CNMI Healthcare Corporation Continues To Have Serious Financial Challenges

Audit shows 'revenue shortfalls significantly impact it ability to pay for critical services'

By Emmanuel T. Erediano

SAIPAN, CNMI (Marianas Variety, March 22, 2017) – The Commonwealth Healthcare Corp. is still unable to manage patient revenues effectively; its revenue shortfalls significantly impact it ability to pay for critical services and supplies; and because it is without the data necessary to analyze overall financial health, the islands’ only hospital risks future losses which could jeopardize healthcare quality for residents and tourists.

These are among the findings of the Office of the Public Auditor’s “Report on the Audit of the Commonwealth Healthcare Corporation’s Patient Revenue Cycle” dated March 16, 2017.

According to the report, “Due to inadequate oversight and monitoring by CHCC management, we found several internal control deficiencies that hinder the effective management of patient revenues. In addition, CHCC has not complied with its procurement regulations, having continued to use an independent billing and collection agency despite the contract’s expiration. Moreover, CHCC has not reconciled all forwarded accounts, billings, and collections received from the contractor to identify any discrepancies and minimize the risk of fraud or potential losses.”

At CHCC, OPA said:

  • Insurance coverage and eligibility are not always verified;
  • Upfront payments are not always collected;
  • Billings are not timely;
  • Follow-up procedures are not performed;
  • Claim denials are not effectively managed; and
  • Poor documentation and inadequate review of third party reimbursements occur.

Asked for comment, CHCC Chief Executive Officer Esther Muna in an email said they have hired a revenue director who is experienced and very knowledgeable of the issues identified by OPA.

The revenue director, she said, “is working closely with [our chief financial officer] to ensure revenues are captured. Our work will be to improve our processes, using the best practices for the industry.”

In its report, OPA said:

“At its inception on Oct. 1, 2011, the Commonwealth Healthcare Corporation, which manages the health center, already faced significant institutional challenges. It had inadequate financial resources, as well as insufficient organizational planning and information technology infrastructure to be successful.

“CHCC had neither the technical expertise, nor the experience to manage a multi-million-dollar corporation, as evidenced by its initial months of delayed or postponed payroll, utilities, and tax payments, as well as a questionable contract with a stateside billing and collection firm.

“Adding to these complications, the Centers for Medicare and Medicaid Services conducted a 2014 survey that identified seven areas of noncompliance related to quality of healthcare, which could potentially risk termination of the Commonwealth Health Center’s hospital provider agreement with CMS, extended a third time until 2017.

“Without CMS certification, CHCC will be unable to claim reimbursement for medical treatment provided to its CMS-covered patients.

“Although CHCC has managed to meet its last few years of payroll obligations, its utility and tax payments continue to lag. Furthermore, the independent auditor could not express an opinion on the financial statements for three consecutive years due to the absence of sufficient accounting records and departure from standard accounting principles and practices.  

“We found that CHCC did not have sufficient internal controls in place to manage patient revenues effectively.

“In addition, CHCC did not comply with procurement regulations when it continued to use an independent billing and collection firm despite the contract’s expiration.

“CHCC also has not reconciled all forwarded accounts and payments received from the contractor to identify any discrepancies and potential losses.

“We believe these issues have occurred for various reasons, including an inefficient billing and accounting system, inadequate staff training, a growing backlog in billing and collection, and a lack of policies.

“Further, there have been six changes in the chief financial officer position since 2011 — a situation that prohibits CHCC from making financial progress and which, in turn, may impact the health care available to residents.

“CHCC’s existing financial constraints are well known to its management. In fact, CHCC hired a consultant, funded through a Department of the Interior grant, to evaluate and improve the revenue cycle. This project is ongoing but, once complete, may provide practical solutions to resolve some of the findings presented in this report.

“Full implementation of our recommendations may help improve CHCC’s revenue cycle, while minimizing its risk of potential losses from bad debt. At some time in the future, CHCC must replace its current IT system with a more robust, efficient one. As changes occur often in healthcare, management’s continuous review of its internal control system while keeping up with health care industry changes is critical to financial sustainability.”  

OPA said as of March 14, 2016, “CHCC had 628 employees, of which 477 receive compensation from local funds and 151 from federal funds. CHCC’s primary source of operating revenue is hospital services, but it also generates revenues through non-hospital service fees and contributions…. [T]he organization reported an operating loss each year from its inception in FY 2012 to 2014.”

OPA added, “Despite operating at a loss each year, CHCC has received non-operating income from legislative appropriations, federal grant contributions, and settlements. In addition, the Marianas Public Land Trust granted CHCC a $3 million line-of-credit to aid its operational activities and $328,655 for its Electronic Health Records Project. Furthermore, the transfer of capital assets from the central government took place in FY 2014, bringing its year-end net position back to a positive amount…. These have helped reduce the reported impact of CHCC’s operating losses on its net position.”

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