1. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Budgeting for Success in Health Centers Michael Holton, Manager, RSM McGladrey, Michael.Holton@rsmi.com Mississippi Primary Health Care Association February 17, 2010 – Holmes Community College

2. Slide 2 Session Goals This session is designed to help health center managers gain an understanding of the types of reports and financial tools necessary for management and Board of Director decision-making. To achieve this goal the following reporting guidelines will be discussed: 1.330 Grant budgeting 2.Operations budgeting 3. Monitoring health center financial condition 4.Developing management reports and monitoring key indicators

3. Slide 3 The budget is the culmination of negotiations among health center managers, clinicians, and board members as they determine the level and scope of services to be provided within the constraints of the center’s resources. As part of the center’s operating plan, the budget must accurately project both resources available and expenditures required to achieve the center’s goals and objectives in the upcoming budget period. The budget should be based on both prior experience and expected upcoming internal and external changes in revenue sources or payment methodologies (e.g., capitation payments under Medicaid managed care). The health center’s operating budget must be approved by the board; it should also be reviewed throughout the year and adjusted, as necessary, by the center’s management and the board. Source: BPHC Policy Information Notice 98-23 Grant Budgeting

4. Slide 4 Grant Budget (Scope of Project) Patient Revenue = Program Income Federal Grant Dollars State and Local Contracts & Grants Other TOTAL BUDGET CONCEPT HEALTH CENTER – SINGLE BRHC GRANTEE

5. Slide 5 Patient Revenue = Program Income Federal Grant Dollars State and Local Contracts & Grants Other Section 330(e) Operations Federal Grant Dollars Patient Revenue = Program Income Section 330(h) Operations Other Federal Grant Dollars State and Local Contracts & Grants Patient Revenue = Program Income Ryan White Title III b Operations Other State and Local Contracts & Grants TOTAL BUDGET CONCEPT HEALTH CENTER – MULTIPLE BPHC GRANTEE Operating Budget (Scope of Project) Single Grant Application

6. Slide 6 Preparation of Budget(s): –330 grant applications must submit a balanced budget (Revenues = Expenses) Grant Year Change in Scope (PIN 2002-07 demonstrate financially viable operation –Operational budget = Surplus ? Fiscal Year Budgeting Issues

7. Slide 7 –Existing grantees may not request a change in their scope of project through the service area competition and non- competing continuation application. Application is only for current scope of project by an existing grantee in the defined service area. (See PIN 2002-07 for scope change requests) –Existing grantees may propose in service area competition a multi–year project period not to exceed 5 years –New grantees may request up to a 3 year project period when applying for a service area competition against existing grantee. Note: As of 2008 grant applications and could change in the future. Please refer to most recent guidance available. 330 Grant Applications

8. Slide 8 – Budget presentation should include the following forms: BPHC funding request summary (Not required for SAC) PHS 5161-1: Form SF 424A, Sections A-F –Section C – Non Federal Resources and Section D - Forecasted Cash Needs are not applicable Detailed budget justification (line item and narrative) for each 12-month period requested for federal funding Proposed staff profile for 12 month period requested Income analysis format for 12 month period requested 330 Grant Applications

9. Slide 9 Keys to writing line item to budget: –Justification Amounts Should Agree to Budget Forms –Be Specific Regarding Each Line of the Budget (Revenue and Expenses - See example in PIN): If Variable Costs, Describe Calculation of Cost (e.g., Supplies Cost Per Visit X Visit) If Fixed Cost, Describe Cost (e.g., Rent – As Per Lease Agreement) Note: As of 2008 grant applications and could change in the future. Please refer to most recent guidance available. 330 Grant Applications

