IV. Management and Finance

A. Expectation

A strong management team is essential to health center success. The management team must work with the governing board, leading organizational changes to adapt to marketplace trends. Health center management must operationalize the health center's mission and strategic objectives. They must do this within available resources ensuring that the health center is financially viable and cost-competitive. Health center management must be supported by strong personnel, financial, information, and clinical systems.

B. Explanation

1. Management Staff and Structure

a. Relationship of Management Staff to Board
The health center should have a line of authority from the board to a chief executive (President, Chief Executive Officer - Chief Executive, Executive Director, Project Director) who delegates as appropriate to other management and professional staff.

As head of the management team, the Chief Executive should have the authority, responsibility and skills to:

• communicate with the board and management team;
• operationalize board policies;
• manage personnel and systems;
• allocate resources and operate within available resources;
• identify and resolve problems;
• interact with the community and providers and payers in the marketplace;
• respond to opportunities and; plan for future events.

The Chief Executive is accountable to board-established long-term goals and operating plans. The governing board must select, dismiss and directly employ the Chief Executive or director of the health center.

It is preferred that other key management staff and core primary care provider staff also be directly employed by the health center. However, a grant recipient may contract for or enter into other arrangements for these positions. In all arrangements, the Chief Executive must be given an appropriate level of authority to lead and manage the health center, and should have full control over selecting and dismissing all staff assigned to the Health Center.

The demands of leading a health center usually require a health center to employ a full-time Chief Executive. In some instances, however, the director functions may be performed in combination with other responsibilities. For example, small health centers may employ one person who fulfills the Director function along with financial or clinical management functions. An organization that operates other lines of business related to and supportive of the health center may have a Chief Executive who is responsible for overall corporate management and effectively works part-time on other health center activities and part-time on activities of the organization.

b. Management Team
The quality of the management team is a critical predictor of health center success. Recruitment and retention of management staff should be a health center priority. Health centers are most effectively managed by a team of individuals with the skills to provide leadership, fiscal management, clinical direction and management information system expertise.

The management team usually consists of a Chief Executive or Program Director in lead of a team that includes a Clinical Director, Chief Financial Officer, and a Chief Information Officer. The functions associated with these positions may be combined and performed by one or more individuals, as appropriate. In larger health centers, additional management staff may be part of the management team.

In situations where the health center is collaborating with other health centers in its marketplace, some of these positions may be shared.

Management training and expertise is desirable for all members of the management team, and is essential for the Executive and Clinical Directors. Position descriptions and an organizational chart reflecting these functions and their relationships should be maintained by management and provided to the board. It is critical that the organizational structure and processes facilitate a team approach to management.

c. Staff Development
The health center should have an active plan for recruitment and retention of all staff, including volunteers. All staff should be qualified by training and/or experience for their scope of duty. Positions that require licensure must be filled by appropriately licensed professionals.

Position descriptions should be developed for all staff. The descriptions should include professional and interpersonal skills that will ensure staff fulfill their responsibilities within the language and cultural context of the area.

A staff development program should be developed for all staff to improve skills critical to health center success. Staff in management positions should have and maintain leadership skills.

Continuing professional education is critical to the provision of quality care. All appropriate staff must receive training to maintain licensure and meet regulatory requirements such as Occupational and Safety Health Administration (OSHA) and Clinical Laboratory Improvement Amendments (CLIA).

2. Management Role in Planning and Strategic Positioning
All members of the management team play a key role in strategic and operational planning. The team should work closely with board, community members and other providers and payers in the marketplace to provide leadership in shaping the health center's strategy. The management team is most familiar with the health center's internal capabilities and constraints, and they provide a critical perspective to the planning process. Health center management is also responsible for assessing progress and providing critical information to the Board for revising the health center's strategic direction.

The health center's annual operating plan is developed by health center staff under the direction of the management team. The plan reflects the board's established mission and goals and guides management in day-to-day decision-making. The operating plan is approved by the board and is monitored and adjusted throughout the year by health center management.

3. Managed Care Contracting
Many health centers are impacted by managed care contracting. Health centers should be able to demonstrate that they have engaged in an assessment of the adequacy of the reimbursement for the specific range of services included in their contracts. The appropriate systems should be in place to manage the risk associated with the contracts. The health center should also have implemented activities related to responsibilities for utilization management and/or quality improvement activities for which it will be held accountable. These responsibilities should be clearly stated in the contract or other agreement.

Health centers should have in place data systems for the collection of required types of data, the sharing of information with managed care organizations and the initiation of utilization management and quality improvement activities.

4. Management Systems

a. Information Management
The quality of every decision made in health centers is critically dependent upon the availability of accessible, accurate, relevant and current information. Information management defines a strategy for getting the right information into the hands of the decision-maker at the right time, whether for care delivery, health care access coordination, internal monitoring, quality assurance and improvement, financial management, risk management, or management decisions and planning.

