CASE STUDY

INDIVIDUAL ASSIGNMENT (20%)

Due: 10 June 2016
BPR AT OWENS REIMBURSEMENT DIVISION
INTRODUCTION
Owens Reimbursement is a centralized billing division of Owens Healthcare. Owens Healthcare
is made up of eleven entities consisting of six community pharmacies, a reimbursement office,
two home infusion offices, a home medical equipment business and a pharmacy management
company. The emphasis of this project is on process redesign of Owens Reimbursement billing
services for the six community pharmacies. Accounts Receivables in the community pharmacies
consist of private charge accounts, long term care and residential care accounts, online
insurance accounts and non-online insurance accounts. Unchanged billing processes at Owens
Pharmacy have caused accounts receivable (A/R) to increase over time. The stress of
increased A/R caused high employee turnover. When a billing person left the company, the
accounts receivable would rise until the new employee learned their job through trial and error.
Employees were forced to learn by trial and error since little training was provided. This cycle
continued year after year with thousands of dollars being lost.
Owens Pharmacies could not continue to operate in this way. After careful consideration, Owens
Healthcare concluded a centralized billing division was the answer to the problem. One of the
proposed advantages would the economies of scale. It was believed that more work could be
done by fewer employees in a centralized environment. Another potential advantage was the
ability to train and retain quality employees. Finally, Owens Healthcare believed that billing
centralization would automatically result in dramatic gains. After Owens Reimbursement had
operated for approximately 6 months, management realized there was a problem. The
centralized billing division was only incrementally better than a decentralized approach. Hopes
of economies of scale were not being achieved. The number of billing personnel had not
decreased and the reimbursement department manager was requesting more employees. No
real change had occurred in the accounts receivable balances so the idea of dramatic gains
was not occurring either. Management felt that the centralized billing project may fail. At this
point in time, discussions were held with a professor at a local university. The outcomes of these
discussions were the realization that simply centralizing operations did not automatically equate
to improved performance. If poor decentralized process were centralized, often the result was a
very poor centralized process.

REENGINEERING AND THE SMALL BUSINESS

Owens Healthcare management now believed that the combination of a centralized billing
system with reengineered processes would produce the dramatic improvement needed in
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Owens Reimbursement. Management could see the benefits reengineering would provide to the
centralized reimbursement division, but the challenge was to convince the reimbursement
employees of this. The reengineering message was conveyed through a document titled 'Case
for Action'. This document described the current state of affairs in the reimbursement division
and why the division could not continue operating in the current state.

Owens Reimbursement Division Case for Action

Owens Reimbursement was started due to the dramatic increases in accounts receivable in
recent years. This increase has resulted in financial losses at the store level. Numerous
companies have applied the centralized billing approach with great success. Billing confusion
can be attributed to inadequate training and poor billing process design. In a centralized
environment the company felt that business process redesign (BPR) would occur rapidly on its
own. BPR has occurred but only in incremental form which has resulted in unstructured
efficiency gains. The urgency for BPR is now, but even more so in the future. If BPR is not
undertaken Owens Reimbursement will not be able to provide needed services to its internal
customers, community pharmacies, and external customers, patients.
The case for action was structured around five important elements. Each element was
necessary to build a powerful and compelling reason for change.

Case for Action Elements

1. Business Contextdescribes the changing pharmacy billing environment.
2. Business Problemthe main source for company concern.
3. Marketplace Demands-shows how new performance requirements can't be met.
4. Diagnosticsdescribes why the billing department is unable to meet the new performance
requirements.
5. Cost of Not Reengineeringattaches a monetary value to inaction.

Process assessment
The company needed to understand and analyze the current billing process. There were several
problems existed in the current process:
Process disconnects
o 'Sort'The sorting of payments is being done by the Management Co. who is not
familiar with third party insurance companies.
o 'Deposit In Bank'-Payments are not being immediately deposited into the bank
when received.
Critical interfaces
o 'Do We Accept'-If the pharmacy does not accept the insurance card the process
stops.
o 'Print Third Party Summary'If no summary is printed then billing the insurance
company or the patient is extremely difficult.
o 'Attach Assignment of Benefits'If this is not attached to the bill the insurance
company will send the payment to patient instead of the reimbursement department.
o 'Bill Patient'-If an easy to understand bill is not sent to the patient, payment
becomes difficult.
None-value activities:
o 'Receive Payment'Payment is received at the pharmacy and then sent to the
Management Co. and then to the reimbursement department.

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OUTCOMES AND CONCLUSION

What was gained by redesigning Owens Reimbursement? This question needs to be asked to
justify the time and resources invested in the project. The following were gained from BPR:
Process maps establishedemployees can visually see the processes performed and
better process management can begin to occur.
Performance measurements developeddemonstrates the benefits derived from
redesign and used to continually monitor processes.
Customer focusbilling employees realize that community pharmacies are the
customers.
Training manuals developed--operation manuals caused increased productivity due to
employee education.
Employee empowermentredesign demonstrated to employees that they can make a
difference
The performance measurements that were established during the reimbursement
reengineering project revealed the following level of improvement in only six months
after project completion.
Due to BPR, the once failing centralized reimbursement division is now a success, and the BRP
enthusiasm has spread. The company has decided to apply the reengineering philosophy and
concepts to other departments of Owens Healthcare.

ANSWER ALL QUESTIONS (30 Marks)

QUESTION 1
Identify and elaborate any three (3) warning signs from the case.
(9 marks)
QUESTION 2
Examine three (3) critical success factors for business reengineering projects that were adopted
in the case.
(12 marks)
QUESTION 3
List and explain any three (3) process redesign principles implemented in the case.
(9 marks)

END OF THE MODEL ANSWER

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