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Audit: Bad billing system costs Glens Falls Hospital $38M

GLENS FALLS — A new billing system at Glens Falls Hospital malfunctioned in 2017, costing the hospital $38 million, according to an audit.

As the hospital’s financial condition worsened during the year, officials reduced operating costs and laid off employees. But nothing could make up for that huge loss. The hospital ended the year with a shortfall of $30 million.

The hospital gave The Post-Star its audited financials from 2012 through 2017 and its IRS filings for 2014 through 2017. Hospital officials declined to answer any questions about the financials.

On Tuesday afternoon, The Post-Star asked the hospital for comment on the financials and what hospital officials had been calling a “system conversion” loss in 2017. On Thursday afternoon, hospital spokeswoman Katelyn Cinzio declined to comment.

“We have looked into it and unfortunately we don’t have anyone available to comment,” she said.

While CEO Dianne Shugrue has said the hospital’s biggest long-term problem is a high number of Medicare patients, it was the billing program that led to financial disaster in 2017.

In the 2017 audit, auditing company KPMG made it clear the hospital’s new billing system was responsible for most of its losses.

The new system caused “collection issues,” that lost the hospital $38 million, KPMG wrote on page 14 of the audit. That is 12 percent of the hospital’s annual revenue from patient services.

The bills for $38 million worth of health care were sent out very late or not at all, so the hospital was unlikely to collect, KPMG wrote. That loss came on top of about $12 million in bills that probably wouldn’t be paid for reasons unrelated to the billing program, according to the audit.

Shugrue had previously said a “one-time system conversion” caused the hospital to lose millions of dollars in 2017, but she did not explain the details of what happened.

The audit, along with interviews with two hospital employees who asked to remain anonymous, show that the hospital struggled with the new billing system for months.

The new program was installed in November 2016, according to the audit.

That year, the hospital was unable to collect on $12.6 million in bills — a 31 percent increase over the previous year. It’s not clear how much of that increase can be blamed on problems with the new system in the last two months of the year. But in the previous three years, the hospital recorded an average of $9.2 million in uncollectible bills.

In a presentation last Thursday, Shugrue blamed much of that uncollectibility on high deductibles that patients could not afford to pay.

But in 2017, as the new billing program continued to malfunction, the uncollectibility rate got much worse, and the total in bad bills rose to an enormous $54 million.

Of that, the audit said, $38 million was directly caused by the problems with the billing program.

Medicare was billed six to 12 months late on numerous procedures and refused to pay because of “lack of timeliness.”

Commercial insurance companies often refuse to pay bills sent three to six months after the procedure, while Medicare allows longer. Each insurance company has its own deadline. If a bill is denied because of timeliness, the patient does not have to pay the portion that insurance was supposed to pay.

The audit does not describe what percentage of the money that wasn’t paid came from Medicare bills versus other payers. In 2015 and 2016, however, the hospital had an 84 percent reimbursement rate from Medicare. In 2017, that dropped to 70 percent.

Two employees at the hospital said that several months of bills could not be sent out at all because of problems with the new software.

They asked to remain anonymous, saying they were not authorized to speak to the press.

Cerner sells the billing system and has been accused by other hospitals of similar problems. Other hospitals said Cerner wrote buggy software that forced workers to do the bills by hand.

Cerner’s public relations department did not respond to a request for comment. The company was given more than 24 hours to respond.

Wisconsin-based Agnesian Healthcare sued Cerner in 2017, saying the system was so error-prone that workers were forced to use a manual work-around to issue the bills one at a time. This led to a huge backlog and $16 million in bills were eventually written off, because they were sent out too late. Cerner tried to fix the system but the hospital found more problems and said the company would need to “rebuild” the software to make it functional, according to the hospital’s lawsuit.

Cerner defended itself in court by saying its contract with Agnesian required that all disputes be resolved through arbitration. The judge agreed and sent the case to arbitration.

Medical Center Health System in Odessa, Texas, also switched to Cerner and later announced it was in severe financial distress. The hospital was required to hire an independent consultant to help it cut expenses and increase revenue. That consultant found that problems with Cerner’s software had led to billing delays and other issues.

Workers in Odessa had to send out bills by hand and eventually hired other companies to rewrite the software code and send out the bills. It took more than a year to get through the backlog, according to the Odessa American newspaper. Cerner later took over the hospital’s IT department to run its software.

In addition to hospital officials, the chairman of the hospital’s Board of Governors, William G. Powers, also declined comment.

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