#MESC2019

This article is the first in a four-part series based on the book A Field Guide to Business Valuation, written by BerryDunn’s Seth Webber and Casey Karlsen. 

A banner hanging on the wall of a particular consulting firm states, “In God we trust – everyone else, bring data.” The message of this sign is humorous and clear: if one wants people to agree with one’s position, one must provide supporting data. This is particularly true when making major decisions.

Some of the most important decisions a business owner will make are related to the transition of ownership in their business. Yet when they come to the table for these big decisions, people sometimes neglect to bring the most important thing: data. At a minimum, they need to know the value of their business. It would also be beneficial to understand their business’s value drivers, risk profile, profitability drivers, and performance relative to their peers. A thorough business valuation contains this information and more.

Our favorite illustration of the business valuation process is the “valuation rocket ship.” The economic overview, industry analysis, and company overview provide the base to launch the valuation. The different approaches are then used to create three different perspectives on value. All of this information is then synthesized into the conclusion of value.

Economy, industry, and subject company analysis

The economic overview sets the groundwork for factors affecting value that are present in the general economy (unemployment rates, inflation, interest rates, etc.). The scope then narrows to the specific industry in which the subject company operates. The industry analysis discusses factors such as historical performance for the industry, supply chain risks, and barriers to entry. Valuation reports then get to the heart of the matter: the subject company. This analysis includes the history, ownership, risks, and other factors that may affect value.

Analysts carefully study the subject company to identify the features that affect value in an actual or hypothetical sale of the business. Acquirers need to know how a company operates and what factors may affect its viability and profitability moving forward. Analysts spend a lot of time looking for items that affect the risk profile of a company. Risk and business value are like children playing on a see-saw: As risk goes up, value goes down.

Once these analyses are complete, the data is considered through different lenses to get a complete picture. Businesses are commonly valued using three common approaches: The market approach, the income approach, and the asset approach, as we’ll discuss below.

Market approach

To understand the market approach, an analogy to the appraisal of real estate may be useful. If one is interested in buying a house, one could look at the price of similar houses to estimate the value of the house in question. Similarly, if one wishes to value a business, one can estimate its worth through a comparison to the sale of similar businesses.

Income approach

If one is trying to estimate the value of an income-producing property such as an industrial warehouse that will be leased out, one could estimate its value based on how much income it will generate over its life. This is called the income approach. Just like with income-producing properties, business value may be estimated based on how much income businesses are expected to generate.

Asset approach

A third way to value a building is by looking at how much it would cost to construct the building rather than buying a completed building. This “make vs. buy” approach is known as the cost approach for real estate appraisals. In the business valuation community, this approach is known as the asset approach. Rather than looking at the value of the company as it exists today, one could estimate value based on how much it would cost to start a similar company.

Conclusion of value

There is a parable about six blindfolded men who encountered an elephant for the first time. They each inspected the elephant by touching it with their hands. The first man felt the elephant’s trunk and concluded that an elephant was a type of large snake. The second man reached the elephant’s ear and stated that an elephant must be a type of fan. The third man felt the elephant’s leg, noting that an elephant is like a tree trunk. The fourth man, feeling the elephant’s side, thought that an elephant was like a wall. The fifth man felt the elephant’s tail and opined that an elephant is a type of rope. The last man felt the elephant’s tusk and decided that an elephant must be like a spear.

As this parable illustrates, when we have a narrow focus and consider only one perspective, we arrive at faulty conclusions. We can make this error in business valuations if we apply only one method to value a company. Each valuation method provides us with a different perspective on value. By considering several different methods, we can get a clear picture of what the subject company is worth.

BerryDunn’s Business Valuation Group partners with clients to bring clarity to the complexities of business valuation while adhering to strict development and reporting standards. We render an independent, objective opinion of your company’s value in a reporting format tailored to meet your needs. We thoroughly analyze the financial and operational performance of your company to understand the story behind the numbers. We assess current and forecasted market conditions as they impact present and future cash flows, which in turn drives value. Learn more about our team and services. 

