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Thoughts About Your Accounting Close and Financial Reporting with a Remote Workforce

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Many businesses are adopting social distancing strategies, including increased use of remote workforces to adapt to and fight through the Covid-19 crisis. Completing monthly, quarterly or annual financial reporting activities can be challenging to accomplish remotely, so we share our experiences in assisting clients to do so in this article. With thoughtful management, the efficiency and effectiveness of accounting and reporting processes can be maintained as much as possible with a remote workforce.
The physical separation of remote workforces adds difficulty to all involved. While many of the tools used under “normal operations” continue to be effective, the remote nature of the workforce may change the way in which the work product is compiled and assembled. It will also change the interaction needed between team members to complete, review and perform quality control on the work products. Therefore, leaders need to make extra efforts to overcome the difficulties of operating remotely.
  • Clearly define goals and project plans, and monitor and report on status. These disciplines are more important now than ever before to enable processes to run smoothly and avoid fire drills that are even more challenging in a remote environment.
  • Communicate more than “normal” so that everyone can become comfortable with remote work and interactions.
  • Ensure that the technology and information security requirements are in place so that your team can operate effectively on a remote basis
Working remotely and meeting critical finance, accounting and reporting deadlines requires significant focus to optimize team structure and workflows.
  • Use detailed project plans, checklists, timelines and other mechanisms to define project requirements, clarify roles within the team, identify dependencies, and communicate status. Monthly and quarterly closing checklists and similar outlines are extremely helpful for all required deliverables: Board and senior management reports, press releases, SEC reporting, etc.
  • Make resources available to all who need them in real time.
    • Develop a file storage plan and use it consistently while maintaining appropriate access security over those files. Typically, companies will create a central folder for each period’s financial reports.
    • Finished work products should be stored centrally and shared according to agreed-upon nomenclature so that team members can locate and process as needed.
  • One individual should own a document and be the gatekeeper for changes proposed by internal preparers, executive management, external legal and accounting advisors, investor relations etc.
    • The gatekeeper should maintain version control so that reviewers can easily identify updates to the documents. “Track Changes” and blacklined documents help focus reviewers’ efforts.
    • Establish deadlines for comments and limit the number of drafts to minimize time spent processing successive versions. Relevant comments will always need to be considered but avoid excessive wordsmithing once you have a solid document.
Success as remote team is tied to many factors: Convenient and secure access to information. Clear project plans and access to effective project management tools, deploying team members effectively and relentless communication while supporting individual needs for job satisfaction, growth and enrichment.

Cash Forecasting

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Cash forecasting, always important, becomes even more highly critical during times of economic disruption. Here are some key points to consider for an effective process:

1. Use a segmented approach to avoid over forecasting cash inflows. Consider customer segment, size, and seasonality – tax time could drive slower payment behavior for all types of clients.

2. Experiment with data that helps differentiate slower payers, e.g. credit ratings, industry, etc., to inform the forecast and contribute to faster collections.

3. Test solutions that help manage the lag between payments and collections; For example, tying accounts receivable team compensation to timely invoice issuance, offering discounts to slower paying customers for prompt payments, and perhaps requiring a partial upfront deposit from customers who regularly pay late.

4. Organize the forecasting approach and outputs in a consistent manner so that the accuracy of prior forecasts can be assessed. and so that it’s clear where to adjust management’s estimates.

5. For cash outflows, communication across the management team can make or break this process. Especially in a start-up where monthly spend patterns based on history are not available, there is no steady state to rely on. Management team members should regularly discuss and consolidate their outlooks for daily cash receipts and disbursements.

6. Start with prior bank statement activity to come up with typical monthly recurring items.

7. Map key bank statement items to actual expense so that the expense patterns in business plans and budgets can provide context for the cash forecast.

8. Identify cash items already expensed and therefore not in management’s outlook, as well as future capital outlays.

9. A detailed aging, accounts payable for outflows and accounts receivable for inflows, is a ready source of information for future cash flows and is extremely helpful in cash forecasting.

10. Take into account any cash flow benefits from the new Coronavirus Aid, Relief, and. Economic Security Act.

If CFO Consulting Partners can help your organization with additional support and skill sets of experienced accounting and finance professionals, please do not hesitate to contact us.

