CHC Financial Crisis Planning AGENDA

Transcription

1 Tennessee Primary Care Association Webinar June 30, 2011 CHC Financial Crisis Planning Presented by: Michael Holton, Manager, Health Care Services Groupc 12, AGENDA Discuss potential reductions in revenue that can impact operations The importance of operating budgets Managing cash with projections Strategies for improving revenues Strategies for managing expenses Strategies for managing cash 1

2 WHY THE CONCERN OVER MANAGING CASH AND ESTABLISHING/MAINTAINING RESERVES? State may experience budget problems and suspend or delay Medicaid payments, other payers go to slow pay Reduction in grant fund levels Loss of large commercial or managed care contract Shifts in payer mix Economic down-turn, less demand for services Provider turn over; staff turn over Catastrophic events Change in management Unforeseen events MANAGING COSTS 2

3 EXPENSES 70% Personnel 10 % Facility 20% Other Than Personal Services WHAT IS COST? What is the Formula for Determining Costs? Expense = Cost Volume 3

4 What About Costs? UNDERSTAND YOUR COSTS Understand the difference between expenses and cost The importance of analyzing costs STRATEGIES FOR REDUCING COSTS Increase volume of business Decrease expenses Balance volume, income, expense PLANNING AHEAD 4

5 Importance of Budgeting Preparation of a carefully constructed annual operating budget allows management to anticipate and prepare for financial success in the coming year. Projecting a budget begins with the determination of assumptions (internal and external) and a projection of what level of visit volume is needed to generate sufficient revenues for: 1. Breakeven with anticipated expenses 2. Generation of additional monies to establish sufficient cash reserves 3. Additional profits to cover: a. Replacement of fixed assets b. New or expanded services or sites c. Bonuses/Incentives for providers and other staff d. Other investments or arrangements Projected Visit Report ABC Health Center - Budgeted Visit Report Employee Position Medical FTE Average Visits Site A Site B Site C Total Budgeted Visits Dr. S. Smith Internist/Medical Dir ,302 1,721 1,721 Dr. B. Scott Pediatrics 1.0 4,056 4,056 4,056 Dr. P. Lee Pediatrics 1.0 2,500 2,500 2,500 Dr. H. Grafton Internist 1.0 3,935 3,935 3,935 Dr. A. Rosen Internist 1.0 4,202 2,101 2,101 4,202 Dr. L. Hanks Geriatrics 1.0 3,815 3,815 3,815 Dr. J. Diaz Internist 1.0 4,200 4,200 4,200 Ann Ramondo Nurse Practitioner 1.0 2,059 2,059 2,059 Leslie Arnold Nurse Practitioner 1.0 2,364 2,364 2,364 Rosa Ferraro Nurse Practitioner 1.0 2,628 2,628 2,628 Total ,480 8,400 12,600 31,480 Average Annual Visits Per Full Time Equivalent Provider = 3,349 5

6 Projected Visit Report Payor Mix: Changes in economy resulting in changes in payor mix Implementation of Medicaid Managed Care, Child Health Programs, Family Health Programs Age of community Changes in policy, (i.e., welfare reform, State programs - uncompensated care) Projected Visit Report New Sites and/or Services: Opening/Closing of a site Consider whether a new site will shift visits from an existing site. Adding new services/departments 6

7 Revenue Projection Patient Services Revenue Projections : Site A Site B Site C Total Visits 10,480 8,400 12,600 31,480 Revenue Patient Services Revenue Medicaid $ 451,084 $ 239,400 $ 399,000 1,089,484 Medicaid Managed Care 41,040 63,000 94, ,540 Medicare 125,325 63, , ,825 Self-Pay 13,470 22,050 22,050 57,570 Other Third Party 29,925 31,500 55, ,550 Total Patient Services Revenue 660, , ,175 1,807,969 How were determinations made about revenue per visit? Bottom Line Site A Site B Site C Total Visits 10,480 8,400 12,600 31,480 Revenue Total Patient Services Revenue 660, , ,175 1,807,969 Grants & Contracts 468, , ,546 1,308,060 Wraparound 39,670 62,636 93, ,260 Interest Income 1, ,250 2,750 Miscellaneous ,901 Total Revenues $ 1,170,519 $ 801,196 $ 1,345,225 $ 3,316,940 Expenses Salaries Direct 375, , , ,000 Fringe Benefit 90,000 55,200 88, ,520 Supplies 94,800 74, , ,310 Total Direct Expenses 726, , ,248 1,993,482 Total Indirect Expenses 454, , ,691 1,311,918 Total Expenses 1,180, ,585 1,333,939 3,305,400 Income (Loss) $ (10,357) $ 10,611 $ 11,286 $ 11,540 Is the $11,540 bottom line enough to meet annual goals? 7

