HOME HEALTH & HOSPICE FORECAST: Diligence with the Right Data Will Address Areas of High Pressure to Weather the Storms of the Future
Faced with an active stream of competition and a high probability for integration, today’s successful home care and hospice organizations are addressing industry issues with greater scrutiny over their operations and new benchmarking tools to understand the strategies that drive financial performance. According to David J. Berman, Principal, Simione Healthcare Consultants, many high-pressure situations can be minimized if home care and hospice organizations use feedback from key performance indicators and benchmarks to make critical business decisions.
“Providers looking to prepare for the future may not be able to predict every storm pattern, but they will have a clear picture of how to respond to regulatory change and scrutiny, revenue cuts, and integration with other providers to better demonstrate their value as post-acute solutions for quality care,” says Berman, who leads Simione’s Mergers and Acquisitions, including due diligence and financial valuation services to support post-acute organizations in transition.
“Agencies must look to grow and provide cost efficient care,” Berman explains, “first by looking internally to improve factors such as admission sources, case weight mix, contract rates and length of stay. These and other factors will affect their ability to engage in external growth opportunities such as acquisition or joint venture, or participation in a continuing care model as part of an Accountable Care Organization (ACO).”
Berman suggests that home health and hospice organizations develop and maintain disciplined financial operations for cost-efficient care that include a review of:
- Direct staffing/payment models
- Benefit plans
- Productivity for direct and indirect staff
- Indirect and overhead cost of staffing
- Technology to create operational efficiency in both direct and indirect operations
“Without a diagnosis, providers cannot provide quality care. The same holds true for agency finances,” says Berman, where key financial ‘symptoms’ will help home care agencies and hospices make sound business decisions, but the information should be simple and easy to understand, as well as product line specific, namely for the home health, hospice and private duty areas of business.”
To analyze information in a meaningful way, Berman outlines three steps to make important changes in the financial picture of a home health or hospice organization:
- Step One – prepare the overall income statement broken down between gross and net margin. This should include salaries/taxes/benefits for direct care staff, contracted services for direct care, worker’s compensation, medical supplies/drugs/DME, and travel for direct care staff.
- Step Two – complete detail on the income statement (gross vs. net margin) by service line (home health, hospice, private duty)
- Step Three – Identify and track key indicators by service line
“If information is not analyzed by service line, a thriving service may hide a weakness or inefficiency in another,” Berman explains, “the strategy is to break everything down as much as possible to pinpoint improvement opportunities. Data should be looked at monthly, year to date, over the last 12 months, and always compared to the prior period. Then, all of these results need to be evaluated against external benchmarks to ensure sound decision making that will propel an organization forward.”
Additional strategies for making changes in gross margin include in-depth review of revenue, productivity and scheduling with specific attention toward the following (issues):
- Revenue – its correlation to budget and payroll
- Productivity – consistent monitoring with attention to caseloads/overtime, buy-in from managers, enforcement and accountability
- Scheduling – automated schedules, efficient routes, and vehicle/travel expenses
Another critical factor for success in home health and hospice requires that an organization step away from operating “as we always have”, says Berman. “An agency that says ‘we’re just different’ needs to look carefully at how it stacks up among other providers in the industry, and be prepared to answer questions that address geography, payer mix, cost structure, revenue size, profit status, business lines, staffing and other factors in operations,” he added.
Berman says these and other important questions will help post-acute providers bring themselves more in line with national and Medicare region benchmarks:
- What is the distribution of patients and revenue by payer source?
- How does our gross margin compare with other organizations like mine?
- What is our direct cost per visit with respect to each home health discipline?
- What is our cost per visit/day for hospice care by discipline?
- What is our daily productivity for home health by discipline?
- What is the distribution by level of care by days for my hospice?
- How does our length of stay compare to others?
- How do our home health statistics by discipline/visits per episode compare?
- How does our productivity compare by discipline in home health?
- What is the distribution by hospice level of care by day?
- What are appropriate volume goals/referral sources and who is accountable?
- How does our net margin compare with other home health or hospice organizations?
- What are our specific costs as a percentage of revenue? Do they measure up?
Finally, Berman recommends that organizations analyze their key home care and hospice internal departments to understand their role in overall financial performance. “Departments such as Intake, Billing, Marketing, and Clinical Support, Supervision and QI all have specific indicators that will help every agency identify opportunities for improvement,” Berman says, “Every aspect of home health and hospice care presents an element for greater efficiency when you evaluate comprehensive information on a regular basis. The constant monitoring of financial and operating performance is the only way to stay prepared for the many significant changes we are experiencing throughout post-acute care.”