Arkansas Department Of Health –Office Of Rural Health .

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Arkansas Department of Health – Officeof Rural Health & Primary CareCritical Access Hospital Symposium –Navigating Finances in 2020July 2020 2020 Wipfli LLP. All rights reserved.

Critical Access Hospital Symposium – Financial UpdateAgenda - Navigating Finances in 2020: CAH Financial Update and Best Practices Cash Planning Strategies Clinic Strategies Telemedicine Overview Price Transparency 2020 Wipfli LLP. All rights reserved.2

CAH Financial UpdateAnd Best Practices3

FLEX monitoring teamindicators report2018 Median Indicator Values for Arkansasand the United StatesIndicator2020 report based on 2018 data: Operating indicators in Arkansas continue to bemore negative than the US average CAH Average daily census in Arkansas is higher than theUS averageTotal MarginUSCash Flow Margin-3.220.631.615.71Return on EquityOperating 050.6849.06Equity Financing63.1859.69Debt Service CoverageLong-Term Debt to Capitalization6.7633.563.4330.83Outpatient Revenues to TotalPatient DeductionsMedicare Inpatient Payer Mix75.9154.0069.9479.4045.2271.94Medicare Outpatient Cost to Charge34.8537.5637.1343.51Medicare Revenue per Day18982830Salaries to Net Patient RevenueAverage Age of Plant49.5311.0745.1011.525.56Current RatioDays Cash on HandDays in Net Accounts ReceivableDays in Gross Accounts ReceivableMedicare Outpatient Payer Mix 2020 Wipfli LLP. All rights reserved.ArkansasFTEs per Adjusted Occupied BedAverage Salary per FTE4.4850310Average Daily Census Swing-SNF1.581.53Average Daily Census Acute BedsNumber of Included CAHs4.35222.541215593704

CAH Financial UpdatePossible Key Issues to be Addressed: Low volumes/volume fluctuations - market shift to regional hospitals for hospitalcare Significant RHC/clinic losses, not able to be offset by hospital profits Revenue cycle issues – coding, documentation, billing, collection and technology Low payment rates from commercial and Medicaid payors not covering cost of care Staffing turnover – providers & staff Other 2020 Wipfli LLP. All rights reserved.5

CAH Financial UpdateWhat can we learn from reviewing financial information by type of service?Sample Hospital 1Type of 567,031,3003,526,753OverheadAllocatedTotal Margin % ofTotal Margin 5)-8%EmergencyAmbulatory 2291,300,2681,804,9551,833,810Recurring OutpatientObservationUrgent 50,2451,287,747824,953290,535Swing BedNewbornAmbulatory 5314,109,459(16,254)515,991-115%2% Outpatient services (diagnostics and therapy) generated the positive margin for this hospital, offsetting other losses In general, hospitals need to generate a positive margin on outpatient services in order to fund clinic and other losses Inpatient margins typically break even/loss – primarily Medicare volumes 2020 Wipfli LLP. All rights reserved.6

CAH Financial UpdateWhat can we learn from reviewing financial information by type of service?Sample Hospital 2Type of arginOverheadAllocatedTotal Margin % ofTotal Margin 204)-10%Swing 543)-5%InpatientHome HealthTotals(323,804)-200% Outpatient services generated a loss for this hospital - a focus on surgical procedures actually generated a loss for thishospital due to low commercial rates for procedures coupled with significant investment in equipment and staff. This key factor contributed to an overall loss of over 900,000 for the hospital 2020 Wipfli LLP. All rights reserved.7

CAH “Best Practices” – Based on High Performing CAHs Taking calculated risks Being driven by data Engaging and valuing staff Integration with the communitySource: FLEX Monitoring Team Policy Brief #53 April 2020 2020 Wipfli LLP. All rights reserved.8

Best Practices Linked to Key Issues Low volumes/volume fluctuations - integration with the community to capturehospital and clinic volumes Significant RHC/clinic losses, not able to be offset by hospital profits – use data tomake strategic decisions about clinics, improve clinic operations and financialresults, particularly with the shift toward telemedicine Revenue cycle issues – coding, documentation, billing, collection and technology –use data to improve – could increase reimbursement by 3-5% with proper systems Low payment rates from commercial and Medicaid payors not covering cost of care– take calculated risks on contract negotiation – focus on outpatient rates Staffing turnover – providers & staff – engage and value staff 2020 Wipfli LLP. All rights reserved.9

Cash Planning Strategies

Cash Planning StrategiesOverview – cash management and planning is essential more than ever given thefluctuation in patient volumes and changes in services (such as telemedicine). Create ongoing cash flow forecast with weekly monitoring Ensure all avenues are explored for cash planning to meet cash needs Optimize telemedicine services Make strategic decisions as required to maintain cash at target levels 2020 Wipfli LLP. All rights reserved.11

