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H H S Department of Health and Human Services
Health Resources and Services Administration
Primary Care: The Health Center Program

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Creating a Financial Recovery Plan

Policy Information Notice 2002-18

Purpose

This Policy Information Notice (PIN) describes the Bureau of Primary Health Care's (BPHC) requirements for developing, submitting, and reporting on a Financial Recovery Plan (FRP). This plan will be required when it is determined that an organization supported with a Federal grant awarded by the BPHC has serious financial problems that threaten both its stability and viability. Some but not all of the situations the BPHC may request a FRP include:

  • where a Primary Care Effectiveness Review, Joint Commission on Accreditation of Health Care Organizations Review or other site visit findings that identifies serious financial problems;
  • a pattern of draw down of grant funds from the payment management system that could result in an organization having limited or no Federal grant funds to support payment of operating expenses in the months before the end of a budget period;
  • grantee has requested emergency supplemental funding on future year's funding;
  • an impending or actual financial problem;
  • audit report findings; or
  • the Field Office determined that significant financial imbalances exist and there is a need for a FRP.

A FRP serves as a short-to-intermediate-term plan to guide financially-troubled organizations toward financial stability and can be used as a guide for development of long term plans needed for complete financial recovery. It is designed to provide the organization's staff, the Board of Directors and the BPHC with measurable, timeframed objectives which permit monitoring of progress.

Content 

The FRP should include the following sections:

A. Analysis of the Cause of the Current Problem

Include a discussion of the data reviewed and the processes used in the analysis. The causes, conclusions and recommendations should be identified and discussed in detail sufficient for a clear understanding of what actions are needed. For example, a cash flow crisis may result from the loss of provider staff without a combination of: a corresponding reduction in associated overhead and direct support activities; timely replacement of provider staff; or, limited working capital and operating reserves. Justification, assumptions and support for the conclusions and recommendations should be included in the narrative or in attachments or appendices to the recovery plan.

B. Time-framed Description of Proposed Solutions or Corrective Actions

Address in detail all the causes identified in section A. Describe the actions that will implement the recommended recovery actions in a timeframed, results specific format. When completed, these actions should correct the problems identified, return the organization to solvency, and leave the program financially stable. A format for development of a time-framed corrective action plan is presented in Attachment A as an example. This format or another may be used. However presented, the plan should be clear and specific as to recovery actions required, expected results, responsible groups or individuals and when the actions were, or will be, completed in detail.

C. Time Framed Financial Projections

It is the BPHC's expectation that financial statements of Health Centers reflect the following:

  • net cash flow being zero or greater for 2 of the last 3 audited fiscal years,
  • working capital greater than 2.0 months of expenditures,
  • long term liabilities as a percent of total net assets are .25 or less,
  • the average age of accounts payable are 60 days or less,
  • positive net assets that have increased in 3 of the last 5 audited fiscal years,
  • expenditures are appropriately time phased and according to budget,
  • revenues are received as in a timely manner and in accordance with budget,
  • no other significant financial issues.

The Financial Recovery Plan must include detailed, month-by-month financial projections to the point at which the organization has a positive net cash flow and an increase in net assets from operations in the financial statements for a sustained 12-month period. The recovery plan should include all of the estimated time required to meet a minimum acceptable level of recovery. The plan can begin at any time and extend beyond the current budget and fiscal year end. Generally, the first month shown will be the month of submission. If, however, the recovery plan has already been placed into effect and the grantee wishes to show progress to date, an earlier month may be chosen.

In accordance with Office of Management and Budget Circular A-133, annual financial audits are due within 30 days of receipt from the auditor. Audits must be submitted no later than 9 months after the end of a fiscal year. The requirement to submit the annual audit to the Office of Grants Management within 30 days of receipt from the auditor is established in the reporting requirements of the Notice of Grant Award. The BPHC will not consider financial recovery complete until verified by the annual independent audit. The audit should reflect:

  • that there is not a deficit in net assets,
  • long-term debt to equity less than .5,
  • an increase in net assets from operations for the audited financial statements,
  • average age of accounts payable is 60 days or less,
  • a current ratio above 1.5 and
  • no other outstanding financial issues,
  • submission of the audit within 30 days of receipt from the auditor.

To insure that all expenses requiring cash for payment and revenues reflecting productivity for a period are reported in the period incurred, the monthly projections of financial operations must be accrual based. Projected income should be specific as to source and amount. Detail should include gross patient service income, discounts and adjustments to patient service revenue, grant, contract and other income. Patient service income, including discounts and allowances, should be presented by payor source; the number of visits/encounters and capitated lives.

