Nursing Home Accounting: Streamlining Accounts Receivable in Long Term Care
In the current environment where operating costs are at an all-time high, many long-term care providers are finding themselves running at a loss.
While staffing shortages and inflationary pressures are certainly contributing to this situation, delayed reimbursement, bad debts, and collections challenges are also important factors.
Fortunately, unlike industry-wide economic events—reimbursement and collections difficulties are something individual providers can take proactive steps to address, through good nursing home accounting practices. And, in most cases, a focus on analyzing and streamlining accounts receivable will yield the best results.
In this article, we will provide an overview of long-term care accounting, paying particular attention to accounts receivable.
We’ll cover common challenges with accounts receivable. Plus, how accounting technology and innovative business process outsourcing (BPO) services, like those offered by Pharmbills, can improve long-term care financial practices and outcomes.
Keep reading to find out more. Or, if you would like to discuss how Pharmbills’ accounts receivable services can assist your organization, please contact us today to get started.
Understanding the Basics of Nursing Home Accounting
Before we get into accounting, it’s necessary to define a few key terms and concepts.
What is a Long-Term Care Facility?
Long-term care (often abbreviated to LTC) encompasses a range of facilities. If you are wondering what are the 3 main types of long-term care facilities, they are:
- Nursing homes/Skilled nursing facilities (SNFs)
- Board and care homes (sometimes called residential care facilities or group homes)
- Assisted living facilities
Because the types of care provided across these settings vary, a long term care facilities definition is quite broad. In essence, the LTC meaning can describe any care setting where the patient resides on premises for an extended period, yet is not receiving acute medical care.
In this article, we’ll use the terms “nursing home” or “LTC facility” to refer to any of the examples of LCT facilities above.
Nursing Home Accounting
Each type of LTC facility has differing medical billing procedures. However, there are enough commonalities that we can talk about nursing home accounting in general, to describe common financial management practices across all LTC settings.
Similar to most businesses, long term care accounting involves financial practices such as:
- Budgeting and financial forecasting
- Managing accounts receivable and accounts payable
- Expense tracking and management
In LTC facilities, accounting may also include healthcare revenue cycle management (RCM). In short, RCM involves analyzing and optimizing each step of the revenue cycle in a healthcare setting.
The Importance of Accounts Receivable
Accounts receivable (AR) is one of the most important aspects of financial management in LTC facilities.
This is because with healthcare accounts receivable, research shows that as outstanding patient balances increase, the odds of collecting them decline.
Put another way, unless long-term care facilities are vigilant about promptly getting claims in for reimbursement and invoices to patients for outstanding balances—there is a high risk they won’t receive full payment for the services provided.
In LTC facilities, most accounts are paid by Medicare and/or care recipients themselves. However, many patients also hold LTC insurance, which may contribute to the cost of their care.
Therefore, when we talk about AR in any of the different types of long term care facilities, we are referring to the issuing and collecting of bills that go to insurers and patients to cover the cost of care.
Common Challenges in AR Management for Nursing Homes
On a broad level, most challenges in AR management in healthcare center around 3 main outcomes:
- Claims for reimbursement being denied
- Delays in reimbursement
- Patients not paying their accounts
Collectively, any of these situations might be referred to as “bad debts.”
In most business settings, bad debts refer to money that is unlikely to be recovered. However, with good nursing home accounting and AR management, much of the money owed to LTC facilities can actually be recovered, without resorting to standard collections processes.
Solutions to AR Challenges
AR challenges in the nursing home revenue cycle can be sorted into 2 main categories: Payor issues and care recipient issues.
Payor issues include reimbursement claims being denied or delayed. These are usually caused by an error in a bill. Using the wrong medical code, billing for services not covered by insurance, or leaving out a part of the patient’s demographic details are common reasons for delayed or denied claims.
Payor issues can usually be resolved by correcting the bill or providing missing information. But this can be exceedingly time-consuming and utilize a lot of staffing resources. The best solution is to take a proactive approach and set up robust medical coding and billing processes to submit accurate bills the first time around.
