Overview

This chapter addresses the functioning of the site, including the formation of an independent, autonomous board, if appropriate, to establish organizational, personnel, financial and health care policies to govern the activities of the center.

It is important to stress that the center's credibility in the community will be directly linked to perceptions of commitment to the community evidenced by:

• administrative competence;
• good financial management;
• board representation of the community served; and
• apparent quality and effectiveness of the clinical staff and services.

GOVERNANCE

It is now time for the Community Primary Health Care Council, which was organized to initiate the development process, to turn the governance over to the body that is going to establish the program policies. Depending upon the circumstances, not every site will have a Board of Directors. In such instances, do not overlook the value of an Advisory Committee. Appropriate guidance for governing a Community Health Center may be found at the Web site, http://www.askhrsa.gov or by calling 1-888-275-4772. Request the BPHC booklet entitled Governing Board Handbook, (2000). Additional governance materials may be requested National Association of Community Health Care Centers (NACHC) at their Web site, http://www.nachc.com/pubmgr or by calling NACHC at (301) 347-0400. In particular, you may request copies of NACHC's Information Bulletin "Governance Series." Finally, you may wish to contact Medical Group Management Association (MGMA) at http://www.mgma.com, 1-877-275-6462 to inquire about numerous governance publications available through their information center.

For Section 330(e) (community) health centers and Section 330(g) (migrant) health centers, the Public Health Service statute mandates the establishment of a governing body which is composed of individuals, a majority of whom are being served by the Center and who, as a group, represent individuals being served by the Center. The statute also requires Community and Migrant Health Center boards to meet once a month to select the services to be provided by the Center, to schedule hours during which services will be provided, to approve the Center's annual budget, to approve the selection of a director for the Center, and, except in the case of a public center, to establish general policy for the Center. While the Foregoing requirements serve as a useful framework for all health center programs, those Centers supported under Section 330(h) (homeless) and Section 330(i) (public housing) are generally waived from meeting all the requirements applicable to Community and Migrant Health Centers.

A process for selection of the board members should be specified in the bylaws or other internal governing rules. Bylaws for a Section 330(e) health center should also make provision for the following requirements.

• Board size must be between 9-25 members;
• The majority of the board members must represent the "user" population in terms of demographic (race, ethnicity, gender, age) and socio-economic characteristics. As a rule, the members are expected to reside in the service area;
• No more than one-half of the "non-user" board members may be individuals who derive more than 10 percent of their annual income from the primary health care center and should live and/or work in the service area;
• The remaining board members must be representative of the community served by the center and experts in community affairs, local government, finance/banking, legal affairs, trade unions and other commercial and industrial concerns, or social service agencies within the community; and
• No board member may be an employee or a relative of an employee of the primary care facility.

The board is generally responsible for setting policy for the center and for hiring the executive director. It is expected that the daily operations and implementation of the policies and procedures established by the board will be carried out by the executive director and the clinical coordinator.

General functions of the board include the following eight areas:

• Personnel: the board must establish personnel policies and procedures including selection and dismissal procedures, salary and benefit scales, employee grievance and reward procedures, and equal employment opportunity practices;
• Financial Oversight: the board must adopt policies for financial management practices, including a system to ensure accountability for center resources; approve the annual budget; set priorities for center services and establish criteria for a sliding fee scale; and perform strategic and long-range planning;
• Evaluation: the board must evaluate center activities, including services utilization patterns, productivity of the center, patient satisfaction, achievement of project objectives and development of a process for hearing and resolving patient grievances. The board is also responsible for evaluating the performance of the Executive Director;
• Legal: the board must ensure that the center is operated in compliance with applicable federal, state and local laws and regulations;
• Health Care: the board must adopt health care policies including scope and availability of services, location and hours of services and quality assurance;
• Planning: the board must set goals and develop plans which meet the changing needs and demands of the clients and community;
• Board Training and Development: it is expected that each board member has sufficient knowledge and information to make informed decisions. The board is responsible for identifying and ensuring that it meets its own educational and training needs including orientation and training of new board members; and
• Risk Management: the board should establish risk management policies and procedures to identify potential and actual risk to the center. These policies address quality assurance, life and safety issues and other potential losses, as well as issues of bonding, insurance, and professional and general liability.

At this point, the reader may wish to refer to the sample CHC Board Member job description contained in Exhibit 10-1.

