Presented by: Michael B. Schnake, CPA, CGFM

1. Indiana Council of Community Mental Health Centers, Inc. Community Health Centers – Financial Information and Benchmarking Presented by: Michael B. Schnake, CPA, CGFM

2. Presentation Prelude • Goal of the presentation - increase awareness of the financial issues related to the successful (and sustainable) operation of community health centers • Is this an opportunity for my community mental health center to further an integration of primary and behavioral health care services?

3. Presentation Prelude • An organization’s status as a Federally Qualified Health Center (FQHC) adds significant complexities to the financial management of the organization • FQHC Look-Alike status • Federal grant funding • Issues of complexity include • Federal grants management matters • Medicaid and Medicare FQHC reimbursement

4. Presentation Prelude • Federal grants management issues • Compliance and oversight • Reporting (Financial Status Report (FSR), cash management, ARRA specific reporting, etc.) • Medicaid and Medicare FQHC reimbursement issues • Medicaid (FQHC PPS rate setting, change in scope of services, reconciliation process, managed care contracting, etc.) • Medicare (FQHC cost-based reimbursement)

5. Presentation Prelude • Federally qualified health centers may be the most complex health care provider type to manage from a financial perspective • Requires a proper balancing of the federal investment and other funding streams • It is important for health center management team and Board of Directors members to have an understanding of community health center finance basics

6. Today’s Agenda • Overview of the community health center (CHC) program • Health center finance – issues of importance • Overview of financial systems expectations of the Bureau of Primary Health Care (BPHC) – Policy Information Notice (PIN) 98-23 • Unique issues of CHC financial management • CHC financial ratios • Final thoughts

7. Overview of the Community Health Center Program

8. Characteristics of CHCs • Located in or serve a high need community (designated medically underserved area or population) • Governed by a community board – majority (51%) of board members must be patients that represent the population served • Services provided include comprehensive primary health care services as well as supportive services that promote access to health care (transportation, translation, etc.) • Services provided to all patients with charges adjusted based on the patients’ ability to pay (sliding fee scale requirement) • Meet performance and accountability requirements regarding administrative, clinical and financial operations

9. Required ServicesDirectly or Through Contract Primary care Dental Mental health Substance Abuse Diagnostic lab & x-ray Prenatal & perinatal services Cancer & other disease screening Blood level screenings Lead levels Communicable diseases Cholesterol Child & adult immunizations Eye & ear screening for children Family planning services Emergency medical Pharmaceutical Case management Outreach & education Eligibility/Enrollment services Transportation & interpretation 9

10. Types of Health Centers • Grant-supported Federally Qualified Health Centers • Receive federal grant funding under the Consolidated Health Centers progam • Include Community Health Centers, Migrant Health Centers, Healthcare for the Homeless Programs and Public Housing Primary Care Programs • Federally Qualified Health Center Look-Alikes • Outpatient health programs/facilities operated by tribal organizations

11. Health Center Patient Characteristics • Based on statistics obtained from the HRSA website (2008 statistics): • 36% - children (age 19 or younger); 7% - age 65 or older • 38% of patients – all ages (approximately 6,500,000) were uninsured • 28% - African-American; 33% - Hispanic/Latino • Special populations served • 834,000 migrant and seasonal farm workers and their families • 934,000 homeless individuals • 157,000 residents of public housing

12. Paths to Achieving CHC Status • Apply to Bureau of Primary Health Care for Section 330 federal grant funding • New Access Point (NAP) application released each year • Apply to be an FQHC Look-Alike organization • Noncompetitive process • Must comply with all requirements at the time of application submission • Can later apply for Section 330 federal grant funding 12

13. Paths to Achieving CHC Status • Collaborate with an existing CHC to apply as an expansion site • Existing CHCs can start a satellite clinic • Using NAP application • Change in Scope application 13

14. Section 330 Program Requirements • Four components: • Governance • Mission & strategy • Clinical program • Management & finance 14

15. FQHC Look-Alike Organizations • Meet all of the Section 330 program expectations/requirements, but do NOT receive federal grant support • Must be fully operational for at least one month to be eligible to apply for FQHCLA status • Preferred that organization has 12 months of operations & a completed financial audit 15

16. FQHCLA Organization Benefits • Prospective Payment System (PPS) reimbursement for services to Medicaid and CHIP patients • PHS drug pricing discounts • Cost-based reimbursement for Medicare services (deductible is waived) • Other 16

17. Benefits of Federal Grant Status • All the benefits of FQHCLA status, plus: • Federal grant to support the costs of uncompensated care • Medical malpractice coverage under Federal Tort Claims Act (FTCA) • Eligible for additional grant support & loan guarantees for capital improvements 17

18. Other Funding Requirements • No New Access Point funding available for fiscal year 2010 • Recent funding for NAP has typically provided $650,000 maximum award • Newly funded applicants must demonstrate how Section 330 federal grant funds will be used to expand existing primary health care capacity • Section 330 funds may not supplant other funds • Must demonstrate that funds and other resources currently committed to the clinic will remain committed 18

19. Health Center Finance – Issues of Importance

20. Financial Health Considerations • No money = no mission (that is the reality) • Community health centers must be proactive (versus reactive) on financial management issues • The “tone at the top” must reflect a commitment to sound business and financial practices. Remember that the Board sets the expectation bar • The Bureau of Primary Health Care expects the Board of Directors and health center management teams to make prudent and sound business decisions

