail Reconcile accounts receivable population to general

ledger balances– Field Level (MTF)– Consolidated (Rolled up to Component level)

Complete audit trail of medical billing invoices to medical records– Coded medical encounter– Accurate medical fee per encounter– Allowable chargeable encounter/Patient eligibility– Accurate coding of encounters

Goals and Objectives – Assertion

Balance Sheet and Statement of Budgetary Resources

SMA – Army 30 Sep 12

SMA – Navy 30 Sep 12

SMA – Air Force 30 Sep 15

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Accounts Receivable Management

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Revenue Recognition – All Defense Health Program (DHP)–funded activities will

recognize and record a receivable when it establishes a claim based on goods or services provided (“as rendered”)

Financial Management Regulation (FMR)– Working with OUSD(C) to revise policy in the FMR to further

clarify rules for transferring medical debt to DFAS for collection – Currently submitting revisions to policy in the FMR related to

medical receivables Data Quality

– Old A/R – Clean-up and reconciliation of accounts receivable balances

– New A/R – Accurate billing and recording of accounts receivable, collections, credits, allowances, adjustments and write-offs

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Accounts Receivable Management (cont’d)

Standardization of Proprietary vs. Budgetary Entries– Recommended proprietary accounting entries are:

(1) Debit USSGL 1310 (Accounts Receivable) and credit USSGL 5200 (Revenue from Services Provided)

(2) Credit USSGL 1319 (Allowance for Doubtful Accounts) and debit USSGL 6730 (Bad Debt Expense)

– The standardized entry will provide consistency for all Components without the potential for an appropriation violation and maintain USC 1095 flexibility

– The budget authority is only increased when the account receivable is collected

– Recognition of revenue and the establishment of an accounts receivable will not affect the budget authority

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Accounts Receivable – Going Forward

Accuracy in reporting– As of 4th Quarter, FY 2010 Medical Debt is reported

for all components– Reports will include aging balances and number of

claims– Visibility of all accounts

Leveraging best practices to move toward standardization

Central reporting will improve as future initiatives are addressed:– Provide consolidated and centralized accounts

receivable data from TPOCS and CHCS/AHLTA (both MSA and inpatient TPC), and

– Calculate interest in both MSA and TPOCS

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Accounts Receivable – Going Forward (cont’d)

SMA Audit Committee will continue to work with the SMA-Army, SMA-Navy, and SMA-Air Force along with DFAS–Indianapolis to document and improve procedures and accuracy for recording AR

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Q&A

Questions?

Back-up slides for reference

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Accounts Receivable – Revenue Recognition

Receivables are recorded from the time the goods or services are rendered

A receivable must be recorded in the accounting records in the period in which claims are established

Allowance for Doubtful Accounts (concepts):– Contractual Allowance (fee schedule)– Uncollectible Allowance (aging history)

Each Service will provide training and guidance in the application of these concepts

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Establishment of Accounts Receivable

What is the “first day” of an account receivable?– Inpatient: 30 calendar days after the date of discharge– Ambulatory: 15 calendar days after the date of encounter

(outpatient, laboratory, pharmacy, radiology) Why is an accounts receivable established?

– Government is owed as soon as service is provided– Some invoices can be immediately generated (family

member rate)– Some encounters/services need to be coded prior to

generating invoice – Many invoices are not generated in a timely manner

(unbilled)– Ensure inclusion of medical accounts receivable on the

financials statement

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Establishment of Accounts Receivable (cont’d)

Calendar versus business days – Decided to use calendar days as it is easier to

calculate (no need to track federal holidays or training days)

– Financial statements are calendar days not business days

Final Decision – First day of Accounts Receivable– 30 calendar days after termination of inpatient service– 15 calendar days after termination of outpatient

service (APV’s, prescriptions are filled, laboratory tests are certified)

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Accounts Receivable – Third Party Collections

Accounts receivable will be recognized and recorded, as follows:– Inpatient Institutional Charges

30 Calendar Days post discharge– Outpatient Services Encounters

15 Calendar Days after termination of encounter– Outpatient Ambulatory Procedures Encounters

15 Calendar Days after termination of encounter– Ancillary and Pharmaceuticals

15 Calendar Days after test/study/dispense

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Accounts Receivable – Medical Services Account

Accounts receivable will be recognized and recorded, as follows:– Intragovernmental

Inpatient Institutional Charges– 30 Calendar Days after the second month end after discharge

Outpatient Services Charges– 15 Calendar Days after month end

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Accounts Receivable – Medical Services Account (cont’d)

Accounts receivable will be recognized and recorded, as follows:– Nonfederal

Inpatient Institutional Charges– 30 Calendar Days post discharge

Outpatient Services Encounters– 15 Calendar Days after termination of encounter

Outpatient Ambulatory Procedure Visits– 15 Calendar Days after termination of encounter

Ancillary and Pharmaceuticals– 15 Calendar Days after test/study/dispense

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Accounts Receivable – Medical Affirmative Claims

Accounts receivable will be recognized and recorded, as follows:– When the Medical Treatment Facility (MTF) receives the

adjudication letter from the Attorney (e.g., legal entity pursuing the claim) with the amount and date such funds can be expected to be available (e.g., realization occurs for the account receivable to be booked).

– Example:– Medical bill is sent to the Attorney on 25 November 2009– Attorney pursues the claim– Attorney signs and dates the adjudication letter on 2 April 2010– MTF receives adjudication letter from the Attorney on 4 April

2010– Account receivable is recorded as of “the DATE on the

adjudication letter” (2 April 2010)

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Accounts Receivable – Contingency

Medical Affirmative Claims are considered contingencies and are, therefore, not recorded as accounts receivable until an adjudication letter is signed and dated by the attorney who was pursuing the claim

Contingency– A potential or pending development that may result in

a future gain to the company, such as a successful lawsuit against another company. Conservative accounting practice dictates that contingencies should not be booked, as potential gains or losses, although a footnote disclosure of the particulars may be made.

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Accounts Receivable – Interest Accrual (future)

Interest Accrual– Accounts not paid within 30 days of the first day of

account receivable– Collections received must first be applied to interest

then to the principal.– Third Party Outpatient Collection System and Medical

Services Account are not currently able to automatically calculate interest based on date of invoice

– Additional information can be found at http://comptroller.defense.gov/fmr/04/index.html

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Accounts Receivable – Revenue Recognition

Intragovernmental receivables:– U.S. Coast Guard– U.S. Public Health Service– National Oceanographic and Atmospheric

Administration– Department of Veterans Affairs– Other Federal Departments and Agencies

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Accounts Receivable – Revenue Recognition (cont’d)

Nonfederal receivables:– Department of Defense Civilians Overseas– Other Federal Civilians Overseas– Red Cross Overseas– Civilian Emergencies– State Governments– Foreign Governments– Third Party Collections Program– Cosmetic Surgery Procedures

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Accounts Receivable – Aging of Receivables (cont’d)

Interest begins to accrue:– Inpatient: 30 calendar days after invoice is tendered

(printed/mailed)– Ambulatory: 30 calendar days after invoice is

tendered (printed/mailed) [includes outpatient, laboratory, pharmacy, radiology]

“First day” of reporting the account receivable is the date of the invoice