Having proper policies and procedures in place over procurement and suspension and debarment is essential for organizations receiving federal financial assistance. This article discusses the common issues nonfederal entities encounter with procurement and suspension and debarment, and best practices for ensuring their processes and controls are properly designed to promote compliance with the requirements of Title 2 US Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). The guidelines discussed and referenced in this article are those in effect prior to October 1, 2024.   

Background

The Uniform Guidance addresses procurement standards for nonfederal entities other than states, including those operating federal programs as subrecipients of states, in 2 CFR sections 200.318 through 200.326. Requirements for suspension and debarment are found in 2 CFR Part 180. Nonfederal entities must follow their own documented procurement procedures, which reflect applicable state and local laws and regulations, provided such procedures conform to applicable federal requirements. 

Common Issues

Below are some of the most common issues noted concerning compliance by nonfederal entities and the relevant requirements:

• Lack of documented procurement procedures. 2 CFR 200.318 states nonfederal entities must have and use documented procurement procedures. Such standards must conform with relevant state, local, and tribal laws and regulations, as well as the procurement standards identified in 2 CFR 200.317 through 200.327. The nonfederal entity must maintain written standards of conduct covering conflicts of interest and actions of its employees engaged in the selection, award, and administration of contracts. 
• Inserting restrictions on competition. Procurement transactions are to provide for full and open competition. 2 CFR 200.319 provides examples of inappropriate conditions nonfederal entities will artificially impose to create limitations to competition, such as through placing unreasonable requirements on firms to qualify to do business, requiring unnecessary experience, or specifying a “brand name” product. Furthermore, nonfederal entities must avoid use of statutorily or administratively imposed state, local, or tribal geographical preferences except where federal statutes mandate or encourage geographic preference.
• Not retaining evidence of price or rate quotations for small purchases. 2 CFR 200.320(a)(2) describes small purchases as those with an aggregate dollar amount higher than the micro-purchase threshold ($10,000, or $2,000 for acquisitions subject to the Davis-Bacon Act) but less than the simplified acquisition threshold ($250,000, or a lower amount as determined by the nonfederal entity). When small purchase procedures are used, the nonfederal entity must obtain price or rate quotations from an adequate number of qualified sources. 
• Inappropriate use of noncompetitive procurement. 2 CFR 200.320(c) limits the use of noncompetitive procurement to specific circumstances which include: (a) the aggregate dollar amount does not exceed the micro-purchase threshold; (b) the item is available only from a single source; (c) a public exigency or emergency does not permit a delay for competitive solicitation; (d) the federal awarding agency or pass-through entity expressly authorized via response to a written request for noncompetitive procurement; and (e) after solicitation of a number of sources, competition is determined inadequate. Nonfederal entities procuring goods or services noncompetitively outside of the specific circumstances listed risk having the related costs disallowed and other negative ramifications due to noncompliance. 
• Not checking for suspended or debarred parties. Nonfederal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred. Per 2 CFR 180.220, covered transactions include contracts for goods and services awarded under a nonprocurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000, contracts that require the consent of an official of a federal awarding agency, or contracts for federally required audit services. 

Question: Can a nonfederal entity use its history or familiarity with a vendor as criteria for selection?
Answer: No, procurement transactions must be conducted in a manner that provides full and open competition. Relevant technical requirements or the inclusion of minimum essential characteristics or standards may be used for evaluation purposes but must not contain features that unduly restrict competition. “Preferences” are not appropriate criteria for evaluating bids or proposals.

