Financial Sustainability Outside the CFO’s Office

When I ask executives in human services and behavioral health organizations, “What keeps you up at night?” inevitably sustainability is among the most cited, as it was in the 2022 Executive Trends Survey Report. That’s not surprising given that many non-profits are underfunded in the best of times and critically so in the worst of times. CFOs hate reporting bad financial performance. While most CFOs take proactive roles in making sure everyone is aware of how revenues and expenses are interacting, pointing out areas where there may be opportunities to improve either or both, managing billing and collection, and helping the organization to get needed reimbursement rates, the operations side of the house is often where the larger impact can be found. So, how can operations staff improve financial sustainability?

Most human service and behavioral health organizations have combinations of fee-for-service (FFS), grants that are often funded through cost-reimbursement (CR) contracts. A smaller, but increasing number, is engaged in value-based contracts. When seeking to maximize revenues, it is critical that everyone understand the cost of each service being delivered, and that they are aware of the payment processes and requirements. These start with effective budgeting practices:

1. What level of staff and how many full-time staff (FTS) are required?
2. What are the associated support costs for those employees (e.g. benefits, liability insurance, facility space, technology, etc.)?

CR revenues could become uncollectable if the positions allocated to the contract are not filled consistently and the terms for reimbursement did not account for attrition. Additionally, when the position is vacant and unfunded, the share of the program’s overhead cost for that position (typically a fixed expense) can also go uncovered. While staff or managers can fill in for vacancies, that takes resources away from other service areas or contracts, makes staff feel stressed, and can lead to more turnover. Careful service delivery planning and determination of the needed full-time equivalents (FTE) and anticipated vacancy rates are critical calculations that operating staff are more likely to be able to provide the finance staff when negotiating the contract.

FFS contracts also require careful attention to the cost of services to ensure that each service to be delivered is paid at a sustainable rate. This involves much more than monitoring the productivity (service volume) generated by staff and programs. It’s important to understand the factors that link billing and service delivery. Operations staff can best determine the anticipated array of services, and the amount of time the staff actually take to provide them (including time for documentation), and the cost of that staff - again accounting for attrition. Onboarding and departing staff typically are not fully productive, so understanding the interplay between turnover and service delivery is critical to calculating rates. For example, if a fully productive employee costs $90 thousand/year, including overhead, and can generate 1200 billable hours, that’s $75/hour. But if there is a 30% turnover in that department, the rate needs to be much higher ($107/hour) to cover the cost of attrition. The rate is similarly impacted by underproduction - that is when staff consistently provide fewer services than projected.

If a service is paid for as an “event,” rather than on time spent, then it’s essential to know how long your staff take to actually perform that event, on average or at the median. Using the cost per hour above, if the staff is paid for an intake as an event at a rate of $100 but it takes them 2 hours to complete, that loses about $100 per Intake! Knowing the actual time spent, operations managers then have the option of revamping the workflow for that process or trying to secure a higher rate. Understanding the interaction of base cost per hour, attrition, and service delivery staff time (as opposed to client or billed time) is, thus, critical to ensuring financial sustainability. For high volume events, even a deficit in the reimbursement rate of less than a dollar can make a considerable difference.

The other area in FFS delivery that is of high impact is delays in the revenue cycle. Typically, this requires understanding data in two areas: (1) timeliness of documentation that is turned into billing, and (2) knowing what services were provided. To maximize billing efficiency, services should be documented concurrently - that is, at the time they are rendered - in a system that immediately processes them into the billing cycle.  The longer the lag between those, the less likelihood that a bill will be sent out timely and accurately. But, how do you know a service has been provided and that there may be outstanding documentation? Scheduling records (requiring the tracking of kept appointments and ensuring that unplanned services are added to daily schedules) should translate into a documentation trigger that can be monitored to ensure the record is complete and billing is timely.

Lastly, value-based contracts and capitation arrangements require a shadow billing system that assures the payer that “enough” services are being provided for the revenue produced. And that they are achieving the correct outcomes for individuals and subpopulations included in the contract. The financial sustainability of these programs and contracts requires close attention to services rendered and the outcome of those services. These activities require the active involvement of operations and performance management staff.

Clearly, financial sustainability is not a Finance Department responsibility the rest of us can step away from. It is important that everyone in the organization understand these processes and their responsibility in maximizing the financial efficiency and effectiveness of the organization.