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Sequestration Impact on CHCs… Can you afford to not maximize every potential dollar?

October 21, 2013

After reading the Geiger Gibson /
RCHN Community Health Foundation Research Collaborative Policy Research Brief # 32, a product from the George Washington University School of Public Health, it is clear that CHCs should be bracing for the impact of sequestration.

Recent releases from CMS about sequestration make it clear that fee-for-service (FFS) Medicare will see a 2% pay cut but hope has prevailed that perhaps the CHC Encounter Rate (funded by Medicare Part B but adjudicated via Medicare Part A) might be spared. However, if the suppositions set forth in the Geiger Gibson report become reality, a 2% cut would be a blessing.

What Geiger proposes is that community based organizations will see the biggest hit. In fact, CHCs are expected to see in 2013 alone more than $120 million in cuts to grant funding. Further, as they expect this loss to occur over the latter part of 2013, there is really no way to respond except by dramatically reducing program offerings. Part of the residual consequence is an additional loss of $230 million in 3rd party (billing revenue) due to a decrease volume of patient visits resulting form an inevitable inability to offer a full complement of services. In other words, if you cannot pay the staff to render services there are no bills to send so no incoming money from such. That is truly a double whammy.

So how does your CHC respond? Are you maximizing every penny available from third party payers? Are you still accepting substandard performance from your billing and clinic operations? Can you really afford to do this on the precipice of such a daunting financial shortfall?

Key KPI. Know your Key Performance Indicators (KPI) and how you stand. For years we have heard CHCs boast that they maintain at or below 50 days of accounts receivable (DAR or Days Sales Outstanding (DSO) to some). Frankly, this is unacceptable and in most markets (save states like Illinois in which claims are cleanly adjudicated and “paid” but the state government only releases funds intermittently), sub 30 DAR/DSO is realistic. Further, knowing your “blended encounter rate” (i.e., how much money you are paid per visit vs. the state and national averages) is essential. Take your total payments divided by your total visits and that is your blended encounter rate. Not only should you be able to benchmark against national/regional norms, you should know this KPI by clinic location and quarter over quarter.

Finally, how are you planning to deal with a theoretically HUGE influx of new patients in January 2014 (only 9 months away) when the ACA (a.k.a., ObamaCare) descends with the majority of your self pay patients suddenly being “insured” and therefore becoming more demanding because they are now “paying customers.”  This not only impacts clinic operations (also theoretically running on an even thinner staffing levels due to this sequestration hit) but the need for your billing team to absorb up to 30%+ more work. Again, are you ready?

Thank God we don’t have to implement ICD-10 until next October.

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