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A DYNAMIC DUO: Simultaneous Efforts to Grow Revenue and Reduce Costs Shape Agency Success


In an industry with growing patient needs and dwindling resources, home care and hospice organizations with strong financial discipline are more likely to prevent financial crisis and outperform their competition.  By guiding a more deliberate review of revenue and costs, agency leaders can better initiate strategies to support their teams and strike a balance among finances, quality and patient satisfaction to support agency growth.   

Rob Simione, Vice President, Simione Financial Monitor, says, “Many agencies are struggling with the increase in necessary expenses to meet changes in the regulatory environment and keep pace with changing payment models and payer mix. Facing many tough questions when it comes to costs, they are finding they have to come up with their own answers, and are often left trying to do more with less.  Benchmarking can help provide guidelines on costs and staffing, taking the guesswork out of financial management and allowing providers to share comparisons of their performance with other peer organizations.”

Financial cost benchmarks are available from our industry’s national associations (NAHC and NHPCO), CMS cost report data and companies, including Simione Financial Monitor.  “Wherever you get your data, be sure you are making apples to apples comparisons.  Agencies may have different cost structures based on geography, payer mix, or agency size,” Simione explains.

Cost reduction is an important part of a comprehensive plan to deal with Medicare payment reductions and unfunded mandates.  But, this effort should be accompanied by initiatives to build revenue in order to avoid extensive cost cuts that could impact quality of care an agency provides to patients.  

The more you can demonstrate the need for change, the easier it will be to initiate change for the benefit of your home care or hospice organization.  In order to convince the board or management team of the need to contain costs, create models that will show the impact of Medicare reimbursement and payer mix changes. Then identify the appropriate benchmarks, and engage in strategic meetings to discuss variances to benchmarks to prioritize a plan of correction.

Regarding Revenue

“Gross margin should be the starting point of any financial analysis,” Simione says, “and everyone’s performance has an effect on it.”   Gross margin is calculated by determining direct revenue, which includes all net payer revenue, and subtracting all direct expenses, including salaries, payroll taxes, worker’s compensation, benefits, contracts, mileage, and supply costs for direct patient care. Agencies should look at overall gross margin and gross margin by payer.

When reviewing areas of revenue, remember to look at admissions/census, payer mix, length of stay and case weight mix.  “Instead of holding staff accountable for referrals, focus them on admissions (conversion ratios), while reviewing admission data by referral source and payer source. Remember that all admissions are not created equal,” Simione says. 

For case weight mix, be sure to include accuracy of OASIS and therapy utilization in your analyses.  Home health reviews should look at visits per episode (all episode types), and hospice should include length of stay, percentage of live discharges, and days by level of care (routine, respite, GIP and continuous).

Discussions about revenue should include a review of all current and potential lines of business to be sure that resources can be added or reassigned to your top priorities in terms of referral management, sales and other functions critical to securing new customers.

Carving Out Cost

For cost reduction, Simione suggests a review of the following with benchmarks in hand: 

  • Payment models (pay per visit, salary and contract services)

  • Productivity (visits per day)

  • Telemonitoring

  • Benefit plans

  • Supply, ancillary and mileage costs

  • Length of stay

Also, take a good look at:

  • Direct cost per visit (home health)

  • Direct cost distribution (home health)

  • Productivity (home health visits per day by discipline)

  • Visits by payer (home health)

  • Cost per day by level of care (hospice)

  • Direct cost per visit (hospice)

  • Ancillary cost per day (hospice)

Staff and Compensation

Nothing will wreak havoc in an agency more than the threat of job or pay reductions, which can have a profound negative effect on productivity and operations.  Cutting direct staff salary and benefits in tough times can result in high employee turnover, cutting corners in patient care, and overworked staff.  All will have a negative impact on productivity and quality, and should only be considered as a last resort.

Pondering Productivity

Does your team have enough support to facilitate productivity? Simione suggests that agencies assess the level of clerical support for clinical teams, what resources exist for clinical support in the field, available communication tools such as cell, pager or email, technology and level of competency with technology, and the process for documentation. All of these issues affect productivity, Simione explains.

Other factors to consider regarding barriers to productivity include:

  • Average miles per visit

  • Time available to visit

  • Patient acuity

  • Supply ordering

  • Software or hardware issues

  • Duplication of paperwork

On the other hand, productivity increases need to be monitored because they can result in undesired outcomes. Pitfalls include: 

  • Negative outcomes driven by staff incentives that reward the number of visits

  • Increased need for care (readmission to home care, re-hospitalization, ER visits)

  • Negative impact on patient or family satisfaction

Back Office Costs

When reviewing and benchmarking back office costs, remember to consider: 

  • Volume of non-Medicare claims

  • Authorizations/payer setup

  • Automation of documentation

  • Staff effectiveness

  • Staff training and education

  • Effective reporting

  • Outsourcing options

Assessing Non-Employee Costs

Non-employee costs are another area to scrutinize for additional savings.  Possible targets include: 

  • Medical supplies/ancillary cost management   

  • Mileage costs

  • Space occupancy/Utilities

  • Professional Fees (legal, audit, etc.)

  • Liability insurance

  • Interest expense

  • Bad debt

  • Equipment purchase/lease/repairs

Other Considerations

Are you staffed appropriately based on projected patient volume and payer mix?

What are the strengths/weaknesses in your operations, documentation and reporting processes? Can they be automated?  Will reducing staff result in a decrease in revenue or productivity?

In reviewing indirect costs, are you looking at the whole picture? (cost compared to the benchmark and performance of each department, including marketing, intake, billing, and clinical supervision/support/QI)

If you would like assistance with home care and hospice benchmarking, call Simione at 844.215.8826.