10. Slide 10 Budget Narrative – Additional information and detail may be provided in narrative form, as needed. –Cost effectiveness (Cost/Visit, Cost/User, Grant $ per user) –Users –Visits If a capital managed care program is included, the applicant should: describe each current capitated managed care arrangement, identifying the services for which the applicant is at risk; provide the current number of enrollees and support for the projected number of enrollees included in the total user count In addition, if there are budget items for which costs are shared with other programs (e.g. HRSA programs or an independent home health program administered by the applicant organization), the basis for the allocation of costs between federally supported programs and other independent programs must be explained. 330 Grant Applications

11. Slide 11 Budgets for Year 2, 3, 4 and 5 Continue to budget conservatively Consider any contractual agreements (Union Contacts) for impact on salaries and fringe benefits If organization has a strategic plan – it should be factored into budget No change in scope can be factored into 330 grant application budgets Consider new contracts being received in the near future Consider cost of living adjustments or inflationary factors on expenses Any variances greater than 5% should be explained 330 Grant Applications And Budgeting

12. Slide 12 Make Certain the Budget Balances!!!!! –Review Patient Revenue Factors –Review Staffing BE CONSERVATIVE WHEN PROJECTING PATIENT SERVICES REVENUE!!!! (If overly aggressive projection are used, an unobligated balance (UOB -  ) of Federal funds instead of Estimated Program Income (EPI - ) could result when the Financial Status Report (FSR) is filed) 330 Grant Applications

13. Slide 13 1.Applicant demonstrates that the budget presentation (an annualized budget for each 12 month period for which funding is requested of the new project period) is appropriate and reasonable in terms of: a.The level of requested Federal grant funds versus total budget for each year; b.The total resources required to achieve the goals and objectives of the applicant’s proposed service delivery plan (i.e., total project budget); c.The maximization of non-grant revenue relative to the proposed plan and other Federal/State/local/in-kind resources applied to the project; d.The projected patient income is reasonable based on the patient mix and number of projected users and encounters; e.The number of proposed users and encounters; f.The total cost per user and encounter; g.The total federal section 330 grant dollars per user. SUPPORT REQUESTED – NAP (10 points) 330 Grant Applications

14. Slide 14 2.Applicant demonstrates that the Federal grant funds requested are being used to leverage other sources of funding 3.Applicant demonstrates that the business plan goals and objectives are targeted and demonstrate appropriate financial planning in the development of the proposal and for the long-term success of the project 4.Applicant describes how the proposed health center is a cost- effective approach to meeting the primary care needs of the target population given the health care needs of the target population and the level of health care resources currently available in the community SUPPORT REQUESTED – NAP (continued) Note: As of 2008 NAP grant applications and could change in the future. Please refer to most recent guidance available. 330 Grant Applications

15. Slide 15 1.Applicant provides a complete and clear budget presentation (SF- 424A, budget justification, Form 2: Staffing Profile, and Form 3: Income Analysis) and describes: a)How the total budget is aligned and consistent with the applicant’s proposed service delivery plan and number of patients to be served. b)How reimbursement is or will be maximized from third party- payors (e.g. Medicare, Medicaid, SCHIP, private insurance, etc.) given the patient mix and number of projected patients and encounters. c)How the proportion of requested Federal grant funds is appropriate given other sources of income discussed in (b) and specified in Form 3: Income Analysis SUPPORT REQUESTED – SAC (10 POINTS) 330 Grant Applications

16. Slide 16 Budgeting of Expenditures Salaries=Staffing Plan (FTEs) Fringe benefits=Percent of Salaries and Wages Supplies=Based on Visits Rent =Based on Current Leases Interest= Based on Current Loan Payments Other=Based on Reasonable/justifiable methodology (sq/ft, visits, FTE, etc.) 330 Grant Budgeting

17. Slide 17 Staffing Budget: –Consider:  Current Payroll Register  New Program or Site Expansion –Need Salary Cost and FTE Detail  Provider Versus Non-Provider Staff –Staffing Assists in the Budgeting of Various Expenses and Visits 330 Grant Budgeting

