May 20, 2018, Alex Spanko, Skilled Nursing News - As skilled nursing operators continue to deal with tight reimbursements and high labor costs, financial performance on the individual facility level has taken on greater and greater importance — and having a defined plan is one of the keys to success.
“It doesn’t matter how much revenue you generate, or how much census goes up, if you don’t collect it and put it in your bank account,” Juli Pascoe, director at the accounting and advisory firm BKD, told an audience at the American College of Health Care Administrators’ annual convocation in Orlando, Fla. last month.
If that conclusion seems obvious, it reflects the reality for many skilled nursing facilities, where overwhelmed administrators and staffers must juggle multiple responsibilities. And small mistakes can have an immediate impact on providers’ bottom lines: For instance, in an era of growing managed Medicare penetration, providers need to educate their employees about the differences between Medicare Advantage plans and regular Medicare.
Many of those Medicare Advantage insurers require prior authorization before allowing a SNF stay, and the BKD team has seen cases where employees on the ground weren’t necessarily familiar with the individual contracts that the insurers had with the facilities.
“We just provided very expensive free care to that resident,” Julie Bilyeu, managing director at BKD, said during the presentation. “You can’t go back and bill people for care they received by mistake.”
Some MA providers will “take pity” on providers that make mistakes and offer retroactive authorizations for residents admitted erroneously, Bilyeu said, but that’s becoming rarer in the managed care landscape. She and BKD recommend verifying resident benefits each month, as a resident’s status can change over time with open enrollment periods and other program shifts.
Collections policies key
It’s an uncomfortable conversation to have, but Pascoe emphasized the importance of establishing clear, upfront collections policies for residents that fall behind on payments.
“It doesn’t take very many days to rack up a large balance,” she said. “Collections policies hold [them] accountable.”
Providers should include notices about what happens when the SNF doesn’t get paid in the initial admissions packet, Pascoe said, with detailed information about payment terms, the escalating notification steps the provider will take over unpaid bills, and whether or not the facility charges interest or delinquency charges. And consistency in enforcing those policies is key.
“You can’t just do it this month or next month, or as you have time. I really think that if you let the family go that first 30 days and not pay, it sets a very dangerous precedent,” she said. “How do you say: ‘Well, pay me on day 60?’ What’s the likelihood they have the money on day 60 when they didn’t have it on day one?”
Metrics for success
When the BKD team analyzes a SNF’s individual financial health, they look at three primary figures: average days to collect, accounts receivable turnover, and days’ cash on hand.
The first metric tracks the average number of days it takes a SNF to convert receivables into cash, with a median figure of 45 across all facilities nationwide. The best can do it in 33 days, Pascoe said, while the worst take about 64 days.
Accounts receivable turnover tracks the speed at which AR becomes cash, with best SNFs turning in numbers of 10.5 times per year. Facilities in the middle have AR turnover of about 7.8, while the worst come in at 5.4.
Days’ cash on hand — a facility’s “security blanket” — is where the team at BKD sees wide variation, Pascoe said, with some going down as low as just 14 days.
“My gosh, that’s a payroll cycle. That’s the person calling me who can’t make payroll,” Pascoe said, adding that some facilities have more than a year’s worth of cash stockpiled away.
Sitting on that much cash is a “personal decision” that comes down to comfort, with a year not necessarily indicating superiority. But just analyzing those figures can tell an outsider a lot about an individual SNF’s health.
“Sometimes that’s an eye-opening experience, and it underscores the need for being able to bring cash into the door,” Pascoe said.