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68 www.seniorshousingbusiness.com Seniors Housing Business n February-March 2015 Finance Armed with proper tools, nursing home operators can alleviate pressures Do you have a care plan for your fnancials? By Martin Cauz Nursing care facilities need to have the necessary human and fnancial capital to deliver the highest quality of care to residents. To say that nursing care facilities in the United States are currently facing tremen- dous fnancial pressures would be an understatement. Some of these pressures include: reimbursement rate pressures from Medicare and Medicaid; Medicaid payments being delayed due to poor fscal conditions at the state level; attracting, retaining and compensat- ing high-quality staff; changing technology; and increased regulatory requirements that result in increased spending — and that's just to name a few. Do short-term strategies work? When these external fnancial pressures slowly begin to compound, operators are at risk for a downward spiral of cash fow. What is the operator to do with this reduced level of cash fow? If the operator has suffcient cash reserves and/or availability on a line of credit ("liquidity"), they can tap into those resources. How- ever, if liquidity is tight, the operator will typically resort to various short-term strategies. While these strategies may work temporarily, on a long-term basis they will ultimately harm the operator's cash fow even more. n By deferring capital expenditures a facility's curb appeal or functional- ity will begin to deteriorate, which may result in survey issues and/or decreased census. n By stretching vendors the operator's credibility will decline and the vendors may start charging late fees and/or place the operator on a "cash on delivery" or "cash in advance" status, which will further tighten liquidity. n By reducing staf the operator may fnd out that these staff members played a critical role in maximizing reimbursement rates, building cen- sus and controlling costs. n By reducing marketing spend the facility's census may begin to decline. n By deferring regulatory payments the operator will begin to incur fnes and penalties; and by deferring fnancing payments the operator will most likely be in default, start to incur default interest and/or face loan acceleration. These short-term strategies have addressed the symptoms but not the root cause. Furthermore, the reduced cash fow that was once only the result of external fnancial pressures is now the result of both external and internal pressures. Ultimately, the long-term effect hurts an operator's viability and that operator may now be looking at an insolvent business that has residents depending on them for care. Similar to how operators consistently evalu- ate the health status of their residents, operators need to consistently monitor the fnancial health of the business. Develop a care plan for fnances Providing the highest quality of care to residents is typically part of a nursing care facility's mission or goal. So how do operators achieve their mission or goal to provide that highest quality of care? First of all, a minimum data set (MDS) provides a standardized, pri- mary screening and assessment tool of health status for all residents in a Medicare- and/or Medicaid-certifed facility. The MDS consists of an assessment of each patient's physical, psychological and social function- ing to ensure proper evaluation and care. Assessments are required on a prescribed timely basis. If a resident's status changes signifcantly, an additional assessment is done at that time. Leveraging the MDS, successful operators provide the highest quality of care by developing quality care plans, ensuring that their facility is in proper operating condition, having the appropriate systems in place and acknowledging whether they have the proper staff and/or equipment to take care of the residents. Similar to providing the residents with the high- est quality of care, operators must possess the same approach to cash management and operating the business. In other words, operators need to have a care plan or assessment process for the fnancial operations of the business. An operator cannot control external fnancial pressures so they always need to be prepared. Of course, that's easier said than done. Similar to how the MDS provides a screening and assessment tool of a resident's health, opera- tors need screening and assessment tools to monitor fnancial health. I call these tools a Financial Health MDS (FHMDS). An operator's FHMDS should include the following categories: n Capital structure n Referral hospital discharge data n Treasury management n Cost control n Financial reporting n Required stafng levels and payroll management n Financial planning n Surveys and corrective & analysis action plans n Census and payor mix n Fines and penalties n Census development n Risk management (regulatory and legal) n Clinical n Physical condition of reimbursement facilities and equipment While the frequency and approach to monitoring these categories can differ from operator to operator, these FHMDS categories must be continuously monitored so that the operator can be prepared for external fnancial pressures and mitigate internal pressures. Tools to assist in monitoring While there will be multiple people monitoring the FHMDS catego- ries, the following tools, which do not require sophisticated software to implement, have proven to be very successful in the monitoring process: n A 13-week cash fow forecast provides the operator with a detailed view of projected cash fow (infows and outfows) over a rolling 13-week period. This tool enables the operator to make better cash man- agement decisions and see if a liquidity crunch may be on the horizon. It provides a view of the upcoming working capital needs and enables the operator to be proactive versus reactive. n Key performance indicators (KPIs) are quantifable measurements that help evaluate the critical success factors of the FHMDS categories. KPIs may be fnancial or non-fnancial data; however, there needs to be a clear method on how to accurately defne and measure them. KPIs provide operators with the most important performance information to manage their business. n A heat map is an easy tool to implement and provides a visual rep- resentation of data using colors. It can be used in conjunction with KPIs. For example, if an operator has 20 facilities, an occupancy heat map can be developed to show distribution of occupancy levels by facility. A heat map is a very powerful tool to visually summarize a lot of data in a single graphic. Operators are required to invest so much into developing care plans to address the ever-changing physical and mental health of residents. While not required, it would be prudent for operators to invest in the development of a care plan for fnances. n Martin Cauz is a managing director at Marotta Gund Budd & Dzera (MGBD). MGBD is a fnancial advisory and restructuring frm specializing in advising compa- nies, creditors, investors and oth- ers facing opera- tional and fnancial challenges. Cauz is based in New York and can be reached at mcauz@mgbd. com.