ESG

When you hear the word “policies,” does it fill you with exhilaration and joy? No? Well, if unbridled enthusiasm isn’t your initial response, then I hope you will benefit from an increased understanding of the purpose and value of well-crafted policies after reading this article.  

Compliance policy doesn’t have a great reputation. We often picture a thick policy and procedures manual in a dusty three-ring binder that might as well be buried in a time capsule given how infrequently they are referenced. But it doesn’t have to be this way! 

Your compliance policies should be living documents that guide daily activities for many staff members. To be effective, they must be clear, concise, and appropriately specific. 

Compliance policy: Find the right balance 

Formal policies and procedures can also vary greatly in how prescriptive they are and in how much actual guidance they provide.  While variety is fine, extremes can be problematic.  

Recently, I was researching a particular policy and looking for good examples. As I dove into the first one, the page numbers flew by—30 pages worth, including verbatim text of federal regulations. Bleary-eyed, I moved on to another example. 

This second one took me a few minutes—and a fair amount of zooming in—to find. Two brief paragraphs. Hmm, did I miss another section somewhere? Nope. This organization decided it wasn’t really necessary to say much of anything about how they would be managing millions of federal dollars. 

What’s the takeaway? While the minimalist approach is concerning, neither example really aligns policy with the actual necessary and compliant activities organizations must perform. 

Policies should NOT be written to cover every possible contingency in explicit long form. Why is that? Because few will read them, and unfortunately, that means even fewer will follow them. A policy manual is ACTUALLY supposed to be read, understood, followed, and frequently referenced. And when a provision should be changed, it can be modified to ensure it is both compliant and accurate. 

Practical guidelines for compliance policy 

1. Make sure your policy manual is accessible, searchable, and readable: Everyone in the organization needs to be able to understand it. 

2. Read your existing policy manuals: If that idea makes you cringe, strongly consider modifying your policy because chances are, few are reading it or using it as a reference tool. 

3. Perform random tests by observing or talking through key processes to determine if policy is being followed: Whether the result is yes or no, figure out the reason(s) behind the answers. It is difficult to improve the policy unless you find out the why. (And remember, just because a policy is being followed, that doesn’t mean it is the best way for the organization to operate.) 

4. Break up the typical annual policy review by performing a staggered review of individual sections on a rolling basis throughout the year: In this manner, there will be better focus, engagement, and consequently improved results. 

5. Do you have a policy on policies?: That may sound like an unserious question, but it isn’t. There should be a statement about how your organization writes, handles, and changes its policies. 

Bring pure exhilaration to your organization’s policy manual by continually matching policy to the needs of your organization, not only to stay compliant, but also to operate with the best efficiencies and outcomes. NOTE: Results may vary. You may not experience pure exhilaration, but syncing your policies with your organizational needs is its own reward. 

BerryDunn’s healthcare compliance team incorporates deep, hands-on knowledge with industry best practices to help your organization manage compliance and revenue integrity risks. Learn more about BerryDunn’s team and services. 

The FDIC's Quarterly Banking Profile for quarter two 2025 reports the performance for the 3,982 community banks evaluated. Here are the key highlights: 

Note: Graphs are for all FDIC-insured institutions unless the graph indicates it is only for FDIC-insured community banks. 

Financial Performance 

• Quarterly net income rose by $842.9 million (12.5%) from the previous quarter to $7.6 billion, with 73.4% of community banks reporting an increase. 

• Pretax return on assets increased to 1.33%, up 15 basis points quarter over quarter and 19 basis points year over year. 

• Net interest margin rose to 3.62%, up 16 basis points from the prior quarter and 32 basis points year over year.

Costs and Efficiency

• Noninterest expense increased by $612.7 million (3.5%) from the previous quarter and has increased 6.5% year over year. 

• Provision expenses increased by 29.2% quarter over quarter and have increased 47.7% year over year, signaling growing concern over potential credit losses. 

