Summing It Up

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Alan Gracie

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Why Hospitals Need to Perform Due Diligence in Physician Practice Acquisitions

Acquiring Physician Practices Brings Risk Along with Benefits

Authors: Alan Gracie, Ryan Grady, Shawn Frier

The number of hospitals pursuing acquisitions of physician practices is on the rise. Why? Because they hope it will help improve care, cut costs and boost profits. However, such transactions aren’t without risk and they require comprehensive due diligence. On the financial side, a hospital should perform due diligence in these areas in particular.

Sustaining revenues

The sustainability of the practice’s revenues is key to its value as well as the eventual success of the transaction. But revenues can be inflated because of overdependence on either a limited number of referral sources that could dry up, or a small number of providers who might depart.

Moreover, trends in reimbursement rates may also distort revenue. If rates for one of the practice’s primary services are dropping, the services might bring in less revenue down the road.

Practice revenues and the distribution of procedure codes both should be compared to appropriate benchmarks to determine reasonableness. The facility should also determine each physician’s age and estimate how long he or she might remain with the practice.

Another area to scrutinize is the revenue cycle. Ask yourself how long it should take to convert a procedure into revenue. Also consider the patient flow process, collections and denials, and billing and documentation practices.

Understanding expenses and capital requirements

Do you anticipate any major expenses on the horizon, such as increased rent for more space, supplies or costly equipment? If so, prepare a list of all incurred but unpaid accounts payable and accrued expenses as of your balance sheet date. Next, compare operating expenses, overall and by category, with appropriate benchmarks.

It’s likely that physician compensation is the source of any substantial jumps in expenses. Make sure you review every physician’s employment agreement and compare their compensation with benchmarks. If you find any significant discrepancies, get further explanation.

You should also think about the practice’s future capital requirements. For instance, will significant investment be necessary to implement needed technology upgrades for electronic health records (EHRs)?

Consider other financial obligations

Your facility should gather copies of all outstanding debt agreements and summarize the relevant terms, including covenants, repayment terms and assets pledged as security. Also confirm that no loans are in default.

Some hospitals decline to assume a practice’s debt as part of the transaction. But there may be similar obligations lurking out there in the form of commitments or contingencies that don’t appear on the balance sheet. Your hospital should be aware of any change-in-control payments that could be triggered by a transaction, for example. And a self-insured practice might have incurred, but never reported, a medical malpractice claim that may come back to haunt the hospital.      

Do your due diligence

Comprehensive due diligence requires all hospitals to consider many other areas that will affect both the practice’s value and the success of the transaction.

Make sure you engage legal and consulting advisors who are experienced with hospital purchases of physician practices. They can help you navigate all of the compliance, legal, and transition matters that must be addressed.

If you have any questions about due diligence or any other issue pertaining to hospitals, give us a call at 716.847.2651, or you may contact us here.

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How Hospitals Can Avoid a Costly Surprise From Unclaimed Property

Unclaimed Property Audits Are on the Rise

Authors: Alan Gracie and Ryan Grady

unclaimed propertyWith budgets still tight in some areas, and tax increases highly unpopular, many state governments have revived their unclaimed property laws in order to raise much-needed revenue. To find unclaimed property, states often retain outside auditors on a contingency fee basis, which encourages these freelancers to go after industries that are most likely to harbor such property.

And health care is one of their targets.

Defining the term

Unclaimed property is typically defined as property that’s held or owed in the ordinary course of business that the owner hasn’t claimed for a certain period of time, which is known as the “dormancy period.” All 50 states and the District of Columbia have enacted such laws allowing them to collect unclaimed property. Because these laws don’t represent taxes, they aren’t subject to statute of limitations rules. Most audits cover periods dating back from 10 to 20 years.

Under unclaimed property laws, the party that holds the property must transfer the abandoned property to a state custodian after the expiration of the dormancy period. The period’s duration varies by state as well as by type of property (for example, unpaid credit balances or wages), but it usually runs anywhere from three to five years. Regardless of the state your hospital is in, the period always begins on the date of the last contact with the property owner.

Intangible property

Unclaimed property laws mostly target intangible property such as funds. For hospitals, unclaimed property can take the form of accounts payable, accounts receivable, payroll, unapplied cash, writeoffs, patient refunds, benefits, open payables and particularly unpaid credit balances. Such credit balances can result from insurance company overpayments or reimbursement rule changes, data transfer problems during billing system upgrades or duplicate payments.