Best practices

Below are suggested best practices to help ensure compliance with requirements for procurement and suspension and debarment:

• Routine review of documented procurement procedures. Nonfederal entities must have written procedures for procurement and should review these procedures routinely to ensure they are in compliance with relevant laws and regulations, and accurately reflect the actual procurement process.
• Review of terms and conditions. Invitations to bid, requests for proposal, and contracts should be reviewed to ensure the terms and conditions are in compliance with recently enacted federal laws and regulations. For example, effective May 14, 2022, the Build America, Buy America Act (BABA) requires a Buy America preference for iron, steel, manufactured projects, and construction materials used in projects. 
• Retention of quotes, bids, and proposals received. For procurements made under small purchase procedures or formal procurement methods, nonfederal entities should retain copies of the quotes, bids, or proposals received to support compliance for competitive procurement. 
• Written documentation of noncompetitive procurement. Nonfederal entities should maintain robust documentation as appropriate for their scenario to justify the use of noncompetitive procurement. Such documentation should include: 
  • Written approval from the federal awarding agency or pass-through entity authorizing noncompetitive procurement, when available.
  • Evidence of inadequate competition when solicited, proof that the item is only available from a single source, and the facts and circumstances explaining why a public exigency or emergency required immediate procurement.  
• Retention of documentation of the review for suspension and debarment. Nonfederal entities should retain in their procurement files evidence that they verified the entity was not debarred, suspended, or otherwise excluded from federal programs prior to entering a covered transaction. This can include a screenshot of checking the System of Award Management (SAM) Exclusions maintained by the General Services Administration (GSA) available at SAM.gov, collecting a certification from the entity, or adding a clause or condition in the agreement related to the covered transaction.

Question: Are non-federal entities required to have a separate procurement policy for federally funded procurements?
Answer: Non-federal entities are not required to have separate procurement policies. However, the procurement procedures used when federal funds are involved must conform to applicable federal statutes and the procurement requirements identified in 2 CFR Part 200. Non-federal entities may opt for more restrictive policies than the requirements in 2 CFR Part 200 if they so choose.

Conclusion

Compliance with the requirements of the Uniform Guidance for procurement and suspension and debarment is essential to continue to receive federal financial assistance. Through adherence to the best practices listed above, nonfederal entities can better position themselves for a successful future.

Note: In April 2024, the Office of Management and Budget released an updated version of the Uniform Guidance. The effective date for the updated version is October 1, 2024. Federal agencies may choose to apply the final guidance to federal awards issued prior to this date but are not required to do so. Nonfederal entities should refer to the updated guidance when applicable.

Written by Sam Thompson. Copyright © 2024 BDO USA, P.C. All rights reserved. www.bdo.com

The Centers for Medicare & Medicaid Services (CMS) issued the final rule for the PPS for SNFs for FY 2025, which was published in the Federal Register on August 6, 2024. The regulations in this rule are effective October 1, 2024.

The rule:

• Updates the PPS payment rates for SNFs for FY 2025 using the market basket update and budget neutrality factors effective October 1, 2024.
• Updates the International Classification of Diseases, 10th Revision, Clinical Modification (ICF-10) mappings used under PDPM.
• Changes the Nursing Home Enforcement Policies for civil monetary penalties (CMPs).
• Updates the Skilled Nursing Facility Quality Reporting Program (SNF QRP); and
• Updates the Skilled Nursing Facility Value-Based Purchasing (SNF VBP) Program.

2025 PPS Rate Calculations

The final rule provides a productivity-adjusted market basket increase for SNFs of 4.2 percent beginning October 1, 2024, which reflects:

• A market basket increase of 3 percent based on IHS Global Inc.’s (IGI’s) second quarter 2024 forecast with historical data through the first quarter of 2024.
• Plus, 1.7 percent associated with a forecast error adjustment.
• Less a reduction of 0.5 percentage points in accordance with the multifactor productivity adjustment.

CMS estimates that the aggregate impact of the payment policies in this final rule would result in a net increase of 4.2 percent, or approximately $1.4 billion, in Medicare Part A payments to SNFs in FY 2025. This estimate does not reflect a $187.69 million decrease as a result of the SNF VBP program reductions.