Cash Planning StrategiesProjected Utilization Assumptions Compared to BudgetPublic mberOctoberNovemberDecemberMay (Optimistic)60%65%70%75%80%85%90%90%90%June (Realistic)60%60%65%70%75%80%85%90%90%July (Pessimistic)60%60%60%65%70%75%80%85%90% During April, all scenarios reflect volumes at 60% of expected levels The optimistic view assumes volumes to begin increasing in May, and thepessimistic view assumes volumes beginning to increase in July. By the end of 2020, all scenarios assume volumes to return to 90% of budgetedlevels These volume assumptions were used to understand possible cash balances tothe end of 2020 on the next page. 2020 Wipfli LLP. All rights reserved.12

Cash Planning StrategiesCreate Cash Forecast2020 ProjectedBudget Create ongoing cash flow forecast withweekly monitoring Key assumption will be when/speed of“ramp up” to historical volumesProjected 2020TotalOptimisticTotal Operating Revenue111,747,406Salaries/BenefitsInterestOther Operating ExpenseTotal Operating 5Compared to budget Need to understand anticipated cashbalances and days cash on hand beforeoperational changes are madeOperating Income (Loss)Total Non-Operating IncomeNet IncomePessimistic89,991,158Compared to 8,833Cash View Understand what the gap is go close andcreate operating scenarios to close thegapCash & Cash EquivalentsRestricted CashTotal CashSalary Expense/Day184,812184,711184,711184,711Operating ys Cash on HandDecrease in Cash from Budget 2020 Wipfli LLP. All rights reserved.(14,009,941)(16,816,187)(19,770,652)13

Closing the Cash Flow GapEnsure all avenues of cash are explored if needed to balance the budgetCash Flow OpportunitiesAccelerated/advanced payments from MedicarePublic Health and Social Services Emergency Fund Grant/Targeted AllocationsSHIP GrantsRHC FundingSBA Paycheck Protection Program Forgivable LoanPayroll tax credits/deferralsFEMA GrantsFCC Telemedicine GrantsEconomic Injury Disaster Loan (EIDL)Emergency Economic Injury Grant (EEIG)Mainstreet Lending programPossible deferral of interest and principal on USDA Community FacilitiesConsider interim Medicare Cost Report to adjust interim ratesOther (work with bank on line of credit etc.) 2020 Wipfli LLP. All rights bleLoansLoansXXXXXXXXXXXXXX14

Closing the Cash Gap Consider CARESFunding and other cashinputs in the cash flowbudget. Evaluate gap in cashbalances that wouldneed to be addressedthrough operatingchanges. Proposed expensereduction – need tounderstand what ispossible. Considerimpact on Medicarereimbursement. 2020 Wipfli LLP. All rights reserved.Public Health Emergency End-DateMayProjected Cash Flow Impact w/o CARES Act & OtherCashDays Cash-on-HandProjected Cash Flow Impact with CARES Act & OtherCashDays 68Post COVID-19 Cash TargetCashDays Cash-on-Hand Target (equal to or greater than 100 days)28,358,44110028,358,44110028,358,441100Cash sician al )(6,036,035)(8,990,500)15Potential Budget ReductionsBudget Variable CostSalaries & BenefitsSuppliesVariable CostMay - Dec15

Cash Planning StrategiesOther Considerations Be proactive – adapt to community needs for services Elective surgeries and procedures are coming back – focus on your “reopeningplan” and how patients will be SAFE Understand that patients with chronic conditions may have care needs unmet for anumber of months – many with significant needs Telemedicine services will be key moving forward – estimating 25% of primary careencounters in the future could be provided virtually Think about changes in facilities that may be needed to align with patient volumes,safe patient flow and patient expectations 2020 Wipfli LLP. All rights reserved.16

Cash Flow Planning – Consider a Revenue Cycle “Check-Up”Integrated Revenue Cycle – a visual toassess your CAH’s revenue cycle functions.Calculate the potential cash impact ifcollections were improved by 1%, 3% 5%etc. The impact of proper documentation,prior authorization, coding, billing andfollow up cannot be under estimated. Requires a rigorous process tounderstand gaps in each phase of thecycle and to create an improvementplan.17 2020 Wipfli LLP. All rights reserved.17

Clinic Strategies to Consider

Clinic Strategies to Consider Evaluate potential for converting free standing clinics and provider based clinics to ProviderBased RHCs Review specialty services provided at the CAH to determine if any should be integrated intoan existing Provider Based RHC Potentially acquire independent physicians, optometrists or other health care providers thatmay be interested in an affiliation at this time – downstream revenue opportunities Create team based care models to support population health initiatives and improve patientengagement Perform operational assessments of your RHCs – do you have the right providers in the rightlocations? 2020 Wipfli LLP. All rights reserved.19