Here’s an example: Suppose a patient makes a $20 copayment to a hospital’s imaging center for a mammogram on March 1, and it turns out that the mammogram is fully covered by the patient’s insurance plan. After a few months, the hospital determines that the patient’s payment is actually an overpayment, and a credit balance is created. If the patient can’t be found within the dormancy period, the $20 is considered to be unclaimed property, and is subject to remittance to the state.

Here’s another scenario … a hospital’s billing system is set up to record a $600 receivable for a certain procedure. Under a new contract that was entered into after the billing system was last updated, the insurance company pays the hospital $700. An auditor may identify that $100 difference as an overpayment and potential unclaimed property.

In such cases, the facility needs to either prove the $100 isn’t unclaimed property (a process called remediation) or risk that it will be counted as such when the auditor pulls out the hospital’s overall liability for unclaimed property in the audit period based on a sample drawn from potential unclaimed items.

Tricky business

To avoid a possible costly surprise in an unclaimed property audit, hospitals need to determine whether its unclaimed property has aged out of the applicable dormancy period. That can be tricky, though.

For one thing, the facility needs to look beyond the state where it’s located because the relevant law and dormancy period will depend on the last known address of the property’s owner. The United States’ current health care payment model also complicates matters, as the example involving the $20 overpayment illustrates. Even if the credit balance may not have appeared on the books until May or June, the aging began in March — the date of the last contact with the patient.

unclaimed property and hospitals

When it’s determined that an account has aged out of the dormancy period, the facility must send a due diligence letter to the patient in order to return the funds. And, if a refund can’t be made, payment must be made to the patient’s last known state.

Don’t wait for the auditors to show up

auditMany hospitals have learned the hard way that seemingly trivial amounts of unclaimed property can quickly add up to thousands and even millions of dollars in liability to the state. So, don’t wait for the auditors to come knocking at your door — work with your financial and legal advisors to get your unclaimed property house in order.

If you have any questions about unclaimed property laws or any other issue pertaining to hospitals, give us a call at 716.847.2651, or you may contact us here.

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Don’t Let Your Hospital Lose Its Tax-Exempt Status

Tax-Exempt Hospitals Must Adopt New IRS Requirements

Authors: Alan Gracie, Tim Dalton and Mary Madonia

The IRS recently released proposed regulations that clarify a not-for-profit hospital’s responsibilities under the Affordable Care Act (ACA). Such hospitals must satisfy certain requirements in order to maintain their tax-exempt status. They can rely on the proposed regs until the final regs are issued.

Written financial assistance plan

Under the regs, a tax-exempt hospital should establish a written financial assistance plan (FAP) that describes the eligibility criteria for financial assistance and whether such assistance includes free or discounted care. In addition, the FAP must include the basis for calculating amounts charged to patients and the method for applying for assistance.

In cases where a hospital doesn’t have a separate billing and collections policy, the FAP describes the actions it may take in cases of nonpayment. Finally, it includes measures intended to publicize the FAP within the community that the hospital serves.

Amazingly, the regulations don’t outline any specific substantive requirements for a FAP in regard to eligibility or the amount of assistance. This leads us to conclude that individual hospitals can determine the most effective ways to serve their particular community.

To establish the FAP, it must be adopted by an authorized body (that could be your board of directors or trustees) and then consistently carried out. Organizations that operate multiple hospitals should implement a separate FAP for every organization, even though such policies may contain the same terms.

Regs offer financial assistance to some

The regs prohibit hospitals from charging more for people who are eligible for financial assistance, and for medically necessary care that’s greater than the “amounts generally billed” (AGB) to insured individuals. Moreover, the regs require hospitals to limit the amounts charged for medical care provided to a FAP-eligible patient to less than the gross charges for that care.

The regulations offer two methods for determining AGB:

  1. The look-back method is based on past claims paid to the hospital by either:
    • Medicare fee-for-service only, or
    • Medicare fee-for-service together with all private health insurers paying claims to the hospital.
  1. The “prospective” method requires hospitals to estimate the amount they would be paid by Medicare and a Medicare beneficiary for medical care if the FAP-eligible individual were a Medicare fee-for-service beneficiary.

The regs also provide a safe harbor in instances when a hospital doesn’t know whether a patient is eligible for assistance. If the patient hasn’t applied for such assistance, the hospital can bill the patient at its normal charges, as long as it’s reaching out to determine eligibility. If the patient is eligible, the facility must refund any excess payments that have already been made.

