Certified Community Behavioral Health Clinics (CCBHCs), specially designated clinics that provide comprehensive mental health and substance use services, operate within a cost-based prospective payment system (PPS) designed to support the delivery of comprehensive behavioral health services. The accuracy and defensibility of anticipated cost projections are critical in establishing a PPS rate that can help maintain financial sustainability and regulatory compliance. This article delves into why these projections matter, the key role they play, and strategies to help your organization prepare for what’s next.
Why Are Anticipated Costs Important?
Anticipated costs extend beyond traditional accounting forecasts for increased costs. These projections can help CCBHCs formulate plans for growth, adapt to operational changes more readily, and ensure their services continue. As instructed by CMS, clinics can factor in these anticipated costs when the actual expenses aren’t yet fully realized, such as during new program launches, service expansions, staffing increases, or facility upgrades.
Key Costs & Drivers to Consider
Understanding the types of costs and what is driving those costs is essential to help create accurate and defensible anticipated cost projections. Below are the core cost components to consider when setting PPS rates:
- Direct Service Costs: Examples include salaries, benefits, and supplies.
- Indirect Costs: This includes items such as administrative overhead.
- Capital Costs: Depreciation, facility expenses, insurance, etc.
- Volume: Consider volume drivers such as anticipated visits.
The following are a few steps your organization can take to help enhance the value of anticipated costs:
- Categorize expenses accurately and exclude non-allowable costs, especially for organizations offering both CCBHC and non-CCBHC services.
- Implement strong internal controls and cross-departmental reviews to validate cost categorization.
- Consider periodic audits to help maintain ongoing compliance.
Organizations should develop standardized templates for cost estimation to support consistency and completeness across all categories and require documentation of assumptions for each estimate.
Risks of Inaccurate Forecasting
Inaccurate forecasts can lead to significant impacts to financial and operational processes. A few issues that may arise include the following:
- Overestimating Costs: Projecting costs too high could result in an inflated PPS rate, triggering increased scrutiny and potential recoupments.
- Underestimating Costs: Coming in too low on costs could lower the PPS rate and jeopardize the clinic’s ability to cover actual expenses.
- Inaccurate Visits Projection: Not estimating the visits properly could distort the true cost per service and impact compliance and reimbursement efforts.
Organizations should consider establishing a formal review process for projections involving both financial and operational leadership and employ scenario analysis to stress-test assumptions and identify potential risks.
Best Practices for Estimating Anticipated Costs
Accurately projecting costs requires a structured approach. To help improve the accuracy and reliability of anticipated costs, consider the following:
- Utilize historical data as a baseline, adjusting for known changes.
- Incorporate market data to accurately project labor and supply costs.
- Factor in inflation.
- Document all assumptions supporting estimates.
- Align visit projections with clinical capacity and expansion plans, including considering the use of a community needs assessment to help ensure growth strategy aligns with needs within the community.
It is important to consider incorporating data analytics capabilities and regularly updating projections as new information becomes available to help improve forecasting accuracy and communicate changes promptly to stakeholders so they can plan ahead.
Leadership Strategies for Effective Cost Reporting
Anticipated costs are an essential element when setting a PPS rate that reflects the actual cost of care and should be based on sound forecasting practices aligned with CMS guidelines. Executive leadership should consider the following strategies to enhance cost reporting efficiencies:
- Champion a culture of accuracy and transparency.
- Encourage collaboration between financial, operational, and clinical teams.
- Provide ongoing education of CMS requirements and industry best practices.
- Engage external advisors as needed to help validate methodologies and support compliance.
Organizations should consider scheduling executive briefings regularly on cost report preparation and anticipated cost trends and use those sessions to identify emerging risks and opportunities for operational improvement. Doing so can help CCBHCs remain financially strong and responsive to community needs.
How Forvis Mazars Can Help
For assistance in preparing cost reports or navigating PPS rate methodologies, our Healthcare team is ready to support your clinic’s financial and compliance goals. If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.