Telehealth – Moving to Main Stream

Telehealth OverviewReadiness to embrace technology 75% of hospitals leveraging telehealth substantially above pre-COVID-19 levels. 90% of all hospitals expect to continue using increased levels of telehealth post COVID-19 inall regionsTelehealth market size in 2019 was 45 billion and is projected to grow to more than 175 billionby 2026Lower regulatory barriers Privacy restrictions for telemedicine dissolved during pandemic Controlled substance prescriptions now possible based on telehealth visitSource: Definitive Healthcare 2020 Wipfli LLP. All rights reserved.21

Telehealth OverviewImproved financial impact and reimbursement Fewer patient no shows Expansion of Medicare, Medicaid, and some private payer coverage for virtual care servicesTechnology continuously improving – good to even better Federal Communications Commission launched its own 100 million Covid-19 TelehealthProgram, to support broadband expansion projects designed to push telehealth servicesinto rural areas Rapid advancement in remote imaging technology and multi-service telemedicineplatformsSource: Definitive Healthcare 2020 Wipfli LLP. All rights reserved.22

Rise in Telehealth by Region April 2019 to April 2020Source: Definitive Healthcare 2020 Wipfli LLP. All rights reserved.23

Telehealth OverviewHow does your organization deliver virtual care today? Telephone visitsVideo visitsE-visitsAll the aboveWhat types of challenges are you encountering with virtual visits? Technical difficulties Provider acceptance Patient acceptance All the aboveWipfli provides in-depth training sessions on telemedicine documentation, coding andbilling rules for CAHs and RHC’s. https://www.wipfli.com/industries/health-care 2020 Wipfli LLP. All rights reserved.24

Price Transparency

Price Transparency RegulationsOverviewOn November 15, 2019, CMS finalized its expanded interpretations of section 2718 ofthe Public Health Service Act. The final rule requires all hospitals to make a list of grosscharges, negotiated charges, a self-pay “walk-in rate” and a minimum and maximumnegotiated charge for all services in the hospital charge description master (CDM)publicly available in a machine-readable format.It also defines a list of 300 shoppable services that must be made publicly available ina searchable, consumer-friendly format. The rule specifies the manner and format inwhich the lists are to be made publicly available.Hospitals that do not comply with these requirements may be subject to civilmonetary penalty (CMP) of up to 300 per day. 2020 Wipfli LLP. All rights reserved.26

Price Transparency RegulationsSpecifics All facilities licensed as a hospital are covered under this regulation (includingCAHs) Facilities with separate off site locations are required to publish prices for alllocations if prices are different “Items and services” covered by the proposal are all items and services, includingindividual items and services and service packages that could be provided by ahospital to a patient in connection with an inpatient admission or an outpatientdepartment visit for which the hospital has established a standard charge. 2020 Wipfli LLP. All rights reserved.27

Price Transparency RegulationsSpecifics Standard charges are defined for 5 types of prices for CDM price list reporting: Gross charge Payor specific negotiated charge Deidentified negotiated minimum negotiated charge Deidentified negotiated maximum negotiated charge Discounted cash price These 5 types of prices are also required for the posting of prices for 300 shoppableservices Made publicly available in a machine readable format (easy to read, etc.) 2020 Wipfli LLP. All rights reserved.28

Price Transparency RegulationsShoppable ServiceA shoppable service is defined as a service that can be scheduled by a healthcareconsumer in advance. The rule states the charges for shoppable services should bedisplayed as a grouping of related services, meaning that the charge for theshoppable service (primary service) is displayed along with charges for ancillary itemsand services the hospital customarily provides as part of, or in addition to, the primaryshoppable service.Ancillary services mean an item or service a hospital customarily provides as part of, orin conjunction with, a shoppable primary service. This will help consumers see thecost of the service in the same way they experience the service. 2020 Wipfli LLP. All rights reserved.29

Price Transparency RegulationsShoppable ServiceCMS requires hospitals to report at least 300 shoppable services. 70 commonly shoppableservices are listed in the regulation, with the balance to be provided by each hospital based onthat hospital’s common services provided. 2020 Wipfli LLP. All rights reserved.30

Price Transparency RegulationsHow to Comply? State resources (some states like Virginia have created websites for pricing) Price estimator tools Hospital specific reporting Other Option to pay the fine?Will the regulation be amended or will the implementation date be extended? 2020 Wipfli LLP. All rights reserved.31

Jane Jerzak, Partner, Wipfli Healthcare ServicesHealthcare Strategy and Reimbursementjjerzak@wipfli.com920.662.2821Twitter - @Wipfli LLPwww.wipfli.com/healthcareLinkedIn - LinkedIn.com/company/Wipfli-LLPFacebook - Facebook.com/WipfliLLP 2020 Wipfli LLP. All rights reserved.32

indicators report. 2020 report based on 2018 data: Operating indicators in Arkansas continue to be more negative than the US average CAH Average daily census in Arkansas is higher than the US average. 2018 Median Indicator Values for Arkansas and the United States. Average Salary per FTE 50310 59370 Average Daily Census Swing-SNF 1.58 1.53

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