Regs prohibit extraordinary collections

Tax-exempt hospitals are prohibited from engaging in certain extraordinary collections practices (for instance, reporting a debt to a credit agency or garnishing wages) until it makes considerable and reasonable efforts to determine whether the individual is eligible for financial assistance. In order to make this determination, the regulations require charitable hospitals to provide patients with a simple summary of the FAP before the patient is discharged and with the first three bills. In addition, hospitals must give patients up to 120 days following the first bill to submit an application for financial assistance before the facility commences extraordinary collection actions.

Moreover, the regs allow the patient still another 120 days to submit a complete application. Finally, the regulations state that hospitals must refund any excess payments that were made before the patient applied for financial aid and try to reverse any collection actions that have begun if the patient is determined eligible for financial assistance during those 240 days.

If a patient submits an incomplete application for financial assistance, the hospital will need to provide the information necessary in order to complete it.

Providing emergency care

Tax-exempt facilities need to have written policies requiring them to offer emergency medical care without discriminating against any patient who might need financial assistance. (The regulations state that a policy that satisfies the EMTALA requirements is usually sufficient.) In addition, the policy must prohibit debt collection activities in the emergency department or other hospital venues where collection activities might interfere with the patient’s treatment.

But there’s more …

The Affordable Care Act also requires that tax-exempt hospitals conduct community health needs assessments on a regular basis. The new regs note that the IRS is likely to issue proposed regs on those requirements at some point in the future.

For any questions on healthcare, contact us here or give us a call at 716.847.2651.

tax-exempt hospitals

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Social Media Isn’t Just for Teenagers Anymore, It’s for Hospitals Too!

How Hospitals Use Social Media to Connect with Patients and Physicians Alike

Authors: Alan Gracie and Ryan Grady

social media and health careWhat do Sutter Eden Medical Center, Children’s Hospital Los Angeles and the Mayo Clinic have in common? Social media! These medical facilities and countless others have all started using Facebook, live surgical Twitter-casts, and YouTube to get the word out about their facilities. In fact, this form of communication might very well change the way hospitals do business.

Implementing a social media program

If your facility is ready to tackle social media, there are a few steps you need to take. First, make sure you augment your website with a blog. This will help you gain experience with social media by engaging with patients and others in a controlled setting. For instance, take note of:

  • How many people visit your blog,
  • The number of positive vs. negative comments you receive, and
  • What types of issues tend to interest your visitors.

Consider working with a search engine optimization (SEO) expert to help you index your blog so it shows up on the first page of Web searches for your community. In addition, be ready to eventually promote your hospital’s blog on other social media platforms.

The next step is to designate someone to take the lead in building your hospital’s social media capabilities. It’s so important that you commit the resources (including personnel) necessary to maintain an up-to-date social media presence. The more frequently a social media account or a blog is refreshed with new content, the more likely that your visitors will return. In addition, make sure you develop metrics that can help you measure the site’s success and return on investment from your activities.

It’s also important that you view social media as a set of tools (such as direct mail or advertising) to help achieve your facility’s business model objectives, not as a strategy unto itself. The difference is that advertising can be quite expensive, and it delivers messages to large audiences, many of which have no interest in the organization or its services. On the other hand, social media messages go out only to those consumers or patients who have a keen interest in a particular hospital, and at a much lower cost.

Even if you start with just a website and blog, you’ll gain a ton of experience by engaging with consumers in a controlled setting. Once you’ve got that down, you can build onto the website and blog as needed.

Understanding the differences

Make sure you establish a formal presence on Twitter, YouTube and Facebook. Be prepared to delete any inappropriate comments and block those who are behaving rudely or are clearly only interested in causing trouble (commonly known as “trolls”).

As you seek to build a body of Twitter followers, YouTube subscribers and Facebook friends, experiment with the best uses for each. For instance, if you have a library of video and audio recordings, these would be best suited for YouTube.

Facebook is geared more toward longer messages as well as videos and photos. For example, post links to or upload PDFs of printed materials — such as press releases or media articles on clinical breakthroughs, awards or new facilities. Also consider adding photos of charitable events and staff gatherings.

If you want to push brief “breaking news” type notices, Twitter is “your man.” For instance, you might tweet “Recent survey indicates our hospital has the highest patient satisfaction rate in the state,” and then accompany the message with a hyperlink to the survey data.

