Are you prepared if Y2K delays HCFA payments?

The check’s in the mail

Reports have been flying out of Washington that the Health Care Financing Administration (HCFA) in Baltimore is woefully unprepared for updating its systems to comply with the year 2000 (Y2K) transition.

Last September, the technology subcommittee for the U.S. House Government Reform and Oversight Committee gave the Department of Health and Human Services an "F" for its efforts to fix the Y2K problem. Then a report published by the General Accounting Office (GAO) in Washington said that HCFA’s repairs lag far behind schedule.1

"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 report says.

HCFA, however, is singing a different tune. HCFA’s chief information officer Gary G. Christoph, PhD, is on record saying that all internal mission critical systems will be repaired and tested by Dec. 31, 1998, says Glenn M. Pearl, MHSA, editor of Rate Controls newsletter, a statistical and opinion resource for hospital chief financial officers in Phoenix.

HCFA has more than 50 million lines of code to revise in its 99 mission critical systems. "[Christoph] is saying that 95% of code has been revised for external systems — the intermediaries and contractors," Pearl says. Christoph even indicated that HCFA is now less inclined to provide additional payments in late 1999 to prevent disruptions in cash flows.

"You can see there are divergent views between what Congress is being told and what HCFA is reporting at this point," Pearl adds.

Although Christoph has indicated that HCFA’s Y2K compliance efforts are more on schedule than what other government sources report, most contingency planning experts say HIM professionals should prepare for all scenarios — including the possibility that HCFA system problems could disrupt cash flow in the year 2000.

Here are some steps hospital financial personnel can take to prepare for a possible disruption in cash flow in the year 2000:

Conduct a cash flow analysis.

This analysis will help hospital financial personnel know how much cash is needed per day, says Frank Tucker, president of Catalina Software in Dana Point, CA.

Next, the personnel have to estimate how much HCFA might disrupt cash flow if the government interrupts benefits for a period of time after the turn of the century. Armed with the knowledge of how much cash is needed by their hospital per day, financial personnel can better estimate how much cash they need to get through that time.

Don’t neglect any cost centers.

"You need to make arrangements for every area where cash is needed," Tucker says. "Decide what you are going to do in each area and how you are going to cover the cash flow disruptions for each."

Investigate your state payroll laws.

Some hospitals may decide to delay employee payroll for a few days to ease their cash flow problem. They should consult their legal counsel first because it may result in penalties from the state. "Some states have strict laws on meeting payroll," he says.

Keep everyone informed.

Vendors need to be advised about possible temporary disruptions in cash flow so delivery of goods won’t be stopped if payments are late, Tucker says. "Everything should be worked out ahead of time.

"The sooner and the more you keep people informed of a cash flow problem, the better chance you have of getting through it. If you’re not talking to your suppliers and your employees, then real problems may develop."

Consider lines of credit.

Lines of credit from financial institutions can help cover a temporary cash crisis, he says. Given the possibility that a bank may also experience some Y2K difficulty, however, hospitals may want to pursue lines of credit from several different financial institutions.

Hospitals don’t only have to turn to outside sources for extra cash. They also can attempt to warehouse cash by reducing their receivables, advises Allan P. DeKaye, MBA, FHFMA, president and CEO of DeKaye Consulting in Oceanside, NY.

"If you start accelerating your work now to get to a lower receivables level, you’ll create more cushion now, he says. "You don’t want to get fatter with your receivables; you want to get leaner. It’s like losing weight before you go on a cruise. You take off some weight because you know you’re going to gain some on the trip."

Hospitals should start a process of accounts receivable management and reduction, he says. "It’s something you should be doing anyway, but people play to averages and don’t necessarily try to take receivables down to a much lower level."

To say "60 days in accounts receivable" usually means a payment in 60 days is the average, DeKaye says. "To me that means anywhere from 40 to 80 days. You certainly want to bring down the payer who is paying you in 80 days to your average of 60."

An average of 60 days also is not adequate if creditors are asking for payment in 45 days. "[Hospitals] need to set reasonable targets that should be both related to what is normal for the industry and their case mix, and to their budgetary requirements," he explains.

Who pays the fastest?

One tool DeKaye likes to recommend is for providers to look at which payer is the most prompt in its payments. "Are you actually getting paid in the minimum amount of time from that payer?" he asks. "For example, Medicare has a two-week holding period. Is Medicare paying you 14 days after you submit a claim?"

As another example, providers may have a managed care contract that specifies payment in 30 days from the date of "clean claim" — the date a claim is submitted with all the correct information. "If payment is in 40 days, what was wrong with your claim that you didn’t get paid in 30 days? If you left off some information, then it’s your fault. But if they were slow on the uptake, fault them."

Many providers are content with the time period that they receive payment, even though it may take longer than what is stated in the contract. "Why have a contract then?" DeKaye asks. "You have to know that you’re not getting paid when you should. Some providers don’t check at all."

Providers can call payers to ask about the payment periods, or better yet, they can visit the payers’ offices." Many times providers are not as aggressive to say hello," he says. "[They can say], I’m coming to your office and would like a check ready for me for the claims I have sent you.’ Or I am coming to your office and want to review the accounts not being paid. If you don’t pay me, you’re going to be in default of your contract.’"

Most providers, though, aren’t that aggressive because they fear losing the contract, DeKaye says. "This may mean there should be more safeguards, such as performance guarantees, in the contract.

"People shouldn’t use Y2K as a reason to lower their investment in receivables," he concludes. "They should lower their investment in receivables because it is good business sense."

Editor’s note: Contact DeKaye Consulting on its Web site: http://www.dekaye.com, e-mail: adkcmpa@aol, or call (516) 678-2754.

Reference

1. General Accounting Office. Medicare Computer Systems: Year 2000 Challenges Put Benefits and Services in Jeopardy. GAO/AIMD-98-284. Washington, DC; September 1998.