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Eric Shell, CPA, MBA

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Title: Eric Shell, CPA, MBA


1
North Dakota Healthcare Association 72nd Annual
Conference Tomorrows Challenges CAH
Financial Analysis Report on Margins September
8, 2006 Ramada Plaza Suites Fargo, North Dakota
  • Eric Shell, CPA, MBA
  • eshell_at_stroudwaterassociates.com

2
Project Overview
  • Question to be addressed
  • Why is the average margin in ND CAHs -(2.33)
    while the average CAH margin in SD is -(.41) and
    MN is 2.55
  • Source CAH Financial Indicators Report, July
    2006, Flex Monitoring Team
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

3
Project Overview
  • Other Key Financial Indicators Our Neighbors
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

4
Project Overview
  • Approach
  • Random sample of ten ND CAHs selected by NDHA for
    participation in study
  • Review of most recent cost report, financial
    statements, strategic plan, and other relevant
    information
  • Conference call with CAH administrators to review
    findings and answer questions
  • Memos to each administrator documenting
    improvement opportunities (many still to come)
  • Presentation of common findings related to
    financial performance today
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

5
Project Overview
  • Overview of CAH Sample
  • Margin Analysis
  • Sample slightly outperforms state average
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

6
Project Overview
  • Common Findings
  • Cost reports are well prepared
  • Third party payers generally result in marginal
    loss or profit on a fully allocated cost basis
  • For most CAHs, operating losses are primarily the
    result of clinics, nursing homes, and other
    non-hospital business
  • CAHs generally break even
  • Important opportunity related to treatment of
    Swing Bed SNF vs. NF
  • Mark up ratios at most CAHs are below peers
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

7
North Dakota Opportunities
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary
  • Top 12 North Dakota CAH Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • CAH Departments with RCC gt 1
  • Non-Hospital Businesses
  • Medicare Skilled Level Care in Swing Beds vs.
    Nursing Homes
  • Nursing Home Losses
  • Rural Health Clinic Losses
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports or Net Revenue Model
  • Physician Recruitment
  • Growth in Outpatient Volume

8
Third Party Contracts
  • Guiding Principle
  • Commercial business is an important source of
    profits and profits generated on this business
    must more than compensate for non-allowable
    costs
  • Issue
  • One major third party payer in North Dakota with
    limited competition
  • Market power or market responsibility?
  • Reported that standard contract for all ND CAHs
  • Inpatient DRG based system Outpatient Fee
    schedule
  • For CAHs that have analyzed allowed amounts
    relative to fully allocated costs, generally
    breakeven to losses
  • So how do they compare to other Blue Cross Plans
    across the County?
  • It depends on where you live!
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

9
Third Party Contracts
  • Peer Comparison
  • Medicare Revenue Per Day below peer averages
    WHY?
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

10
Third Party Contracts
  • Peer Comparison (continued)
  • CAH economics
  • Aggressive third party reimbursement forces CAHs
    to be cost efficient as it drives CAH
    profitability
  • No margin in Medicare services
  • Medicare per unit revenue decreases as CAHs
    become more efficient
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

11
Third Party Contracts
  • Outcomes
  • ND CAHs are generally more efficient than peer
    CAHs
  • How we know look at Medicare revenue per day
  • ND strategies to reduce unit costs
  • Have gotten into other non-hospital businesses to
    dilute fixed costs (to be continued)
  • Limited non employee related costs (e.g.,
    capital)
  • Not sustainable
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

12
Third Party Contracts
  • Evaluation of Third Party Contracts Marginal
    Cost Analysis
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary
  • Growing inpatient non-Medicare volume by 50 days
    paid at an average reimbursed rate of 900
    contributes 5,340 to profit or approximately
    107/day

13
Third Party Contracts
  • Evaluation of Third Party Contracts Marginal
    Cost Analysis
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary
  • Growing outpatient non-Medicare radiology
    services by 50 tests paid at an average
    reimbursed rate of 82 contributes 2,178 to
    profit or approximately 44/test

14
Third Party Contracts
  • Evaluation of Third Party Contracts Marginal
    Cost Analysis
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary
  • Growing outpatient non-Medicare PT services by 50
    units paid at an average reimbursed rate of 37
    contributes 406 to profit or approximately
    8/unit

15
Third Party Contracts
  • Opportunity
  • Essential for all ND CAHs to understand third
    party allowed amounts relative to fully allocated
    costs and marginal costs
  • Use cost report ratio of cost to charges on a
    departmental basis to determine profitability of
    services
  • Marginal cost analysis based on estimated
    variable costs plus dilution in Medicare
    cost-based reimbursement
  • Essential to generate enough profit on marginal
    costs to cover overhead costs
  • With full understanding of contract profitability
    (or losses), meet individually with Blue Cross
    representatives
  • Appeal for Market Responsibility
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