ORGANIZATIONAL STRUCTURE

The center's organizational structure should establish the line of authority from the Board of Directors to the management team. It is important to develop a team process with well identified responsibilities complemented by adequate systems of management information, communications and finance. It should be noted that there is no one management model. Often, non-traditional management is the most successful. Taking a "hands-off" approach may indeed allow health center staff the flexibility needed to maintain their interest, provide non-economic rewards and contribute to their retention.

Key members of the management and professional team include:

• Executive Director: responsible for overseeing the entire center operation and delegating as appropriate to other management and professional staff;
• Finance Director/Fiscal Officer: responsible for financial affairs. Reports to Executive Director; and
• Clinical Director: responsible for coordinating all clinical services and programs, including mental health, dentistry and nursing. Participates actively in executive management activities and decision-making.

Smaller centers may appropriately combine some of the above management positions.

An organizational chart reflecting these positions and their relationships should be maintained and periodically updated by the executive director and provided to the board. An illustration of a typical organization chart is presented in Exhibit 10-2. Written position descriptions of all personnel will need to be developed along with a policy for annual performance review. Examples of key management position descriptions are presented in Exhibit 10-3. All personnel must be qualified by training and/or experience for their scope of service. An active training program to improve management skills and performance is critical to the center's development.

FINANCIAL/BILLING SYSTEMS

There are a number of manuals available to you that provide examples of systems, materials and tools for effective financial management. These manuals provide step-by-step instructions for collecting and tracking information on revenue, expenses and utilization. A description of how to evaluate the results, checklists, data collection forms, worksheets and management report formats are also available for easy implementation of the financial systems. The Virginia Primary Care Association's reference manual includes a checklist for internal control evaluation, which is included here as Exhibit 10-4.

When setting up the financial and information systems, you should develop a system that will categorize revenue and expenses by activity. This will become more important as managed care organizations move in the direction of capitated payments for service.

Planning and Budgeting

The financial management cycle begins with the planning and budgeting functions. The two functions are integral in providing the framework for developing a systematic approach to decision-making and controlling the financial management process. Exhibit 10-5 shows the relationship between the planning and budgeting functions. Key to the success of your center will be the use of business principles in the planning and budgeting process.

MEDICARE, MEDICAID, AND STATE CHILDREN'S HEALTH INSURANCE

Planning for your funding includes determining which third party payors will reimburse the services you will be delivering. State and federal programs, Medicare, Medicaid, and the State Children's Health Insurance Program (SCHIP) may comprise a majority of the primary care center's reimbursement. You must apply for a Medicare and Medicaid provider number and meet the Conditions of Participation. Contact the Centers for Medicare and Medicaid Services (CMS) http://cms.hhs.gov to obtain a copy of the Conditions of Participation and application forms and your state Medicaid Agency for the Medicaid and SCHIP application forms.

STRATEGIC PLANNING

The strategic planning function is an annual process of formulating the center's goals, setting objectives, evaluating strategies and reviewing/resetting goals. It will provide a mechanism for the administration to ensure that action plans are being followed and implemented. The strategic planning process needs to focus on the health needs of the population served. Community participation, collaboration and cooperative efforts are essential in meeting these needs.

Existing centers should undertake more complex long-range planning for setting objectives for the next steps and should develop a plan of action for all new initiatives. Estimates of the cost, revenue and needed volume for new projects need to be prepared in conjunction with this long-range planning process. At this point, the reader may wish to refer to Exhibit 10-6 which illustrates a "big picture" of the strategic planning model.

BUDGETING

The budgeting process is an annual planning process. Once the center has determined its activities for the coming year(s), a budget is prepared which translates those goals, objectives and strategies into estimated revenues and expenses.

There are two components to the budget:

1. The Operating Budget

   Statistical Projections:
   The number of encounters expected from each of the center's programs, such as medical, dental and other health encounters, and the expected rate of growth or change of each program.

   Revenue Budget:
   Expected revenue, adjustments and receipts the center expects to collect, including grants from federal, state and local governments, fee income from third party payers and patients for services rendered, donations and income from other sources.

   Expense Budget:
   All expenses other than capital expenditures are included in this budget, including salaries and fringe benefits, and other operating expenses, such as rent, utilities, consultant fees, administrative and medical supplies, depreciation and staff training expenses.

2. The Capital Budget

   Budget for Buildings and Fixed Equipment:
   Those items that have a useful life of over one year and a purchase cost that exceeds the lesser of the project's own definition of capitalization or $10,000.

   Capital Expenditure Schedule:
   Monthly schedule of planned expenditures for buildings and equipment.

