Earlier this month, the City of Los Angeles took an important step in improving its collections practices. At the request of the fire department and City Administrative Office (CAO), the city has entered into six-year contracts with ScanHealth, Inc. (to operate a field data capture system) and Advanced Data Processing, Inc. (for emergency medical service billing and collections). The city’s struggles with uncollected debt are well-documented (and frequently scrutinized by VICA). A recent audit of the city’s billing and collections practices by Controller Wendy Greuel found an overall collection rate of 53 percent, with the fire department collecting only 38 percent of emergency medical services billings. This group of uncollected funds is one of the worst for the city. New revenue The 2010-11 budget now anticipates $67.3 million in ambulance billing revenue as a result of the new contracts’ ability to increase efficiency, according to city documents. Outsourcing billing and collections for emergency medical services is going to save the city a substantial amount of money and bring in additional revenue. The new contracts mean an upgrade to automated systems without additional costs to the city, savings on employee training, and more accurate and efficient billing for services. Having a private company handle the emergency medical services billing and collections also protects the city from liability under the Health Insurance Portability and Accountability Act (HIPAA). This is the first time VICA has witnessed the city take significant action in improving its billing and collections activities. Following a 2007 audit by then-Controller Laura Chick, VICA proposed several measures for better collection rates – including the creation of a collections sheriff to oversee the city’s efforts. This proposal and others were heard by the Budget and Finance Committee in October 2008, but have yet to go before the full City Council. First step While there are many efficiency improvements VICA would like to see, the outsourcing of one department’s billing and collection efforts is a step in the right direction. The status quo is clearly not working with a 53 percent collection rate, which is only a 1 percent improvement from three years ago. In order to see meaningful change in the substandard collection rate, the city must use the emergency medical services contracts as a model for other city departments with poor collection rates. Controllers’ audits have demonstrated repeatedly that the city’s billing and collections practices are inadequate and it is time to put the task in capable hands. Private contractors have a performance guarantee; meaning that insufficient collection rates (like the city’s current 53 percent) would cause the contractor to be penalized. This assures an improved collection rate, allows the city to be compensated for unsatisfactory performance by the contractor and retains flexibility with the agreement by permitting the city to terminate the contract with 90 days notice (or earlier in the event of a breach). Business owners know that collecting debt is crucial to a company’s survival. If a business the size of the city had similar billing and collections practices, it would likely be insolvent. The time to implement efficient and effective ways to capitalize on uncollected debt is clearly past due. Do you think the contracts are going to improve the city’s billing and collections practices? What other city services do you think could be outsourced to save money and improve efficiency? E-mail your responses or thoughts about the column to email@example.com.