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T H E F I N A L T O L L G AT E

Account Withdrawal Accuracy

BY MICHAEL STOBER

At a health insurance administrator in the Midwest, a flawed billing process for administrative services only (ASO) accounts was an ongoing problem that the finance department did not know how to address. Errors in withdrawing the ASO fees from customer bank accounts were creating internal and external accounting rework. Of even greater concern, the inaccuracies could push customers to seek other healthcare coverage. This Six Sigma project tackled the complex billing process and reduced the error rate to zero.

The Final Tollgate features a Six Sigma project as it would be presented to a panel of company executives at the final project review. The objectives of such a presentation are to 1) communicate significant results of the project, 2) share highlights of how results were achieved and 3) gain agreement to close the project. The slides are the Black Belts visual presentation and the accompanying text is the verbal

presentation. It is assumed that the project leader has been making regular presentations at each tollgate and that the executives in the audience have a basic understanding of Six Sigma. The content for this project was assembled for illustration purposes. It is based on fabricated data from a fictional company. Any similarities to an actual project are coincidental.

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From the July/August 2006 Issue

Volume 2, Number 4

THE FINAL TOLLGATE

DEFINE Account Withdrawal Accuracy

Business Problem Complex ASO billing process with multiple reconciliation checkpoints and manual workflows Incorrect and late administrative fee withdrawals from customer bank accounts Voice of the Customer

VOC
My account is overcharged, undercharged or not charged at all.

CTQs
Account charged correctly and on time

Project Goal: 100% accurate withdrawals

High-level Process Map

Inputs

Sales

Underwriting

Installation

Systems

Finance

Output

Process Time Analysis Isolated time spent on process steps to gain insight into potential difficulties and bottlenecks in the process Finance accounted for 40 percent of the total process time to produce the billing invoice Most of that time was spent on manually researching changes to key group billing specifications

Define Before this Six Sigma project, our billing process for ASO accounts entailed multiple reconciliation checkpoints across the organization and included many manual workflows. This continuously resulted in incorrect administrative fee withdrawals from customer bank accounts, or fees withdrawn late. In about 60 percent of the cases when an error occurred, the amount withdrawn was less than it should have been. In the remaining 40 percent of errors, customers were overcharged. These inaccuracies created internal and external accounting rework and, of even greater concern, could potentially push customers to seek healthcare coverage with our competitors. Although late withdrawals were also an area of concern, accuracy was the larger problem. From a customer survey, we learned that 25 percent of customers had experienced having an incorrect amount in administrative fees withdrawn from their account at least once in the previous 12 months. This compared to the 8 percent of customers whose fee was withdrawn late. The primary objective of this Six Sigma project was to go beyond 6 sigma and produce a 100 percent-accurate withdrawal process. Achieving this objective would increase internal productivity and customer satisfaction,

and could prevent the loss of customers and subsequent erosion of profit margins. After using VOC [voice of the customer] from the survey to focus the scope of the project, the first step we took was to fully understand the existing process, which included many handoffs between the five functional areas. Because the functional areas were in different divisions Administrative services only is a funding arrangement for a groups healthcare in which the insured (employer group) assumes the claims risk and the insurer charges a fee to administer the program. The administrative fee covers the operating expenses for things such as costs of processing claims, benefit management services and access to the healthcare provider network. Fully insured financing is the traditional way to finance a groups healthcare. In this arrangement, the insurer processes and pays the claims, and the employer group pays a monthly premium based on its projected claims experience and operating costs. The premium covers the claims expense and administrative expense.