Both the operating budget and the capital budget must be approved by the board.

Fee Schedules

The fee schedule is an important aspect of any primary health care center. The development of fee schedules for nearly all medical care specialties has been facilitated significantly since implementation of the Medicare Resource Based Relative Value System (RBRVS) during the early 1990s. Under the RBRVS, each reimbursable service defined by Current Procedure Terminology (CPT) is assigned a Relative Value Unit (RVU) that varies in accordance with the time, complexity, and risk associated with the particular service. Medicare decides what it is willing to pay by multiplying the RVU for each service by a dollar conversion factor (CF$). Although Medicare's CF$ can vary somewhat depending on differing geographic and practice management cost factors, the range of variation across the country is relatively narrow.

Notwithstanding Medicare's efforts to adjust reimbursement levels in accordance with various cost factors, they generally have not kept pace with the actual costs of most practices serving Medicare patients. Nevertheless the Medicare RBRVS methodology itself is still the most widely used system for establishing ambulatory health center fee schedules. Typically, both health centers and private practitioners today set their fees using a CF$ that is a multiple of as much as 150% times the Medicare CF$. Please refer to Exhibit 10-7 for an illustration of RBRVS methodology for typical physician office visits. Fee schedules should also be examined annually in light of the health center cost structure and the charges of other local providers. Additionally, both Rural Health Centers (RHCs) and Community Health Centers (CHCs) receiving special all-inclusive cost-based or prospective reimbursement from Medicare and Medicaid should still accumulate all charges in accordance with a fee schedule that varies by the level of service provided. Readers interested in learning more about Medicare RBRVS may wish to consult the reference Medicare RBRVS - The Physician's Guide available from the following Web site: http://www.aardvarkforms.com/benchmarking-fee-products/fee-products/ama-medicare-rbrvs.html.

Sliding Fee Scale

All NHSC sites, as well as Health Centers receiving grant support under Section 330 are required to assure no barriers to access - particularly for low-income patients without health insurance. Full fees, therefore, must be adjusted in accordance with a Sliding Fee Scale (SFS) that is based on family size and income. Please refer to Exhibit 10-8 for an illustration of an SFS matrix based on 2003 Federal Poverty Guidelines. Periodic updates to this SFS chart may be accessed at http://www.mtpca.org/scale.htm. Federal Poverty Guidelines are updated annually and can be located at the following Web address: http://www.aegis.com/factshts/network/access/poverty.html. Once both the fee schedule and SFS have been developed, written procedures will also need to be developed defining their use.

Billing and Collections

Key to the financial viability of the primary health center will be to have a system in place, preferably a computerized Payment Management System (PMS), for billing patients and third party payers. The system should be implemented with direction and support from someone with technical expertise in installing an automated accounting and patient information system in primary care centers. A policy for billing and collections, including provision for patient confidentiality, must be established. Appropriate timetable targets for collection of accounts receivable and monitoring progress in meeting those targets will need to be developed, e.g., producing aged billing reports, established follow-up procedures and provisions for writing off bad debts.

Well-trained financial support staff is essential for efficient billing, accounting and data entry. This will result in optimizing reimbursement revenue for the center. To ensure collections, the following management techniques should be implemented:

• assess patient eligibility for third party reimbursement;
• take active role in helping patients register for insurance;
• follow-up on rejected claims from third party payers;
• employ a collection agency;
• write off old past due accounts;
• set up a scale of discounts; and
• ask client for some payment at time of visit.

Accounts Receivable

Accounts receivable is the total amount due from patients and third party payers (insurance companies, Medicare, Medicaid, etc.). It represents the services provided to patients for which payment has not been received. Performance indicators used to monitor accounts receivable include:

Aging accounts receivable - this procedure provides an indication of the likelihood of collecting the receivable. The older the claim, the less likely it is to be collected.

Average collection period of receivables - this is the average number of days charges are tied up in accounts receivable.

Purchasing/Inventory Control

The purchasing function includes all of the decisions, policies and activities involved in the purchase of goods and services from outside vendors. In some areas of the country, primary health care centers have formed purchasing cooperatives for acquiring needed supplies and pharmaceuticals in larger quantities which can substantially reduce the cost to the individual center. Exhibit 10-9 presents an example of a purchasing flow chart.

Inventory control includes two areas: expendable items and capital equipment/ property. Developing an inventory control system from the outset will help the center maintain control over its supplies and expense items and provide a procedure for tracking the rate of consumption and identifying when stock needs to be reordered.