Care recipient issues occur when a patient doesn’t pay their bill on time (or at all). There are many personal reasons for why this may occur, which LTC facilities have no control over. However, there are several nursing home accounting best practices that can be implemented to reduce the risk of care recipient payment issues.
Top strategies include:
- Discussing payment terms early on
- Providing residents with a clear estimate of out-of-pocket costs
- Submitting an easy-to-understand bill as soon as practicable
- Following up on overdue accounts with personalized communication at least once a month
Integrating Technology for Better Financial Tracking
With medical billing only becoming more complex, getting an accurate claim completed and submitted on time can be surprisingly difficult.
For the whole process to run smoothly, several events involving multiple personnel all need to be completed flawlessly.
Just a few steps in this process include:
- Intake, assessment, and prior authorization
- Clearly documenting services delivered in the medical record
- Accurate coding to reflect the level of care provided
- Submitting a bill to the insurer in the correct format with the right codes
- Reconciling insurance payments and invoicing the patient for any outstanding amount
Getting this process right is difficult at the best of times. But, with the staffing issues that have plagued the industry since the COVID-19 pandemic, facilities are often finding themselves without the human resources to submit their bills on time.
Benefits of Nursing Home Accounting Software
A national study from 2019 found that LTC facilities spend an average of 14.19% of net revenue on administrative expenses. However, with the increased billing complexity and compliance requirements since then, this figure is almost certainly higher today.
While it is not a magic fix, long-term care accounting software gives nursing homes increased capacity to streamline their AR processes. This not only potentially reduces administrative staffing costs, but also can overcome some of the challenges in nursing home revenue cycle management.
High-quality nursing home accounting software will:
- Integrate with electronic health records, so clinical and demographic data will automatically populate in claims and invoices
- Provide payment tracking and notification, so issues with billing are promptly identified and can be addressed quickly
- Reduce delayed and denied claims by minimizing human error in data entry and billing
- Enable better communication and coordination between different departments (eg. clinical teams and billing departments)
- Reduce administrative burden through automating tasks and minimizing double-handling of data
- Enhance financial transparency, by providing real-time access to and analysis of financial data
Business Process Outsourcing (BPO) Services
With technological advances in remote working, many nursing home providers in the U.S. are utilizing BPO services to alleviate local staffing shortages.
In short, BPO services utilize skilled offshore talent to perform back office tasks that alleviate the workload of in-house staff. This is sometimes also called staff augmentation, referring to the fact that BPO providers are generally used to enhance the capacity of on-site teams.
At Pharmbills, our BPO accounts receivable services include many of the time-consuming and resource-intensive tasks involved in AR management in healthcare, such as:
- Invoice processing
- Real-time record keeping
- Payment tracking and reports
- Payor and client communication
- Healthcare bookkeeping
- Medical billing and coding support
What’s more, these services are all available at a fraction of the cost of local staff. This enables LTC facilities to reduce their spend on administration while also increasing revenue.
Contact Pharmbills today to find out how to get started.
Understanding Legal and Regulatory Compliance
Nursing home regulation in the U.S. has three components:
- Legislation to ensure LTC facilities are providing acceptable quality care in a safe and clean environment
- Procedures to assess the extent to which nursing homes are complying with point 1
- Measures to enforce compliance for facilities deemed to be in breach of regulatory requirements
Because most LTC in America is government-funded, nursing home compliance is managed by the Centers for Medicare & Medicaid Services (CMS).
Nursing Home Regulations and Compliance
The full set of legal and compliance regulations are set out in the Final Rule for the Requirements of Long-Term Care Facilities.
The purpose of the regulations is to “improve the quality of life, care, and services in LTC facilities, optimize resident safety, and reflect current professional standards.”
Compliance requirements largely center around risk-based surveys, designed to enable nursing homes to demonstrate compliance with laws and regulations. Surveys are linked to financial incentives. They also identify facilities of concern that may require more targeted investigation and/or enforcement actions.