We hope your families, employees, and colleagues remain safe and healthy during these unprecedented times.

Rob Milrod, Director — rmilrod@cfoconsultingpartners.com

Cash Flow – We Want to Help

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We hope you and your family are well during this Covid-19 event.

From a business perspective, it is likely that almost all companies will suffer reduced sales and cash flow. Cash is often said to be king, and this crisis is reinforcing that idea.

At CFO Consulting Partners, a senior-level financial management firm comprised mostly of former CFOs and Controllers, we are here to help. We often work with companies on cash flow issues. Our cash flow work includes working with the various cash flow technical tools that assist companies with forecasting, payments management and collection techniques.

We would be pleased to assist your company with questions on new emergency government regulations, on cash flow or other business issues resulting from this crisis on a no obligation, complimentary call. To take advantage of this offer, please complete the questionnaire which can be found here.

Sincerely,

Partners:
Allan Tepper
David DeMuth
Eric Segal

Cash Flow – We Want to Help

By

We hope you and your families are well during this Covid-19 event

From a business perspective, it is likely that almost all companies will suffer reduced sales and cash flow. Cash is often said to be king, and this crisis is reinforcing that idea

At CFO Consulting Partners, a senior-level financial management firm comprised mostly of former CFOs and Controllers, we are here to help. We often work with companies on cash flow issues. Our cash flow work includes working with the various cash flow technical tools that assist companies with forecasting, payments management and collection techniques.

We are pleased to make this offer. For a limited period of time, we will provide up to 30 minutes of free advice on cash flow or other business issues resulting from this crisis.

To take advantage of this offer, please complete the questionnaire which can be found here.

Sincerely,

Partners:
Allan Tepper
David DeMuth
Eric Segal

Are You Ready For Your 2019 Audit?

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CFO Consulting Partners’ audit-readiness service assists public and private companies prepare a full set of GAAP financial statements, including notes, for review by its independent auditors. Workpapers are cross-referenced and references are made to supporting documentation.
Typically, in an audit readiness or pre-audit engagement we:
* Prepare and/or review a full set of GAAP financial statements, including notes, and if applicable, the MD&A section
* Research GAAP and disclosure issues and the application of accounting principles to a company’s facts and circumstances
* For public companies, draft Form 10-Ks, 10-Qs, registration statements and proxy reports
* Assure a high level of quality control, as work prepared by us is reviewed by us
* Can, if desired, help manage the external audit process from the company’s perspective
Benefits include:
* Potential cost savings due to lower outside accounting fees
* More available time for CFOs and Controllers to focus on other company needs
* Implementation of new accounting principles, such as revenue recognition, leasing, goodwill impairment and IFRS reporting. This avoids independence issues, which prevent many accounting firms from providing this service to their audit clients.
* Resource to answer SEC and auditor comments
* Management of audit process, if desired, to ensure timeliness and minimize cost and hassle

Update on CFO Consulting Partners’ SEC & Pre-Audit Services

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CFO Consulting Partners’ SEC and pre-audit services help public and private companies produce workpapers and a full set of GAAP financial statements, including notes, for review by its independent auditors. Workpapers are cross-referenced and references are made to supporting documentation. For public companies, CFO Consulting Partners offers SEC report preparation services (i.e., 10-Qs and 10-Ks, including MD&As).

Typically in an SEC and Pre-Audit engagement we:

  • Prepare or assist in preparing a full set of GAAP financial statements, including notes, and if applicable, the MD&A section
  • Research GAAP and disclosure issues and the application of accounting principles to a company’s facts and circumstances
  • For public companies, draft Form 10-Ks, 10-Qs, registration statements and proxy reports
  • Provide support related to SEC Comment Letters
  • Restate financial statements for prior period errors
  • Assist with preparing delinquent SEC filings
  • Assure a high level of quality control, as all engagements are reviewed by another partner

Benefits include:

  • Potential cost savings due to lower staffing needs or lower outside accounting fees
  • More available time for CFOs and Controllers to focus on internal company needs
  • Provision of accounting research. Many accounting firms do not provide this service to their audit clients due to independence issues
  • Development of accounting analyses, such as goodwill impairment, fair value accounting and IFRS reporting
  • Resource to answer SEC and auditor comments

The New Revenue Recognition Standard (ASC 606)

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Introduction

On May 14, 2014 the FASB issued the standard ASC 606 Recognition of Revenue from Contracts with Customers. It is a converged standard with the IASB (IFRS 15) The FASB issued an Accounting Standards update to the Standard (ASU 2016 -10) in April 2016.