• Efficiency ratio declined to 62.95%, down 75 basis points from the prior quarter, indicating better cost control relative to revenue.

Loan and Deposit Trends 

• Loan and lease balances increased by $32.3 billion (1.7%) quarter over quarter and 4.9% year over year, led by nonfarm nonresidential CRE and 1–4 family residential loans. 

• Domestic deposits rose 0.1% quarter over quarter and 2.9% year over year, with stronger growth in noninterest-bearing than interest-bearing accounts. 

• Nearly three-fourths (73.4%) of community banks reported loan growth, and half reported deposit growth during the quarter. 

Asset Quality

• Past-due and nonaccrual loans (PDNA) decreased 6 basis points to 1.27%, mainly driven by 1–4 residential real estate, farm loans, and CRE loans. 

• Net charge-off ratio increased 3 basis points from the prior quarter to 0.19%, rising above the pre-pandemic average of 0.15%. 

• Reserve coverage ratio continued to decline to 163.4%, indicating that allowance growth lagged increases in noncurrent loan balances.

Capital and Structural Stability

• Capital ratios improved modestly across the board: CBLR rose to 14.10%, and the leverage capital ratio increased to 11%. 

• Unrealized losses on securities fell by $1.7 billion (3.8%) from the prior quarter to $41.3 billion total. 

• Community bank count declined by 38 during the quarter due to mergers, transitions, and one failure. 

Conclusion and Outlook 

The second quarter of 2025 showed continued momentum for community banks with higher net interest income increasing net income throughout the industry. Further, net interest margin increased 32 basis points from the previous year. However, challenges persist for the industry as non-interest and provision expenses increased during the quarter. Even with past-due and nonaccrual loans on the decline, net charge-off ratios increased slightly as well. With worsening economic conditions, financial institutions are starting to feel the pressure, and there is the expectation that ACL levels will increase. This is starting to be seen in ACL levels, as noted above, with provision expense increasing nearly 48% year over year. Although the magnitude of the increase and the need for an increase in reserve levels altogether can be significantly impacted by institution-specific circumstances, there is an expectation that these increases will continue for the time being. 

As we march through the second half of 2025, community banks should remain attentive to a shifting regulatory environment, particularly on the impacts of tariffs and the One Big Beautiful Bill Act (OBBBA) and how these changes will affect borrowers. The FDIC also proposed raising several key regulatory thresholds, including those that determine which institutions must comply with Part 363’s audit and internal control requirements. In this article, we provide additional information on the FDIC’s proposal. Furthermore, the United States took a historic step in digital finance on July 18, 2025, when President Donald Trump signed the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act into law. This legislation introduces the first comprehensive federal framework for payment stablecoins and could potentially have significant implications on the banking industry. In this article, we take a deeper dive into the GENIUS Act and its potential impacts on community banks.  

So, to say there are a lot of moving pieces currently would be an understatement. BerryDunn has a Federal Impacts page, where we are frequently posting updates on the federal landscape. Check out this page for timely information that may impact your institution or your institution’s borrowers. 

This article is for hospital CFOs, directors of reimbursement, and reimbursement managers. 

When it comes to Medicare reimbursement, the hospital Area Wage Index (AWI) may be one of the most important and often overlooked factors influencing your bottom line. This complex formula adjusts prospective payment rates based on regional labor costs and is calculated using data you submit, meaning small reporting decisions can lead to major financial impacts. Hospitals that fully understand how the AWI works and take a proactive approach to managing their data can optimize their Medicare revenue and strengthen long-term financial stability. This article breaks down how the wage index is calculated and offers practical strategies to help you avoid common pitfalls, support audit readiness, and take full advantage of this critical reimbursement mechanism. 

What is the hospital AWI and how is it calculated? 