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THE FINAL TOLLGATE

MEASURE Account Withdrawal Accuracy

Measurement Systems Analysis (MSA) Three sources of data Two of the three did not meet MSA standards for accuracy, repeatability, and reproducibility PeopleSoft is the one reliable measurement system MSA validated which system the business should standardize on Baseline Process Performance DPMO = 111,754 2.72 sigma
daily and monthly draw MBIA Invoicing monthly claims balance manual processing recon not comm to finance multiple spreadsheets dont recon multiple ckpoints tape, .xls, direct debit change in grp draw specs > 1 draw for day daily and monthly draw rates and benefits

Cause-and-Effect Analysis
Reconciliation Process Settlement Process reporting inaccurate no retro acct of sl&ag post contract end clm adjs inaccurate recon data P&L inaccuracy retention adjustments recurring billing process manual input SEA710 report no post jobstream data balancing no source to SAE SAE Data vendor data inaccurate PMI and APM

SAE kickouts mbr kickouts admin sent to FI not SAE

peoplesoft Inaccurate Withdrawals

no eb and AR automation E&B posting incorrectly manual rate input to AR contract and admin accuracy MRC/ISL

fleet interface changes dial-in # changes insufficient funds grp doesnt fund acct

inadequate internal reporting misaligned reporting

grp spec changes

double draws increased keying

inaccurate rates to finance distribution channel

hard copy form distribution rating outside of IRP IRP to E&B manual interface retention draw rates installed recurring billing manually Technological Funding

Double Invoicing

Reporting Data

Hard copy form distribution identified as potential contributor to inaccurate data in the billing process

across the organization, this told us that communication in the process was most likely fragmented and that, as a result, there were probably widespread breakdowns in the process. We used a high-level process map to understand how the functions interacted. By isolating and dissecting one function at a time, we learned how data flowed, where the handoffs were and what functional outputs became inputs to other functions. From this, it appeared that the finance department was the recipient of bad outputs from the other functional areas, which were upstream in the process. Process time analysis was the next tool we used. We wanted to understand the amount of time that was being spent on each process step in order to identify where people were having difficulties and where bottlenecks existed. We expected that this information, in turn, could give clues on how to narrow the scope of our efforts. We noticed that, compared to other functional areas, the finance department was spending an inordinate amount of time executing the process. Finance accounted for 40 percent of the total process time to produce the billing invoice. What we did not know was whether this was due to upstream problems, whether that part of the process was the most dysfunctional of all five functional areas involved, or whether the process was just poorly executed.

Further probing into the process time analysis revealed that most of finances processing time was spent on manually researching any changes to group billing specifications. This gave us a hint that changes to group billing specifications might be an area of concern and might impact the accuracy of fee withdrawals. Measure As we moved into the Measure phase, a team of people involved in the billing process performed a cause-andeffect analysis. We logically organized the possible causes of withdrawal inaccuracy into a fishbone diagram and used a functional deployment matrix to prioritize them. You will notice in the diagram that one cause is highlighted in red the distribution of hard copy change-request forms. The team concluded that this particular cause could be the largest contributor to the effect. Process mapping, process time analysis and cause-andeffect analysis led us to a probable root cause. However, in a highly skeptical environment such as ours, we knew we needed more quantitative data and analysis. And we needed to be sure we could rely on the data we were using. In our business, we have three sources for the data needed to assess process capability, or sigma level. Data was collected from each to determine if accuracy, repeata-

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THE FINAL TOLLGATE

ANALYZE Account Withdrawal Accuracy

Hypothesis Testing Hypothesized that the canceled groups experienced more billing errors Chi-square test confirmed that the difference was statistically significant Deficiencies Discovered in the Billing Process for Canceled Groups Request-for-change form design Didnt identify funding arrangement change Didnt note discontinuance of withdrawals related to funding arrangement change Didnt advise that run-out claims are built into new funding arrangement change Form distribution Finance was not on distribution for the request-for-change form
Null Hypothesis H0: CBU is independent of errors

Alternate Hypothesis Ha: CBU is not independent of errors

Test Chi square

P-value 0.000

Accept the null hypothesis

Reject the null hypothesis

Canceled groups were defined as customers that either have: Requested a change from ASO to fully insured or vice versa Canceled their medical coverage with the insurer Canceled a division within their firm Divested a division within their firm into another division

