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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 Belt’s 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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M iSixSigma N E Copyright ©2006 A G A Z IMagazine I This reprint provided by Innovation 360 Institute I No additional reproduction permitted For more information about Innovation 360 Institute please call + 971 4 319 7645 or visit them online at www.i360institute.com I

From the July/August 2006 Issue

Volume 2, Number 4

and the employer group pays a monthly premium based on its projected claims experience and operating costs. ® M A G A Z I N E Copyright ©2006 iSixSigma Magazine I This reprint provided by Innovation 360 Institute I No additional reproduction permitted For more information about Innovation 360 Institute please call + 971 4 319 7645 or visit them online at www. Achieving this objective would increase internal productivity and customer satisfaction. the amount withdrawn was less than it should have been.2 THE FINAL TOLLGATE DEFINE Account Withdrawal Accuracy D M A I C Business Problem • Complex ASO billing process with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. These inaccuracies created internal and external accounting rework and. undercharged or not charged at all. This continuously resulted in incorrect administrative fee withdrawals from customer bank accounts. After using VOC [voice of the customer] from the survey to focus the scope of the project. The premium covers the claims expense and administrative expense. In about 60 percent of the cases when an error occurred.” 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. Although late withdrawals were also an area of concern. In the remaining 40 percent of errors.i360institute. 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. In this arrangement. The primary objective of this Six Sigma project was to go beyond 6 sigma and produce a 100 percent-accurate withdrawal process. accuracy was the larger problem. This compared to the 8 percent of customers whose fee was withdrawn late. From a customer survey. Fully insured financing is the traditional way to finance a group’s healthcare. benefit management services and access to the healthcare provider network. customers were overcharged.com . which included many handoffs between the five functional areas. our billing process for ASO accounts entailed multiple reconciliation checkpoints across the organization and included many manual workflows. Because the functional areas were in different divisions Administrative services only is a funding arrangement for a group’s healthcare in which the insured (employer group) assumes the claims risk and the insurer charges a fee to administer the program. of even greater concern. or fees withdrawn late. the insurer processes and pays the claims. and could prevent the loss of customers and subsequent erosion of profit margins. the first step we took was to fully understand the existing process. The administrative fee covers the operating expenses for things such as costs of processing claims. could potentially push customers to seek healthcare coverage with our competitors.

could give clues on how to narrow the scope of our efforts. What we did not know was whether this was due to upstream problems. we have three sources for the data needed to assess process capability. Process mapping. Process time analysis was the next tool we used. or whether the process was just poorly executed. it appeared that the finance department was the recipient of bad outputs from the other functional areas. compared to other functional areas. However. We noticed that. By isolating and dissecting one function at a time. . From this. this told us that communication in the process was most likely fragmented and that. we knew we needed more quantitative data and analysis. In our business. We used a high-level process map to understand how the functions interacted. repeatability. and reproducibility • PeopleSoft is the one reliable measurement system • MSA validated which system the business should standardize on Baseline Process Performance • DPMO = 111. process time analysis and cause-andeffect analysis led us to a probable root cause. Measure As we moved into the Measure phase. 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 learned how data flowed. or sigma level. And we needed to be sure we could rely on the data we were using. in a highly skeptical environment such as ours. repeata- ® M A G A Z I N E Copyright ©2006 iSixSigma Magazine I This reprint provided by Innovation 360 Institute I No additional reproduction permitted For more information about Innovation 360 Institute please call + 971 4 319 7645 or visit them online at www. a team of people involved in the billing process performed a cause-andeffect analysis. Data was collected from each to determine if accuracy.com . where the handoffs were and what functional outputs became inputs to other functions. there were probably widespread breakdowns in the process.i360institute. We expected that this information. The team concluded that this particular cause could be the largest contributor to the effect. which were upstream in the process.754 • 2. Further probing into the process time analysis revealed that most of finance’s processing time was spent on manually researching any changes to group billing specifications. direct debit change in grp draw specs > 1 draw for day daily and monthly draw rates and benefits D M A I C 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 doesn’t 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.THE FINAL TOLLGATE 3 MEASURE Account Withdrawal Accuracy Measurement Systems Analysis (MSA) • Three sources of data • Two of the three did not meet MSA standards for accuracy. whether that part of the process was the most dysfunctional of all five functional areas involved. You will notice in the diagram that one cause is highlighted in red – the distribution of hard copy change-request forms. in turn.72 sigma daily and monthly draw MBIA Invoicing monthly claims balance manual processing recon not comm to finance multiple spreadsheets don’t recon multiple ckpoints tape. We logically organized the possible causes of withdrawal inaccuracy into a fishbone diagram and used a functional deployment matrix to prioritize them. as a result. 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. Finance accounted for 40 percent of the total process time to produce the billing invoice.xls. the finance department was spending an inordinate amount of time executing the process.

