Facilitator: Cynthia L. Prorok October 2010

1. Sustainable Growth:Where Margin and Mission Meet Strategies for Increasing Access & Maintaining Financial Stability KENTUCKY PRIMARY CARE ASSOCIATION ANNUAL MEETING HRSA: Bureau of Primary Health Care Facilitator: Cynthia L. Prorok October 2010

2. Maintaining Financial Stability Strategically Planning for Growth Forecasting – Contribution Margin Key Measures and Statistics Preparation for Opportunity Group Exercises Goals of Learning Session:

3. To provide for: ACCESS:Maximize capacity to serve patients QUALITY CARE: Sufficient resources for service delivery ACCOUNTABILITY: Stewardship of federal grant funds VIABILITY: Pay staff, vendors, and creditors on time To ‘Remain a good credit risk’ Maintain/Advance health center MISSION Importance of Financial Stability: Program Requirement #12

4. Strategically Planning for Financially Sustainable Growth: Provider Recruitment & Retention Estimating Demand – Community Need/Marketplace CASH IS KING Contribution Margin Payer Mix

5. Current Payroll/Obligations Paid Timely? Average Days of Cash on Hand? Working Capital to Monthly Expense Ratio? 2 mos. Operating Reserve? Do you have a Line of Credit? What are the Start-up Cash Flow Needs for the Growth Opportunity? Can you Manage the Cash Flow? Cash Flow - Liquidity:

6. Working Capital to Monthly Expense RatioMeasures Financial LiquidityMinimum of 1 month - with 2 months preferred Calculation: Working Capital (Audited Balance Sheet) - divided by - Average Monthly Expense (Audited Stmt Activities) (Total Expense - divided by 12 Months) This measure can be calculated for month -to-date & year-to-date results utilizing the Interim Statement of Activities. If Working Capital is negative then current liabilities exceed current assets, liquidity is very tight, and financial stability is in question.

7. National Average TrendWorking Capital to Monthly Expense Ratio • National average • Good • Improving

8. Current and Past Financial Trends? $ Change in Net Assets on Operations? Change in Net Assets as a % of Expense? 5% One Time versus On-Going Funding? Debt Load? Debt Mgmt Ratio? < 50% Long-term Debt to Equity Ratio? Debt Capacity Ratio? Financial Forecast - Growth Opportunity? Program Income, Grants, Expenses, Cash Flow Maintaining Financial Stability:

9. Change in Net Assets as a Percent of Expense Measures Financial Results in Relationship to Expense Calculation: Change in Net Assets(Audited Stmt of Activities) - divided by - Total Expenses(Audited Stmt Activities) The Change in Net Assets can be positive (a net surplus) or negative (a net loss) for the period being measured. The measure includes non-operating changes to net assets. This measure can be calculated for month -to-date & year-to-date results utilizing the Interim Statement of Activities. A breakeven or better performance is needed for financial stability. If the trend shows decreases in net assets, particularly when the balance sheet reports a weak financial condition, there is cause for concern.

10. National Average TrendChange in Net Assets as a % of Expense • National average • Positive • Stable • Reasonable

11. Long-term Debt to Equity Ratio:Measures Long-term Debt Leverage - Long-term Financial Condition Calculation: Long-term Liabilities (Audited Balance Sheet) - Divided by - Net Assets (Audited Balance Sheet) The preference is a Long-term Debt to Equity Ratio below 0.50 (or less than 50% of Total Assets tied up in Long-term Debt). A Long-term Debt to Equity Ratio in excess of 0.80 (80%) indicates excessive long-term debt, the organization may not be able to borrow funds, and is an indicator financial viability may be in question.

12. National Average Trend:Long-term Debt to Equity Ratio • National average • Acceptable • Improving

13. Evaluating Financial Impact of Opportunity Contribution Margin: Sample

14. Unmet Community Need? How Many? Where? Demographics? Health Disparities? Market Place Consideration? Types of Private Practices? Services Provided? Hospital Clinics? Urgent Care/Minute Clinics? FQHCs, Look-Alike, Free Clinic? Average Patient Utilization Rates by Service? 3.2 medical visits per medical user Patient Satisfaction? Estimating Demand:

15. Uninsured Patients? Trend of Current Operations? Estimate for Growth Opportunities? Medicaid and Other Public Programs? Trends? Financial Screening? Enrollment Assistance? Medicare? Managed Care? Market Trends? Private Insurance? Trend? Productivity Rate Needed to Break-Even? Payer Mix:

16. Location and Facility Space? Minimum 2 Exam Rooms per Provider – prefer 3 Provider Staffing? N - 1,100 to 1,200 Active Patients per Provider Recruitment and Retention Plan for Provider Staff? Provider Replacement Cycle Time? Support Staffing? N - 2.9 – 3.0 Medical & Patient Support FTEs per Provider Management Staffing & Management Systems? Capacity to Meet Demand:

