5 Steps to Evaluate Your Agency’s Financial Performance
Posted On: August 2nd, 2012
Former Vice President, Product Marketing and Strategy, McKesson (Retired)
Home health agencies generally have enjoyed higher profit margins than many other healthcare providers, but those days are ending, warns Mark Sharp, partner at BKD LLP. In order to compete in the new reimbursement landscape, agencies must become more efficient to make up for upcoming cuts in the Medicare base rate.
“Can you continue to absorb margin reductions?” Sharp asks. “If you can offset inefficiency with efficiency, you can still have positive margins.” Sharp was a featured speaker at the 2012 McKesson Home Health and Hospice Executive Summit, presenting on the topic “Finding Opportunities to Succeed in an Uncertain Environment.”
Agencies that have shown more robust profits use a multi-pronged approach to manage all aspects of the agency. It’s not enough simply to maximize revenues. You must also watch your expenses, negotiate fair rates with payers and leverage technology to become more efficient at delivering care.
To evaluate your agency’s performance, Sharp recommends these steps:
- Start at a high level
- Benchmark against others
- Drill down where your agency differs significantly from targets/benchmarks
- Study reasons behind performance indicators
- Consider alternatives
Benchmarking from BKD’s Medicare cost report database shows a median profitability for all agencies of 5%, but nearly double for a median agency in a best practice peer group. For a top 25% performer in the best practice peer group, the profit margin tops 16%. An agency should determine its profitability from all payers and programs, then drill down into each program. Medicare likely is your best payer, but as CMS cuts rates, you need to expand your non-Medicare revenue. Those payers will want to see evidence that you deliver great care, so you must have a method such as home health software to demonstrate your outcomes.
The most profitable agencies also have higher case-mix weights and OASIS scores. This is not an area to try to fudge numbers. You must build support for higher numbers by using actionable data and encouraging collaboration among clinicians and therapists to discuss openly the condition and goals of each patient.
Balancing good outcomes with a minimum number of clinical visits requires a delicate juggling of personnel, technology and expenses, Sharp said.