Bottom line: Understand that social media should be viewed as a set of tools, similar to advertising or direct mail — and that it’s meant to help achieve your hospital’s strategic objectives.

HIPAA limits

Before you get too excited about social media, remember this: HIPAA has placed limits on the way your hospital can answer questions on patients’ health over a social network. So make sure you abide by those rules and use common sense as you engage in social media.

For any questions on healthcare, contact us here or give us a call at 716.847.2651.

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Building Hospital Brand Loyalty, One Patient at a Time

Branding Can Provide Boost in Healthcare Marketing

Authors: Alan Gracie and John Kropski

green_arrow.jpgBrand loyalty isn’t just for electronic devices and cereals. It can also be an integral part of marketing your facility’s health care services in a competitive marketplace.

Making your branding effective

To be truly effective at branding, you must go beyond designing a simple logo or coining a catch phrase. You must recognize that it’s a marketing technique which can help guide the organizational behavior and perceptions of consumers, regulators, the media and other stakeholders. And in the competitive arena known as health care, a good brand can allow you to differentiate your hospital from all the others, as well as draw and retain patients and top-notch providers alike.

In a time of increased consolidation, branding is especially critical for hospitals. When multiple systems integrate, they need to form a single, definitive and unifying brand that can help move the organization forward.

So what makes your hospital different from the rest?

Branding starts with identifying your hospital’s strengths. So what makes your facility stand out? Is it state-of-the-art facilities? Highly rated physicians? Or patient-friendly payment plans? On the other hand, could it be transparent pricing? Cutting-edge research? Or a wide range of services?

While it’s easy to boast about your strengths, you can’t overlook your weaknesses. This is where consumer research comes in. It can help you discover your “position” in the marketplace. Hearty research will allow you to learn the factors that consumers weigh when selecting a community hospital, as well as their likes and dislikes about your facility and competitors. Consumers’ values and perceptions should drive your message on how you’re different from other hospitals.

Start spreading the news

Once you know what you want to say, determine your target markets, as well as the best ways to reach them. Doing this will allow you to plant your message in people’s minds before they actually need your services.

The Internet is probably the first place someone will go to find a hospital. So make sure your hospital is at the top of the list by employing search engine optimization (SEO) techniques. SEO involves using links, keywords, meta tags (that is, hidden terms that search engines read), and relevant content to improve your website’s visibility in a search engine’s “natural,” or unpaid, search results.

To maximize your hospital’s reach, rely on multiple media, such as your website, billboards or print ads. Consider using digital media such as Twitter and Facebook. And don’t leave out TV and radio ads, public relations activities and other marketing techniques to express your brand and build awareness of it.

Make sure you don’t use the same message for all the different types of media or for each target group. But make sure you do modify your message as needed for each specific medium and target audience — all the while staying consistent with your overall brand.

Go inside

Any branding efforts should be targeted internally, as well. It’s critical that you “sell” your brand to every employee before you sell it to the public. Why? Because your employees literally embody your brand. If friendliness, promptness, responsiveness, competence and service excellence are the key features of your brand, your employees must act accordingly. Otherwise, the message will ring hollow. 

To turn employees into ambassadors of your brand, make sure you educate them about it, show them how to put it in action, and do your best to motivate them to practice it. For example, implement an internal program that might include:

  • Training videos or group sessions that show what different groups of employees — for example, nurses or lab technicians — can do to express your brand,
  • A brand handbook or an intranet page that tells what your brand is, why it’s important, and how to put it in action,
  • An employee newsletter that strongly reinforces understanding of your brand and then gives examples of the types of behavior that enhance it, and finally
  • A program that rewards employees who excel in living the brand.

You might even host a brand rollout event, where your employees are treated to refreshments and token reminders of your brand (such as mouse pads or key chains with your logo), and motivated with skits and fun exercises to live your brand.

Other ways to promote your brand are by offering loyalty cards or reduced rates for return patients, concierge and multilingual services, same-day scheduling, videos that feature engaging patient storylines, and free health screenings.

Go for the gold

Make sure you measure the results of your branding program, which will allow you to analyze your returns on investment for different initiatives. This will also help you in identifying the messaging, tactics and media that produce the most cost-efficient results.

For any questions on your branding program, contact us here or give us a call at 716.847.2651.

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