deconstructing home health profitability
from the editors of success in home care magazine apr 22, 2002
by sara jackson
success in home care has teamed up with national research firm fazzi associates, northampton, mass., to bring to light a subject that few so far seem to want to discuss -- making money on medicare patients. it's a ticklish topic, but one that hhas must get a grasp on soon because profitability projections are expected to slowly trend down over the coming year, as cms denials and downcoding continue, say home care experts.
to start, fazzi ran a special report on its survey data -- gathered betweenoct. 1, 2000 and june 30, 2001 -- exclusively for success in home care readers (see chart, p. 6). about 110 agencies in the survey reported on their profitability levels.
so what makes a profitable agency? well, the central conclusion of fazzi's data is this: the majority of agencies who are making a profit these days (a whopping 88% of his respondents), do so by working on a variety of fronts. they control costs on all levels from micro- to macro- and continually innovate to bring in more revenue (with better assessments and billing).
the secret to profitability is to build it into your agency's mission,
declares pat sevast, clinical and operations consultant for american express tax and business associates, timonium, md. in particular, you must put cost-containment at the top of your agenda and manage it constantly. even a small cost overrun on one patient can quickly mushroom to a major cash drain
over your entire patient population. "[profitable agencies] are always chipping, chipping, chipping," says sevast. "they've studied, revised, and streamlined" their processes.
the path to profits
under pps, hhas now are just like all other small businesses, having to embrace a two-pronged strategy to unearth profits:
1) maximize revenue and
2) control costs.
and indeed, one crucial difference between profitable agencies and unprofitable ones in fazzi's study is how well they generate revenue. the most profitable shops ($300 per episode or more) bring in about $2,390 per episode, on average, compared to the $1,744 earned by unprofitable agencies, on average.
"the secret is to keep your fixed costs the same and generate an increased volume of episodes," that way even a small profit on the average case builds over time, says schuyler hoss, a home health consultant with northwest healthcare services inc.
home health experts like bobby dusek, dusek cpa inc., amarillo, and tom boyd, principal, boyd & nicholas, rohnert park, calif., agree, saying that some of their more profitable clients are hiring liaison nurses or marketing staff to help improve referral relationships.
on the clinical side, therapy patients have turned out to be a key part of profiting under pps, according to fazzi's data. profitable agencies report a median of almost 20% of their episodes require 10 or more therapy visits, while only 16% of unprofitable agencies' episodes exceed the threshold. "our agencies who are able to estimate [therapy needs] correctly...and do
them, are doing well,' agrees ted sleight, cfo, with rocky mountain home care, salt lake city.
but to accomplish this, his top performing branches (averaging a 20% operating profit) carefully manage their outside pt contract staff. case managers make follow-up calls when therapy visits are cancelled and ensure hat pts fulfill all appropriate visits.
cost-cutting takes center stage
but even more important, once profitable agencies get money in the door,they put it to better use than unprofitable agencies.
here's how: profitable agencies use only $1,875 of each episode's revenue to care for the patient, leaving a median profit per episode of $514, according to fazzi benchmarks. their unprofitable counterparts spend a median of $2,557 per episode, creating a $812 loss on each episode. profitable agencies spend less in nearly every area than their unprofitable colleagues, with fewer visits per episode, lower costs per visit, lower supply costs, and lower collection costs. controlling visits is the key, sevast and other experts agree. according to fazzi's data, profitable agencies provide about 20 visits per episode versus 25 by unprofitable agencies.
rocky mountain home care has an internal visit formulary that lays out a target number of visits for each hhrg, which keeps its rates closer to the low end of that scale. however, the standards need constant reinforcement, sleight notes. lately, "we've started to see some creep in the number of visits nurses are giving," sleight says.
everything about profits...nothing about ensuring that patients receive appropriate levels of care with these formulas...
. lately, "we've started to see some creep in the number of visits nurses are giving,"
maybe it's because the patient needs it!!!!!!!!!!!