Home Health & Hospice Week

Is your accounts receivable financing up to snuff?

Don't get clumsy with your cost report just because it isn't tied directly to reimbursement under the prospective payment system.
 
Home health agencies should claim their costs properly even under PPS, urges consultant Pat Laff with Laff Associates in Hilton Head, SC. "You should do it right," he urges.
 
Your compliance record and your future Medicare payment rates may depend on the accuracy of your report, experts remind agencies.
 
At the top of the list for potential disallowances are dubious financing arrangements - namely, factoring. "Factoring is a no-no," Laff admonishes. And one Puerto Rico home care company is paying the price for its factoring deal in pre-PPS days.
 
Guaynabo Home Care Inc., Font Martello Home Care Inc., Fajardo Home Care Inc., and El Gigante Home Care Inc., owned by Medica Health Management Inc., entered into a receivables financing arrangement with MedCapital Funding I Corp. for 1999, according to an Oct. 29 Provider Reimbursement Review Board Decision (No. 2005-D1).
 
But when regional home health intermediary United Government Services reviewed the agencies' cost reports, it disallowed nearly $330,000 in interest expenses the agencies claimed, the decision says. UGS said instead of an allowable loan against the receivables, the HHAs actually had sold their receivables to MedCap. Because Medicare doesn't allow sales of receivables, the RHHI disallowed the associated interest and other expenses.
 
The Medica agencies argued to the PRRB that the arrangement was indeed a loan, notes Forth Worth, TX-based attorney S. Gary Werley. Under Financial Accounting Standard 125 under GAAP, a sale didn't exist if the party can repurchase its assets or if the party retained its right to reassign the receivables, says Werley, who represented the agencies in the case. And both of those provisions were in the financing contract, Werley says.
 
But the PRRB dismisses the repurchasing timeframe as too long to be valid (30 days) and doesn't address the reassignment issue, according to the decision.
 
Werley has recommended that the agencies proceed to federal court to appeal. "There's a lot of money involved," he tells Eli. And the case's cost would be limited since the court would look at the existing evidence rather than retry the case, he adds.

PPS Doesn't Let You Off the Hook

Lots of agencies ran into problems with factoring expenses in the cost report year at issue, 1999, notes consultant Tom Boyd with Rohnert Park, CA-based Boyd & Nicholas. The slashed payments under the interim payment system forced many HHAs to seek receivables arrangements as last-resort financing, when they couldn't obtain financing from more traditional banking avenues.
 
Here's how it works: Because federal law prohibits selling receivables and requires Medicare contractors to pay only the providers, the payments for the claims borrowed against are collected in a "lockbox" - an account in the provider's name located in the lender's facility, experts say. Then each day the lender "sweeps" an agreed upon amount from that account to apply against the debt and the rest of the funds go into the provider's operating account. Receivables financing generally carries higher interest rates and other costs compared to traditional bank financing.
 
Smart lenders craft the agreement to clearly qualify as a loan, not a sale, Boyd notes. But even lenders experienced with such arrangements run into trouble.
 
Some RHHIs give receivables financing wide latitude, while others crack down on even the safest arrangements, notes a receivables financier representative who asked not to be identified.
 
"There is no cut and dried way" to make sure intermediaries won't disallow your receivables financing costs as prohibited factoring expenses, the rep says.
 
Under PPS, agencies don't seem as concerned with disallowed factoring costs, the financier says. "It's not a big issue any more," the source says.
 
But HHAs ignore cost reporting and other rules at their peril, Laff warns. "The rules shouldn't be circumvented because of the fact that PPS is in place," he warns.