How to analyze census, occupancy and payer mix

Set the review question before requesting exports

Begin with the decision the buyer needs to make. Are you testing the level of activity, the use of available capacity, dependence on a payer, the amount earned or the cash still outstanding? Each question needs its own measure and set of records. A seller's dashboard can be useful, but its labels may hide different populations and cutoff dates.

Write down the business entity, location and care service. Add the payer group, start and end dates, and accounting basis. State whether the review covers all activity or a selected group. Find the person who can explain how the report was made. Keep the original export. Make changes in a separate workpaper and explain each one.

The benchmark guide helps judge whether an outside comparison is relevant. This guide addresses a prior question: can the buyer reproduce the business's own figures from its records? A familiar benchmark does not resolve a missing day, an unknown payer or a receipt assigned to the wrong invoice.

Build a map between the four record sets

Check how the same work appears in each system. The daily service record might use one identifier, the billing system another, and the bank deposit only a batch reference. Ask the responsible team to explain the links within an approved review environment. Matching names or similar dollar totals do not prove that records belong together.

IRS guidance describes invoices, receipts, deposit records and other supporting documents as evidence behind the books. It also states that electronic records follow the same basic recordkeeping principles. Those records help explain the books. The guidance does not choose an accounting policy for the deal or prove a reported balance. (Source: IRS supporting business documents)

Reproduce capacity and occupancy over the same days

Keep licensed, physical, available and occupied capacity separately labeled. Ask what makes a room or bed unavailable and when that status changed. A maintenance closure, staffing limitation and licensing restriction raise different questions. Keep those reasons in the workpaper. Do not treat every unused place as ready for a new resident.

Consider a fictional thirty-day facility review. The defined available capacity is 20 beds for ten days, then 18 beds for twenty days. The daily ledger records 160 occupied bed-days in the first block and 320 in the second. These invented inputs do not establish legal capacity or a market benchmark.

The period occupancy is 480 divided by 560, or 85.71% after rounding. Average daily census is 480 divided by 30, or 16 occupied beds. If the final day has 18 occupied beds out of 18 available, that day's snapshot is 100%. The snapshot and period measure answer different questions; the last day does not replace the earlier daily record.

If the same fictional facility had 20 licensed beds throughout the month, its licensed-capacity denominator would be 600 bed-days and the corresponding occupancy would be 80%. The higher available-capacity percentage does not represent additional residents. Preserve both definitions and investigate the unavailable capacity before building a forecast. Use the occupancy definition and ADC definition for the individual measures.

Reconcile payer shares without mixing denominators

Use categories appropriate to the actual business. Separate programs or contracts where their terms matter. Decide how secondary payments, patient responsibility and unclassified amounts are handled. Count a dollar once in the chosen revenue view; do not assign it to two categories simply because more than one party is involved in the account.

Continue the fictional facility example. Assume all 480 occupied service days are classified, and the stated revenue was earned and invoiced in this period. There are no credits, write-offs or other adjustments in this simplified illustration. The amounts are teaching assumptions, not published payer rates.

The shares differ because service days and revenue use different denominators. Dividing all $90,000 by 480 produces $187.50 per occupied service day under these assumptions. That blended result is not a contract rate, a margin or the amount collected. It cannot describe a different group of services unless those records are checked too.

Read the payer-mix definition before comparing distributions across businesses. If one report counts clients and another counts revenue, keep both labels visible. Keep unknown categories on a separate line until the records support a choice. Spreading them among known categories hides the gap.

Bridge invoices to receipts and the ending balance

A bank deposit may settle several invoices from different periods. Trace its application before comparing current revenue with current cash. Separate customer receipts from owner funding, borrowing, deposits and other cash movements. Ask the accounting reviewer how credits, refunds and write-offs enter the books. Do not assume that each item changes revenue in the same way.

For the fictional example, begin with $12,000 of earlier receivables and add $90,000 of current invoices. Assume $82,000 of customer receipts: $10,000 pays earlier invoices and $72,000 pays current invoices. With no other adjustments, the ending balance is $20,000.

Comparing $90,000 of current invoices with $82,000 of total receipts would show an $8,000 difference, but it would not measure the $18,000 still open on current invoices. The earlier-period collections explain the distinction. An open amount at the cutoff is not automatically a bad debt. Check the terms, age and later payment activity.

The AR aging guide helps organize that follow-up. Reconcile the workpaper to the ledger and bank records, recording any differences. The math links the totals under these assumptions. It does not decide when the seller earned the revenue or how much will be collected.

Adjust the approach for the care model

Residential capacity, adult-day attendance, home-care hours and home-health payment periods should not share one unnamed denominator. Select records that match the service actually delivered and the payer being reviewed. Keep measures separate when a combined total would hide how the business works.

CMS explains that Medicare fee-for-service home health uses thirty-day payment periods, with per-visit treatment below the applicable threshold and a separate certification and care-plan review framework. A period payment should not be treated as a constant amount earned by every visit. (Source: CMS Home Health PPS)

For nursing facilities within its scope, 42 CFR 483.71 requires an assessment of resident numbers and capacity, care needs, staff competencies and resources. That rule does not define a universal commercial occupancy ratio or authorize a growth plan. Bring the operational and regulatory reviewers into the discussion before assuming unused capacity can serve additional residents. (Source: 42 CFR 483.71)

Protect the review data and preserve exceptions

Start with suitable summaries. Limit detailed access to the approved review purpose. Small groups, detailed dates and coded records can still identify people. HHS describes specific de-identification methods and qualifications; deleting names alone does not establish that a file is safe to circulate. The workpaper format here is not a de-identification method. (Source: HHS de-identification guidance)

List each exception with its count or amount and the period it affects. Add the source record, reviewer and next action. Separate a known timing difference from an unproven category or missing record. Keep the original number visible when a proposed adjustment is still under review.

Turn the findings into a buyer decision

Summarize which records agree and which do not. Explain which assumptions change the proposed economics. Link each key forecast input to a record that supports it, or label it as an assumption. More occupied days do not automatically mean more margin; payer terms, collections, care needs and costs still matter.

The business-for-sale evaluation exercise applies the same evidence discipline to earnings. It shows reported results, assumed costs and planned growth on separate lines. Higher earnings do not resolve the buyer's price, cash needs or remaining handoff questions. Those still need their own review.

After the records reconcile, use the occupancy and value exercise to examine the forecast period. It distinguishes the first year's phased earnings from a later annual pace, including the additional resources assumed at a higher activity level.

Two fictional exercises test proposed growth before it enters the forecast. The rate-change FAQ compares equal increases with different reasons and records. The planned move-in FAQ matches four entries to three people and one completed admission. Use them to distinguish a plan from the activity and charges actually supported.

Use the buyer diligence checklist to assign the remaining work. Then examine referral-source concentration to understand where future activity might come from. A completed historical reconciliation is useful evidence, but it does not guarantee that demand, permissions or financial results will continue after closing.