18. Slide 18 Expenditures: Review Prior Year Audited Financial Statements Review First 6 Months’ Internal Financial Statement Base Expenditures on First 6 Months’ Financial Statement: –Compare to Prior Year for Major Differences  Reconcile –Increase or Decrease Appropriate Cost Due to Visit Volume Variance –Increase or Decrease Due to Unit Cost Differences 330 Grant Budgeting

19. Slide 19 Patient Revenue Projection 1.# Visits = # of Providers (FTEs) X Indicator or Projected Visits (Indicators: Providers = 4,200 Visits/Year; Mid-levels = 2,100) 2.Payor Mix % 3.Current Approved Rates (MCD, MCR, Capitation - PMPM and Specialty Care Visits) 4.Sliding Scale & Contractual Adjustment 5.Collection % (Bad Debt Expense) 330 Grant Budgeting

20. Slide 20 Calculation of Projected Visits Projected Budgeted EmployeePositionFTEVisits Visits Dr. S. SmithInternist1.00 4,000 4,000 Dr. M. SanchezInternist1.00 4,000 4,000 Bill JonesNurse Prac.1.00 2,500 2,500 Total Visits 10,500 330 Grant Budgeting

21. Slide 21 Payor MCD MC. Cap# MCR S/P* OTP** % 20 15 35 10 100% # Visits 2,100 1,575 3,675 1,050 10,500 Rate $60 *** $75 Var Coll. % 95% 100% 50% Revenues $119,700 105,592 118,440 27,563 26,250 $397,545 # Managed Care Capitation Revenue * Average collection $7.50** Average collection $25.00 ***Based on projected member months and capitation rate 330 Grant Budgeting

22. Slide 22 DHHS Grant $ 494,426 (1) Program Income 397,545 Contract Services 237,195 (2) Interest Income 4,180 (2) Other 8,644 (2) Total Revenue $1,141,990 Total Projected Expenses $1,141,990 Excess of Projected Expenses Over Projected Revenue $ 0*** *** CHCs must always submit a balanced budget when submitting a 330 grant application. 330 Grant Budget Summary

23. Slide 23 Other Key Points / Coordination Needed With Other Sections of Grant Application: –Run Budget as a Check of Compliance with Financial Performance Measures –Business and Healthcare Plan –Improvement Proposal (Goals & Objectives) –Address Findings and Issues (Audit & Performance Reviews) 330 Grant Applications

24. Slide 24 Operational Budgeting Development

25. Slide 25 Importance of Budgeting Preparation of an annual operational budget and continuous budget monitoring allows management to anticipate and prepare for the effects of change from year to year. Projecting an operational budget begins with the determination of assumptions (internal and external) and a review of historical visit volume, expenses, and revenue. Monitoring the operational budget monthly will ensure the organization is apprised of the actual financial situation of the organization as well as allow adjustments in expectations and planning based on actual numbers.

26. Slide 26 Operational and Programmatic Budgeting In addition to retrospective reporting of financial and statistical data, CHCs should prospectively develop operational budgets to assist in the management of health center service delivery. There are various approaches to building an operational budget: Zero-Based Budgets Top-Down Budgets Incremental Budgets Deciding which approach works best for your organization depends on management style, current financial and strategic position, available resources, etc.

27. Slide 27 Operational and Programmatic Budgeting Zero-Based Budgeting - budgets are built from the unit level up. Each unit of revenue (visits, rates, grants) and cost (FTEs, salaries, fringe, and OTPS line items) are created based on expected performance. Advantages: Forces careful consideration of all items Allows health center to measure the impact of specific items Allows for decision-making at the lowest level Disadvantages: Individual parts may not tie together as a whole Time-consuming

28. Slide 28 Operational and Programmatic Budgeting Top-Down Budgeting - budgets are built from the highest level down (total revenue, total expense). Goals for the entire health center are applied to total revenue and expenses, and individual components (sites, programs) adjust their budgets accordingly. Advantages: Takes into account big picture Allows management to have large budget influence Measures realism of health center goals Disadvantages: May ignore specific, important unit level issues

