Even as more and more SNF residents and staff receive COVID-19 vaccinations, the pandemic isn’t yet over—and the negative short-term financial effects on facilities will likely be felt for years.
Therefore, we recommend 11 strategies to ensure smooth and uninterrupted options and build resiliency for the next crisis:
1. Convert your receivables to cash.
Whatever occupancy levels you ultimately face in 2021, accounts receivable recovery and resolution is an endeavor that makes excellent sense. After all, if you have uncollected dollars, why not get it in the door and boost your cash balance?
When receivables aged 90 days and greater exceeds 15% of total AR, that’s too many to accept in a world where COVID-19 is ravaging skilled nursing occupancy rates, census, case mix and consequently, revenue. At Richter, our Revenue Cycle Management (RCM) professionals work with LTPAC organizations across the country to provide a full range of revenue cycle services, including AR recovery and resolution. In our work, we’ve seen days sales outstanding (DSO) in AR range anywhere from 60 to upward of 100, as well as 60-80% of an organization’s revenue categorized as outstanding. With all the uncertainty you face in 2021 and beyond, now is the time to get the ball rolling and bring those outstanding balances under control.
2. Explore financing options with HUD and private lending institutions.
Many SNFs that receive Housing and Urban Development (HUD) funding will make draw requests, which enable reimbursement for capital expenditures. The advantages to HUD debt are significant: It’s reliable, long-term, non-recourse and offers comparatively low rates.
Per HUD’s Section 232 program, loans may be used to finance the purchase, refinance, new construction or substantial rehabilitation of a project. A combination of these uses is acceptable—e.g., refinance of a nursing home coupled with new construction of an assisted living facility.
Additionally, it’s wise to leverage banking relationships where they exist, and develop new ones as necessary. Many banking institutions offer construction draws, allowing SNFs to take out a construction loan, and as they purchase items related to that, they fund it back to the bank.
In general, start now to approach your lenders and consider HUD options. Financing generally doesn’t happen overnight; it can be a lengthy and complex process, sometimes extending over months, so get it underway soon to avoid delays and possible cash shortages.
3. Explore potential delays in debt service or other payable obligations.
If you haven’t done so already, approach your lenders and inquire whether they can offer delayed debt service arrangements. Likewise, talk with landlords and other providers (e.g., software as a service (SaaS), office/capital equipment) to potentially defer payments and preserve cash.
4. Ensure your SNF isn’t penalized for failing to meet debt covenants due to COVID-19 or a future pandemic/epidemic.
This is particularly important if you currently experience dips in revenue, or have forecasted them in the near term. Most covenants are based on financial performance, including revenue and expenses. Certain covenants can also be based on census. Typically, if your facility doesn’t meet debt covenants, it can fall out of compliance with loans, so this merits close attention.
5. Consider participating in a healthcare co-op.
Such alliances exist to gain leverage on pricing in a multitude of areas—from PPE to software, operating services and more. Do some research now to identify co-ops that could be potential targets.
6. To the extent possible, set cash aside.
Your facility should consider prudent ways to set cash aside in the event of a future cash crunch. There are four good reasons to do so:
It’s a hedge against uncertainties
It may be necessary to help fund bonuses for full-time staff in order to keep them on board
It could be used to fund PPE and medical supply purchases as costs rise
It could potentially help offset recruiting and payroll costs
7. Develop tighter budgets in areas beyond PPE and medical supplies.
COVID-19 caused a surge in PPE and associated medical supply costs. Costs could likely continue to rise in the future—and your facility needs this equipment. Making sure you have it could entail cost-cutting in other areas. For now, be sure you properly track all purchases in order to utilize any remaining CARES Act funds properly. You can also explore new vendors that you haven’t previously worked with to determine potential cost savings they could offer.
8. View your revenue cycle process through a fresh lens.
Perhaps clinicians are laser-focused on patient care, so they’re late in completing the required assessments that drive billing. That, in turn, could hinder the claims submission process, which then could impact cash flow.
9. Manage cash flow from the disbursement end (e.g., budgeting, purchasing).
Budgeting for changes in your rates when you know they take place (e.g., Medicaid)
Ensuring 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
11. Explore leasing opportunities.
One practical accounting strategy that can help ensure long-term financial viability is leasing, and that applies to just about everything a facility touches—from office equipment to software, data services, medical/clinical equipment, specialized resident furniture and accessories…even the building(s) in which they operate and the land upon which they sit. Leasing could make financial sense for your SNF, but the answer depends on several factors. Cash flow is a significant consideration, as is the expected length of use, potential resale value and all the associated tax implications.