Starting a Rural Health Clinic - A How-To Manual

Chapter Three

Financial Feasibility Analysis

The Rural Health Clinics program provides an opportunity for enhanced Medicare reimbursement through cost-based methodology. It is important, however, for persons considering the development or establishment of a Rural Health Clinic to ensure that the financial impact or benefits are significant enough to outweigh the cost incurred in establishing a Rural Health Clinic.

• For example, if an existing practice does not currently employ a Physician Assistant or Nurse Practitioner, the cost of the PA or NP would have to be offset by any increased revenues from participating in the program.

• It is important to determine, from a business standpoint, if this is a positive financial move.

As with any business decision, it is important that the individuals responsible for making decisions have accurate and appropriate information to determine what the impact of the RHC program will be on the financial operations of the Clinic. Many clinics make the common mistake of simply looking at the RHC Cap rate, comparing that to the Clinic's fee-for-service payments for an individual encounter (see 3-6 for definition of RHC encounter), and concluding that payments from Medicare or Medicaid will automatically be better if the clinic converts to RHC status. While it is likely that the clinic's Medicare and/or Medicaid payments will be better as a Rural Health Clinic than fee-for-service, this is not a given.

We strongly recommend that a financial feasibility analysis be conducted prior to undertaking significant costs that might result from a change to RHC status. This
feasibility analysis will help to determine the financial impact of the RHC program.

For clinics that are brand new and have no financial history, a simple Financial Feasibility Analysis can be created by estimating the volume and payments from Medicare, Medicaid, and other payers. For existing facilities considering conversion, you can utilize the actual data in the practice for those same categories.

The Rural Health Clinics (RHC) program potentially enhances the reimbursement from Medicare and Medicaid - the two most critical payment areas for determining the financial impact of RHC designation.

Tables A and B in this Chapter present a summary that demonstrates the Medicare and Medicaid feasibility estimate for a clinic that is:

• A Fee-For-Service Facility (Table A)
• A Managed Care Facility (Table B)

The differences between the Managed Care Model and the Fee-For-Service Model are that, in our experience, capitated payments generally pay, on a per-visit basis, a higher amount than fee-for-service. It has also been our experience that cost-based payments are generally better than either capitation or fee-for-service when you calculate them on a per visit basis.

It is important to gather as much information as possible to accurately reflect what your current visits generate - by payer category. You cannot compare an individual Medicare visit as an RHC to a single Medicare fee-for-service visit. You need to aggregate the data in order to get an accurate assessment of the impact of converting to RHC status.

In general, we find that most RHC's will experience anywhere from 25-75 percent increased revenue in their overall annual revenues. This is based on the assumption that a minimum of 50 percent of the total visits are Medicare and Medicaid combined. When the percentage of Medicare and Medicaid patient volume drops below 50 percent as a combined number, the financial impact is usually much less. This is another reason it is important that you conduct a feasibility estimate prior to incurring significant costs and changes in the practice to determine the overall financial benefit.

Financial considerations are not the only reasons to consider RHC status. They do however tend to dominate the thinking of those considering conversion. Improved access to health care, improved patient flow via utilization of PAs and NPs and more efficient operations are other factors to consider. Also, there are often other Federal and/or State programs that you may qualify for if you are an RHC.

Finally, it is important to keep in mind that the value of a feasibility analysis is only as good as the data used to calculate that estimate. If you use data that is not accurate or, in the case of a new clinic, unrealistic, then the analysis will not be realistic. The methodology we have provided is a very simple tool. There are more complex methodologies that can be obtained from accountants or business consultants. This is only intended to give you a general perspective on the potential impact of the RHC program on practice revenues.

A blank financial feasibility chart has been included in Appendix F, page F-4.

See pdf for Tables 1 and 2