Business Fundamentals

A basic, foundational aspect of most businesses able to be successful for the long-term is their incorporation of business and financial fundamentals in their operations.  The overriding business fundamentals include the likes of:

●   Strategic Management                         ●   Business Analytics

●   Accounting                                             ●   Marketing

●   Financial Management                         ●   Networking

●   Staff/Employee Management              ●   Negotiating

●   Vendor Management                            ●   Legal, et al

These are strategic, long-term activities to ensure the proper oversight to enable the organization to achieve long-term success.

Regarding the home health industry (as well as hospice), I would opine that most (but not all) know these business fundamentals.  I would also opine that most (but not all) do not properly adhere to or manage these business fundamentals properly.  I have worked in the home health and hospice industries in various capacities since 1992, I have worked with upwards of 1,000 agencies over the years and I know this to be true.  If all home health agencies (HHAs {and hospice}) properly adhered to these business fundamentals, they would not be struggling to the extent that so many are.  Certainly, CMS has placed many hurdles in our path, but that alone is not the source of the difficulties that so many HHAs (and hospices) are facing.

Let’s consider a few of the business fundamentals identified above:

Strategic Management

Strategic Management is arguably the most important of these business fundamentals, as it essentially supersedes the others!  Meaning, that all the other business fundamentals are theoretically subordinate to Strategic Management.

• Early in the entity’s life, strategic management is used to create the business plan, which identifies the entity’s objectives and how those objectives are to be achieved.
• Later in the entity’s life, strategic management can include updating the company’s goals and strategies to achieve these goals.

Strategic Management should ensure that continuous oversight is maintained over all the other business fundamentals to keep the company in line with its goals and on a pathway to success.

Too many agencies do not continuously employ strategic management in their operations for various reasons.  Some do not have the training and/or experience to ensure compliance with strategic management while performing their regular management duties.  Some have lost control of their agency and spend all their time putting out fires.  While others just fly by the seat of their pants; meaning they are taking things one day at a time and not considering the long-term implications of what is transpiring.  Regardless of the reason, not staying on top of and adhering to the plans set forth under strategic management is an omission that exacerbates the hurdles the company faces and threatens its long-term viability.

Accounting and Financial Management

Although Accounting and Financial Management are two different business fundamentals, they are so intertwined I wanted to talk about them together.

• Accounting is the recording of all the company’s assets, liabilities, revenues, expenses, and owner’s equity (fund balance) and reporting of such via the company’s financial statement presentations.  This presents ownership and management a reconciling of all the activities, in a summarized format, that has transpired over a specific period.  What most focus on is the top-line (revenue) and bottom-line (net income/loss) of the Income Statement (commonly known as the Inc Stmt; the Profit and Loss Stmt; or the P&L).
• Financial Management is the deciphering of what the financial statements are identifying.  This is the key!  This is further explained under financial fundamentals.  This is key because Financial Management should include analyses of the financial and operational results of the company.  These analyses identify the “WHY?” of why the financial and operational results are what they are.  Understanding this is key to long-term success!

For accounting to enable useful financial and operational analyses, a company must ensure the Chart of Accounts (CoA) is germane and specific to the industry.  Therefore, HHAs need to use a Home Health-specific CoA; to do otherwise is to limit the agency’s financial management capabilities.  Unfortunately, too many HHAs (and hospice) use a generic healthcare CoA that does not have the level of detail necessary for the company.  For example:

A HHA uses QuickBooks (QB) as its financial recordkeeping system (which is fine), and the CPA/accountant they work with employs the generic Healthcare organization Trial Balance (TB) built into QB.  This is not fine, and you will find that out when you have to prepare your first Medicare Cost Report (MCR {assuming a good preparer is engaged; not all are!}), and it will also become a major obstacle to your success as you grow.  You can, and should import a home health-specific Chart of Accounts (aka: a TB) into QB.

The analyses you can do if you have a proper, industry-specific CoA enables the financial management necessary to help achieve success.  It is these analyses that give you the “WHY” your results are what they are.  This knowledge enables ownership/management to make the proper, timely decisions to keep the agency on the path to success.

Business Analytics

Business analytics are the analyses identified above under Financial Management.  These analytics are a revised presentation of your operational and financial results for a given period.  Some are generic (i.e., they are common across all industry types {e.g., reviews of Accounts Receivable, Accounts Payable, et al}) while most are industry-specific.  So Home Health (or Hospice) will have its own set of Key Performance Indicators (KPIs) or metrics to calculate and trend.  And by trend, I mean they should be calculated and presented side-by-side in an appropriate period format.  For most, that would be monthly; but some would be better presented in a quarterly or annual format.  Unfortunately, most HHAs do not complete these monthly financial-operational analyses; and most of these agencies tend to struggle more than they otherwise would.

Again, it is these analyses that give you the “WHY” your results are what they are.  This knowledge enables ownership/management to make the proper, timely decisions to keep the agency on the path to success.  However, the only way to timely obtain these KPIs/metrics to measure and manage your agency is to prepare these financial-operational analyses each month.  I do not know of any EMR that adequately does this.  And, any EMR that does not require you to keep your CoA and accounting records in the EMR system cannot even remotely begin to do this!  So, you must do this yourself or engage someone who knows how to do this for you.

