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Clinical Lab Uses Lean Methodology to Get Paid Faster and Improve Profit

A clinical laboratory streamlined its collection process and reduced days sales unbilled by 42%, reduced overtime, and eliminated the need for temporary help.

A full-service commercial clinical laboratory had been wrestling with a growing problem for months. They were processing thousands of specimens every day. But there was a cash-pinching, 53-day lag time between when the services were being performed and when the company was finally paid by insurers.

Billing throughput issues had been intensified by recent acquisitions that had increased work volumes. TBM identified three processes that, if attacked and redesigned, could rapidly reduce DSO by an estimated 33 percent.

The initial diagnostic and root cause analysis revealed that collections itself wasn’t the issue. The real problem was getting invoices out the door. The assessment also found that “days sales unbilled” (DSU) was a better measure of improvement potential than DSO, which was more of a lagging indicator.

Challenge

The payment collection process at a commercial clinical lab was consuming precious cash flow. Management decided that the 53-day service-to-payment cycle needed to improve.

The company was grappling with both legacy accounting systems and inaccurate job coding that was causing a lot of rework. Overtime was high despite the fact that they had hired some temporary clerical help in an attempt to catch up.

The more telling metric was days sales unbilled (DSU), the difference between when the work was completed and when the invoice was issued. Collections wasn’t the issue. Eliminating billing delays dramatically reduced DSO.”

Solution

Through a series of kaizen events, three processes were identified for improvement; organizational rework, backlog of payment claims and cash management process.

We identified three processes that, if attached and redesigned could rapidly reduce DSO by an estimated 53%. 

  1. The first target was rework. The sole responsibility of some employees at the time was to correct errors made earlier in order entry and processing. Eliminating the errors at the source would eliminate the need for such rework.
  2. The second target for improvement was the 18,000 backlog of payment claims. When a kaizen event team mapped out the current process, they found that employees were spending an extraordinary amount of time scouring the Internet for insurance providers’ claim processing information. They subsequently automated and standardized this search work.
  3. The third target was the cash management process itself. The department had an excessive number of work procedures, paperwork requirements and loopbacks that didn’t add any value and delayed processing time.

Results

Days sales unbilled, number of jobs per week and number of jobs processed per person, per hour all improved as a result of this three-step process.

Combined steps and reduced batch sizes for electronic postings dramatically improved velocity, reducing the average days sales unbilled by 42 percent, increasing productivity by 80% and reducing overtime, and eliminating the need for temporary help. The number of jobs processed per person, per hour increased by 70%. 

Topics in this Case Study

Back Office Process Improvement

At a Glance

Client

A clinical laboratory that processes thousands of specimens every day

Results

  • The company reduced average days sales unbilled by 42 percent
  • They also improved productivity by 80%, reduced overtime, and eliminated the need for temporary help
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