Line up financial goals to stay solvent in 2000
Line up financial goals to stay solvent in 2000
Y2K could wreak havoc on your cash flow
The year 2000 could have a dire effect on your practice’s financial health unless you take steps now to set up a cash reserve to cover lapses in reimbursement, says Michael Zimmerman of Zimmerman & Associates, a health care receivables consulting firm in Hales Corners, WI.
Zimmerman and other health care industry executives predict that it could be April 2000 — or later — before health care providers see regular payments again from payers because of the millennium bug.
A General Accounting Office report concludes that "because of the magnitude of the tasks ahead and the limited time remaining, it is unlikely that all of the Medicare systems will be compliant in time to guarantee uninterrupted benefits and services into the year 2000."
The firm recommends that providers have three to four months’ worth of operating expenses in a contingency fund to fill the payment gap.
Your practice may already be feeling a reimbursement pinch if your own billing data isn’t Y2K-compliant, Zimmerman adds. The Health Care Financing Administration (HCFA) has instructed carriers and fiscal intermediaries to return as unprocessed any electronic and paper claims that are not Y2K-compliant as of April 5.
Beginning on that date, claims need an eight-digit date to be processed, according to the HCFA directive. For instance, May 1, 1999, would be 05/01/1999. If you still use a six-digit date field in your computerized records, your computer won’t be able to distinguish the year 2000 from the year 1900.
"This means that many hospitals and medical group practices could see the disastrous effect of Y2K as early as April 5," Zimmerman says.
This is only a taste of what could happen when the new year rolls around, he adds.
"Medicare historically is one of the best payers. Medicare claims are usually paid in 14 to 21 days. If a practice relies on Medicare for half its business and that is shut off or delayed, it could have dire financial effects," Zimmerman says.
A Zimmerman & Associates survey of nearly 1,000 chief financial officers in the health care industry showed that 83% of respondents expect a slowdown or temporary suspension of claims payments from major payers when the new year rolls around.
All the financial officers surveyed indicated that some part of their internal financial systems are not ready for the millennium, and nearly half reported that their business offices are not taking steps to work with payers to optimize cash flow after Jan. 1, Zimmerman says. (See chart, p. 54.)
The health care chief financial officers rate HMO and private-sector payers as slightly better-prepared for the year 2000 than federal payers. However, some private payers have been slow to start Y2K compliance efforts because doing so involves increased operation expenses without the prospect of an immediate return, Zimmerman says.
Robert Goldstein, FACMPE, chief executive officer of the Browne-McHardy Clinic in Metairie, LA, doesn’t anticipate much of a cash flow problem in the New Year. About 60% of his practice’s business is capitation.
"My worst-case scenario is that we won’t be getting paid the dollar amount for every enrollee, but we’ll be paid an estimate, based on December’s figures. We’ve had problems with payers who missed deadlines because of lack of data in the past, but they’ve always been able to accommodate us at least by an estimated amount," he says.
Zimmerman & Associates advises its clients to build up their cash reserves as a cushion against decreased reimbursement in the early part of 2000.
"When businesses look at building up reserves, they usually either sell inventory or clean up their receivables. Physicians can’t sell inventory, but the practices all have a lot of money tied up in receivables," Zimmerman says. (See chart, p. 53.)
He gives the example of an extremely large practice group that produces $1 million a day in revenue. If it takes an average of 100 days to get a claim paid and the practice reduces it to 75 days, that’s a 25-day improvement, which amounts to $25 million in extra cash, Zimmerman says.
Here are some tips for setting up a reserve fund:
• Set up a Y2K task force to develop a strategic plan to clean up your receivables.
• Focus first on collecting the high-dollar accounts that are long overdue.
• If certain companies are holding onto a lot of receivables, ask for them.
Don’t count on taking out a short-term loan to tide you over. Banks are struggling with their own set of Y2K problems, and there’s no way of knowing how lines of credit will be affected.
[Editor’s note: Zimmerman & Associates may be reached at 5307 S. 92nd St., Hales Corners, WI 53130. Telephone: (414) 425-2189.]
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