To calculate the baseline sigma level of the billing process. The DPMO [defects per million opportunities] was calculated to be 111. Prior to this Six Sigma project. canceled employer groups were considered a distinct CBU.” and thus should be used moving forward. In other words. this group experienced a statistically higher rate of billing errors. Clearly. we concluded that. we learned that the finance department spent a lot of time looking up changes to a group’s billing specifications. there was a dispute among various functional areas about which of the three measurement systems was the single source of “truth.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. canceled groups were a statistically distinct population among our customers. 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 looked more closely at the process involved in billing a customer in the “canceled group. which translates to a process sigma of 2. we identified the distribution of the change-request forms as a potential root cause. Conducting a measurement systems analysis (MSA). it was time to determine. through statistical testing. A defect was defined as an administrative fee withdrawal from a customer’s account made in an incorrect dollar amount. a chi square test was conducted to see if errors in billing were correlated to a particular customer-based unit (CBU). Analyze From our analysis in the Define phase. In the Analyze phase. To understand why this was happening. The MSA unwittingly resolved that dispute by pointing out which system performed with an acceptable level of accuracy.” When a group changed from an ® M A G A Z I N E Copyright ©2006 iSixSigma Magazine I This reprint provided by Innovation 360 Institute I No additional reproduction permitted For more information about Innovation 360 Institute please call + 971 4 319 7645 or visit them online at www. a random sample of data was pulled from our one accurate measurement system. we determined that the appropriate standards were not met in two of the three systems.72. For this analysis. we had lots of room for improvement to reach our goal of zero defects.754. Then.4 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 – Didn’t identify funding arrangement change – Didn’t note discontinuance of withdrawals related to funding arrangement change – Didn’t 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 D M A I C Alternate Hypothesis Ha: CBU is not independent of errors Test Chi square P-value 0.i360institute. if these discoveries were relevant to solving the problem of withdrawal inaccuracies. but one system (based on PeopleSoft software) was acceptable. Along with other hypothesis testing. through the cause-and-effect analysis. with respect to withdrawal accuracy.com .

