Maintaining viable health under increasing pressures
By Martin Cauz
Nursing care facilities need to have the necessary human and financial capital to deliver the highest quality of care to residents. To say that nursing care facilities in the United States are currently facing tremendous financial pressures would be an understatement.
Some of these pressures include: reimbursement rate pressures from Medicare and Medicaid; Medicaid payments being delayed due to poor fiscal conditions at the state level; attracting, retaining and compensating high quality staff; changing technology; and increased regulatory requirements that result in increased spending — and that’s just to name a few.
Do Short-Term Strategies Work?
When these external financial pressures slowly begin to compound, operators are at risk or a downward spiral of cash flow. What is the operator to do with this reduced level of cash flows?
Well, if the operator has sufficient cash reserves and/or availability on a line of credit (“liquidity”), they can tap into those resources. However, if liquidity is tight, the operator will typically resort to one or more of the following strategies: defer capital expenditures; defer accounts payable or “stretch” vendors; reduce unnecessary staff at the facility or corporate level reduce marketing spend; or defer required regulatory- or financing-related payments.
While these strategies may work temporarily, on a long-term basis they will ultimately harm the operator’s cash flow even more.
• By deferring capital expenditures a facility’s curb appeal or functionality will begin to deteriorate which may result in survey issues and/or decreased census.
• By stretching vendors the operator’s credibility will decline and the vendors may start charging late fees and/or place the operator on a “cash on delivery” or “cash in advance” status, which will further tighten liquidity.
• By reducing staff the operator may find out that these staff members played a critical role in maximizing reimbursement rates, building census, and controlling costs.
• By reducing marketing spend the facility’s census will begin to decline.
• By deferring regulatory payments the operator will begin to incur fines and penalties; and by deferring financing payments the operator will most likely be in default, start to incur default interest, and/or face loan acceleration.
These short-term strategies have addressed the symptoms but not the cause. Furthermore, the reduced cash flow that was once only the result of external financial pressures is now the result of both external and internal pressures.
Ultimately, the long-term effect hurts an operator’s viability and that operator may now be looking at an insolvent business that has residents depending on them for care. Similar to how operators consistently evaluate the health status of their residents, operators need to consistently monitor the financial health of their business.
Develop a Care Plan for Finances
“To provide the highest quality of care to residents” is typically part of a nursing care facility’s mission or goal. So how do operators achieve their mission or goal to provide that highest quality of care?
First of all, the Minimum Data Set (MDS) provides a standardized, primary screening and assessment tool of health status for all residents in a Medicare- and/or Medicaid-certified facility. The MDS consists of an assessment of each patient’s physical, psychological and social functioning, to ensure proper evaluation and care. Assessments are required on a prescribed timely basis and if a resident’s status changes significantly, an additional assessment is done at that time.
Leveraging the MDS, successful operators provide the highest quality of care by preparing quality care plans, ensuring that their facility is in proper operating condition, having the appropriate systems in place and acknowledging whether they have the proper staff and/or equipment to take care of the residents.
Similar to providing the residents with the highest quality of care, operators must possess the same approach to cash management and operating the business. In other words, operators need to have a care plan or assessment process for the financial operations of the business!
An operator cannot control external financial pressures so they always need to be prepared — of course that’s easier said than done.
Similar to how the MDS provides a screening and assessment tool of a resident’s health, operators need screening and assessment tools to monitor financial health. I call these tools a Financial Health MDS (“FHMDS”). An operator’s FHMDS should include the following categories:
• Capital Structure • Referral Hospital Discharge Data
• Treasury Management • Cost Control
• Financial Reporting • Required Staffing Levels and Payroll Management
• Financial Planning & Analysis • Surveys and Corrective Action Plans
• Census and Payor Mix • Fines and Penalties
• Census Development • Risk Management (Regulatory and Legal)
• Clinical Reimbursement • Physical Condition of Facilities and Equipment
While the frequency and approach to monitoring these categories can differ from operator to operator, these FHMDS categories must be continuously monitored so that the operator can be prepared for external financial pressures and mitigate internal pressures.
Tools to Assist in Monitoring
While there will be multiple people monitoring the FHMDS categories, the following tools, which do not require sophisticated software to implement, have proven to be very successful in the monitoring process:
• A 13-week cash flow forecast provides the operator with a “big picture” view of projected cash flow (inflows and outflows) over a rolling 13-week period. This tool enables the operator to make better cash management decisions and see if a liquidity crunch may be in the horizon. It provides a view of the upcoming working capital needs and enables the operator to be proactive versus reactive.
• Key performance indicators (KPIs) are quantifiable measurements that help evaluate the critical success factors of the FHMDS categories. KPIs may be financial or non-financial data; however, there needs to be a clear method on how to accurately define and measure them. KPIs provide operators with the most important performance information to manage their business.
• A heat map is an easy tool to implement and provides a visual representation of data using colors. It can be used in conjunction with KPIs. For example, if an operator has 20 facilities, an occupancy heat map can be developed to show distribution of occupancy levels by facility. A heat map is a very powerful tool to visually summarize a lot of data in a single graphic.
Operators are required to invest so much into developing care plans to address the ever-changing physical and mental health of residents. While not required, it would be prudent for operators to invest into development of a care plan for finances.