Accounts Payable

Accounts payable are those amounts owed by the center. Accounts payable serve to control and track liabilities that the center has incurred. It is one method used for tracking cash management.

Accounting System

All health centers must have an accounting system (preferably double-entry, accrual) to record, process, and report all financial transactions with the organization. There is an ample choice of commercial accounting software packages on the market and most health centers utilize an automated system to complement their dedicated Patient Management System (PMS) software. Core elements of the accounting system include source documents, chart of accounts, various journals, the general ledger, and various financial reports. Exhibit 10-10 illustrates the flow of financial information within the components of the accounting system.

Financial Audit

While an external audit may be optimal for some health centers, those centers receiving Federal grant support under Section 330 are required to conduct annual audits of their financial operations in accordance with appropriate Federal guidelines.

Financial Indicators

Financial ratio analysis can be used to assess the fiscal operation of the center and to track performance over time. Commonly used financial ratios include:

• Liquidity - Current and quick ratios, acid test, payment period (days) and days cash on hand. This ratio is a measurement of the entity's ability to meet short-term obligations.
• Solvency - Times interest earned; debt-service coverage; cash flow to total debt; average age of facility (years); debt equity ratio; long-term debt to fund balance; fixed-asset financing; and total liabilities and commitments to fund balance. Generally, higher debt ratio(s) mean greater leverage and higher risk.
• Efficiency - Total asset turnover; fixed asset turnover; cost per encounter ($); and days in patient accounts receivable. This ratio reflects assets utilization/the degree which various categories of assets generate revenue.
• Profitability - Net income to total revenue; return on total assets; return on equity; and operating margin. Indicators of performance expressed in financial terms.
• Self-sufficiency - Federal grant revenue to total revenue and patient revenue to total revenue. This ratio relates to the entity's ability to generate revenue to cover its operations.

HUMAN RESOURCES POLICIES

It is extremely important to establish human resources policies early to provide basic guidelines and suggest methods for addressing employee issues. Each health center will have its own unique policies; however, there are some common areas appropriate for all centers.

It is best to commit your center's policies to writing so that the specific procedures are understood by all employees. These policies can be incorporated into an "official" manual, employee handbook or memo. Whatever method you use to communicate with your employees is also the method you should use to establish human relations policies. Formal written policies must be clear, concise and accurate. Be sure to date your policies. Once the policies have been established, they should be reviewed periodically to be sure that they are reflective of the center's philosophy and in conformance with current laws and regulations.

Listed below are some suggestions for inclusion in your human resources policy manual.

• Job description - provides an overview of the job and its relationship to the organization. Included in the job description, at a minimum, are the following items:
  • job title;
  • brief summary of the job;
  • principal duties and responsibilities;
  • working conditions (hours/travel);
  • knowledge, skills, experience required; and
  • supervision.
• Compensation - specifies the salary structure, benefits package, pension programs and salary increase policies.
• Performance appraisal - specifies the process for reviewing and measuring performance. Specifically, this appraisal is used for:
  • determining if the individual work results are consistent with expectations;
  • providing feedback to employee and supervisor;
  • identifying potential and desirable employee movement within the center;
  • providing information for compensation; and
  • providing information for employee assistance and counseling.
• Separation - outlines the process for placing an employee on probation and separation from the center, including:
  • procedures for following voluntary separations including exit interviews and follow-up questionnaires;
  • retirement policies;
  • documentation conferences for non-performing employees; and
  • decision points at end of probationary period whether to terminate, extend probation or remove employee from probation.
• Feedback mechanism - discusses the process for problem identification and employee counseling.
• Training and development

In addition to establishing the human resources policies, the center must set up procedures for:

• recruitment, orientation and tenure;
• staff development, motivation and job enrichment; and
• locum tenens (temporary coverage for practitioners)

STAFF DEVELOPMENT, MOTIVATION AND JOB ENRICHMENT

An important component in staff retention is training and development. Health care centers have special needs in preparing supervisors and managers because so many are drawn from technically trained staff. Development should focus on general managerial skills such as leadership, motivation, communication, and problem solving.

In many instances, staff training will be specific to an individual area or department: e.g., nursing service department that provides in-service training for nursing assistants or housekeeping department that trains employees in proper cleaning or infection control.

There are three principles that might be considered when designing your training and development programs:

• establish a target based on the needs of your center and the assessment of staff strengths and weaknesses;
• establish a training budget which provides the level of commitment required for training; and
• establish a development policy that outlines the process for selection of staff for training and development.