The implementation date for the standard is:

  • For public business entities, certain not-for-profit entities, and certain employee benefit plan
    • Reporting periods beginning after Dec 15, 2017
  • For all other entities
    • Reporting periods beginning after December 15, 2018

ASC 606 will have a major impact on the reporting of revenue for all entities, public and private that enter into contracts that promise the exchange of goods and services to their customers with a relatively minor impact on some costs associated with fulfillment of the contracts.

The standard is both complex and far reaching. It impacts not only marketing groups but lilely other groups, for example R&D, that enter into collaborative or other contracts or arrangements with third parties. As a result implantation is likely to require considerable effort and expertise.

Entities that plan to report GAAP financials, both public and private, if they have not already done so, would be well advised to consider moving quickly to initiate a thoughtful plan of action to comply with the standard.

 

Overview of the Standard

The following reviews the authors view of the high points in the standard.

Performance obligations

The basic economic transaction addressed by the standard is the contract between an entity and its customers. The standard address the accounting for the promises embodied in the contract, which it refers to as performance obligations.

The core principle of the standard is that an entity recognizes revenue to depict the transfer of the promised goods or services in amounts and timeframe that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services when (or as) the said goods and services are delivered or fulfilled.

To achieve the core principle the standard promulgates a series of action that an entity must undertake to determine the amount and timing of revenue to be recognized. These are:

  • Identify the contract with the customer
  • Identify the distinct performance obligation(s) in the contract
  • Determine the transaction price
  • Allocate the transaction price to the distinct performance obligations in the contract
  • Recognize revenue when (or as) the entity satisfies the performance obligation(s)

1) Identify the Contract

The contract with the customer is a central aspect of the standard as revenue recognition flows directly from it. Without a contract there can be no revenue recognized under this standard. Evidence that a contract exists is based on:

  • Approval: All parties to the contract have approved the contract (in writing, orally or in accordance with customary business practices)
  • Rights: The contract clearly identifies the rights of the parties
  • Payment: The payment terms are clearly stated
  • The contract has commercial substance (i.e. parties cannot agree to artificially swap goods or services in order to boost revenue)
  • Probability: It is probable that the contract terms will be honored

Note that that new standard by requiring clear identification of the parties’ rights brings a focus on legal enforceability. Therefore, a contract will exist once legal enforceability exists, even if it differs from an entity’s normal and customary business practice.

2) Identify the Distinct Performance Obligations in the Contract

Where a contract recites the transfer of more than a single good or service then the seller must evaluate the goods and services to be transferred as to whether any of them are distinct.

A distinct good or service (or bundle of services) is considered a performance obligation. To be distinct the goods of service must be identified in the contract and be capable of performing a service as delivered or in combination with other services that the customer could readily find.

Note that the drafters and approvers of the contract will, normally be careful to ensure that the contract recites the agreed performance obligations.

This section of the standard generated many comments and questions to the extent that the FASB, in 2016 issued an Accounting Standards Update (ASU) that offered further interpretive guidance (ASU No 2016 -10) April 2016 about Identifying distinct performance obligations and licensing

The ASU provided clarification as follows:

Distinct Goods or Services

A good or service that is promised to a customer is distinct if both the following criteria are met:

  1. The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is the good or service is capable of being distinct)
  2. The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract

The ASU provided further guidance as follows:

In assessing whether an entity’s promise to deliver separately identifiable services to a customer are distinct the objective is to determine whether the nature of the promise, within the context of the contract is to transfer each of those goods or services individually, or instead, to transfer a combined item or items to which the promised goods or services are inputs.