16
Swing Bed SNF vs. NF
  • Issue
  • Non-Medicare Swing Bed SNF patients should be
    carved out of routine costs at regional rate and
    not average routine cost
  • General Principles
  • 6-120 Rev. 1843 To calculate SNF-like SB cost
    per day, adjusted routine costs are divided by
    the sum of the total number of inpatient routine
    days and total SNF-like SB days
  • S-3 Line 3 should be 100 Medicare
  • Adjusted routine costs total routine costs
    less NF-like SB days
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

17
Swing Bed SNF vs. NF
  • Memo from CMS to upstate NY CAH
  • July 1, 2005
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

18
Swing Bed SNF vs. NF
  • Cost Report Impact Worksheet S-3
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

19
Swing Bed SNF vs. NF
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary
  • Financial Impact ND Example

20
Swing Bed SNF vs. NF
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary
  • Opportunity
  • It is essential that SNF-like and NF-like SBs are
    properly classified on Worksheet S-3 as NF-like
    SBs are reimbursed on a PPS basis while
    SNF-like SBs on a cost basis
  • High Medicare payer mix for SNF-like beds will
    increase reimbursement
  • Review prior period cost reports back to December
    20, 2000

21
Departments with gt1 Ratio of Cost to Charges (RCC)
  • Issue
  • Outpatient departments with RCCs gt 1 will
    generate losses on all non cost-based volume
  • Issues with
  • Charge Master not set high enough
  • Many ND CAHs use Blue Cross fee schedule as basis
    for charge master
  • All charges not being captured
  • Volume not adequate to offset department standby
    costs
  • Direct expenses too high
  • Ancillary departments with costs greater than
    charges often include
  • Emergency Department
  • Physical Therapy
  • Observation beds
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

22
Departments with gt1 Ratio of Cost to Charges (RCC)
  • Patient Deductions and Outpatient Cost to Charges
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

23
Departments with gt1 Ratio of Cost to Charges (RCC)
  • Ancillary Service Mark-Up Ratio for ND CAHs
  • Direct correlation between ancillary service
    mark-up ratio and CAH operating margin
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

24
Departments with gt1 Ratio of Cost to Charges (RCC)
  • ND benchmarked to national peer group
  • Overall ancillary service mark-up ratio
  • Mark-up ratio significantly below 25th percentile
    of peers
  • Ancillary service mark-up by key department
  • Benchmark source Solucient, Comparative
    Performance of US Hospitals
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

25
Departments with gt1 Ratio of Cost to Charges (RCC)
  • Opportunity
  • Evaluate charge master
  • Formal external charge master review
  • Blue Cross fee schedule inflated by ???
  • Medicare APCs
  • Grow patient volume by working with physicians
  • Consider productivity incentives for physical
    therapists
  • Reduce expenses
  • Purchasing organizations, networks, etc.
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

26
Non-Hospital Businesses
  • Sample of Non-Hospital Businesses
  • Direct correlation between number of Non-CAH
    businesses and system-wide operating losses
  • However, in most rural communities, CAHs are the
    center of healthcare activity and core mission
    supports these services
  • Just recognize it!
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

27
Non-Hospital Businesses
  • Example 1 Home Health Agency
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

28
Non-Hospital Businesses
  • Example 2 Assisted Living Center
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

29
Non-Hospital Businesses
  • Guiding Principle
  • Important to understand the pros and cons of
    non-reimbursable cost centers (e.g., home health
    agencies, assisted living, nursing homes, etc.)
  • Pros Mission objectives, potential direct
    gains/margin, and dilution of overhead costs to
    enable hospital profit on commercial business
  • Cons Potential direct losses and decreased
    Medicare cost-based reimbursement from fixed
    costs allocated out of hospital
  • Opportunities
  • Understand true loss of non-hospital business
    performing analysis similar to prior pages
  • If net losses, consider spinning business out of
    hospital
  • If losses acknowledged as part of mission,
    maintain business
  • May be opportunity to give back to County
  • Can consider potential hospital subsidy to
    business
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

30
Skilled Care in CAH or NH
  • Issue
  • Several CAHs care for a majority of Medicare SNF
    patients in the nursing home vs. the CAH where
    patients may receive better rehabilitative care
  • Example
  • Financial analysis indicates that CAH would
    improve its overall reimbursement by 45K if
    Medicare patients were cared for in the CAH
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

31
Skilled Care in CAH or NH
  • For the CFOs
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

32
Skilled Care in CAH or NH
  • Opportunities
  • Have Swing Beds
  • Perform analysis on preceding pages to ensure
    swing beds will be financially beneficial
    relative to the distinct part skilled unit
  • If Medicare patients have flexibility, consider
    rehab services in the CAH swing beds
  • Target growth in swing bed services and promote
    services to larger community hospitals
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