21. Financial Health Considerations • Community health centers are business activities that requirepositive operatingmargins to sustain the mission • Replacement of property and equipment • Repayment of long-term debt • Maintenance of financial reserves

22. Financial Health Considerations • Financial health should be a priority • Bureau of Primary Health Care (BPHC) Policy Information Notice (PIN) 98-23 includes a focus on financial systems – “must” versus “should”

23. External Environment Matters • Increasing federal investment under the American Recovery and Reinvestment Act of 2009 – the federal stimulus program • New access point funding • Increased services to health centers • Capital improvements funding • State budgetary issues – elimination of optional Medicaid benefits and other cash flow issues

24. External Environment Matters • Increasing scrutiny of health center financial results by the federal granting agency, lenders and donors • Expect reporting requirements to be expanded and closely monitored • OIG audits are a recent reality (experience to date indicates a primary focus on detailed policy and general ledger expense tracking issues)

25. External Environment Matters • Strategic financial planning (sustainability planning) is necessary to identify anticipated financial impact of program changes • Operational results • Cash flow implications

26. Bureau of Primary Health Care PIN 98-23 (Financial Systems Expectations)

27. PIN 98-23 • Financial System Expectations • Accounting & Internal Controls • Budget • Billing & Collections • Independent Financial Audit

28. Accounting & Internal Controls • Systems should be appropriate to size & complexity of the organization • Accounting system should be based on GAAP • Designed to accurately reflect financial performance • Separation of financial functions should be implemented to safeguard assets • Access function • Recording function • Monitoring function

29. Accounting & Internal Controls • Routine financial reports should be generated • Reviewed by appropriate management staff • Reviewed by members of the health center’s governing body on a regular basis (monthly) • Should accurately reflect current financial status • Allow for comparisons to past & projected financial position

30. Budget • Reflects the level & scope of services to be provided within the constraints of the health center’s resources • Should reflect available resources & required expenditures • Should be approved by the health center’s governing body • Particular emphasis on health center revenue streams

31. Billing & Collections • Health Center programs must maintain adequate cash flow to support operations & maximize revenue from nonfederal sources • Revenue maximization requires an adequate & competitive fee schedule & a corresponding schedule of discounts, prompt & accurate billing of third party payers, billing of patients in accordance with the schedule of discounts, & timely follow-up on all uncollected amounts

32. Billing & Collections • Process necessary to ensure that federal grant resources address true financial access barriers to the maximum degree possible • Health Centers are expected to utilize information to monitor performance compared to internal & external benchmarks, as well as for tracking trends

33. Billing & Collections • Health Centers should establish a target for days in receivables for collections on billable services by payer, monitor collection rates on outstanding balances & follow-up or write-off such balances as appropriate • Electronic billing encouraged

34. Unique Issues of CHC Financial Management

35. CHC Financial Management Issues • Within the health care industry, CHCs are unique from a financial perspective • CHC management teams must be knowledgeable on the primary drivers of health center financial success in order to effectively navigate the financial challenges of the health center (have an understanding of operational issues)

36. CHC Financial Management Issues • Unique financial issues include • Revenue generation from third-party payers (Medicare, Medicaid and private insurers) • Federal grants management matters • Achieving operational profitability, including proper obligation of federal grant funds • Sliding fee scale compliance

37. CHC Financial Management Issues • Unique financial issues include • Management of health center cash flows for ongoing replacement of property & equipment, payment of long-term debt obligations and maintenance (establishment) of reserve funds • Communication of financial results and planned fiscal strategy (both internally and externally)

38. CHC Financial Ratios

39. Establishing Financial Goals Financial goals should be established for: Operational profitability Balance sheet health (ongoing growth of health center net assets position) Cash flow targets Development of key financial indicators can be at an organization-wide level and/or drilled down to much more detailed levels (site specific, program specific, etc.) What are the key financial indicators that should be monitored?

40. Financial Ratios • Current ratio • Current assets/current liabilities • 2:1 is a healthy current ratio • Net days revenue in net accounts receivable • 30 to 45 days of net revenue in net accounts receivable is reasonable

41. Financial Ratios • Days cash on hand (financial reserve) • 30 - 120 days of cash on hand a good target • Days in accounts payable • Target should be less than 30 days • Debt to equity ratio • Generally target less than .40

42. Financial Ratios • Operating income to total revenue ratio • Calculated by dividing total revenue by operating income • Target should be 2% to 4% to generate necessary operating cash flow to use as follows • Replacement of fixed assets • Payment of debt obligations • Funding of cash reserves

43. Monitoring Key Financial Indicators • Once goals are established for key financial indicators, ongoing monitoring must occur • Monthly financial statement review • Development of dashboards • Periodically with reconsideration of financial sustainability plan scenarios (best case, most likely, and worst case)

44. Final Thoughts

45. Final Thoughts • There may be opportunities for community mental health centers to work collaboratively with existing CHCs • CHC development of an expansion location in the CMHC facility • CMHC selling excess provider capacity to the CHC for mental health services professionals

46. Final Thoughts • It may be financially beneficial for the CMHC to consider expanding services provided in order to position itself for submission of a FQHCLA application or NAP application • Decision making will require a well planned business strategy supported by appropriate financial analysis

47. Thank You • Please feel free to contact Mike Schnake 417.865.8701, ext. 23017 mschnake@bkd.com