29. Slide 29 Operational and Programmatic Budgeting Incremental Budgeting - prior year amounts are trended based on expected performance. Advantages: Incorporates historical perspective with expected trends Easy to create budget quickly Disadvantages: Trending from full-year vs. point in time (i.e., FTE that started in the middle of the year)

30. Slide 30 Operational and Programmatic Budgeting Under all three budget development options, CHCs can develop budgets for each department/program of the health center and/or budget by site. The following are some of the reasons to prepare budgets in one form or another: Department (i.e., Pediatrics) - allows management to understand the yearly changes of visit volume and costs by department and allows a focus on productivity at the individual provider level. Delivery Site - provides focus on health center operations and visit volume by a group. By creating a profit and loss statement by site, management can identify where additional resources are needed.

31. Slide 31 Budget Preparation Timeline Overall organization budget preparation for the next year should begin four months prior to the health center’s current year end. For 330 budgets, health centers need to consider appropriate preparation timeline. 330 grant budgets are due four months prior to the beginning of a grant period.

32. Slide 32 Sample Budget Preparation Timeline Timeline Leading to Approved Budget Action 4 months - Executive Management Meeting with Department Managers and Site Managers 3 months - Budget template distributed to Department Managers - Budget preparation training - Equipment request lists prepared 2 months - Department budgets due to Finance Department - Provider production, salaries, fringe benefits, and contractual revenue entered by Finance Department

33. Slide 33 Sample Budget Preparation Timeline Timeline Leading to Approved Budget Action 6 weeks - Finance team reviews department budgets - Begin dialogue with Board Finance Committee 4 weeks - Departmental budgets returned to Department Managers for revisions - Meetings set with Finance Department 2 weeks - Revised budgets due from Department Managers 1-2 weeks - Finance team finalizes budget for Board of Directors Meeting and for final approval by Board of Directors

34. Slide 34 Preparing Budget: Review prior year’s budget and actual expenditures Identify capital and equipment needs Provide written explanation for budget changes (increases or decreases of more than 10%) from prior year Provide crosswalk between performance goals and budget requests During Budget Period: Provide written explanation for variance between actual amounts and budgeted amounts during the fiscal year Ensure proper coding of invoices Department Head Responsibility

35. Slide 35 Preparing Budget: Prepare visit volume projections Estimate staffing changes for coming year Review projected revenue, compare against current contracts and reimbursement rates Review program-specific spending patterns Develop recommendations for program-specific spending authority Review capital and equipment needs submitted by department heads Finance Department Responsibility

36. Slide 36 During Budget Period: Generate actual versus budget reports for each department head monthly Review with department head if necessary Prepare monthly financial package by site for management and the Board Adjust for any unforeseen regulatory changes in a program’s budgeted reimbursement Finance Department Responsibility

37. Slide 37 Steps To Preparing An Organizational Budget Steps To Preparing An Organizational Budget

38. Slide 38 Importance of Budgeting Preparation of an annual budget and continuous budget monitoring allows management to anticipate and prepare for the effects of change from year to year. Projecting a budget begins with the determination of assumptions (internal and external) and a review of historical visit volume, expenses, and revenue. Monitoring the budget monthly will ensure the organization is apprised of the actual financial situation of the organization as well as allow adjustments in expectations and planning based on actual numbers. Re-budgeting is not recommended as a strategy during the year, but that significant variances of actual experience be explained from the original budget.