33
Nursing Home Losses
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary
  • Sample of Losses in Nursing Home
  • Losses in Nursing Homes are likely to create an
    overall negative operating margin
  • CAH cannot generate enough margin to cover
    nursing home losses

34
Nursing Home Losses
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary
  • Losses Its all in the definition of losses

35
Nursing Home Losses
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary
  • Opportunities
  • Using analysis on prior slide, determine true
    Nursing Home losses
  • Grow Resident Volume
  • Adult day care programs
  • Senior exercise programs
  • Increase Charges not allowed in ND as set by
    costs
  • Will only affect non-Medicaid reimbursement
  • Market may not allow
  • Ensure costs are below direct, other direct, and
    indirect caps
  • Differentiate room rate charges between private
    and semi-private
  • Hospital to takeover unused nursing home space

36
Rural Health Clinic Losses
  • Losses in Rural Health Clinics (RHCs)
  • Similar to Nursing Homes, losses created in RHCs
    are likely to create overall negative operating
    margin
  • CAH cannot generate enough margin to cover RHC
    losses
  • However, not a business to exit for most rural
    communities
  • Base primary care
  • Recruitment vehicle
  • Consolidation of key diagnostic services
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

37
Rural Health Clinic Losses
  • Opportunities
  • Understand operations and incrementally improve
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

38
Rural Health Clinic Losses
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary
  • Realities of Successful Private Practice
  • Have had to keep overhead to a minimum
  • 130-140 patient encounters per week
  • Have had to control payer mix
  • Have had to add ancillary services
  • Tight collection policies
  • Current with Coding
  • For Hospital to pay physician private practice
    salary must meet all of the above criteria
    otherwise you lose
  • Salary is always right because revenue-expenses
    salary

39
Rural Health Clinic Losses
  • Provider Compensation
  • Benchmarking example
  • Benchmarking is essential for providers to
    understand their productivity relative to peers
  • Scientific data
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

40
Rural Health Clinic Losses
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary
  • Provider Compensation (continued)
  • Create productivity-based compensation models
  • Best Performing Practices (BPP) frequently
    include physician incentives in provider
    compensation formulas to encourage physician
    efficiency and control costs
  • Positive effects
  • Revenue enhancement
  • If structured well, physicians like them
  • Rewards effort
  • Last patient seen
  • Accepting larger patient panels
  • Achieving higher efficiencies through better use
    of staff
  • Retaining more cases with less referrals
  • Expense management
  • Converts a portion of fixed costs to variable
    costs

41
Rural Health Clinic Losses
  • Charge Master
  • Establish appropriate charge master
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

42
Rural Health Clinic Losses
  • Establishing an Appropriate Fee Schedule
    (continued)
  • Goal
  • Establish charges that reflect overall market
    conditions including
  • Third party payer fee schedules
  • Resource based standardization of fees
  • Community perception
  • CF below market rates leaving money on the
    table
  • EOMBs tell the story
  • Opportunities
  • Consider developing a standardized conversion
    factor for EM codes in a range between 42-47
    that is reasonable given local market conditions
  • Using RBRVS information, standardize Charge Fee
    schedule using these conversion factors
  • Continue to evaluate EOMBs to ensure charges are
    above allowed amount for all primary payers
  • Caution Must meet market conditions
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

43
Rural Health Clinic Losses
  • EM Coding Relativity
  • An estimated 50-60 of visits are actually
    under-coded
  • Overall distribution of EM codes is often skewed
    towardslower level services when compared to
    rural peers
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

44
Rural Health Clinic Losses
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary
  • EM Coding Relativity (continued)
  • Opportunities
  • Work with the providers to develop a systematic,
    scientific review process that will identify
    physician-specific trends and target feedback
  • Evaluate coding relativity performance on a
    quarterly basis
  • Chart coding relativity
  • Standardize coding practices from provider to
    provider and site to site
  • Coding is also a compliance issue
  • Assigning an improper code is abuse/fraud
    whether too high or too low

45
Rural Health Clinic Losses
  • Practice Expenses - Benchmarking
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

46
Rural Health Clinic Losses
  • Practice Expenses Benchmarking (continued)
  • Various methods to consider clinic support staff
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

47
County Subsidies/Non Operating Revenue
  • Issue
  • Few CAHs in ND access county subsidies to support
    operations
  • Due to low patient volumes resulting from limited
    population, CAHs often do not have enough volume
    to offset high fixed cost of maintaining a
    profitable CAH
  • MT CAHs often rely on County Subsidies
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