In addition to the SNF PPS rate update, CMS is rebasing and revising the SNF market basket to reflect a 2022 base year for FY 2025 and adopted the revised Core-Based Statistical Area (CBSA) delineations published by the Office of Management and Budget (OMB) in OMB Bulletin No. 23-01 (whitehouse.gov) to enhance the accuracy of wages and wage-related costs for the area in which the facility is located. The changes to the CBSA areas include changes to some counties from urban to rural, rural to urban, counties that will change to a different CBSA, and changes to some CBSA names and/or numbers.

The projected overall impact to providers in urban and rural areas is an average increase of 4.1 percent and 5.1 percent, respectively, with a low of 1.5 percent for urban outlying providers and a high of 7.4 percent for rural Middle Atlantic providers―actual impact will vary.

Changes in PDPM ICD-10 Code Mappings

CMS has made changes to the PDPM ICD-10 code mappings to help providers select more accurate and appropriate primary diagnoses for skilled intervention during a Part A SNF stay. These updated code mappings and lists can be found on the PDPM website in draft form until the final rule is in effect October 1, 2024.

Nursing Home Enforcement

Under the current regulations, depending on the health and safety deficiencies identified, penalties can be imposed per day or per instance for non-compliance, per-day penalties applied until the noncompliance is corrected and per-instance CMPs for isolated instances. Current enforcement did not allow the use of both types of CMPs during the same survey or for multiple CMPs to be imposed for multiple instances within the same deficiency that occurred on different days during a survey.

The new regulation revises the limitations to enable more types of CMPs to be imposed during a survey once a CMP remedy is selected, allowing the penalties to better align with the noncompliance identified and for more consistency of CMP amount across the nation. The revisions will permit multiple per-instance CMPs to be imposed for the same type of non-compliance, allow for both per-day and per-instance penalties to be imposed for noncompliance findings in the same survey, and ensure that the amount of a CMP does not depend solely on the date that the most recent standard survey is conducted or the date that the surveyors identified a finding of noncompliance.

SNF QRP Update

The following updates are being implemented by CMS beginning with the FY 2027 SNF QRP:

• Collection of four new items as Standardized Patient Assessment Data Elements under the social determinants of health (SDOH) category. These items include Living Situation (1 item), Food (2 items), and Utilities (1 item).
• Modification of the transportation item under the SDOH category.
• Implementation of a policy requiring participation in a validation process for assessment-based measures, similar to the SNF VBP process. On an annual basis, up to 1,500 SNFs will be randomly chosen to submit a limited set of medical records for data validation. If the SNF does not provide the requested records within 45 days, the SNF’s annual market basket percentage update will be reduced by 2 percentage points.
• Applying the Medicare Administrative Contractor’s (MAC’s) existing validation process for the SNF QRP claims-based measures.

SNF VBP Program Update

Updates to the SNF VBP program include the following:

• Adoption of a measure selection, retention and removal policy beginning with the FY 2026 program year.
• Adoption of a policy for incorporating technical measure updates into measure specifications and for subsequent updates to the SNF VBP performance standards beginning with the FY 2025 program year.
• Adoption of a measure minimum, for a SNF to receive a SNF performance score and VBP incentive payment for the FY 2028 program year, and subsequent years, SNFs must report the minimum number of cases for four of the eight measures during the applicable performance period.
• Updates to the SNF VBP review and correction process and the extraordinary circumstances exception policy.

As in prior years, our experts at BerryDunn have created an interactive rate calculator to assist you with the calculation of your PPS rates for FY 2025. The calculator is now part of the BerryDunn Senior Living Benchmarking Portal. The Senior Living Benchmarking Portal, along with the calculator, includes a carefully curated, comprehensive set of financial benchmarking reports, available in a self-service portal. Evaluating comparative financial performance and benchmarking is an important factor in helping facilities assess opportunities and move forward as innovators of the future. The Senior Living Benchmarking Portal can be accessed here.