Change request form identified as primary factor in billing errors

bility and reproducibility standards were met. Conducting a measurement systems analysis (MSA), we determined that the appropriate standards were not met in two of the three systems, but one system (based on PeopleSoft software) was acceptable. Prior to this Six Sigma project, there was a dispute among various functional areas about which of the three measurement systems was the single source of truth, and thus should be used moving forward. The MSA unwittingly resolved that dispute by pointing out which system performed with an acceptable level of accuracy. To calculate the baseline sigma level of the billing process, a random sample of data was pulled from our one accurate measurement system. A defect was defined as an administrative fee withdrawal from a customers account made in an incorrect dollar amount. The DPMO [defects per million opportunities] was calculated to be 111,754, which translates to a process sigma of 2.72. Clearly, we had lots of room for improvement to reach our goal of zero defects. Analyze From our analysis in the Define phase, we learned that the finance department spent a lot of time looking up changes to a groups billing specifications. Then, through the cause-and-effect analysis, we identified the distribution of the change-request forms as a potential root cause. In the Analyze phase, it was time to determine, through statistical testing, if these discoveries were relevant to solving the problem of withdrawal inaccuracies. Along with other hypothesis testing, a chi square test was conducted to see if errors in billing were correlated to a particular customer-based unit (CBU). For this analysis, canceled employer groups were considered a distinct CBU. Canceled groups were defined as customers that have either: Requested a change from ASO to fully insured or vice versa Canceled their medical coverage with the insurer Canceled a division within their firm Divested a division within their firm into another division Based on the results of the hypothesis test, we concluded that, with respect to withdrawal accuracy, canceled groups were a statistically distinct population among our customers. In other words, this group experienced a statistically higher rate of billing errors. To understand why this was happening, we looked more closely at the process involved in billing a customer in the canceled group. When a group changed from an

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THE FINAL TOLLGATE

IMPROVE Account Withdrawal Accuracy

Solution Identification Developed through brainstorming sessions with subject matter experts Four improvements needed to be made to the process and systems Recommendations 1. Redesign and Automate Request-for-Change Form
Redesign form with appropriate change in funding arrangement identification
Change to group

Type of change

Group termination

New Request-for-Change Workflow

Change request UW Go to Lotus link Click approriate form Fill out form electronically Click submit request Distribution channel Point person ASO and other PS and MA forms All PS and MA forms Archive form END Archived forms Completed view

2. Redesign Process
Redesign request-for-change process

3. Create Lotus Notes Database

Electronically distribute forms to correct functional parties Database to include controls through electronic signature tollgates

Sales

No
Any comments?

Sign off form

4. Automate Withdrawals
Automate entire withdrawal process Migrate entire business to one measurement system (PeopleSoft) Will be part of separate enterprise-wide effort

Finance

Review cycle

Yes

Submit comments via form Awaiting sign-off view

Installation

Review cycle

Financial benefit of $304,688 for recommended solutions

ASO arrangement to a fully insured arrangement, for example, the underwriting department would build in run-out claims (expenses that have been incurred but not yet submitted for payment before the effective change date) from the ASO arrangement into the fully insured premium. This funding arrangement change would trigger the sales department to fill out a request-for-change form. It was here that we discovered the problems with this process. First, the existing request-for-change form did not have a field in which to specify that the customer was requesting a funding arrangement change. Second, the form did not direct an action to discontinue withdrawals from the customers account under the former ASO arrangement. Third, although a fully insured quote was completed by the underwriting staff, such a quote did not consistently advise that the run-out claims had been built into the fully insured premium. Last, the request-for-change form was in triplicate format for distribution to the installation department, the sales department and the employer/customer. Finance, however, was not a recipient of the change form. Therefore, it would continue to withdraw funds from the customer under the ASO-funding arrangement and also bill the customer the premium amount for fully insured financing. As initially determined from the cause-and-effect analysis, the change-request form and how it was distributed across the organization was a primary factor in billing errors. Improve In a brainstorming session, subject matter experts identified possible solutions to address the problem. After discussing the project findings and the brainstormed solutions, we concluded that four improvements needed to be made to the process and systems. The recommendations were to: 1) redesign and automate the request-for-change form, such that the appropriate funding arrangement changes are correctly captured; 2) completely redesign the request-for-change process for robustness and efficiency; 3) develop a Lotus Notes database to enable electronic distribution, archiving and signature guarantees for all changes; and 4) automate withdrawals through an improved measurement system and migrate the entire business to this system. It was decided that this last recommendation would become part of an enterprise-wide initiative and not addressed by this project. The other solutions were implemented over a period of two months by members of the project team and IT specialists. We had expected it would be challenging to

