Plugging the gaps in your unapplied cash reconciliation process

Reconciling unapplied cash is tricky business.
 

Several factors in the current healthcare environment have converged to make reconciling unapplied cash particularly painful for today’s healthcare finance teams. Billing processes continue to grow in complexity and labor intensity. Volume and reimbursement rates are declining, making cash collection even more critical. And, as you know all too well, healthcare finance teams are being forced to do more with fewer resources, making options like automation must-haves versus nice-to-haves. 

If your organization hasn’t experienced any pitfalls with cash reconciliation, consider yourself lucky. But, if you’re like most, you could benefit from reviewing your processes and figuring out a better way. That starts with identifying gaps in your unapplied cash reconciliation processes that you might trip over. 

Here are six common gaps in organizations’ unapplied cash reconciliation processes and ideas for repairing them. Then read these best practice ideas for automating unapplied cash reconciliation, which Kodiak developed based on years of working with provider organizations to make reconciling unapplied cash as simple as possible. 

Gap #1: Revenue cycle and finance aren’t on the same page. 

Your hospital’s revenue cycle and finance departments are on the same team, but they might not be on the same page when it comes to how they define cash reconciliation.  

For example, revenue cycle often is focused on the two-way match—reconciling bank deposit activity to their patient accounting system postings. Many revenue cycle professionals consider a three-way match to be between the 835 (remittance data), the bank, and the PAS. Finance and accounting teams, however, often look to achieve a full three-way match between the bank, PAS, and the general ledger. 

Streamlining cash reconciliation and management is difficult enough with everyone on the same page. When critical departments can’t even decide on how to define unapplied cash reconciliation, they can’t hope to make improvements. Getting everyone on the same page about how to define a reconciliation is essential. 

Gap #2: Poor communication. 

A second common gap in organizations’ cash reconciliation processes is poor communication between finance and revenue cycle as in little to no communication between the departments. Lack of communication between these two areas is a major impediment to creating and sustaining effective reconciliation processes. 

Common communication issues include: 

• Terminology differences. One common example is how revenue cycle and finance refer to clearing accounts. In our work with revenue cycle teams, we see them generally refer to clearing accounts within the PAS while finance/accounting teams often refer to GL cash clearing accounts, which is where both the deposit activity and PAS activity are posted to get the unapplied cash balance. 
• Differences in departmental goals for reconciliation. Revenue cycle teams' primary goals are looking at collecting and posting cash and then reporting on how much of that cash has been collected, how much has been posted to patient accounts, and what amount of unposted cash remains. Finance teams, on the other hand, are responsible for the reconciliation from the bank to the PAS postings and then to the GL (the three-way match). 
• Physical location differences. When staff members from the revenue cycle and finance/accounting teams are literally in different physical locations, or teams are working primarily virtually, miscommunications can happen. This can make it difficult for all involved to stay on the same page and work toward unapplied cash reconciliation goals. 

One tried-and-true solution for bridging communication gaps like these is creating an inter-departmental steering committee composed of stakeholders from revenue cycle and finance/accounting. Read more about this solution here. 

Gap #3: Lack of access to systems and data. 

Limited or incomplete information can be a significant hurdle to efficient cash reconciliation. Some teams might receive only limited bank information, lack direct access to certain databases that are beneficial for researching variances and reconciliation, or receive their automated clearing house and electronic funds transfer activity in high-level summary deposits for their lock boxes and credit card activity. This lack of detail behind summary-level reports makes it difficult for revenue cycle and finance teams to understand the variances they’re seeing between bank deposit activity and their PAS postings. 

In addition, we often see that many health systems don’t have a report that assists with PAS mapping to the GL. This creates a gap in understanding around how certain payments get routed to the GL. 

Some ideas for improving system or data limitations include: 

• Appointing a designated contact person(s) for all critical reconciliation reports if the organization does not have direct access to them. 
• Setting a due date/time for these reports to be run or accessed to avoid causing further reconciliation or closing delays. 
• Creating a protected, shared network folder for all relevant reports needed for reconciliation each month. The folder should be easily accessible by both the revenue cycle and finance teams. 

Gap #4: Missing controls for temporary postings. 

Lack of established controls over use of temporary accounts is another roadblock to smooth unapplied cash reconciliation. Not having appropriate controls over these accounts results in an inability to explain certain postings. To establish controls over these accounts, staff should: 

• Ensure there is timely and recurring verification or review of temporary account postings, and check for appropriate reversals. 
• Report all temporary accounts to finance each month. 
• Establish a limit for the number of temporary accounts that can be used and reused throughout the year. 

Gap #5: Credit card reconciliation bumps. 

Gaps in the reconciliation process related to credit card deposits are another common source of frustration for finance and revenue cycle teams. Many of our customers have trouble time tracking and reconciling credit card activity in general, largely due to general timing differences between when merchant statements are received, when they are posted to the PAS, and when the deposit hits the bank. In addition, many organizations have multiple merchant processors, which only adds to the strain. 

Some recommendations for smoothing the credit card reconciliation process include: 

• Limiting the number of merchant processors or eliminating as many merchant processors as is feasible for your organization. 
• Establishing an understanding among staff regarding the timing differences between merchant statements and when credit card payments are deposited in the bank. 
• Monitoring settlement statements to ensure appropriate posting to the PAS and appropriate referencing, e.g., reporting on gross amount versus net amount. 

Gap #6: Cash deposit reporting pain points. 

Issues with monitoring and reconciling the unapplied cash balance in the GL are another common pain point for our customers. Ideally, if all cash deposits are properly posted and there are no PAS postings matched to a deposit, the unapplied cash balance would be $0. The unapplied cash general ledger balance in the GL, therefore, would reflect all the following: 

• Patient cash deposits not posted in the PAS. 
• Nonpatient cash deposits in unapplied cash that have not been posted to the GL. 
• PAS postings unrelated or unmatched to a deposit. 

Unfortunately, what really happens—and what makes this a gap in health systems’ unapplied cash reconciliation processes—is that most organizations are only making sure that the patient-related deposits are getting posted to the PAS. There aren’t many health systems that are making sure all PAS postings are related to a deposit and, when those postings are unmatched, that there is either a correcting payment posting that hasn’t been made yet or a GL entry that hasn’t been made to account for these unmatched postings. 

Common reasons health systems struggle to reconcile cash deposits include: 

• Using manual spreadsheets that are often out of date, contain summarized, manually entered posting activity, and do not reflect real-time activity. 
• Not monitoring activity posted to the PAS that does not match a deposit. 
• Manually tracking nonpatient portions of patient-related deposits and erroneously reporting—or not reporting—them to finance. 

There’s a better way to reconcile your unapplied cash. 

Reconciling unapplied cash is tricky business. That’s why Kodiak has an entire team dedicated to helping healthcare provider organizations streamline their unapplied cash reconciliation processes and make them as seamless as possible. 

Contact our finance and reimbursement experts today for more ideas and to get the conversation started.