Long term care facilities that do not comply with CMS regulations may be deregistered, making them ineligible to receive Medicare funding. In most cases, this is a financially untenable position for a provider.
Developing a Robust Financial Policy
In a perfect world, nursing home accounting would be as simple as admitting an eligible resident, receiving reimbursement from the relevant payer, and having the care recipient immediately settle their account for any non-covered expenses.
For reasons we’ve already discussed at length, the process often doesn’t go this smoothly. However, with the right financial policies and procedures, you can greatly increase the chances of problem-free AR management in healthcare.
Ingredients of Effective Financial Policy
The best AR policies in LTC facilities have the following qualities:
- They are in writing—always. Signed copies of the financial policy and payment agreement are given to the care recipient upon admission and amended (and signed again) with any change of care plan
- The policy clearly explains the obligations of each party. The care provider’s requirements are clearly outlined, along with the payment terms for the care recipient
- AR challenges are planned for, including instructions for how delayed or denied reimbursement claims and late or non-payment of accounts will be handled
- Time limits are set for each step of the process. Even the best financial policy will fail without time limits stipulating when each step must be completed
Importance of Regular AR Reviews
Scheduling regular reviews of outstanding accounts is a simple practice that can substantially improve financial management in LTC facilities.
Conducting AR reviews at least once a month means problematic accounts will be identified quickly. This enables long-term care accounting staff to proactively flag and escalate issues of concern, preventing delinquent accounts from accruing escalating balances that may be difficult to collect.
Nursing home accounting software is a handy way to flag and schedule accounts for review. However, the review policy should clearly indicate which staff member(s) are responsible for manually reviewing accounts that need closer examination.
Enhancing Staff Training and Development
Revenue cycle management audits in long-term care facilities almost always uncover extensive opportunities to improve finances through staff training and development. This is because even though long-term care accounting software streamlines many of the processes involved in AR management in healthcare, key elements still require human input.
However, on the flip side, when specific cases of revenue loss are investigated (such as denied claims or non-payment of accounts), the cause can often be traced to human error.
This tells us that enhancing staff training and development is an important strategy for improving financial management in LTC facilities.
Effective staff training initiatives should focus on:
- Improving proficiency with nursing home accounting software
- Raising awareness of staff at all levels of the importance of accurate and complete documentation
- Enhancing the communication skills of staff involved in the AR process (this may include negotiating with payers and care recipients, both verbally and in writing)
- Maintaining up-to-date knowledge of, and competency in, all relevant regulatory and compliance requirements related to long term care accounting
Leveraging Data for Financial Decision-Making
As the capabilities of integrated electronic health records and medical billing software improve, good long-term care financial practices increasingly involve using predictive analytics to make financial decisions.
Predictive analytics for nursing homes involves synthesizing financial data with patient characteristics to generate useful insights. Some comprehensive nursing home accounting software products have advanced data analytics capabilities. Although, providers are increasingly choosing to purchase specialized analytics services to support decision making.
Some examples of the uses of predictive analytics include:
- Revenue modeling based on patient mix
- Financial forecasting to predict likely outcomes from policy and practice changes
- Anticipating future financial challenges and opportunities
- Gathering insights to optimize resource allocation
Of course, advanced predictive analytics isn’t the only way technology can enhance nursing home revenue cycle management.
Many long-term care facilities achieve impressive improvements by upgrading long-term care accounting software, combined with good healthcare accounts receivable practices.
Case Studies and Success Stories
It’s easy to understand how a moderate increase in reimbursement delays or unrecoverable client accounts might prove challenging for long term care accounting staff. However, sometimes it can be helpful to examine more severe case studies to see just how devastating AR difficulties can be for LTC facilities, and the communities they serve.
Case Study: The Nathanial Witherell in Connecticut
The Nathaniel Witherell is a LTC facility owned and operated by the Town of Greenwich.
As a not-for-profit facility that has been in operation since 1903, it represents the type of nursing home that most would consider relatively immune to short-term financial shocks.