Note:  If you want to build/prepare the best budgets for your agency, these monthly financial-operational analyses are the perfect tool for that! (budgeting is a financial fundamental)

Staff/Employee Management  

Staff/employee management is a well-known business fundamental that most follow; but only to a certain point.  Most everyone understands the concept of proper staffing levels, but few drill down into this concept to the degree necessary.  There’s more to this area, but my focus here is on productivity because this is an area where too many fall short.

Productivity, from a business perspective, just means ‘getting bang for your buck’.  In other words, the company gets value for the compensation paid to the employee.  This holds for the agency’s administrative and field staff (including Marketers if utilized).  Good productivity enhances profitability.  Under-productivity erodes and even eliminates profitability and bad productivity creates losses; which can become significant.

How you measure staff productivity varies based on the job function and how the employee(s) is compensated.  Office staff productivity is measured differently than field staff productivity.  Hourly staff productivity is measured differently than salaried staff productivity which is measured differently than per-visit staff productivity.  Understanding these differences is key to being able to measure and manage staff productivity.

Measuring and managing staff productivity is another area that agencies tend to not do so well in!  Inadequate productivity erodes a company’s profitability.  Not properly tracking and managing employee productivity is one of those less conspicuous areas that undermines an agency’s success.  Reviewing and managing employee productivity will improve an agency’s success and profitability.  This increased success/profitability creates increased discretionary funds that can be used to reward employees.  This helps create a ‘cycle of success’.

Vendor Management

Vendor management is generally not a focus of ownership/management until there is an issue.  However, sometimes this issue can become quite significant before ownership/management becomes aware of this issue.  This comes down to cash flow.  Just as we want to be paid promptly for the work/services we provide, our vendors look for the same.  If we do not manage our organization properly (in all areas), our cash flow can be detrimentally affected.  Bad cash flow leads to increases in Accounts Payable, meaning we have vendors whose bills are not being paid as timely as they should be.  This is not good for the business and is even worse when it’s one of the state or federal taxing authorities.  You do not want to be on the wrong side of them.

Timely reviewing and managing vendor accounts (via accounts (and other) payable) can minimize problematic relationships developing with our vendors.  Sure, sometimes our cash flows are so strained that we need to slow down or even pause payments to vendors.  But this is almost always because of issues in other areas of our operations; not a fault of the vendors.  Adhering to these business fundamentals, and incorporating more robust financial fundamentals would greatly reduce the likelihood of poor cash flows, which solidifies Vendor Management.

Note: although not as commonly identified as Days of Accounts Receivables, Days of Accounts Payable should be one of the KPIs identified monthly.  (this is a financial fundamental)

Negotiating

Negotiating in home health is common throughout all our operations.  We negotiate with our employees regarding compensation.  We negotiate with outside vendors for the services we are looking to procure.  But I want to briefly talk about negotiating payment rates from our non-Medicare/Medicaid payors.

This is an area that agencies do not tend to manage well.  In my agency reviews, it is not uncommon to see agencies being paid rates from various commercial insurance payors (including Medicare Advantage Plans) that have been in place for three or more years.  This is ludicrous.  This inevitably ensures that the agency is being significantly under-compensated.  We all know how challenging it is to negotiate payment rates with these payors.  So being compensated based on rates negotiated three-plus years ago is a problem.

Negotiated payment rates for every payor should be reviewed every year.  When this review identifies inadequate rates, the applicable payor(s) should be contacted and new rates negotiated.  But how do you know what rates to negotiate for?  The monthly financial-operational analyses should provide this information.

Do you know:

• • What you should target (not that you’ll likely get it) as your per-visit payment rates?
  • What the minimum acceptable rate (by discipline) should be that you’d be willing to accept?
  • Where the ‘cut-off/no-go’ line is (this is the rate that is too low to accept)?
• • You should know all these rates by discipline (i.e., RN, LPN/LVN, PT, PTA, OT, etc…).
  • If you do not know these rates by discipline, you can not properly negotiate with your commercial insurance payors and you will not know when it is time to get up and walk away (i.e., consider terminating the contract).

Summary/Conclusion

Properly and timely utilizing business fundamentals is foundational to positioning your agency for success.  These fundamentals should be a part of the everyday operating life of your agency.  Once you have implemented these fundamentals, you will be moving down that path to success, and you will also likely realize that more is needed to ensure your ability to succeed.  This leads to the consideration and implementation of financial fundamentals; some of which have been alluded to above:

• monthly financial-operational analysis
• budgeting, and
• Days of Accounts Payable

which moves you further down that path of success.  As such, agencies that properly employ business (and financial) fundamentals will enhance their success and profitability while others around them struggle.  Don’t be one of the agencies that struggles when you do not need to!

If you would like some help in establishing business (and financial) fundamentals in your agency, please reach out to us here at IFS4hh to see how we could help you improve your operational and financial results.