Encourage employees attending meetings off-site to bring the results back to your center and share the results with their colleagues.

Staff motivation will depend upon your management style. Positive motivation can be accomplished by sharing information on the center's vision for the future, new programs being planned and problems facing the organization. A significant way to ensure employee retention is to convey a genuine feeling of interest in the employee and their potential for advancement at your center. Even where promotion is limited, jobs can be enriched through innovative approaches toward task assignments, rotation of duties or exchange of positions to provide new experiences. Often in health care, job enrichment is limited due to the professional skills required (e.g., dental technician skills are not interchangeable with nursing or social worker skills). However, within each specialty area, programs can be designed for growth. This effort towards job enrichment will lead to good employee relations and reduced turnover.

Staff training and development, motivation, and job enrichment will, of course, be a mechanism for recording progress and providing feedback to the employee on performance growth.

LOCUM TENENS

A key provision which must be addressed right up front is how to cover health care services when the practitioner or administrator goes on vacation, takes extended leave, attends professional meetings out of town or becomes ill. There are four commonly used sources for locum tenens (temporary professional assistance):

• Establish a formal relationship with an Area Health Education Center (AHEC) program. Training programs set up with students rotating through the primary care center can assist with providing continuity in coverage when your local providers are out of town. Physician and dental residents may replace local practitioners. Faculty from nurse practitioner, physician assistant and nurse-midwifery programs may be available for locum tenens work. Don't consider only the obvious. In Washington State, for example, nurse practitioners are often used to cover for physicians.
• Purchase physician, nurse practitioner or physician assistant coverage through private locum tenens organizations, such as http://www.vistastaff.com or http://locumtenens.com.
• Contact state primary care association and/or your state medical association for assistance. These agencies often have contacts that can help you.
• If your Health Center is affiliated with the Indian Health Service, the American Medical Association's Project U.S.A. may be able to help you. For additional information about Project U.S.A., the toll free contact number is 1-800-388-4702.
• Additionally, the NHSC may be able to provide assistance with finding additional resources to meet the locum tenens needs of primary care sites. Contact the NHSC at 1-800-221-9393 to inquire further about their capacity to help you.

COMPENSATION PACKAGE

As you begin the process of defining your staffing needs and establishing your budget for wages and benefits, one of the first questions that will come to mind is "how much compensation is enough?" Studies have shown that the factors bearing on compensation practices include:

• the rate of compensation in relation to your marketplace - the level of compensation offered by other organizations for similar jobs;
• the financial capacity of your center - determines the adequacy of staffing and compensation levels;
• the relationship between managers and staff - compensation practices must be monitored to allow for necessary revisions to salary ranges;
• the assessment of staff capabilities - failure to develop an evaluation system that is understood by the employees can lead to dissension in the ranks; and
• the inclusion of benefits - benefits may vary anywhere between 20% and 35% of gross compensation and must also be included as an essential part of salary negotiations. A potential list of benefits may include vacation, sabbaticals, sick leave, travel, retirement, worker compensation, life and disability insurance, medical and dental insurance, malpractice insurance, educational leave, tuition reimbursement, etc.

There are national ranges for each professional group. A good place to start your search for compensation ranges would therefore be to contact the appropriate professional organization(s) for the data you are seeking. A list of professional organizations for each of the primary care disciplines recruited by the NHSC is included with Exhibit 11-6 in the next chapter.

In addition to the foregoing roster of professional associations, there are other sources for you to contact as well. First, the Primary Care Associations (PCAs) periodically conduct compensation surveys of their members and may be willing to share some of their findings with you. To find a contact for your state Primary Care Association, go to the Web site, http://bphc.hrsa.gov/OSNP/PCAWeb.htm. In addition to the discipline-specific professional associations and PCAs, Medical Group Management Association (MGMA) and the National Association of Physician Recruiters (NAPR) also conducts periodic surveys and may be willing to share some of their findings with you. The Web references for these two organizations are http://www.mgma.com and http://www.napr.org respectively.

Finally, with regard to the overriding issue of developing an effective provider compensation plan for your Health Center, there are a variety of resources that can help you. One of the best sources of guidance is an MGMA publication entitled, Physician Compensation: Models for Aligning Financial Goals and Incentives, 2nd edition (2002) authored by Kenneth M Hekman, FACMPE. This book can be ordered on MGMA's Web site store at http://www.mgma.com or by calling the MGMA Service Center at their toll-free number, 877-275-6462