Please note: The rates per our calculator are prior to any FY 2025 VBP adjustment. When CMS releases the final VBP incentive payment multipliers for FY 2025, BerryDunn will update the interactive rate calculator as necessary.

If you have any specific questions about the Final Rule or how it might impact your facility, please contact Ashley Tkowski or Melissa Baez.

The Centers for Medicare and Medicaid Services (CMS) have strict regulations for reporting direct care staffing and census information through the Payroll-Based Journal (PBJ) system.

Nursing facilities are required to report on this information on a quarterly basis. CMS publishes the data and uses it to determine star ratings on the staffing component of the Nursing Home Compare website. 

Star ratings are obviously important for your facility’s reputation and ability to attract new patients and residents, but there are other reasons that you should ensure that the data you submit on your PBJ is accurate and complete. The data you provide can be accessed by other regulatory agencies, including state licensing agencies, and may be used for licensing and complaint investigation surveys, with any identified non-compliance resulting in citations, fines, or penalties. We have also heard from our clients that some state Medicaid agencies utilize PBJ data in a variety of ways, such as to validate paid nursing hours reported on Medicaid cost reports. Facilities need to be aware of a wide range of potential data uses and have comprehensive internal data review procedures to help ensure the public use file reflects accurate reporting and that the facility is prepared for an audit.

Here are eight ways you can prepare:  

1. Less might be more 

PBJ reporting includes required and optional elements. The optional data may include hire and termination dates and worked hours for other service workers. Evaluate whether you should report optional data elements. If you opt to report this type of data, be sure that it is accurate and complete.

2. Plan ahead and consider more frequent submissions

Allow your team enough time for review after the quarter ends but prior to the cut-off date. It is a requirement to file quarterly, but you may also submit data more frequently. Some of our clients chose to submit PBJ data after processing each pay period. This approach allows for more timely identification of employee classification issues or technical challenges. It also gets responsible staff into the habit of maintaining records on an ongoing basis, rather than as a quarterly event. 

3. Don't forget to verify your submission 

Do not skip the confirmations and available reports review prior to the deadline. Once the final data file is uploaded, SNF/NFs need to check their Final File Validation Report in their CASPER folder to verify that the data was submitted successfully. Please be aware that it may require up to 24 hours for the validation report to be available and allow for time to correct any errors and resubmissions, if needed.

4. Easily find a needle in a haystack 

Carefully review and summarize data as described in the PBJ Report User Guide (Section 12 – Reports). We recommend obtaining all related CASPER reports (“D” in the end of the report number indicates detailed reports and “S” summary reports): 

Review these reports to help ensure the quarterly PBJ data reflects your records. Most of the detail reports (D) are available as a .csv file download, which is instrumental with the assistance of Excel templates to simplify and expedite your review. We recommend the utilization of pivot tables, data filtering, and conditional formatting rules to bring attention to potential errors, omissions, or high audit risk areas, including: 

• Any days without at minimum 8 RN hours. Please note the mandatory staffing rule requires RN services 24 hours a day, 7 days per week. Facilities have up to 3 years to implement.
• Exempt staff with >40 reported worked hours per week. 
• Non-exempt (hourly) staff with more than 80 hours per week or >300 hours per month.
• High or low average total nurse (aides, LPNs, and RNs) staffing (less than 2 and more than 5 hours per patient day. Refer to BerryDunn’s annual national benchmarks report for comparison to your peers).
• Changes in total average nurse staff hours per patient day by over 10% compared to the previous quarter(s).  

5. Spread the knowledge  

Educate your PBJ reporting and management oversight team, discuss and gain clarity on your internal record-keeping policies and procedures. Obtain the most recent manuals (we recommend electronic bookmarks to the CMS site rather than printed paper copies, as the guidance may change).  

6. Trust but verify 

While you may have complete trust in your team, nobody is immune to an occasional mistake or omission. Responsibility for PBJ compliance is with the facility leadership. Review the reports carefully and make timely corrections.  