8 Why Might the $11,540 Not Be Enough? Assumptions for Bottom Line Needs Cash Reserves at 2-3 months of operating expenses 2 months of $3,305,400 = $ 550,900 Assume equipment depreciation of $50,000 year Salary increases of 3% will require $75,550 (includes fringe) Why Might the $11,540 Not Be Enough? Assumptions for Bottom Line Needs Assume building of cash reserves to 60 days over three year period: $ 550,900 3 years = $ 185,000/year Equipment Replacement $ 50,000/ year Salary increases $ 75,550/next year Bottom Line Needs = $ 310,550 Current Generation ( 11,540) Add l Revenue Needs =$ 299,010 8

9 Calculation of Additional Visit Needs Based on Additional Revenue Needs Add l Revenue Needs $ 299,010 Patient Services Revenue $1,807,969 Wraparound Revenue 196,260 Total Patient Revenue $ 2,004,219 Visits 31,480 Revenue/Visit $ Additional Revenue Needs $ 299,010 = 4,696 Revenue/Visit Add l Visit Needs 17 Additional Visits Needs Per Provider Additional Visit Needs 4,696 Original visit projection 31,480 Total Visit Needs for Budget 36,176 Provider FTEs 9.4 New Visit Goal per Provider 3,850 Previous Budget 3,348 Increase

10 MANAGING CASH SHORT TERM CASH PROJECTIONS Usually done on a weekly basis, for a defined period of time (usually about 8 weeks) Includes specific line items Items could include: Anticipated payments based on billings from Medicaid Other revenue scheduled to come in during the period Required payments during the period, annual insurance Assumptions from cash or expense saving strategies 10

11 DETAILED CASH PROJECTIONS 02/01/ /08/ /15/ /22/ /29/2011 Total Cash Available/forwarded $ 141,373 $ 209,907 $ 89,055 $ 108,771 $ 51,261 REVENUE Medicaid $ 27,812 $ 29,218 $ 30,497 $ 32,736 $ 28,916 Medicare $ 13,470 $ 92 $ - $ 11,902 $ 562 Private/Self Pay $ 14,831 $ 16,402 $ 13,799 $ 15,262 $ 12,598 Managed Care Incentive/FFS $ 15,685 $ 17,579 $ 19,462 $ 18,241 $ 19,794 Total Patient Revenue $ 71,798 $ 63,292 $ 63,758 $ 78,140 $ 61,870 Other: Federal Drawdown $ 25,000 - $ - $ 25,000 - $ - Dental Outreach $ - $ - $ 5,625 County/Jail Contract $ - $ 16,001 Other: House/Rental $ 900 $ 5,835 $ 8,666 DOH Grant $ - $ - $ - $ - $ 861 Total Other Receipt $ - $ 900 $ - $ 11,460 $ 25,529 DISBURSEMENT Payroll and Fica Taxes Only $ 155,763 $ 157,458 Taxes/Benefits/Insurance $ 13,153 $ 13,692 Health/Dental/Insurances $ - $ 23,907 $ - $ 25, Mortgage/Bank Notes $ 33,854 Capital Leases $ 3,264 $ - $ 5,417 Other: A/P $ 17,221 $ 4,770 $ 961 $ 51,145 Total Disbursement $ 3,264 $ 210,044 $ 44,041 $ 172,111 $ 76,824 ENDING CASH BALANCE $ 209,907 $ 89,055 $ 108,771 $ 51,261 $ 61,836 MONITORING THE CASH BUDGET Should be done daily Look for checks in mail Call payors if funds not received on time The larger the health center, the more formal the cash update report should be When cash is very tight, it may be necessary to coordinate with the bank to verify cash levels On a daily basis, it is important to not only monitor amounts deposited by day, but also to monitor the clearing process and when cash becomes available 11

