Four Metrics Your Agency Should Track
Posted On: June 11th, 2013
Former Vice President, Product Marketing and Strategy, McKesson (Retired)
It’s easy to drown in data from your home health agency, but it doesn’t have to be this way, says David J. Berman, CPA, CVA, principal at Simione Healthcare Consultants LLC.
“Don’t overdo analytics. Meaningful data can be lost in too much detail,” says Berman, who serves as interim chief financial officer at Neighborhood Health Agencies, Chester, Pa. “The goal is simplistic data in a concise form that tells your story.”
Berman and Andrea L. Devoti, president and CEO at Neighborhood Health, were featured speakers during the recent McKesson Homecare Executive Summit. Over the last two years, the agency has increased its margins while taking an 8.8% cut in Medicare reimbursements, Berman says.
The agency focuses on four broad metrics – revenue, margins (gross and net), cash flow and efficiencies – then breaks each of them down further. Under the revenue banner, the Medicare home health business is analyzed by case weight, episode analysis and referral sources, while the Medicaid/commercial side is broken down by visits, admissions / patients and referral sources.
Margins are a critical factor, says Berman. He adds that margins are calculated as revenue minus direct expenses, such as salaries, taxes, benefits, supplies, mileage and contracted services. Berman wants to see gross margins of between 42% and 44%, and he advises watching contracts carefully and renegotiating them often. Net margin is calculated as gross margin minus fixed expenses. He says that net margin should show results from operations in both aggregate and broken down per visit. It should exclude non-operating revenue and/or expense, Berman says.
The agency also tracks cash flow, especially days sales outstanding (DSO). Berman says this measure should be payer-specific and a measure of the average number of days necessary to collect revenue. It should include average accounts receivable and average daily revenue and be calculated in a consistent manner for accurate comparison.
Finally, the agency tracks what it calls “efficiencies,” including the number of visits that direct care staff make daily, their case load and whether visits are weighted or unweighted. The agency does not weight visits, counting each as one. Berman says that five per day is a good standard.
“The key to leveraging your agency data is to be simplistic,” Berman says. “You don’t want spreadsheets.”
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