3) develop a Lotus Notes database to enable electronic distribution.5 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. the sales department and the employer/customer. however. the form did not direct an action to discontinue withdrawals from the customer’s account under the former ASO arrangement. Redesign Process – Redesign request-for-change process 3. archiving and signature guarantees for all changes. such that the appropriate funding arrangement changes are correctly captured. such a quote did not consistently advise that the run-out claims had been built into the fully insured premium. the existing request-for-change form did not have a field in which to specify that the customer was requesting a funding arrangement change. The recommendations were to: 1) redesign and automate the request-for-change form. It was here that we discovered the problems with this process. The other solutions were implemented over a period of two months by members of the project team and IT specialists. It was decided that this last recommendation would become part of an enterprise-wide initiative and not addressed by this project. Therefore. Improve In a brainstorming session. 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. First. Redesign and Automate “Request-for-Change” Form – Redesign form with appropriate change in funding arrangement identification Change to group D M A I C 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. After discussing the project findings and the brainstormed solutions. Second. As initially determined from the cause-and-effect analysis.688 for recommended solutions ASO arrangement to a fully insured arrangement. for example. Finance. the request-for-change form was in triplicate format for distribution to the installation department.com . 2) completely redesign the request-for-change process for robustness and efficiency.i360institute. Third. 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. subject matter experts identified possible solutions to address the problem. we concluded that four improvements needed to be made to the process and systems. 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. We had expected it would be challenging to ® M A G A Z I N E Copyright ©2006 iSixSigma Magazine I This reprint provided by Innovation 360 Institute I No additional reproduction permitted For more information about Innovation 360 Institute please call + 971 4 319 7645 or visit them online at www. This funding arrangement change would trigger the sales department to fill out a request-for-change form. was not a recipient of the change form. although a fully insured quote was completed by the underwriting staff. the change-request form and how it was distributed across the organization was a primary factor in billing errors. and 4) automate withdrawals through an improved measurement system and migrate the entire business to this system. Last. 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.

2 MRC. he is responsible for introducing Six Sigma to the information technology group. the cycle time for changes improved from a mean of two weeks to a mean of three days. If variances are present. Currently an information systems director at St. Mr. ® M A G A Z I N E Copyright ©2006 iSixSigma Magazine I This reprint provided by Innovation 360 Institute I No additional reproduction permitted For more information about Innovation 360 Institute please call + 971 4 319 7645 or visit them online at www. This provides the appropriate oversight of the new process to assure that other process variables are not negatively impacted by the changes made. The financial benefit for these improvements was calculated to be $304. 3a Use Victor C’s 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. This reduction was the result of the functionality built into the Lotus Notes database.): Control Plan Number: Project Title: ASO Billing Process Proj. the metric is monitored across all customer segments. through the process re-design review mechanism. draw Finance retention and retro bill the following month 5. the cycle time for implementing a customer’s change request was reduced. 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. 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. 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 customer’s profile. Create new Underwriting audit mechanism: capture renewal calculation financials for sampled groups and audit via Finance’s 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.i360institute.com . 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.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 Vic’s drive ASO Billing – Finance Finance Decision Rule/Corrective Action Proced No. N Michael Stober has 13 years of experience in the insurance and manufacturing industries focused primarily in Six Sigma and program management. This impacted the customer CTQ of on-time withdrawals. Underwriting must contact installation unit to make corrections to limits.4 Retention calculation Retenction accuracy 0 settlements at the end of each accounts contract period Underwriting and Finance coordinated monthly audit of new process. zero defects have been reported. Control A control plan was put in place to monitor withdrawal accuracy in the newly instituted process. and completely eliminated inaccurate withdrawals. As it turned out. ISL flagging Monthly TBD Finance LAN drive 2a 5.): Date (rev. Although incorrect withdrawals were found to be most prevalent for canceled groups. and thus the accuracy of the billing invoice and customer account withdrawals. Stober is a certified Black Belt and Project Management Professional. Additionally. people were more than willing to go along with the new process because they recognized the fallibility of the old system.THE FINAL TOLLGATE 6 CONTROL Account Withdrawal Accuracy D M A I C 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. These changes will flow through to SAE process and SAE to PS/AR interface If variances in reporting occur between Underwriting and Finance and can’t indentify the variance before draw day ends. which has a required response time from the process owners. Paul Travelers. In the eight months since the improvements were implemented and the new Lotus Notes system was put in place.1. #_______________________ Black Belt: Michael Stober Process Process Input Step or Output 5. 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. For too long. In addition. If defects detected via the reconciliation process. Solutions 1 through 3 created measurable improvement for the process by dramatically increasing the accuracy of changes made to customer accounts.688 for a five-year projection resulting from revenue (interest) increases and staffing decreases.