12 BALANCE SHEET ANALYSIS BALANCE SHEET PERSPECTIVE Current ratio may not be the useful measure in this case (accounts receivable is a current asset) Unrestricted Net Assets, Available for Operations = total unrestricted net assets less net investment in fixed assets (* Fixed assets, net of accumulated depreciation reduced by outstanding debt used to purchase fixed assets) Days in Reserve = unrestricted net assets available for operations divided by average daily expense ([total expenses less bad debt and depreciation] divided by # of days in period) Goal is 60 to 90 days of operating expenses. Cash vs. cash equivalents how liquid are your investments 12

13 BALANCE SHEET PERSPECTIVE Days in accounts receivable (net patient accounts receivable / (net patient service revenue capitation))/365 this figure will increase when the center is not paid Days in accounts payable the center may conserve cash by stretching out vendor payments. It will be important to understand the composition of the payables UNDERSTANDING ASSETS FIXED ASSETS Net assets available for operations - LIQUIDITY When attempting to reconcile a health center s net asset position with cash, there is often a considerable difference. The difference is that many health centers will take their net worth and invest it into future operations, generally through the acquisition of fixed assets. As such, when evaluating a health center s net asset (net worth) position, the amount that the health center has invested in its physical plant needs to be isolated (e.g. Plant Fund, in the old days of accounting) to get a true picture of its net assets available for operations. The investment in fixed assets is the net fixed assets reported on the balance sheet less any associated capital debt utilized to acquire the assets. 13

14 UNDERSTANDING ASSETS FIXED ASSETS Funding depreciation Depreciation is the accounting method by which we measure the use of fixed assets acquired in prior periods. Theoretically, at the end of an assets useful life, the asset is fully depreciated, the assets net book value is zero, and the organization may need to replace that piece of equipment. May need to also consider useful life vs. actual Funding of depreciation is a system by which an organization sets-aside cash each year, equal to the amount of depreciation, to fund future fixed asset purchases. For example, if a $100,000 piece of equipment is depreciated over 5 years, depreciation would equate to $20,000 per year. If the health center is funding depreciation, it would set aside cash each year in the amount of $20,000 per year, in a restricted account. At the end of the 5 years, $100,000 of cash will have accumulated in the restricted account and could be used to purchase a new asset to replace the original. UNDERSTANDING ASSETS FIXED ASSETS Capital budgeting Capital expenditures are difficult to forecast, and often come in uneven amounts, year over year, based on the type of asset requiring replacement. All health centers, on an annual basis, should be preparing a capital budget indicating the capital expenditures anticipated for the current year, as well as 3 5 years out. The capital budget must include expenditures as well as where the dollars are coming from to cover the expenditure. Prediction of expenditures can be made by a review of the lapse schedule along with engineering or facility studies. Where the dollars come from is the real concern, and planning for theses expenditures is imperative to managed cash flow Setting aside dollars (funding of depreciation), use of reserves or capital fund-raising campaigns versus draining operating cash! 14

15 UNDERSTANDING ASSETS REAL ESTATE Is your real estate owned free and clear? If there are funds owed on your real estate, what position would a new lender be in? Is there federal reversionary interest on your property? EARLY 330 DRAWDOWNS Dollars are drawn down through the Payment Management System (PMS) as requested by the grantee, electronically. The Feds watch the drawdowns through PSC and while there is no hard and fast measuring-stick, when centers start to accelerate drawdowns, they may get a drawdown halted and need to explain to the Feds. For example, in certain cases once a health centers has pulled down, in advance, a month or two, they may get a denial and request for explanation. CHC should SERIOUSLY weigh the consequences of approaching the Feds for an interim advance to shield this cash flow issue Exceptional grantee status Recovery plan and reporting 15