An information management strategy establishes the policies and procedures for data collection, organization, storage, maintenance (including backups), security, presentation (displays and reports), and communication and exchange with other organizations. The policies and procedures cover all formats of data, from charts, notes and images, to all forms of electronic storage.

Health centers must have systems in place which accurately collect and organize data for required reporting of program related statistics, as well as for internal monitoring, quality improvement and the support of management decisions and planning.

The health center should be able to integrate clinical, administrative, and financial information to allow monitoring of the operations and status of the organization as a whole. Ability to collect and analyze service data based on Current Procedural Terminology (CPT) and International Classification of Diseases (ICD) codes and utilize a system based on relative value units (RVU) to analyze production and costs are considered essential in today's environment.

Health centers are expected to utilize information to monitor performance compared to internal and external benchmarks, as well as for tracking trends.

Financial information systems must be capable of tracking, analyzing, and reporting key aspects of the organization's financial status. These include revenue generation by source, billing and collections, cash flow, expenditures (by category or cost center) and unit costs. The system must provide sufficient information to support necessary accounting functions. Financial information systems should be capable of adapting to changing reimbursement mechanisms in the health care marketplace, including prepaid (at risk) contracts, and supporting accounting and monitoring of all reimbursement mechanisms in which the organization participates.

Cost information should be collected and reported such that it informs management decisions concerning potential financial arrangements. The health center should secure cost information to determine whether its managed care contracts are profitable. The information system should also be capable of supporting the health center's clinical operations, both as a provider of routine, acute, and preventive health and health related services, and in its role as a care manager and coordinator of health care access. The information should be collected and presented in a manner which provides timely and pertinent clinical information to clinicians concerning individual clients, and should feed into the health center's quality improvement and utilization management program.

The system must be designed in a way which protects the confidentiality of client information. Most of the information needs of today's health care providers are best met using electronic (computerized) data systems. Due to the complexity and volume of information required in the modern health care environment, as well as the power of these systems to manage and process data, automated data processing offers most health centers significant advantages in terms of the efficiency and effectiveness of meeting its information needs.

Health centers are encouraged to employ computerized data technology wherever practical given the organization's size, resources, and the nature of services provided. Timely access to information and the capacity to communicate and network with other providers and appropriate agencies and organizations are critical for survival in the information age. Computer systems should be designed to provide Internet access for all appropriate management and clinical staff.

b. Risk Management
The health center must have risk management policies and procedures in place. Such policies and procedures should proactively identify, and plan for, potential and actual risks to the health center in terms of its facilities, staff, clients, financial, clinical and organizational well-being.

Risk management policies and procedures should include statements concerning quality assurance and improvement, fire and lifesafety, regulatory compliance, and other potential areas of liability. They should also address issues of bonding, insurance, and professional and general liability.

Risk management protocols must be incorporated in health center policies to assure that appropriate standards of care and clinical guidelines are established and followed. These protocols must be reviewed and revised. Periodic training in risk management and yearly continuing education is necessary for all providers of primary care services to assure that quality is maintained and improved. Health centers should explore participation in professional liability coverage available to them under the Federal Tort Claims Act.

5. Financial System

At a minimum, health center programs must maintain financial systems which provide for internal controls, safeguard assets, ensure stewardship of federal funds, maintain adequate cash flow to support operations, assure access to care, and maximize revenue from non-federal sources. Financial systems should be routinely reviewed and updated to assure that the organization remains financially sound, competitive, and attuned to changes in the local, state, and national health care environment.

a. Accounting and Internal Controls
Health centers must have accounting and internal control systems appropriate to the size and complexity of the organization. An accounting system, based on Generally Accepted Accounting Principles (GAAP), must be in place and designed to accurately reflect the financial performance of the organization.

Within the constraints of organizational and staff size, separation of financial functions should be implemented to safeguard assets. A set of routine financial reports must be generated and reviewed by appropriate management staff and members of the health center's governing body on a regular basis. Reports will vary depending on organizational size, complexity, and services, but should reflect the current financial status of the health center and allow for comparisons to past and projected financial position.

b. Budget
The budget is the culmination of negotiations among health center managers, clinicians, and board members as they determine the level and scope of services to be provided within the constraints of the organization's resources. The budget, as part of the health center's operating plan, must attempt to accurately project both the resources available in the coming budget period and the expenditures required to achieve the health center's goals and objectives. The annual operating budget must be approved by the board.

In order to realistically project revenues and expenses, health centers should be able to draw upon past budgetary experience and to identify significant changes anticipated in the coming period, both internally and in the health care marketplace in which the organization operates. The health center's managers should pay careful attention to changes in the centers's key sources of revenue, including all federal, state, local, and private sources of grant and service-based funding.

