2021 Budget Planning Considerations for LTPAC Facilities | Healthcare Accounting Services | Richter

For long-term post-acute care (LTPAC) providers, it’s already time to think ahead to 2021. More specifically, it is budgeting season if you have a December fiscal year end. Budgeting is critical for purchasing decisions, and having an accurate budget is necessary when it comes time to analyze financial performance. Instead of just assuming the same performance from year to year, we at Richter recommend focusing on the areas below and reflecting any changes as necessary.

Key Financial Items to Review:

Census

Census drives revenue as well as many operating expenses. Carefully consider the payer mix of this occupancy as well; payer mix is the source of your room and board revenue. If your facility is involved in marketing efforts to enhance census, for example, with a hospital, reflect that expected change when completing the census projection. The payer mix causes large variations when it comes to total revenue dollars and cash flow planning.

Given the coronavirus (COVID-19) pandemic, it will be very challenging to project census for the coming year. Most providers have experienced an extreme decrease in occupancy in recent months, so basing projections off the previous year won’t be ideal.

Additionally, be conservative with census projections in the beginning of the year—remember that a provider is allowed to utilize its Provider Relief Funds (PRFs) through June 2021. This is assuming the impact will still be felt during that part of the year.

Also, if these PRFs will not be fully expended by the end of the year, you may want to budget for these remaining amounts as they will help offset the negative impact due to the pandemic. Be cautious with this though, as this should only contain the portion of the funds that are offsetting healthcare-related expenses or lost revenues due to the pandemic.

Rates

Make sure all rates are updated accordingly. If there are any known funding issues, those need to be reflected when calculating the revenue. It is best to budget conservatively to avoid any hardships if rates decrease at some point down the road. Some additional recommendations around rates:

• Be sure to budget for changes in your rates when you know they take place (e.g., Medicaid).
• Ensure that your contractual allowance rate (i.e., the difference between gross revenue and what you are actually paid by the provider) is properly factored into your revenue totals.

Wage Accounts

Wage accounts are tedious components of the budget process. Your projected census directly correlates to your budgeted full-time employees. Not properly budgeting this can cause large variances in your monthly numbers. Have you accounted for any new positions? Raises? Overtime pay? Check to ensure that months with holidays are properly accounted for. Are there certain times during the year when people will be working longer hours? All of these things need to be considered when planning out the wage expense for the year.

Some additional notes around wage accounts:

• Staffing has been a major challenge throughout the pandemic—pay attention to any hazard pay or additional bonuses that will need to be budgeted for due to the pandemic in the beginning of the next year.
• If your facility uses total hours worked from your current year positions to determine the number of full-time employees (FTEs) for next year’s budget, you’ll need to consider any additional time that was put in due to the pandemic for that calculation.
• If you are expecting a heavy utilization on contract labor due to the pandemic, consider that when budgeting staffing expenses.

Vendor Contracts

If you have signed any new contracts with insurance providers or contracted staff, make sure any increases or decreases have been broken out properly in the correct months of service. Contract labor can be a hard item to budget, especially if you weren’t accustomed to utilizing it prior to the pandemic. Be realistic about when contract labor expenses will be needed.

Capital Expenditures

Is your facility planning any renovation projects? Are you aware of capital items that need to be replaced in the facility? Review your depreciation expense to make sure any planned capital expenditures are being accounted for in the totals. Renovations at LTPACs around the country have likely been put on the back burner in 2020 due to the pandemic. If there are things that you have been putting off, be sure to account for those additional expenses.

After finalizing the budgets and assumptions, review the file to ensure all formulas are calculating correctly and all general ledger accounts have been accounted for in your budget. Allow your department heads to review their respective budgets to ensure they agree with the amounts so there won’t be any surprises. Department heads usually are the ones making departmental decisions, so they have a good idea of what they are spending each month. If you have to meet lender covenants, make sure your numbers ensure that will happen. Compare your yearly budget total to what has happened historically. If there are sizeable differences, verify the reasons behind them in order to make sure these variances are legitimate. Ideally, every LTPAC wants to have high revenue and low expenses, but it is necessary to be as accurate as possible to avoid disappointment when the actual numbers come in.

To aid you in navigating issues surrounding COVID-19, we have developed a COVID-19 Resource Center for skilled nursing facilities which is regularly updated with the latest information.