Expenditures should be broken down into categories used in the BPHC grant application guidance. The recovery plan must also include a monthly cash flow budget projecting all cash receipts and disbursements including beginning and ending cash balances, cash receipts from operating revenues, proceeds from new loans and proceeds from sales of assets. Monthly cash flow projections should include debt reduction, including payments on old payables, negotiated payments for reduction of operating debt, and debt service of short and long-term debt.

The narrative to the financial portion of the FRP should discuss the assumptions used in the projections. An explanation of projections that are different from current experience should be provided. Some of the more important assumptions that should be supported by back up detail include changes in collection rates, changes in Full Time Equivalent provider staff and provider mix, changes in payor mix, and other State and local revenues. Estimated productivity by provider, including the assumptions and support for these estimates, must also be included in the FRP. Fixed assets and equipment used to secure debt should be identified and discussed.

Board approved financials that include accrual based balance sheet and income statement, and a cash flow statement inclusive of the months of your fiscal year before the month the revised recovery plan is implemented should be included as a part of the recovery plan documents.

D. Board Approval

The Board Of Directors (BOD) must approve the financial recovery plan. Please indicate date of meeting at which the FRP received BOD approval.

Monitoring Evaluation Process

It is critical that the BOD understand the substance and the implications of the budget developed under this guidance. The BOD function is not direct involvement in the day to day operation of the clinic. However, it is the responsibility and function of the BOD to monitor and evaluate the recovery plan both initially and on an ongoing basis, to ensure a successful financial recovery. The BOD monitoring should include monitoring baseline financial and performance indicators similar to those discussed in this document and/or others. Briefly describe the implementation, monitoring and evaluation process the organization plans to use. Explain how corrective actions will be identified and implemented if expectations are not being met or goals must be adjusted.

Financial recovery will be monitored on a month-to-month basis by the BPHC Grants Management and Field Office staff. Grant conditions will require monthly submission of board approved budget comparative financial, cash flow and productivity reports. Grant conditions will also require narratives to these reports explaining significant variances between budgeted and actual income and expenditures as well as projected and actual cash receipts and disbursements. The recovery process may also involve monitoring of draw down of Federal funds using Form SF 270, Request of Disbursement. Draw downs will be authorized based upon the organizations approved FRP Cash Flow Budget. A justification and updated recovery plan reflecting the change must be submitted with any changes to the draw down schedule in the approved FRP Cash Flow Budget.

Other narrative, financial and productivity reports may also be required.

For additional information on the process described in this PIN, please contact the Project Officer assigned to the grant.

 

ATTACHMENT A: SAMPLE PLAN FORMAT

GUIDE FOR DEVELOPING FINANCIAL RECOVERY PLANS IN TABLE FORMAT

Problem Statements are clearly defined descriptions of major problems, as discussed in this PIN. Assign each problem statement a Roman numeral (I, II, III, etc.)

Column 1: Objectives -Objectives are descriptions of desired, measurable, time-limited results or outcomes. These objectives can be used to identify an acceptable level of performance or establish criteria for evaluation. Objectives can be either short-term (less than 1 year) or long-term (1 year or longer). Assign each objective The Roman Numeral associated with the problem plus a capital letter (I.A., II.A., II.B., etc.)

Column 2: Action Steps - the major activities that must occur to accomplish an objective - critical actions that must be taken to attain the measurable outcome or end result. Reference each step by corresponding upper case letter for the objective and a number for the action step (A.1., A.2., etc.) The date when each action step is expected to occur should also be stated.

Column 3: Evaluation Method - the method which will be used to evaluate progress towards an objective or to identify the actual outcome distinguished in the objective. For example, working capital greater than 1.5 months of expenditures. Reference each step by using the corresponding code for the objective and/or action step.

Column 4: Progress/Outcome - accomplishments to date; action steps and date thereof actually taken towards an objective; outcomes that have been experienced, quantified/qualified and documented. This column will not be used in the first submission, but will be used as and when narrative progress reports are required. Reference each progress statement in the same manner as noted above for related Evaluation Method.

 

PROBLEM STATEMENT I: [Brief description of problem C detail will be in the narrative statement.]

ObjectivesKey Action Steps Planned and Date of ImplementationEvaluation Methods or Data Sources PlannedProgress
OBJECTIVE I.A:I.A.1.I.A. I.A.1. 
 I.A.2.I.A.2. 
 I.A.3.I.A.3. 
OBJECTIVE I.B.I.B.1.I.B. I.B.1. 
 I.B.2.I.B.2. 
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