Developed by the Centers for Medicare & Medicaid Services (CMS), the hospital AWI is used to adjust Medicare payments to short-term, acute care hospitals under the Prospective Payment System (PPS) to account for geographic differences in hospital labor costs. It compares the average hourly wages of PPS hospitals in a specific labor market area to the national average. Essentially, the AWI enables hospitals in higher-wage areas to receive more reimbursement to reflect their higher costs, while those in lower-wage areas receive less.  

Updated annually, the AWI is calculated for each specific labor market area defined by Core-Based Statistical Areas (CBSA) as established by the US Office of Management and Budget (OMB). To calculate the AWI, CMS determines the average hourly wage from aggregated hospital data for each CBSA and compares it to the national average. For example, if a CBSA has an average hourly wage of $50 and the national average is $40, the AWI would be 1.25. This factor is applied to the labor-related portion of Medicare’s hospital payment rates to ensure more equitable reimbursement across regions with varying labor costs.   

The wage index is derived from data reported by all PPS hospitals located within each CBSA, including data from annual Medicare cost reports and occupational mix surveys completed every three years. The hospital-reported data is audited, including review of payroll records, contracts, invoices for contracted labor, and other wage documentation to validate amounts reported. As such, there is a four-year delay from the reporting of wage data in cost reports to the Federal Fiscal Year (FFY) that the wage data is used to calculate the AWI. For example, the Medicare hospital AWI used to establish prospective payments for the FFY 2026 is based on hospital data from fiscal years beginning during the FFY 2022.  

The following chart, which includes data from the Centers for Medicare & Medicaid Services Fiscal Year 2025 Skilled Nursing Facility (SNF) Prospective Payment System (PPS) Final Rule, illustrates the significant impact that the wage index factor has on hospital reimbursement. 

Strategic considerations for hospitals 

Accuracy of submitted data 
CMS scrutinizes wage index data with a high level of detail. Inaccurate or inconsistent reporting can result in reimbursement reductions or even penalties. Errors may stem from incorrect wage classifications, exclusion of eligible labor costs, or misalignment between cost report data and payroll records. Hospitals must ensure that their Medicare cost report and occupational mix survey submissions are complete, clearly documented, and compliant with CMS guidance. Regular internal reviews and cross-checks between finance and HR departments can reduce the risk of discrepancies and support a smoother audit process. 

Strategy tip: Establish a wage index review team with finance, reimbursement, and HR representation to ensure consistency and defensibility across all submissions. 

Occupational mix factor 
The occupational mix survey is required every three years and has a multiyear impact on the wage index. It adjusts for differences in staffing models among hospitals, particularly the proportion of higher-paid professionals like RNs compared to lower-paid roles such as LNAs. Even if your total wages remain constant, a change in your occupational mix can significantly alter your wage index and, by extension, your reimbursement. 

Strategy tip: If you've recently undergone staffing changes, make sure these are accurately reflected and that you’ve retained the documentation to support the reported mix.  

Contract labor reporting 
The rise in contract and traveler staffing has introduced new complexity to wage index reporting. CMS requires hospitals to include contract labor costs that are for direct patient care services, but only when wages and hours are clearly documented and the reported costs are only related to labor (not overhead, travel, etc.). Missing or incomplete contractor data can lead to an underreported wage index, which may reduce reimbursement. Many hospitals unintentionally leave out valid contract labor costs because of poor tracking or vendor relationships that don’t provide sufficient detail. 

Strategy tip: Work with your contracted staffing vendors to ensure all contracts and invoices separate wage related rates and hours from non-wage-related cost (travel, housing, administrative fees, etc.). Develop internal controls to flag and track qualifying contract labor throughout the year, not just at cost reporting time. 

Appeal and correction opportunities 
Each year, CMS publishes a preliminary wage index in the Inpatient Prospective Payment System (IPPS) rulemaking process, followed by a correction and appeals window. Hospitals have a narrow opportunity to review, identify errors, and file appeals or correction requests, but many miss this window due to resource constraints or lack of awareness. These opportunities can help recover significant underpayments if discrepancies are discovered. 

