Ask any owner what they think the most intrusive part of an accreditation survey is and chances are pretty good they’ll mention the financial documents review portion. In my experience, this is because of two equally important reasons: 1) It is certainly information that a business owner does not like or feel comfortable sharing, and 2) Many -if not most- DME business owners are more conversant in and knowledgeable talking about the day to day issues they face in their businesses. Things like new billing software, technological advances with medical equipment, and those new “Sprinter” delivery vehicles are all topics that they love to chat about with fellow business owners. How much money they actually put in their pockets and how difficult (or easy) it was to pay the bills that keep the lights on are topics we just don’t feel as comfortable sharing.

So, why does an accreditation organization need to look at these documents and talk to the owners about budgets and their gross annual revenue?

Accrediting organizations are required to have a set of standards that comply with and enforce the CMS Quality Standards for DMEPOS. These CMS standards were the original guide that HQAA used in writing their standards. The financial part of those standards is fairly simple and states that:

• The supplier shall implement financial management practices that ensure accurate accounting and billing to beneficiaries and the Medicare Program. Financial records shall be accurate, complete, current, and reflect a cash or accrual base accounting practice.
• The supplier shall maintain accounts that link equipment and items to the beneficiary and manage revenues and expenses on an ongoing basis, as they relate to beneficiary services, including:
   
  1. Reconciling charges to beneficiaries for equipment, supplies, and services with invoices, receipts, and deposits;
  2. Planning to meet the needs of beneficiaries and maintain business operations by having an operating budget, as appropriate to the business’s size and scope of service; and
  3. Having a mechanism to track actual revenues and expenses.

The HQAA standards took that language and used it to write their “Financial Stability” standards. There are only two: FS-1 and FS-2. Essentially, FS-1 requires organizations to have policies relating to their financial management plan. That plan should include having an annual budget and an accounting system that details revenue and “reconciles charges with invoices and deposits.” FS-2 quite simply states that policies guide the mechanism for communicating financial information to management and the owner(s).

The standards apply to all organizations, but implementation looks different at various types and sizes of businesses. All organizations, no matter the size, should have a designated person responsible for financial management. At larger corporations, that person might be a Chief Financial Officer (CFO) working with a team of accountants, bookkeepers, and billing personnel. At a smaller company, that person might be the owner or manager.

The surveyor is typically looking for two very important pieces of documentation when they do the financial management review:

First of all, they are looking for documentation of accurate accounting practices. This is often expressed and documented in a profit & loss statement. Profit/loss statements, also sometimes referred to as income statements, summarize revenues, costs, and expenses for a specified period of time, typically a fiscal year. If done properly, they paint an accurate portrait of your organization’s financial condition. Because they look at both money coming in and money going out, they give a person reading the statement a picture of both gross and net income, profits, and an overall sense of expenses that the organization faces.

Secondly, they look for a budget, a more “forward looking” picture of your organization’s financial health. Budgets are estimated statements of revenues and expenses for a given time period in the future. They consider the past and current financial situation and aim to predict future performance. Budgeting is important because it quantifies your goals and future plans. Dave Ramsey, popular financial advisor and radio show host, touts the importance of budgets because “A budget is telling your money where to go instead of wondering where it went.” Being financially responsible—whether in our personal lives, or in our businesses—requires proper planning. The budget is an essential part of that planning.

Proper and effective financial management compares income and profit/loss statements (from the present and past) to budgets (for the future). This comparison can be done several times a year to tweak future goals and direct where your organization is headed.

Some documents you should be prepared to share with the surveyor include:

• Profit Loss Statement (or Income Statement) from a recent, previous year
• Operating Budget
• Tax Returns for the business
• Written Policy on Financial Management
• Documentation of communication of financials to leadership (owner, senior management, or a board of directors)—This may be in the form of meeting minutes or memos to leadership.

Why is any of this Medicare or HQAA’s business? Accreditation and licensure require that an organization is viable. The best intentions, plans, and goals won’t come to fruition if the organization is not properly funded. The review of your organization’s financial management plan, along with documentation such as profit/loss statements and budgets, gives the reviewer insights into how your organization has operated in the past and how it is likely to operate in the future.