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THE FINAL TOLLGATE

CONTROL Account Withdrawal Accuracy

Results Zero defects for fee withdrawals over the past 8 months Cycle time for funding-arrangement changes improved from an average of 1 to 2 weeks, to an average of 1 to 3 days Control Plan Key metrics: withdrawal accuracy and change cycle time
Prototype Pre-launch Production Key Contact/Phone: Michael Stober Date (orig.): Date (rev.): Control Plan Number:

Project Title: ASO Billing Process Proj. #_______________________ Black Belt: Michael Stober
Process Process Input Step or Output 5.1 Non-MBIA draw Control Subject Specific Goals: Specification/ Requirement

Owned By: Approved By: Authorized By:

Sensor: Measurement Tool or Evaluation Method Frequency of Measure Monthly Sample Size Entire population

Procedure No: Page of Effective Date:

Results Who Recorded Measures Vics drive ASO Billing Finance Finance Decision Rule/Corrective Action Proced No. 3a

Use Victor Cs monthly claims reconciliation 0 overdraws/ Funding spreadsheets to identify if canceled or underdraws for arrangement change to funding still occurring funding and changes/ canceled groups canceled groups MRC and ISL 0 overdraws/ underdraws IRP table for automation of retention draw

Defect will be caught on tail end of process. If defects detected via the reconciliation process, these defects will be communicated to Finance and investigated to determine if the paperwork change was the culprit MRC and ISL limits are built into the new IRP table. If variances are present, through the process re-design review mechanism, Underwriting must contact installation unit to make corrections to limits. These changes will flow through to SAE process and SAE to PS/AR interface If variances in reporting occur between Underwriting and Finance and cant indentify the variance before draw day ends, draw Finance retention and retro bill the following month

5.1.2

MRC, ISL flagging

Monthly

TBD

Finance LAN drive

2a

5.4

Retention calculation

Retenction accuracy

0 settlements at the end of each accounts contract period

Underwriting and Finance coordinated monthly audit of new process. Create new Underwriting audit mechanism: capture renewal calculation financials for sampled groups and audit via Finances RS invoices

Monthly

TBD

Finance LAN drive

ASO Billing Finance

1a

Improvements yield 100% accurate withdrawals

develop the new request-for-change process and gain the support of the people impacted by the change. As it turned out, people were more than willing to go along with the new process because they recognized the fallibility of the old system. Solutions 1 through 3 created measurable improvement for the process by dramatically increasing the accuracy of changes made to customer accounts, and thus the accuracy of the billing invoice and customer account withdrawals. In addition, the cycle time for implementing a customers change request was reduced. This impacted the customer CTQ of on-time withdrawals. The financial benefit for these improvements was calculated to be $304,688 for a five-year projection resulting from revenue (interest) increases and staffing decreases. Control A control plan was put in place to monitor withdrawal accuracy in the newly instituted process. Although incorrect withdrawals were found to be most prevalent for canceled groups, the metric is monitored across all customer segments. This provides the appropriate oversight of the new process to assure that other process variables are not negatively impacted by the changes made. The control plan includes a monthly audit of the withdrawal process by both the finance and underwriting departments to assure that no errors are occurring. In the eight months since the improvements were implemented and the new Lotus Notes system was put in place, zero defects have been reported. Additionally, the cycle time for changes improved from a mean of two weeks to a mean of three days. This reduction was the result of the functionality built into the Lotus Notes database, which has a required response time from the process owners. For too long, our company had hobbled along with forms and processes that the finance department understood to be inadequate but with no definitive understanding of why or what to do about it. This project uncovered the source of the problem and within a relatively short period reduced the time it took to register billing changes to a customers profile, and completely eliminated inaccurate withdrawals. N

Michael Stober has 13 years of experience in the insurance and manufacturing industries focused primarily in Six Sigma and program management. Currently an information systems director at St. Paul Travelers, he is responsible for introducing Six Sigma to the information technology group. Mr. Stober is a certified Black Belt and Project Management Professional.

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