Strategy tip: Mark your calendar for the CMS wage index correction deadlines (typically late summer or early fall) and assign someone to monitor the release of proposed rules. Establish a process for reviewing CMS-calculated wage index factors against your internal expectations to quickly identify inconsistencies. 

Geographic reclassification opportunities 
If your hospital is in a lower-wage CBSA but competes in a higher-wage labor market (or is on the border of one), you may be eligible to apply for a wage index reclassification through the Medicare Geographic Classification Review Board (MGCRB). This allows hospitals to be reclassified into a nearby CBSA with higher average wages, potentially increasing your Medicare reimbursement. 

The application must demonstrate that the hospital meets specific criteria related to proximity, commuting patterns, and wage comparability. While the process is data-intensive and must be initiated well in advance (typically by September 1 for the following federal fiscal year), a successful reclassification can yield substantial reimbursement gains. 

Strategy tip: Evaluate your geographic and wage positioning annually. Even if you haven't qualified in the past, changes in market conditions or CMS rules may make you newly eligible. BerryDunn can assist with a feasibility analysis and guide you through the MGCRB application process. 

We’re here to help 

The hospital wage index is complex and reporting wage data is more than a compliance requirement; it’s a strategic lever that can influence millions in Medicare reimbursement. At BerryDunn, our reimbursement specialists can help you: 

• Validate and optimize your wage index data submissions 
• Prepare for audits, respond to inquiries, and assist with disputes 
• Complete the occupational mix survey accurately and efficiently 
• Analyze trends and opportunities in your wage index factors 
• Identify opportunities for reclassification  
• Monitor CMS rule changes that impact your hospital’s reimbursement 

To learn more about how we can help your hospital make the most of the wage index, please contact our reimbursement consulting services team.  

In an era defined by rapid technological advancement and constant innovation, one truth remains unchanged: the success of any organization depends on its people. Employee engagement is not a nice-to-have—it’s a strategic imperative. BerryDunn’s Valuable Organizational Insights on Culture and Engagement (VOICE) assessment provides leaders with a research-backed, actionable framework for understanding and improving engagement. Unlike traditional surveys, VOICE translates insights into impact quickly, equipping organizations with tailored recommendations and tools that drive meaningful change within weeks.

What sets the VOICE apart from similar assessments is its ability to quickly move clients from insight to impact. The depth and practicality of the VOICE’s insights are designed to be immediately useful, enabling BerryDunn teams to offer tailored recommendations and tools that drive real change just a few weeks after the survey closes. The results are also presented in a way that empowers individual leaders to identify their own opportunities and take meaningful steps to strengthen engagement within their teams.

Understanding employee engagement

Decades of research have established employee engagement as a robust predictor of both personal and organizational outcomes. Engaged employees tend to exhibit higher job performance, greater well-being, and lower turnover rates (Neuber, Englitz, Schulte, Forthmann, & Holling, 2022; Saks, 2019). A recent study highlighted that engagement has a stronger effect on these outcomes in the public sector compared to the private sector (Borst, Kruyen, Lako, & de Vries, 2019).

BerryDunn defines engaged employees as those who feel a deep connection to their organization, consistently strive to contribute to its success, and are willing to go beyond their regular job responsibilities to achieve excellence. The VOICE assessment measures three critical dimensions of engagement: organizational commitment, emotional engagement, and behavioral engagement. For instance, statements like "I would recommend this organization to others as a good place to work" gauge organizational commitment, "I feel inspired to do my best work every day" assesses emotional engagement, and behavioral engagement is captured through items like "I go above and beyond what is expected of me every day." This conceptualization provides leaders with a holistic understanding of how employees connect with their work and their organization.