48
County Subsidies/Non-Operating Revenue
  • Non-Operating Revenue
  • No correlation between non-operating revenue and
    total margin
  • Varying degree of non-operating revenue by CAH,
    however critical for some CAHs
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

49
County Subsidies/Non-Operating Revenue
  • Opportunity
  • Consider approaching county and present
    information to demonstrate CAH economics as
    rationale for a subsidy
  • In particular, non-hospital businesses that the
    organization has taken on as the community
    healthcare hub
  • Outreach to community for contributions either
    directly through hospital or foundation
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

50
Bad Debt Expense
  • Issue
  • Varying degree of performance when comparing Bad
    Debt Expense relative to hospital and Clinic
    gross charges
  • No strong correlation between CAH operating
    margin and Bad Debt Expense
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

51
Bad Debt Expense
  • Opportunity
  • Many CAHs have explored options for reducing bad
    debt expense
  • Strategies have included
  • Establish process to collect co-payments and
    deductibles from all patients
  • Process will require patient registration staff
    to be trained in collection techniques as well as
    providing additional information to staff
    including charge master, etc.
  • Analyze the process of physicians triaging
    patients in the ED
  • Establish a non-emergent co-payment amount of 50
    or 100 for all emergency room patients
    determined to be non-emergent (after medical
    screening by an approved clinician)
  • Target 100 of elective procedures to be
    pre-registered
  • Use the pre-registration process to begin
    conversations regarding payment for services at
    time of service as well as to verify insurance
  • Establish weekly process to monitor collected
    upfront co-payments and deductibles
  • Provide expanded financial counseling to assist
    self-pay patients in filling out Medicaid
    applications and to set up payment arrangements
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

52
Interim Cost Reports or Net Revenue Model
  • Issue
  • Without an understanding of current year volume
    and expense changes on Medicare revenue, year end
    surprises may occur
  • Interim financial statements can be meaningless
    and allow inaccurate operating decisions
  • Example
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

53
Interim Cost Reports or Net Revenue Model
  • Guiding Principle
  • Interim reimbursement is not final reimbursement¬†
  • Understand the difference from both a cash flow
    perspective and from an operational
    decision-making perspective
  • Opportunity
  • Quarterly calculation of Medicare cost-based
    reimbursement
  • Work with cost report preparer or CPA to either
    develop tool for internal analysis prepare
    quarterly/semi-annual interim cost reports
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

54
Physician Recruitment
  • Expected physician complement
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

55
Physician Recruitment
  • Issue
  • Communities do not have enough providers to meet
    expected community demand
  • Result is patients leave the community for health
    care services
  • Opportunity
  • Evaluate current community demand using
    information provided in previous slide
  • Use information as a basis for a Medical Staff
    Plan
  • Meet with local providers to understand their
    thoughts
  • Recruit providers to meet expected demand of the
    community
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

56
Growth in Outpatient Volume
  • Issue
  • Outpatient volume is necessary to generate profit
    in a CAH
  • Many communities have below expected levels of
    charges for outpatient departments
  • Radiology, PT, Lab, etc.
  • High RCCs are often an indicator of outpatient
    volume leaving the community
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

57
Growth in Outpatient Volume
  • CAH Economics - Hypothetical Model
  • All growth in inpatient services
  • Growth in inpatient services increases margin,
    but not much
  • Why?
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

58
Growth in Outpatient Volume
  • CAH Economics - Hypothetical Model (continued)
  • All growth in outpatient services
  • Growth in outpatient services increases margin
    substantially
  • Why?
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

59
Growth in Outpatient Volume
  • Opportunity
  • Ensure patients are staying in the community for
    all appropriate outpatient services
  • Promote services in the community
  • Work with physicians to better understand their
    requirements for referring additional services to
    the CAH
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary

60
Summary
  • Project Overview
  • ND Opportunities
  • Third Party Contracts
  • Swing Bed SNF vs. NF
  • Departments with gt1 RCCs
  • Non-Hospital Businesses
  • Skilled Care in SNF or NH
  • Nursing Homes
  • Rural Health Clinics
  • County Subsidies
  • Bad Debt Expense
  • Interim Cost Reports
  • Physician Recruitment
  • Outpatient Services
  • Summary
  • Third party contracts are aggressive and have
    forced ND CAHs to be efficient
  • Partially responsible for underperformance
    relative to neighboring states (SD and MN)
  • Many opportunities for ND CAHs to pursue
    financial improvement independent of third party
    contracts
  • Charge master
  • Non-hospital businesses
  • Care for Medicare skilled patients
  • Etc.

61
  • Thanks for listening!

Eric Shell, CPA, MBA eshell_at_stroudwaterassociates.
com
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