The ASU goes on to cite factors that merit consideration in making the determination. One such factor cited is the instance where   “ The goods or services are highly interdependent or interrelated, In some cases two or more good or services are significantly affected by each other because the entity could not be able to fulfill its promise by transferring each of the good or services independently.”

The above situation would seem to be evidence that the goods or services merit treatment as a combined item

Immaterial items

  • An entity is not required to assess whether goods or services are performance obligations if they are immaterial to the contract

Administrative activities

  • Promised goods or services do not include the various administrative activities the vendor must perform to setup a contract as those tasks do not transfer services to the customer

Shipping and handling

  • An entity that promises a good to a customer might perform shipping and handling related to the good. If the shipping and handling occur before the customer has control of the good then the shipping and handling is not a performance obligation but rather an activity to fulfill the entity’s promise to transfer the good
    • However if the shipping and handling activities occur after the customer has obtained control of the good the entity is permitted as an accounting policy election to account for them as an activity to effect transfer of the goods rather than as an additional promised service

Combining contracts

An entity may combine one or more contacts entered into at or about the same time with the same customer and account for them as a single contract if one or more of the following criteria are satisfied:

  • The contracts are negotiated as a package with a single commercial objective
  • The goods and services promised in the contracts constitute a single performance obligation
  • The consideration paid in one contract is dependent on the price or performance of the other contract

3) Determine the transaction price

Determining the transaction price as of the inception of the contract may not be straightforward. The price may be subject to discounts, rebates, penalties and/or performance bonuses, which cannot be precisely quantified at the contract inception. However, even if not straightforward it is incumbent on the entity to estimate the price. The standard present certain approaches:

  • Most likely price. The seller develops a range of possible prices and selects the most likely
  • Expected value of the price. The seller develops a range of possible prices, assigns a probability to each and derives the expected value

Whichever method is chosen the seller should apply it consistently throughout the contract and for similar contracts.

Note also that the standard addresses other matters that could complicate price determination such as:

  • Payments over a period of time – price is deemed to include a financing component which must be accounted for separately
  • Non cash consideration – fair value of the consideration must be determined
  • Payments in advance – are not revenue but a liability

4) Allocate the transaction price to the performance obligations

In this step the entity determines the stand-alone selling price of each performance obligation as of the inception of the contract. The best evidence of that price would be an observable price of the good or service when the seller sells it to a similar customer under similar circumstances.

If it is not possible to observe a stand-alone price the entity must estimate it. The following represents possible acceptable ways to estimate a stand-alone selling price:

  • Adjusted market assessment: Reviewing the market for like products and their pricing
  • Cost plus margin: the seller estimates their cost and adds an appropriate margin
  • Residual approach: subtract the determined standalone price(s) from the contract price and apply that difference to the other obligations. This approach can be difficult to use.

Once the seller derives an approach for estimating stand-alone selling prices it should apply that approach consistently for other goods or services with similar characteristics.

Discounts

It can turn out that the sum of the estimated standalone prices exceeds the contract price in which case the customer is deemed to have received a discount. The discount should be allocated across the performance obligations in proportion to their standalone price except there is evidence that the discount should be applied to one or more specific obligations

5) Recognize revenue when (or as) the entity satisfies the performance obligation

Revenue is to be recognized when (or as) goods or services are transferred to the customer. The transfer is considered to have occurred when the customer has gained control over the good or service, that is, when the customer has taken on the significant risks and rewards of ownership, for example, the seller can sell, pledge or exchange the asset.

It is possible that a performance obligation will be transferred over time rather than at a point in time.  Service contracts or construction contracts are example of performance obligations transferred over time. The seller’s entitlement to payment will be controlled by the contract terms, for example, when milestones are reached and/or when the customer is satisfied with a deliverable or other criteria specified in the contract.

 

Costs incurred to obtain a contract.