Particular attention should be focused on changes in the state Medicaid system. Changes in the level and mechanism of Medicaid reimbursement and enrollment criteria can have significant impacts on the reimbursement to the health center and on the level and type of demand it experiences. The health center's budget should be reviewed regularly by appropriate members of the health center's management and governing board, and adjustments made as necessary.

c. Billing and Collections
Health centers must provide access to services without regard for a person's ability to pay. Given the limited availability of federal resources, an important component of fulfilling this mandate is the maximization of revenue from all sources. Revenue maximization requires an adequate and competitive fee schedule and a corresponding schedule of discounts, prompt and accurate billing of third party payers, billing of patients in accordance with the schedule of discounts, and timely follow-up on all uncollected amounts.

Participation in insurance programs used by the health center's population is of critical importance, as is assuring that reimbursement under such arrangements is adequate to cover the costs of services provided. Health centers must maximize revenue and participate in favorable enhanced or cost-based reimbursement programs for which they are eligible.

Billing of clients without insurance, collection of copayments and minimum fees, and screening for financial status, must be done in a culturally appropriate manner to assure that these important administrative steps do not, themselves, present a barrier to care. This aspect is particularly important for organizations working with special populations facing particular socio-economic barriers.

The steps outlined should not conflict with the mission and mandate of health center programs, but rather assure that the federal grant resources available to the organization are used to address true financial access barriers to the maximum degree possible. Health centers must have written, board approved, billing, credit, and collections policies and procedures which, at a minimum, include:

• a fee schedule for all billable services covering reimbursable costs and comparable to prevailing local rates
• a method of discounting or adjusting fees based upon the patient's income and family size from current Federal Poverty Guidelines
• and, a system of billing patients and third-party payers within a reasonable period of time after services are provided, typically within 30 days.

Health centers should establish a target for days in receivables for collections on billable services by payer, monitor collection rates on outstanding balances and follow-up or write-off such balances as appropriate.

Where possible, health centers are encouraged to utilize electronic systems for billing and insurance verification. Health centers participating in prepaid plans should have a system in place to receive timely notification of enrolled members, and to tie receipts of capitation payments to enrolled members regardless of utilization of services.

Health centers are encouraged to develop expanded fee schedules to reflect the costs associated with non-billable services provided to patients. Health centers also should establish policies and procedures for out-of-plan services for capitated patients, and for required preauthorization of services and referrals to patients based on managed care contractual agreements.

To the extent that health centers are at risk for services performed outside their facilities, "Incurred But Not Reported" (IBNR) expenses -- the unpaid cost of services already provided to a plan member -- must be tracked carefully as a liability that can threaten the financial stability of a health center.

These steps will help assure that health centers can remain viable and provide ready access to care for all patients in light of changing marketplace pressures.

d. Independent Financial Audit
Health centers must ensure that an annual independent financial audit is performed in accordance with federal audit requirements. Audits on non-profit health centers must follow the most recent federal guidelines pertaining to the auditing of nonprofit institutions and, specifically, to the auditing of recipients of federal awards to such institutions.

Health centers should issue a memorandum of engagement for an annual independent financial audit, which will be performed in compliance with the applicable federal guidelines. In addition, the Financial Status Report (FSR) and reconciliation between the audit and FSR must be prepared.

The audit report must provide an opinion, in writing, on the scope of the audit, the fairness of the grantee's financial statements, and an evaluation of the organization's system of internal accounting controls. The auditor shall determine whether the health center is operating in accordance with Generally Accepted Accounting Principles, and should provide the grantee with an opinion on their findings.

Where significant audit exceptions and/or internal accounting control findings exist, the health center must implement a time-phased corrective action plan and may be subject to grant award conditions.

6. Facilities
The site(s) at which the health center delivers its services to clients is (are) central to the image and acceptability of the health center to the clients, the staff, and the community. The appearance, layout, and location of facilities have implications for access, efficiency, quality, recruitment, and reimbursement in terms of participation in closed panel payer arrangements.

Facilities used by health center programs should be appropriately located to promote access by its target population, adequate in size and layout to provide the services located there, and designed to promote the delivery of high quality, effective, and efficient health services and related services in a safe environment.

Facilities owned or leased by a health center must conform to fire and life safety codes, handicapped access codes, and applicable building codes and regulations. The health center should assure that any facility it uses is adequately insured, and should manage its facilities to ensure cleanliness, security, and routine maintenance and repair.

The health center should plan for its facilities and major equipment needs for the foreseeable future and make arrangements for procuring needed capital and other resources to meet those needs.

Issued and Last Revised: August 17, 1998