16 DEBT May need to be secured by assets Government payments may be secured (lender has a claim on them) but not attached (government pays lender instead of health center) Bank may be more conservative with CHCs because they don t want to be in the paper for seizing your assets Interest is generally an allowable cost DEBT RATIOS HOW MUCH IS TOO MUCH? Debt to equity lenders generally do not like to see this ratio larger than 3 to 1 (new HRSA solvency measure is long term debt less than or equal to half of net assets) Coverage ratio requirement is usually that cash flow is greater than 1.2 times debt (interest & principal) payment 16

17 LINES OF CREDIT Can be used for short term cash funding Rate may be floating or fixed (oftentimes prime plus 1-2% or the like); Interest rates on these accounts are near historical lows May be initial fee and/or annual fee Line of credit secured by A/R may require full trial balance upon application, and then A/R trial balance upon draw down Since lines of credit are drawn down at the health center s option, they should be established before the health center has cash/financial difficulties Health center should have board approved policy requiring protective signatures for any draw downs Overdraft protection for short-term overdrafts MANAGING LOAN COVENANTS Need to understand conditions for each loan The loan could have requirements whereby the center needs to maintain a certain financial condition What are the penalties/punitive actions for late or nonpayment? 17

18 CASH MANAGEMENT STRATEGIES WORKING WITH VENDORS It is best to reach out to vendors in advance Some vendors may accept post-dated check Develop a payment plan be as conservative as possible Once the payment plan is developed, stick to it It may be possible to negotiate a vacation from rent It may be possible to negotiate a suspension of loan/mortgage payments, or a period of interest-only payments 18

19 CASH MANAGEMENT STRATEGIES DIFFICULT TIMES Start hoarding cash today! Suspend staff education & travel Check your system of controls for spending be careful of credit cards and other arrangements Identify expenditures that can be delayed Invoke the withhold on incentive compensation programs most are based on visits or bottom line, not cash collections Recognize that vendors who work with many health centers may be less willing, or able, to let you stretch your payments Review and renew/establish credit enhancements with banks such as lines of credits and overdraft protection CASH MANAGEMENT STRATEGIES Pay attention to self-pay collections they will now be more important than ever. Collect minimum fees from every self-pay patient. Collect co-pays and co-insurance. Consider accepting credit cards. May be time to consider increasing minimum fees How does your fee schedule stack up? to the provider community? to your cost? to insurers fee schedules? to the Medicare fee schedule? 19

20 CASH/REVENUE CONTROL STRATEGIES Review Medical Director s clinical vs. administrative time Ensure scheduling that results in seeing the budgeted number of patients.if not, need to reassess cash flow projections. Reduce overtime & part-time employees Review workers comp & malpractice payment amounts to ensure that they fit current staffing Review phone & internet contracts these rates have dropped Ensure tight control over purchase orders Look at supply expense/volume discounts Review prescription dosage amounts MAYBEs Cutting Expenses Personnel and fringe benefits are your largest expenses by far; therefore it is difficult to significantly reduce costs without cutting staff what positions are eliminated? Don t think it can t be providers look at productivity issues Usually non-revenue generating, non-essential staff Losing services? How is dental? Pharmacy? Sites losing money.is it time to look towards not supplementing the cost, but to assess collapsing services? Usually look to cut specialty or ancillary care before primary care 20

21 MAYBEs Draw down your 330 grant Consider mothballing construction projects Consider delaying opening of constructed sites DON Ts Mess with the IRS! Pay your payroll taxes If you can t pay taxes, is it better to notify IRS or wait for them to notify you Use employee contributions to fund operations Depending on your plan structure, it may be possible to do a plan amendment to suspend matching Use designated or restricted cash to fund operations Begin major, or even minor, capital expenditures Take over another provider until the situation is resolved (although taking over A/R may become a do) Install an EHR 21

22 Poll the Audience 43 Individual Site Numbers for Medicare When Billing Medicare services dated on or after January 1, 2011, FQHCs must report all pertinent services provided and list the appropriate healthcare common procedure coding system (HCPCS) code for each line item along with Revenue codes for each FQHC visit

23 Importance of the Medicare Cost Report to Prospective Payment System 45 Questions??? 23