Organizational and work factors influencing engagement

The VOICE assessment includes 35 items that evaluate various organizational and work-related factors that influence employee engagement. These items are designed to be:

• Actionable. Leaders should be able to think of actions they can take to improve their employees’ scores on every item without expert advice.
• Reliable and accurate. All items are easy for respondents to rate consistently.
• Comprehensive. The items reflect a broad range of factors that have been found to influence engagement in empirical peer-reviewed research.
• Aligned with BerryDunn’s Organization Development (OD) services. BerryDunn consultants have recommendations and interventions that are proven to help you improve your employees’ engagement.

Identifying the key drivers of engagement

While many organizations focus on addressing the lowest-scoring survey items, BerryDunn's approach identifies the "key drivers" of employee engagement. These are the organizational and work factors that have the lowest scores and are most strongly correlated with overall engagement levels. By creating a composite score that includes both the strength of the correlation with engagement and the average score of each item, BerryDunn pinpoints the top key drivers. This method ensures that the recommendations BerryDunn makes based on the assessment results are both impactful and actionable.

In addition to quantitative analysis, the VOICE assessment gathers qualitative feedback through open-ended questions. This qualitative data provides essential context, which often reveals the underlying reasons for the numerical scores and offers deeper insights into employee experiences and perceptions.

Standard survey process and deliverables

BerryDunn will work with you to develop a timeline that meets your needs for the following four steps in the VOICE assessment process. With no modifications to the VOICE assessment, our consultants can deliver your VOICE report in less than a month from survey administration.

Initial consultation

BerryDunn will work closely with you to help you and your team gain a thorough understanding of the survey process and establish a timeline for survey administration and reporting. The assessment can be tailored to meet your specific needs by adding items that align with your other strategic objectives.

Survey administration

BerryDunn supports the survey distribution and response collection process, using proven techniques to achieve high response rates. A carefully planned timeline ensures maximum participation from employees.

Data analysis and interpretation

Using advanced statistical methods, BerryDunn identifies the key drivers of engagement by integrating both correlation strength and item scores to create a composite score. Open-ended responses are analyzed to add depth and context, providing a richer understanding of the quantitative data.

Reporting and action planning

The VOICE report includes a detailed analysis of key drivers and themes, as well as immediate actions that your leaders can take to improve their employees’ engagement. We also include tailored recommendations for employees at all levels to enhance their own engagement. This unique approach ensures that you gain immediate value, setting BerryDunn apart from others who often focus on selling additional services rather than delivering actionable insights from the outset. For those seeking further support, we offer an action planning workshop to collaboratively develop strategies that align with your organization’s goals.

Start your organization’s engagement journey

Improving engagement starts with understanding what matters most to your employees. The VOICE assessment provides leaders with clear insights and practical steps to strengthen commitment, performance, and culture. With results that lead directly to action, the VOICE helps organizations identify priorities and create an environment where people can do their best work.

References

Borst, R. T., Kruyen, P. M., Lako, C. J., & de Vries, M. S. (2019). The Attitudinal, Behavioral, and Performance Outcomes of Work Engagement: A Comparative Meta-Analysis Across the Public, Semipublic, and Private Sector. Review of Public Personnel Administration, 40(4), 613-640.

Neuber, L., Englitz, C., Schulte, N., Forthmann, B., & Holling, H. (2022). How work engagement relates to performance and absenteeism: a meta-analysis. European Journal of Work and Organizational Psychology, 31(2), 292-315.

Saks, A. M. (2019). Antecedents and consequences of employee engagement revisited. Journal of Organizational Effectiveness: People and Performance, 6(1), 19-38.

Read this article if your organization relies on HHS grants. Effective October 1, 2025, new federal rules will impact how you manage your budget.

The US Department of Health and Human Services (HHS) has revised its federal grant policy, introducing stricter oversight into budget adjustments. Effective October 1, 2025, the new rule lowers the allowable rebudgeting threshold from 25% to 10%. This change is expected to significantly reduce reallocation flexibility. It will also increase the administrative workload and compliance risks for health centers and other HHS grantees.  

