Rural agency cost-saving tips apply to everyone
Rural agency cost-saving tips apply to everyone
Check leases, ask for supply discounts
The interim payment system (IPS) imposed upon the home health industry in 1998 resulted in the closure of many home health agencies in the country. The good news is that the same payment system forced agencies to look closely at how they managed their finances.
"We noticed during IPS that throughout the home health industry, home health agencies had picked up some bad habits," says Tom Boyd, MBA, principal at Boyd & Nicholas, a Rohnert Park, CA-based financial consulting firm that specializes in home care.
"Because home care agencies were reimbursed at a percentage of costs, no one looked closely at what those costs were," he says.
Rural and small agencies especially have to be diligent because they may not enjoy the economies of scale that benefit larger agencies, urban agencies, and agencies that are a part of a larger organization, Boyd says.
Tips that Boyd has gathered from clients may have been generated by small or rural agencies, but the cost savings can benefit everyone. The best way for agencies to save money is to check processes, ask why things are done a certain way, and watch to see if there are opportunities to improve the way they handle their resources, he says.
An area that Boyd suspects may still present problems for agencies is equipment leasing. "If there is no mechanism set up to monitor lease expiration dates, an agency may pay for months past the expiration date and the vendor won’t complain at all," he says.
"Set up a file for every vendor, and check invoices against the agreements with those vendors," Boyd suggests.
For leases, develop a color-code system that alerts you as to the year the lease expires, he adds. If you don’t want to choose the "buy-out" option, be sure to send your refusal in a certified letter along with a request for instructions on how to return the equipment, he adds.
At the same time, review your leases to see if changing any of the terms or choosing another vendor could lower your rates, he says.
The most successful agencies develop an operating budget that is used on a monthly basis, Boyd says.
Look closely at actual expenses this year as compared to last year, and question variations in the expenses projected in the operating budget, he says. Expenses that should be evaluated include supplies, equipment, overhead, and staff costs.
"Management also needs to set a good example for staff members by working hard and looking for ways to be cost-effective," Boyd says.
"If the proprietor of a small agency hires family members for all of the management positions, then doesn’t require them to work more than a few hours each day, it will be hard to convince staff members to look for ways to cut costs and contribute to the bottom line," he explains.
Employees as owners
"The best way to motivate employees to think of the success of an agency as their own success is to make them owners," says Richard D. Block, MBA, chief executive officer of Assured Home Health & Hospice in Woodinville, WA.
Block says he is an advocate of employee stock ownership plans (ESOP) in which employees accumulate part ownership of the agency over time.
"Each employee is eligible for the ESOP upon employment, and they are 20% vested in two years and 100% vested in seven years." When an employee retires, the ownership is cashed out and that becomes the employee’s pension, he explains.
Employees want to cut costs because any surplus money goes into the retirement accounts, he adds.
Even agencies that are unable to set themselves up as ESOPs because of their ownership by a hospital, a government entity, union contracts, or a chain of agencies can find ways to promote a sense of ownership, Block says.
"Promote the people that get things done, and look for ways to set up profit-sharing or surplus-sharing plans," he suggests.
Because each of Block’s agency offices is set up as an ESOP, employees often make themselves responsible for tasks such as cleaning the office, repainting, and overseeing all maintenance chores. "They know that this is their business and they are responsible for the success," he says.
Employees are a good source of cost-saving suggestions that don’t compromise outcomes, Block says. "As the number of patients requiring wound care increased, our nurses looked at the different types of dressings we used and decided that we could improve outcomes and save costs by switching to one dressing that only had to be changed every three days," he says.
Supplies often present an opportunity for savings, Boyd says. "Many home health agencies, especially rural agencies, are reluctant to look at group purchasing organizations because the contact with the local vendor is valued," he says. "If this is the case, investigate the prices offered by group-purchasing organizations and take those prices to your local vendor," he suggests.
"There is no shame in asking for a discount, and the vendor is likely to offer a discount rather than lose all of your business," Boyd adds.
Pharmacy costs for hospice patients also can be cut by asking for two-week supplies of medications rather than a full month, Block says.
"Medications would be filled on a month-by-month basis, but the patients would die before the medication was used," he says. By finding a pharmacist that would fill prescriptions in two-week amounts rather than a full month, Block’s agency reduced its pharmacy bill by 40%.
Develop an inventory-control system, Boyd suggests. "Put a lock on the medical supply room and designate one person to bag supplies that each clinician will need in a day," he says. This means that clinicians won’t pick up extra supplies to make sure they always have some in the car, he says. The habit of taking extra supplies translates to extra cost as supplies are thrown away after becoming out of date or damaged from riding in the trunk, he adds.
Nonmedical costs that can be controlled more closely in most agencies include telephone costs. "Someone in the financial department should compare the agency’s monthly bills with the rates of other companies on a regular basis," Block says.
"Shop around for all telephone service," suggests Boyd. "Rates in the telephone industry keep dropping, so it is worthwhile to evaluate them throughout the year," he adds.
The sense of ownership and accountability needs to start at the top, Block says.
Even without an ESOP, every manager and staff member should "own" their jobs, he says. "Most people rent their jobs. This means that they don’t take the same care with the job as they would if they owned it. After all, when is the last time you washed a rental car?"
[For more about cost-cutting tips, contact:
- Richard D. Block, MBA, Chief Executive Officer, Assured Home Health & Hospice, P.O. Box 610, Woodinville, WA 98072. Telephone: (360) 748-0151.
- Tom Boyd, MBA, Principal, Boyd & Nicholas, 5550 State Farm Drive, Suite C, Rohnert Park, CA 94928. Telephone: (877) 424-6527 or (707) 585-9317. Fax: (707) 585-7633. E-mail: [email protected]. Web: www.boydandnicholas.com.]
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