39. Slide 39 Step One: Identify All Sites and All Programs by Site Step One: Identify All Sites and All Programs by Site It is recommended that a health center prepare a budget by building from the program/department up. Health Center Site Department Program

40. Slide 40 Step One: Identify All Sites and All Programs by Site Step One: Identify All Sites and All Programs by Site

41. Slide 41 Step Two: Prepare A Projected Visit Report Because revenue and expenses are projected from visit assumptions the first step is to develop an organization-wide staffing list by site, department and program which includes FTEs, job title and funding source. Sources to Use: Provider FTE Detail - Payroll

42. Slide 42 Step Two: Prepare A Projected Visit Report

43. Slide 43 Step Two: Prepare A Projected Visit Report There are various factors to consider when projecting visit volume. The following are a few examples: User trends (demand side) Payor mix (demand side) New sites and/or departmental expansion = new hires (supply side) Provider productivity targets (supply side)

44. Slide 44 User Trends: (What are the trends?) Is the health center increasing the number of users due to outreach? Is it losing users to competitors? Are there any changes in the community that may cause current users to increase/decrease their number of visits? Has there been a change in community demographics that may cause a variation in the user profile, (i.e., more families moving into the community, less migrant workers due to economy)? Has managed care changed utilization rates (up or down)? Do certain payors have different use rates than others? Step Two: Prepare A Projected Visit Report

45. Slide 45 Payor Mix: Changes in economy resulting in changes in payor mix Implementation of Medicaid Managed Care, Child Health Programs, Family Health Programs Age of community Changes in policy, (i.e., welfare reform, State programs - uncompensated care) Step Two: Prepare A Projected Visit Report

46. Slide 46 New Sites and/or Services: Opening/Closing of a site –Consider whether a new site will shift visits from an existing site. Adding new services/departments Step Two: Prepare A Projected Visit Report

47. Slide 47 Productivity: Review prior year productivity levels by provider. What factors may contribute to a change in provider productivity? –Has the health center actively taken steps to increase productivity (i.e., implemented an incentive compensation plan, educational training, individual provider productivity reporting)? –Are there new providers who are building their panel? –Are exam rooms and support staff at capacity? –Is productivity driven by supply (internal) or demand (external) issues? Step Two: Prepare A Projected Visit Report

48. Slide 48 Productivity: Set productivity projections: –Consensus between Medical Director and providers on realistic productivity projection –If the health center is planning a major expansion, is there demand in the community to meet visit targets? Recognize the role of contracted providers – is the data available to impute FTEs (may also be useful for provider dependent expenses) Consider folding in providers who only spend a portion of their time doing visits with other providers Step Two: Prepare A Projected Visit Report

49. Slide 49 Revenue Budgeting – Fee for Service/Cost-Based Reimbursement : In the visit projection for ABC Health Center, the physicians at Site A performed 7,980 visits and the dentist performed 2,500 visits. To calculate revenue for Site A, the steps are to: 1.Divide up visits by payor mix 2.Multiple visits by charge per visit 3.For all payors except self-pay and capitation, compare charge per visit to net revenue per visit to calculate contractual allowance rate and calculate net revenue. 4.For self-pay, multiply charge by average sliding fee percentage. 5.Multiply by collection percentage to calculate projected revenue. Step Three: Revenue Projection

50. Slide 50 Revenue Budgeting - Capitation : In projecting capitation rates for commercial plans a standard trend factor could be applied based on historical rate increases. In projecting capitation rates for State programs, such as Medicaid Managed Care, Child Health Program and Family Health Program, an understanding on policy legislation, and overall market trends will help accurate projections. Step Three: Revenue Projection

51. Slide 51 Capitation : Factors to consider when projecting capitation revenue: Estimate any change in utilization. Does actual/projected utilization conform with visit assumptions? Estimate any changes in members and member months from the prior year: Enrollment Disenrollment New contracts Conversion of existing FFS members Step Three: Revenue Projection

52. Slide 52 Step Three: Revenue Projection Calculating Medicaid Managed Care Projected Revenue: Step 1: Estimate Average Members Per Month and PMPM Rate Step 2: Calculate monthly reimbursement (Members X PMPM) = $3,420 Step 3: Annualize the monthly reimbursement - $3,420 X 12 = $41,040 Estimate any changes in the age/sex/eligibility categories of members.