17. Interrelationship: PATIENTS PROVIDERS PATIENT SERVICES REVENUE Budget Access to Primary Care

18. Provider Productivity? 4,200 Visit per FTE per Year? 3 Visits per Clinic Hour? 36 Clinic Hours per Week? Visit Cycle Time? Less than 45 minutes? Incentivizing Performance? – within Budget Providers? Support Staff? Management Team? Efficiency:

19. Average Cost Per Patient? Services Included? Trend? N - $588 in 2008 Average Medical Cost per Medical Visit? Trend? N - $129 ‘08 Variable versus Fixed Costs? Overhead Rates? Facility – N – 7%, Admin N – 25% Facility, Admin, & Patient Support FTEs – N - 40% Costs:

20. Total Cost Per Patient:Value of Services Provided to Patients Calculation: Total Accrued Costs before Donations(UDS Table 8A) - Divided by - Total Patients (UDS Table 4) If the total average cost per patient is growing at a rate faster than net patient services revenue, the financial performance is insufficient to sustain financial stability and “ACTION” is needed to reverse the trend.

21. National Average Trend:Total Cost Per Patient • National Average • Cost increasing • Increase reasonable

22. Medical Cost Per Medical Encounter:Measures Medical Cost Efficiency(excluding lab & Pharmacy) Calculation: Total Medical Costs(UDS Table 8A) - Divided by - Total Billable Medical Encounters(UDS Table 5) Medical costs are after the allocation of overhead and do not include lab or pharmacy costs. Billable medical encounters do not include nursing encounters or psychiatrist encounters. If the average medical cost per medical encounter is growing at a rate faster than net patient services revenue, the financial performance is insufficient to sustain financial stability and “ACTION” is needed to reverse the trend.

23. National Average Trend:Medical Cost Per Medical Encounter • National average • Increasing • Increasing faster than total cost per patient

24. Fee Schedule? N - $176 in 2008 Market Based? Covers Costs – 114%? Uncompensated Care – N -141% Sliding Fee Discounts? Minimums? Ancillaries? Lab? Pharmacy? Specialty? Average Collection Per Billable Encounter? N - $105 in 2008(calculate by payer type) Medicaid/SCHIP PPS Rates? Depends on Payer Mix and Effective Collection Practices 65% to 80% of Revenue for Operations Grant Funding (20%) - New Opportunities? Other Sources – Activities Supported? Revenues:

25. Critical Factors AffectingFinancial Stability • Demand/Need:Market, Quality of Care, Patient Satisfaction • Capacity: Space, Providers, Other Staff, Resources, Services • Efficiency: Productivity, Support Ratios, Visit Cycle Time • Costs:Budget, Personnel, Purchasing, Overhead Rates • Revenues:Fees, Payer Mix, Discounts, Collections, Grants • Cash Flow: Meet Obligations on Time, LOC, Reserves • Management:Policies, Procedures, Systems, Reports • Performance: Measures, QA/QI, Evaluation, Communication • Financial Results: Operating Margin, Liquidity, Debt Load

26. Measuring/MonitoringFinancial Performance: • To remain financially stable: • Accounting and practice management systems • Utilize full accrual-basis of accounting (GAAP) • Base-line budgeting - “Where are we now if nothing changes” • Complete both accrual & cash flow forecasts • Develop “What if” forecasting tools • Identify key measures/ratios to track • Develop reports to monitor performance • Identify underlying cause(s) for poor results The Business Plan is a key tool for monitoring financial results.

27. MANAGINGby with the numbers: • Keeping Score • Maintaining the historical record - timely, accurate • Designing the chart of accounts to facilitate analysis • Set up of practice management system “master files” • Report writer - capability, training, utilization • Turning Raw Data into Decision-making Data • Variance Analysis & Learning the Underlying Story POLICIES PROCEDURES SYSTEMS PEOPLE RESULTS

28. Group Exercise: • Break into Groups of 4 • Each Group - Select 1 of the 5 Scenarios • Appoint a Group Spokesperson & Recorder • Identify the Key Strategic Decision Making Factors for the Growth Opportunity • Utilize the “Strategic Decision Making for Sustainable Growth” Worksheet to Facilitate your group discussion • In Completing the Task – Utilize your Health Center as a Frame of Reference • Each Group will Present their Scenario

29. Strategies to Remain Financially Viable • Develop an operating reserve • Maintain current ratio > 2.0 & debt management ratio < 0.50 • Maintain general ledger on full accrual basis of accounting • Closely monitor & manage cash flow & financial performance • Monitor performance - baseline, targets/goals, & industry standards • Track BPHC Required Financial Measures • Improve Payer Mix - increase/maintain Medicaid patients • Monitor changes in marketplace, economy, & other trends • Analyze opportunities to add/increase providers/services • Closely monitor regulatory and policy changes • Operations must result in financial surpluses,TAKE ACTION

30. What Gets Measured, Gets Done What Gets Incentivized, Really Gets Done Be Sure You Are Measuring What is Important; and Incentivizing the Right Activities

31. QUESTIONS Contact Information: Cynthia L. Prorok Management Solutions Consulting Group, Inc. cprorok@mscginc.com (724) 355-3188 (cell)