Fortunately, the facility is still in operation today. But it faced AR challenges so severe in 2023 that this town icon was nearly forced to close its doors.
The real-world impact of healthcare staffing shortages
As the nation’s healthcare providers grappled with unprecedented staffing shortages following the COVID pandemic, The Nathaniel Witherell was sent into financial turmoil when it found itself without staff to lodge Medicare and managed care claims on time.
The problems began in 2022, when by the end of the year, the facility revealed it had a staggering $12 million in uncollected bills (accounts receivable)!
This would be a difficult situation for any nursing home. Although, not one that is unfixable with a quick influx of additional billing support.
However, the big obstacle for The Nathaniel Witherell, was that many of these claims were about to exceed government deadlines for when they could be reimbursed (in general, nursing homes have 12 months to submit a claim to Medicare for reimbursement).
Lost revenue opportunities
With a concerted effort and support from other departments in the town, The Nathaniel Witherell managed to get its billing and nursing home accounting practices back on track. But this was not without significant lost revenue opportunities.
In early 2023, the facility had to write off $4 million it was owed. $3 million of this was for bad debts, primarily because staff failed to file for Medicare and Medicaid reimbursement on time.
In July 2023 there were still $2.8 million in outstanding accounts receivable, of which it was expected another $1.1 million would be uncollectible.
Small problems turned big
In backtracking through the situation at The Nathaniel Witherell, it became clear that the loss of one long-standing billing employee in 2021 set the snowball of AR challenges into action.
As a result of recruiting challenges (and a previous Chief Financial Officer failing to alert senior leadership of the issue), by the time the crisis was in full swing in September 2022, there was only one accounts receivable staff member assigned the work of 2.5 full-time positions.
In hindsight, the Executive Director of the facility stated that the remaining long term care accounting staff at the facility were not sufficiently cross-trained to pick up the work of the staff member who had left.
Due to the time-consuming nature of manually gathering the information to submit old claims, The Nathaniel Witherell found itself in the position of simultaneously having severe cash flow issues and a massive shortage of billing and nursing home accounting staff.
Fortunately, due to the willingness of town members to save the facility, resources were deployed to get the home back on track. However, it’s worth noting that many other facilities in the same position would not have access to external resources to bail them out.
Key takeaways
Some key lessons we can learn from The Nathaniel Witherell’s situation include:
- Proactively addressing AR challenges early is essential to stop small financial problems from turning into bigger ones
- Having experienced, skilled, and well-resourced long-term care accounting and billing staff is essential for AR processes to run smoothly
- You can’t run a nursing home without billing and AR staff!
- AR difficulties can be successfully addressed in a relatively short space of time by bringing on additional staffing resources (whether they be in-house or contracted healthcare billing services)
Conclusion
Effective management of accounts receivable (AR) is essential for the operational success of all nursing homes and long term care facilities.
Put simply, if the AR process is not running smoothly, the facility will have trouble receiving reimbursement and payments for services provided. And, because of the ever-increasing cost of delivering care, this will soon result in financial challenges that are difficult to overcome.
Fortunately, creating streamlined and efficient billing and AR systems does not have to be difficult.
The first step is implementing good nursing home accounting practices along with robust financial policies. Then, staff can be trained and supported to follow procedures specifically designed to encourage prompt payment from insurers and care recipients.
For providers who want to further enhance their AR processes, nursing home accounting software can be used to automate and streamline certain tasks. This can have the dual benefits of reducing billing errors (that can lead to delayed or denied insurance claims) and minimizing administrative staffing costs.
Finally, to overcome healthcare staffing shortages and rising labor costs, some LTC facilities are having considerable success utilizing business process outsourcing (BPO) services to augment their billing and accounting teams.
By choosing a BPO partner that is experienced in the healthcare and long-term care sectors, like Pharmbills, you can improve revenue without the costly expense of hiring new onsite employees.
Contact the friendly team at Pharmbills today to find out how to get started with our outsourced billing and nursing home accounting services.
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