Summer ‘15
19
FEATURE
that the wide-spread profitability of HHAs
throughout the industry was much more due
to Medicare’s overly-generous reimbursement
rates than it was to the cost-effectiveness of any
given agency or the industry in general. In fact,
my contention is that the industry has not been
cost-effective since shortly after the inception
of PPS. I am not saying that the home
health industry is not the most cost effective
environment in which to provide care; but
what I am saying is that it could be much more
cost-effective than it currently is.
One issue that arose from the implementation
of PPS reimbursement in home health was
the gradual decline of financial fundamental
practices throughout the industry. As HHAs
were able to achieve and maintain high profit
levels year after year, agencies slowed and
many eventually stopped managing their
financial operations: why spend the monies
in that area that are a cost and drain on cash-
flow when we’re still profitable without these
expenditures? As time went by and profits
remained high, less and less focus was applied
to the financial side of the house; and financial
fundamentals declined. Today, less than half
of all HHAs prepare an annual operating
budget, and of those that do, more than eighty
percent prepare budgets that are not proper
for our industry. If your budget starts with
revenues, you are in that category. A budget in
any industry should be based on the “drivers”
of revenues and expenses. Therefore, the
vast majority of your revenues and expenses
should be a by-product of some driver; not
a driver of the budget itself. Additionally,
few agencies now do a monthly financial-
operational analysis, but for pre-PPS, all
agencies did! This analysis will identify what
your monthly Costs per Visit by Discipline
(CPVs) are and it should do a whole lot more
than that. Unfortunately, a majority of HHAs
out there use the CPVs from their Medicare
Cost Report (MCR). Two significant problems
with that: 1) those CPVs only change once
a year; and your actual CPVs are constantly
changing and 2) those are your Medicare
CPVs, not your “true” operating CPVs, and
for most agencies your actual CPVs are greater
than your Medicare CPVs; and for some,
significantly greater. Also, most software out
there today does an inadequate job of helping
you to manage your financial operations and
if your software requires you to maintain your
financial information (your general ledger) in
another software program (e.g., QuickBooks,
etc.), then this will apply to you. They may
work well for billing, clinical documentation,
Accounts Receivable management and to a
lesser degree the reporting of revenues, but
not for financial analysis/reviews/reporting.
Additionally, do you think that Ford and GM
project out the expected revenues and costs of
any vehicle they produce before they produce
it? Of course they do! In fact, this is a common
practice for most entities that follow sound
financial fundamentals in any industry. So why
don’t we implement this in home health? Some
do, most without a high degree of accuracy
or consistency, but they at least try. However,
most do not. The question is: why not? This
is an area where a small investment in current
operations could have a significant impact on
your overall financial outcomes.
The re-introduction of sound financial
fundamentals in home health is going to be
something that is going to help your agency
survive the turbulent environment that we are
currently in and will help position you to thrive
going forward.
Consider Rebasing (2015 is just year two of
the four years of rebasing): The rebasing of
home health reimbursement has reduced
reimbursement to the industry for 2014
and 2015; and is expected to reduce
reimbursement again for 2016 and 2017. All
HHAs are feeling the effects of Rebasing; but
some more so than others. Why? There are
several possible explanations: 1) HHAs with
predominately high-therapy episodes have
been less impacted than others; 2) HHAs with
low-volumes of Medicare episodes would not
feel the effects of rebasing as significantly as
HHAs whose Medicare populations account
for 50% or more of their census and 3) Cost-
effective agencies were more prepared than
others to absorb the reduction to
reimbursement while still maintaining strong
profit margins (note: MedPac projected that
the average Medicare Margins for an HHA
would be 10.3% for 2015; and they want
higher rebasing reductions). You can control
any of the three above scenarios; but the one
that you have the most control over is scenario
#3, because you are 100% in control of your
ability to impact your cost-effectiveness.
Consider the ACO Models: The ACO model
is a type of approach that looks at bundling
of reimbursement, patient outcomes and
overall cost effectiveness of providing care. So
considering that, what type of HHA do you
think is most attractive to an ACO? The more
cost-effective (and most likely more profitable)
HHA or the agency that is not as cost-effective
(and likely to be less profitable)? When ACOs
begin to enter your service area(s), how do
you want to be able to present your HHA to
the ACO? Well, the answer is as a highly cost-
effective and profitable HHA.
Consider Value-Based Purchasing: The VBPM
has been implemented in varying degrees to
the Hospital, Physician’s Practice, and Skilled
Nursing segments of health care; and it is
going to be implemented in the Home Health
Industry effective January 1, 2016. It will
initially just be tested in 5 to 8 states that are
undesignated as of yet. All Medicare Certified
HHAs in those five to eight states will be
required to participate in the demonstration
to retain their Medicare Certification. The
reimbursement impact is currently projected
to be at a rate of +/- five-eight %; meaning
“ THE R E - I NTRODUCT I ON OF SOUND F I NANC I A L
FUNDAMENTA L S I N HOME HE A LTH I S GO I NG TO B E
SOMETH I NG THAT I S GO I NG TO HE L P YOUR AGENCY
SURV I VE THE TURBUL ENT ENV I RONMENT THAT WE AR E
CURR ENT LY I N AND WI L L HE L P POS I T I ON YOU TO
THR I VE GO I NG FORWARD .”
