Overcoming Obstacles to ProfitabilityOctober 27, 2019
The first episode of our new podcast, Planning for Sustainability, focused on the importance of profitability to a nonprofit healthcare organization’s sustainability. In recent years, more and more not-for-profit skilled nursing facilities in particular have found themselves selling to for-profit providers because they did not accumulate enough profit to maintain viability, especially as their facilities depreciated.
What we didn’t address, however, are the obstacles standing in the way of this profitability – most significantly, the declining reimbursement rates.
In many states, Medicaid reimbursement for long-term care is inadequate to cover the cost of delivering care. At the same time, trends in post-acute care are shifting patients from being discharged to nursing homes for rehab to either home care or out-patient rehab, or a combination of both. This has resulted in a decrease in the availability of the more profitable Medicare Part A patients.
Another trend we are seeing is that more and more Medicare beneficiaries are signing up for Managed Medicare plans, which are increasingly reimbursing more like Medicaid than Medicare. This further dilutes the opportunity to make up for losses on the Medicaid side of the equation.
When leaders in the not-for-profit long-term care segment lament that their challenges are hopeless, I retort, “If it’s impossible to make a profit running your facility, then why would a for-profit company be willing to buy it from you?” Well-run for-profits, as well as successful nonprofit operators, can teach us many lessons in profitability. These operators are just as committed to quality because they know that good quality makes good business sense. So, if they are not cutting corners on quality, how do they become more profitable?
Here are some of their strategies I have observed:
- They take full advantage of any reimbursement for capital expenses and stay on top of the facility to make sure its appearance is competitive and the infrastructure is current. Even if there is no reimbursement strategy available, they will leverage access to capital to make sure the facility is competitive.
- They control labor costs with passion. Labor is the biggest variable cost in this business, and it must be controlled. Successful facilities will prioritize patient care positions that generate revenue over excessive management positions that don’t.They make sure everyone is working efficiently and to the “top of their license.” They engage with organized labor to get cooperation. Payroll and scheduling are controlled to eliminate waste, with a special emphasis on controlling overtime.
- They embrace and leverage technology to extend staff, whether it be electronic documentation, patient monitoring or staff communication systems.
- They aggressively identify clinical opportunities in their communities and enthusiastically pursue the development of programs to meet those needs, whether they be ventilator units, dialysis units, rehabilitation programs, etc.
- They maniacally control costs.Is the facility getting the best deal on utilities, incontinence products, workman’s compensation insurance, food and paper supplies, linen, etc.?This is not just done once in a while, but constantly.
- They bill accurately, correctly and with an endless pursuit of getting every penny deserved.The best way to get paid on a timely basis is to bill correctly.The best way to reduce denials is to follow up on them and not only get them paid, but also correct the reasons they occurred in the first place.They also aggressively and tirelessly pursue bad debt and work to reduce it.