53. Slide 53 Revenue Budgeting - Capitation : In many capitated arrangements several procedures are carved out of the capitated rate as billable fee-for-service procedures. If the capitated plan contract is up for negotiation during the budgeted year or prior, project any changes to current arrangement regarding which procedures a billable fee-for-service procedures and which are not. Step Three: Revenue Projection

54. Slide 54 Step Three: Revenue Projection Patient Services Revenue Projections By Site and Payor Site A - Medical

55. Slide 55 Step Three: Revenue Projection Patient Services Revenue Projections By Site and Payor Site A - Dental

56. Slide 56 Step Three: Revenue Projection

57. Slide 57 Step Three: Revenue Projection Patient Services Revenue Projections By Site and Payor:

58. Slide 58 Step Three: Revenue Projection Patient Services Revenue Projections By Site and Payor:

59. Slide 59 Step Three: Revenue Projection Patient Services Revenue Projections By Site and Payor:

60. Slide 60 Step Three: Revenue Projection Patient Services Revenue Projections By Site and Payor :

61. Slide 61 Step Three: Revenue Projection Patient Services Revenue Projections by Site - Overall:

62. Slide 62 Step Three: Revenue Projection Patient Services Revenue Projections by Program - Overall:

63. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Revenue Budgeting - Grant Revenue: In budgeting 330 and other Federal grant dollars, the following questions should be considered: Are you expecting a 330 Grant increase? Do you expect to be able to spend the full grant during the year? Have you received approval for any carryover of any unobligated balances from the prior grant year? Have you reprogrammed any unobligated balances from the prior grant year? Step Three: Revenue Projection

64. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Revenue Budgeting - Wraparound: Calculate eligible visits Calculate difference between cost based rate and projected Medicaid Managed Care revenue (varies by State) Step Three: Revenue Projection

65. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Wraparound Protection : Example: Step Three: Revenue Projection

66. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Revenue Budgeting - State/Local Grants or Contracts: State or local contracts require a contract specific budget be prepared and followed throughout the contract term. Modifications to the budget must be approved by the State or local agency. The contract specific budgets should roll into the overall organization budget. Step Three: Revenue Projection

67. Slide 67 Step Three: Revenue Projection (1) 2008 current service level + 1.5% (2) Same as annualized 2008 revenues

68. Slide 68 Step Three: Revenue Projection Projected Interest Income and Miscellaneous : It is recommended to base projected interest income and other miscellaneous revenue on historical/prior year data.

69. Slide 69 ABC Health Center Projected Revenue : DHHS Grant $999,160 (1) Program Income 1,807,969 Contract Services 230,150 (2) Wraparound 196,620 Interest Income 2,750 (2) Miscellaneous 1,901 (2) Total Revenue$3,238,550 (1) 2008 current service level + 1.5% (2) Same as annualized 2008 revenues Step Three: Revenue Projection

70. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Step Four: Budget Expenditures Key Points to Budgeting Expenditures: Review prior year financial statements Review first 6 months internal financial statement Base expenditures on first 6 months financial statement: –Compare to prior year for major differences and reconcile –Increase or decrease appropriate costs due to visit volume variance –Increase or decrease due to unit cost differences

71. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Expense Budgeting: Important factors to consider: Health center growth (number of units) Inflation or salary increases (unit costs) Fringe benefit changes Fixed vs. variable expenses Step Four: Budget Expenditures

72. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Step Four: Budget Expenditures Budgeting of Expenditures: Projecting the expenditures for the following expense categories will be based on different variables: Salaries=Staffing Plan (FTEs) from the Salary List Fringe Benefits=Percent of Salaries and Wages Supplies=Based on Visits Ancillary Cost=Based on Visits by Site and Department Facility=Based on Current Leases Interest= Based on Current Loan Payments

73. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Step Four: Budget Expenditures Start your budget by listing projected providers and staff’s FTE and salary. For current staff incorporate expected salary increases. Based on assumptions of change in volume and/or scope of services include new hires. Next step is to distribute FTE and salary among sites.

74. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Step Four: Budget Expenditures

75. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Expense Budgeting - Staffing: Staffing is far and away the most important item in your budget: Salary and fringe typically makes up 65% - 75% of a health center budget Step Four: Budget Expenditures

76. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Expense Budgeting - Staffing : Direct support staffing: Includes nurses, nurse aides, medical attendants, medical/dental receptionists Should closely correlate to the number of providers Health centers average approximately 2.2 direct support staff FTEs per each provider FTE Step Four: Budget Expenditures

77. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Expense Budgeting - Staffing: Enabling/program staffing: May be prescribed in a grant/contract Enabling staff FTEs may appear lower than expected, since providers may also perform enabling services. Health centers average approximately.6 enabling staff FTEs per each provider FTE Step Four: Budget Expenditures

78. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Expense Budgeting - Staffing: Overhead staffing Key expense driver - measure overhead salaries per visit and as a percentage of total cost Includes administration, billing, facility and other Health centers average approximately 2.9 overhead support staff FTEs per each provider FTE Step Four: Budget Expenditures

79. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Step Four: Budget Expenditures Projected Expenditures - Contracted Ancillary: The first step in budgeting ancillary expenses is to determine for which payors the health center is responsible for the ancillary service and for which the payor is responsible. The second step would be to allocate ancillary expenses by site and by payor based on visits.

80. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Expense Budgeting - Fixed/Variable OTPS: 80% - 90% of health center OTPS costs are fixed, (i.e., they will not change significantly regardless of health center volume, unless other changes are made). Other expenses will vary based on a number of factors: –Malpractice - Provider FTEs –New rent or depreciation charges - Square footage –Medical supplies - Visits Step Four: Budget Expenditures

81. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Expense Budgeting - OTPS: There are several ways to consider OTPS line items: Contractual - is there a contract (for example a lease) that specifies a dollar amount? Does this contract include inflation? When is the contract renewed? Fixed dollar amount - is there a pre-existing schedule (i.e., for interest or depreciation) that allows you to budget a specific amount? Step Four: Budget Expenditures

82. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Step Four: Budget Expenditures

83. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Step Four: Budget Expenditures Projected Expenditures - Facility: Budgeting of facility expenses is based on current leases.

84. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Step Four: Budget Expenditures Allocating Expenses to Programs: In order to properly allocate overhead/indirect expenses, salaries should be separated into DIRECT and INDIRECT categories. Allocation of indirect expenses to programs should be based on the following methodologies: Administration - Percentage of total direct expense Facility* - Square Footage Medical Records/Data Processing - Visits *Centralized Administration facility should be allocated among sites by percentage of total direct expense.

85. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Step Four: Budget Expenditures The allocation of indirect expenses may be distributed among sites using the following methodologies: Administration - Total Direct Exp. / Total Direct X Total Admin at Site Expense Salary Data Processing - Total Site Visits / Total Visits X Total Data Processing Salary Medical Records - Total Site Visits / Total Visits X Total Medical Records Salary Facility Staff - Sq. Ft. of Site / Total Sq. Ft. X Total Facility Salary

86. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Step Four: Budget Expenditures Medical, administrative and janitorial supplies should be budgeted using inflation, demand, and volume considerations. In projecting a percentage increase from prior year, consider the following: Change in visit volume Opening/closing of site Increase/decrease in staff In this example, the health center increased supply expenses by 5% over the prior year. Projected Supplies Budget :

87. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Step Four: Budget Expenditures – Allocate to Sites

88. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Step Five: Bottom Line

89. Slide 89 Projected Expenses : Total Projected Expenses$3,305,400 Excess of Projected Expenses Over Projected Revenue$ 11,540*** *** CHCs must always submit a balanced budget when submitting a grant application. Step Four: Budget Expenditures

90. Slide 90 What If Budget Results are Different from Expectations ? REVIEW - Patient revenue assumptions, staffing ratios, salaries, capital and other expense requests by site and program. Ensure all grant, contracted, and foundation funding is included. REASSESS ASSUMPTIONS - Are volume assumptions realistic? Are productivity assumptions realistic? REALIZE - Areas of expenses to cut. The budget process is iterative and requires several cycles to get to the final budget. Step Five: Review Budget

91. Slide 91 Budget Monitoring

92. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Budget Monitoring THINGS DO NOT ALWAYS TURN OUT THE WAY WE WOULD LIKE. Budgeted revenues and expenses must be compared on a monthly basis to actual data and prior year data. From this analysis, all significant fluctuations will be identified, allowing the management team to investigate and rectify areas of concern, and if necessary, modify the budget and create a new action plan.

93. RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Why Differences Occur While monitoring the budget, there are several factors that may contribute to differences between actual and budgeted data. The following highlights common factors that require adjustments to a projected budget: Unforeseen windfalls of revenue (i.e., reinvestment money) Unexpected expenses (i.e., ancillary usage increase) Shift in payor mix Provider productivity Increase/decrease of visit volume FTEs Accounting entries

94. Slide 94 Management Report Package

95. Slide 95 Balance Sheet

96. Slide 96 Statement of Operations

97. Slide 97 Cash Flow Report

98. Slide 98 Activity Report

99. Slide 99 Variance Reporting Should accompany monthly financial and activity reports Written explanation of significant variances from either budget or prior year’s actual figures Does not preclude Board from asking questions about other variances.

100. Slide 100 It is recommended that the following additional reports be prepared monthly: Revenue and expense statements by department / program Days in accounts receivable by payor source User trends Managed care actuarial mix and utilization Contract revenue and receivable analysis Interpreting Management Reports

101. Slide 101 Analyze changes in patient revenue as compared to changes in patient volume (i.e., visits), prior year vs. current year and current year vs. budget. Change in Reimbursement Rates - how do these changes compare to your rates or contracts? Shifts in Payor Mix - are you losing Medicaid FFS patients to managed care? Are more of your visits self-pay? Analyzing Patient Service Revenue

102. Slide 102 Analyze trends in days in accounts receivable by payor: –Is days in A/R less than 100? –Are certain payors not paying on a timely basis? –Are you appropriately recording contractual allowances? Total A/R: –Has A/R been cleaned up to recognize bad debt? Analyzing Accounts Receivable

103. Slide 103 Analyze changes in expenses as compared to changes in patient volume (i.e., visits). Any Unusual Trends Should Be Researched: 1. Analyze by department 2. Review costs per visit  By department  By ancillary cost (i.e., Lab, x-ray) Analyzing Expenses

104. Slide 104 Current users: –Is payor mix shifting? –Are you losing users to your competitors? –What is the visit utilization of your users? –Are managed care users retaining the health center as their PCP? New users: –What is the source of new users? Outreach? –Does the payor mix of new users differ from that of current users? Are other demographics different? Analyzing Users

105. Slide 105 Payor mix: –What is capitated vs. fee-for-service utilization per user? –How does utilization vary by payor? Provider productivity: –How does productivity vary by provider? –How does productivity compare to prior year? Analyzing Visits

106. Slide 106 Session Summary Health center managers need to understand and utilize a number of reports and financial tools to aid management and the Board of Director decision-making. Key components to achieving this goal are: Preparing and monitoring departmental and organizational budgets Analyzing both expense and revenue drivers at the health center Keeping the Board of Directors and senior management informed Updating fiscal information throughout the year

107. Slide 107 Questions??? 107

108. Slide 108