An organization may incur costs to obtain a contract. If so, it is allowable to capitalize these costs and amortize then over the life of the contract provided:

  • The costs are incremental: An example would be sales commissions
  • There is an expectation that the costs will be recovered
  • Note that if the amortization period will be one year or less it is allowable to expense these costs as incurred

An entity may incur costs to fulfill a future performance obligation. In general such costs should be recognized as assets if they meet the following criteria:

  • The costs are tied to a specific contract
  • The costs are incurred to satisfy a future performance obligation
  • There is an expectation that the costs will be recovered

Warranties

A warranty is a guarantee related to the performance of a delivered goods or service. In general there are two types of warranty:

  • The seller warrants the goods or service at no cost to the customer. The seller accounts for the warranty cost by establishing a reserve based on prior experience and adjusts it over time to reflect more current experience
  • The seller offers the option to the seller of separately purchasing a warranty. As such the warranty is considered a separate performance obligation

Licensing

An entity may offer a customer a license to use intellectual property owned by the seller. If a contract contains both a licensing agreement and a provision to provide goods and services the seller must identify each performance obligation in the contract and allocate the transaction price.

ASU No 2016 -10   April 2016 Identifying Performance Obligations and Licensing) provided updated guidance on accounting for licenses. That is:

  • On whether an entity’s promise to grant a license provides the customer with a right to use the entity’s intellectual property (which is satisfied at a point in time) OR to access the intellectual property (which is satisfied over time)
  • On the recognition of revenue for a usage or sales based royalty in exchange for a license of intellectual property. Essentially the ASU disallows the splitting of the royalty into a portion based on sales or usage and a portion that is not subject to that guidance

Disclosures

ASC 606 requires considerably more disclosures about revenue. In general, the intent of the disclosures is to enable the reader to understand the nature and amount of the revenue being recognized and the uncertainty of the related cash flows.  More specifically the entity shall disclose:

  • Contracts
    • Disaggregation of revenue
    • Contract Balances
    • Performance Obligations
    • Transaction price allocated to remaining obligations
  • Significant judgments made in the application of the standard
  • Practical Expedients relied upon e.g.
    • Existence of a financing component in the contract
    • Incremental costs of obtaining a contract

Other

The standard provides guidance on several other situations that can arise in the administration of contracts.  For example  (Not a complete recap:)

  • Measurement of progress completion
  • Change in estimate
  • Right of return
  • Contract modification
  • Bill and hold arrangements
  • Cash and non cash consideration

 

Implementation

Given the complexity of this standard and its impact on revenue, a most critical financial metric it is incumbent on entities to have a well thought out implementation and transition plan. Some key issues that the plan should address include:

  • Financial: Determine the revenue streams that are impacted. Assess the need to review all customer contracts, possibly cataloging them and detailing their performance obligations.
    • Review the methodology in place for recognizing revenue and devise an intervention whether interim or final, systematic or manual, that brings revenue recognition into line with the standard
    • If the plan includes significant manual effort be aware of the increased probability of errors and mitigate it with adequate quality controls
  • Information System: Ascertain the need and /or feasibility of reconfiguring the ERP system to seamlessly produce financial information in compliance with the new standard
  • Organization: Communication to internal and external stakeholders. Determine the need for revised guidance to organization units that interface with customers or suppliers with regard to entering into structuring of and reporting on contracts.
  • Transition: Decide on and prepare for full retrospective or modified retrospective presentation for financial statements presented after the implementation date. I.e.
    • Full retrospective: Apply the new standard as of the implementation date and, for the prior comparative periods, restate all contracts on the same basis
    • Modified retrospective: Apply the new standard as of the implementation date and, for the prior comparative periods, the data is not recast but instead apply a single adjustment to equity at the beginning of the initial year of application.

The CECL Approach, 3 of 3

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For this newsletter CFO Consulting Partners has partnered with Ardmore Banking Advisors to review the potential material financial benefits of a well planned and executed implementation of the new current expected credit loss (“CECL”) accounting standard.

Most banks have an awareness of the need to prepare for the transition to CECL, and that many foundational activities need to be looked at now. Together CFO Consulting Partners (“CFO CP”) and Ardmore Banking Advisors (“Ardmore”) have constructed an approach to help banks address the “early must do’s” of CECL at a reasonable cost.