Then vs. now: Budget reallocation rules 

The previous rule allowed health centers and other HHS grantees to transfer funds between budget categories (e.g., personnel, fringe benefits, travel, supplies, contract services) without requiring prior approval, provided the cumulative changes were within 25% of the total approved federal grant budget. The new HHS grants policy statement cuts the threshold for prior approval requirements for budget revisions to 10% of the total approved federal budget (including any cost shares). For example, if a grantee makes several smaller budget category reclassifications that cumulatively add up to more than 10%, prior approval will be required.  

To put this in perspective, prior to the change, a grantee with a $1 million grant could reallocate up to $250,000 per budget category without prior approval. Under the new policy, reallocation is limited to $100,000 per budget category. This reduction substantially restricts grantees’ flexibility in managing grant expenditures. 

Calculating the new threshold 

The 10% threshold is cumulative across all reallocations affecting a budget category, not calculated per individual reclassification. For example, for a $1 million grant, if a grantee reclassifies $75,000 from personnel to contract services and then reclassifies $50,000 from fringe benefits to contract services, the reclassifications of both personnel and fringe benefits are below the 10% threshold individually. However, the total impact on contract services exceeds the threshold and would require prior approval. 

The change only applies when the grant award exceeds the Simplified Acquisition Threshold (SAT), which will increase from $250,000 to $350,000 on October 1, 2025.  

Impacts for health centers and why this matters

For health centers, which are accustomed to ample flexibility in how they spend HHS grant funds, this change in policy will require diligence in monitoring grant expenditures and staying alert to changes that could trigger the need for prior approval from their grants manager for budget revision. 

The new rule adds to the administrative burden for health centers and other grantees already grappling with funding gaps. Budget shifts that exceed the lower 10% threshold cannot be implemented until prior approval is granted. Approval typically is not retroactive. As a result, centers are unable to redirect grant dollars in real time and must wait to cover essential expenses. 

The change will likely lead to an increase in prior approval requests, creating delays given limited federal staff capacity to review them. Smaller health centers are expected to feel the impact more acutely since their payroll is often heavily grant-funded, making them more likely to exceed the 10% reclassification threshold. With fewer resources, their finance teams face added pressure managing forecasting, reporting, and approval delays.  

Proactive, strategic planning is key. Grantees must get prior approval in advance of reclassifying items in their budget. Failing to do so increases audit and compliance risks, as auditors will focus on this due to the significance of the change.  

Immediate actions for health centers and other grantees 

The new rule requires health centers and other grantees to closely monitor grant expenditures and be aware of changes that could require prior approval on a budget revision. Health centers should take the following steps to ensure compliance with the new 10% threshold: 

1. Conduct a thorough review of all budget reallocations made to date.  
2. Identify any reallocations that exceed the new 10% threshold and did not receive prior approval.  
3. Submit prior approval requests for any further reallocations as soon as possible.  
4. Adjust internal processes to ensure future reallocations are tracked and approved in advance. 

Now is the time to assess the budget process and determine how to alter current processes to remain compliant. 

BerryDunn can help

With this tightening of federal oversight, health centers need to prepare by implementing proactive monitoring and strategic planning to ensure compliance and avoid administrative delays. By closely monitoring grant expenditures and securing prior approvals, health centers and other grantees can mitigate risks and continue to utilize their grant funds effectively. Now is the time to assess and adapt budget processes to align with the new requirements. 

BerryDunn’s team partners with a diverse range of healthcare organizations—including Federally Qualified Health Centers (FQHCs), FQHC Look-Alikes (LALs), and Rural Health Clinics (RHCs)—to enhance efficiency, improve patient outcomes, and strengthen community health systems. In a rapidly evolving regulatory environment, our healthcare compliance consultants help community health centers navigate complex compliance requirements, from grant and 340B program adherence to healthcare credentialing. With expert guidance, we help you mitigate risk, gain regulatory confidence, and enhance operational integrity. Learn more about our services and team.