7. Keep a close eye on Nursing Home Compare website 

Check CMS nursing home compare information for your facility regularly to help ensure information is correct.  

8. Don't panic: It is fixable!  

If you have an unfavorable PBJ audit, there are actions you can take to remedy the situation and avoid it in the future. We suggest that your team:  

• Include PBJ program compliance review in your QAPI initiatives, which makes it a multi-departmental challenge to get back on track and prevent any future non-compliance.
• Engage your communications team in crafting a meaningful response to any potential community inquiries if you receive a 1-star rating in staffing. Be prepared to describe the issue objectively and without blame, while outlining the steps the facility is taking to improve.  
• Take an objective look at your systems. Consider an external consultant to help with identification of the process gap and ideas for a sustainable remediation.  

If you have any questions, please reach out to Olga Gross-Balzano or any other members of BerryDunn’s Senior Living team of experts.  

When I started my career at BerryDunn, a mentor of mine gave me a piece of advice that has stuck with me: “It’s very hard to manage what you cannot measure.” Measures that can be quantified and used to analyze business performance—metrics—are critical tools for companies to evaluate performance, allocate resources, make decisions, and align efforts of the company to goals.

Metrics are often the foundation for many of our recommendations. In a recent engagement, we worked with a commercial manufacturer with limited access to outside capital to evaluate the company’s performance and make recommendations to improve financial results. In this case, the metrics we focused on were related to profitability, comparing our client’s business performance against industry peers.

Profitability metrics are just one type of metric that is important for manufacturing companies to track. Metrics span various categories, with each serving a distinct purpose, such as improving customer satisfaction, improving quality, reducing inventory, ensuring compliance, increasing innovation, increasing profitability, or enhancing efficiency. While some metrics hold universal significance across industries, others are tailored to specific industries. In the case of manufacturing companies, given the precise and complex nature of their operations, there are specific metrics that are important to consider. As you evaluate what metrics matter most to you and align with your larger goals and objectives, we have provided you an example for each of these categories that you may want to consider:

Customer satisfaction metrics: Lead time quantifies the duration of time it takes to complete a process from initiation to completion. For manufacturers, this metric typically measures the time it takes to create a product and get it delivered to a customer. Computing lead time is critical for manufacturers as it contributes to improving operational efficiency, managing costs, and enhancing customer satisfaction.

Manufacturing quality metrics: Yield indicates the percentage of products that are produced accurately during the initial run through the manufacturing process without ending up as scrap or requiring rework. This calculation aids the company in assessing its efficiency, specifically by identifying stages in the manufacturing process that are prone to scrap and rework. This knowledge contributes to saving time and resources.

Inventory metrics: Inventory turnover reflects the number of times a company turns over its inventory relative to cost of goods sold within a specific period. It serves as a metric to compute the average number of days it takes to sell its inventory. Inventory turnover functions as an efficiency gauge for companies to assess how effectively they are using their inventory. This insight aids in better decision-making on purchasing and pricing strategies as well as manufacturing processes.

Compliance metrics: Reportable Health and Safety Incidents quantify the number of accidents that have occurred over a period of time. This practice is essential for upholding a secure workplace and verifying that the company adheres to legal regulations.

Innovation metrics: Rate of New Product Introduction indicates how often new products are launched by the company. This metric directly impacts competitiveness, customer loyalty, and revenue growth.

Profitability metrics: EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It is a high-level indication of operational profitability of a business enabling companies to conduct financial comparisons, assess cash flow, make informed strategic decisions, and fulfill various other financial and managerial functions.

Efficiency metrics: Throughput is the length of time taken for a product to pass through the manufacturing process from raw materials into finished goods. The intent of calculating throughput is to pinpoint and minimize the weakest points in the production process, enabling necessary adjustments to maximize output.

Metrics are key to the continued improvement and long-term success of a company. For additional perspectives on metrics, and for help to determine which metrics align with your goals and objectives, please reach out to a BerryDunn professional.