CFO CP leverages its extensive experience with banking industry finance, and Ardmore it’s deep expertise in credit and credit data to translate the CECL transition process into tasks and activities that create valuable efficiencies and bottom line impact for the Bank. Together we can cut through the noise and assess a bank’s CECL readiness and at the same time help create a CECL action plan that will drive real value for the bank.

We have discussed aspects of CECL implementations in prior newsletters, The New CECL Approach Part I, and Part II. Similarly, Ardmore’s webinar Step #1 Of the CECL Journey provides additional perspective.

CFO CP and Ardmore are each focused on complementary aspects of the CECL implementation process in the finance, accounting, and credit disciplines. Well executed CECL projects led by an interdisciplinary team of Credit, Finance, and other bank management, coordinated by experienced project managers and executed well, can produce tangible bottom line improvements, and better efficiency ratios.

Experienced CFO CP and Ardmore Project Managers can help the bank’s CECL team identify opportunities for process improvements. The resulting databases, internal control enhancements, and automation will produce faster decisions, easy access to controlled and trusted data, high functioning executive teams and, ultimately, improved efficiency ratios. If CECL implementation is managed well, a bank can leverage the implementation to break down silos, upgrade systems, improve processes, and reduce expenses.

CFOs can strategically manage the spending to required accomplish CECL goals AND drive efficiencies which will ultimately reduce the expense ratio. Opportunities exist in:

  • Credit Administration: Ensure that all credit practices are properly aligned with your CECL implementation, upgrade automation, and improve underwriting processes.
  • Finance: Re-engineer financial controls and loan accounting processes, optimize general ledgers, optimize risk adjusted capital levels, and Improve management information for the Board and Management.
  • IT: Improve data governance, develop and data management tools, and retire inefficient loan and credit systems.
  • Operations: Update credit processes (such as data entry and coding processes), and re-engineer controls and processes
  • Lending: Efficient analysis of deal structures and lending to minimize life of loan losses and capital impacts

An assessment for CECL readiness can reveal a lot that can be useful to the institution beyond the needs of CECL compliance including:

  • Assess the current state of the institution’s credit portfolio data and origination process, ALLL, Financial and Credit policies, practices and governance – all within the context of CECL;
  • Review Current ALLL System & Processes;
  • Review controls on data used in the current ALLL process;
  • Identify data points required to support industry best practice portfolio data & regulatory compliance data for CECL;
  • Review loan origination process, stakeholders, criteria and coding;
  • Review data stored in the core for accuracy consistency and robustness;
  • Review all identified credit data source systems for data/database integrity; and
  • Review any existing data warehouse capabilities, and how portfolio data is organized, maintained, and retained.

CECL compliance practices and implementation plans should be in place in 2018. Auditors, regulators, boards of directors and investors will want to know bank’s plans for CECL, including the costs and the benefits beyond compliance.

Those institutions that leverage the potential benefits of the CECL implementation will have a competitive advantage over their competitors through increased efficiencies, automation and clarification of corporate risk management practices.

About the Authors

CFO Consulting Partners, Tom Van Lenten: Tom leads CFO Consulting Partners CECL consulting services to financial institutions. CFO CP’s CECL services include: CECL readiness assessment, analysis of the accounting and regulatory implications, project management, and assisting with updates of policies, procedures and internal controls which are impacted by CECL.

Ardmore Banking Advisors, Peter Cherpack: EVP, Partner. Peter is a nationally known thought leader in CECL implementation for community banks, and with other Ardmore consultants conducts CECL readiness assessments with a focus on credit and credit data readiness.

Physician Practices: Changing Dynamics

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In our introductory article introducing our healthcare practice, we provided a general assessment of the American Healthcare system and the state of flux that currently overshadows the industry and its practitioners.

There are significant changes that are profoundly affecting individual practitioners and small physician groups that require self-assessment and adjustment to survive in the changing environment.

Because of a more recent development, a totally different method of provider reimbursement, from fee for service or volume payments, to outcome based reimbursements or Value Based Care (VBC) is being encouraged by both Centers for Medicare and Medicaid (CMS) and by private insurers. Essentially, fees for services under VBC are paid based

on case outcome and the payment must be shared by all providers in the continuum.  VBC reimbursement was originally introduced by the CMS, however now private insurers are moving in the direction of value based reimbursement and they are providing incentives to healthcare providers to participate. What is essential to succeed in the VBC method of reimbursement lie in integration of providers and the ability to aggregate data.

Even prior to the movement to VBC, the PPACA is requiring all practitioners to utilize Electronic Medical Records, (EMR) which is costly in both software acquisition as well as implementation. While a burden to small practitioners and groups, EMR will ultimately allow groups to operate, integrate and bill more efficiently.

As new requirements continue to be heaped on single physician practices and small groups, they have been dwindling as more groups consolidate to gain scale and integration.  Also, there is a significant trend toward physician groups selling their practices to hospitals, as hospitals are a significant cog in the VBC wheel.

Because of PPACA, more insurers are requiring providers to be part of networks and are grouping providers into tiers where reimbursement is based upon a provider’s relationship with the insurance provider and other providers within the network and tiers. It is becoming less likely that practitioners can assume that the patient’s insurance company will cover the services provided, as more insurance companies are restricting out of network reimbursements. As an example, there are no insurance providers offered by the PPACA in the New Jersey marketplace that reimburses out of network services.

Viability in the changing healthcare delivery model for practice groups will require a significant change in how a practice operates, will require investments in information technology, possibly require upgraded staffing as well as the development of relationships with other providers in the continuum.

Sole practitioners and practice groups need to assess their situations and determine if they are positioned to continue independently or should they align with a network of providers or sell to a larger group or hospital.

CFO Consulting Partners’ healthcare practice is here to help you. We can assist you to access your current situation and help you create and implement a plan forward. We can also assist you should you decide to align with a network or sell or consolidate with another group or hospital.

American Healthcare: A State of Flux

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The United States possibly has the most complex healthcare system in the world. The American healthcare system regulates the industry at both the federal and state level. It is paid for by private health insurance as well as from the government under its Medicare and Medicaid programs. Healthcare services are provided by the private sector; by both for-profit and non-profit entities, however; the government also provides services directly through the Veterans Administration. All of this, in a population with disparate levels of wealthy and poor citizens, leads to highly chaotic distribution of care and a complex payment system. Some facilities reap the benefits of bespoke medical furniture whereas some only have the basic requirements.

While half of all Americans receive healthcare coverage through their employers, the plans are subject to crushing regulations both federally and at the state level. Those Americans receiving healthcare coverage through Medicare and Medicaid, subject the provider to lower reimbursements.  As a result, providers are less willing to take on Medicare and Medicaid patients, leading to a shortage of providers for that patient base. Patients that are not covered by their employer or a federally provided healthcare program are required to seek private insurance. However, because of the Patient Practice and Affordable Care Act (PPACA), patients are provided limited options and those options greatly restrict their choices regarding providers.

Because of a more recent development, a totally different method of reimbursement to providers, from fee for service or volume payments, to outcome based reimbursements or Value Based Care (VBC) is being encouraged by both Centers for Medicare and Medicaid (CMS) and by private insurers. Essentially, fees for services under VBC are paid based on case outcome and the payment must be shared by all providers in the continuum.  VBC reimbursement was originally introduced by the CMS. However private insurers are moving in the direction of value based reimbursement and providing incentives to healthcare providers to participate. What is essential to succeed in the VBC method of reimbursement lie in integration of providers and the ability to aggregate data.

Even prior to the movement to VBC, the PPACA is requiring all practitioners to utilize Electronic Medical Records, (EMR) which is costly in both software acquisition as well as implementation. While a burden to small practitioners and other small providers, EMR will ultimately allow participants in the continuum to operate, integrate and bill more efficiently.

Adding to the complexity of the American Healthcare system is the attempts to repeal of the PPACA. The potential of repeal is having the greatest impact on the insurance industry, impacting the cost of insurance, as subsidies provided by the federal government are uncertain depending on the success of repeal and its subsequent replacement.

CFO Consulting Partners’ healthcare practice is here to help you. We can assist you to access your current situation and help you create and implement a plan forward that will help insulate your practice as the rapid changes within the industry unfold.

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