Home health agencies have access to more information today than ever before. Their electronic medical record, accounting, payroll, billing, and other systems can produce an almost endless supply of reports, dashboards, metrics, and key performance indicators.

But more information does not necessarily mean management better understands the organization’s performance.

A single cumulative number provides information—but little else. Without the context of prior periods, monthly trends, operational activity, management expectations, and relevant benchmarks, that number does not tell management whether performance is stable, improving, or deteriorating.

It may be accurate. It may even be important. But on its own, it may not provide a reliable basis for management action.

Costs Per Visit: Information Without Context

When I ask home health agencies for their Costs Per Visit—or CPVs—by discipline, someone often pulls the agency’s most recently completed Medicare cost report.

That cost report may provide accurate CPVs for the period it covers. But consider the context of those numbers.

For a calendar-year agency, the CPVs reported on the Medicare cost report reflect cumulative activity through December 31. By mid-September of the following year, those figures are approximately eight and a half months old. In fact, they were already five months old when the cost report was due to Medicare.

Those CPVs tell management what the agency’s average visit costs were during the prior cost-reporting period. They do not tell management what those visits are costing today.

They also do not tell management whether the agency’s CPVs remained relatively stable throughout the year, improved during the year, or began moving in the wrong direction.

For example, a year-to-date CPV of $150 could represent nine relatively stable months in which the agency’s visit cost remained close to $150.

But that same cumulative CPV could also result from six months at about $130 followed by three months at $190.

The cumulative result may be similar, but the operational meaning is entirely different. So is the appropriate management response.

If management fails to identify when and why that change occurred, it loses the opportunity to respond in a timely manner—and may allow a detrimental trend to continue affecting the agency’s results.

The year-to-date number tells management where the agency stands. The monthly results help management understand how it got there—and where it may be heading.

Presenting monthly CPVs alongside year-to-date CPVs would provide considerably more context. Adding prior-year and budgeted CPVs, applicable Medicare LUPA per-visit rates, visit volume, productivity, compensation, contract labor, and other relevant operational information would provide even more context.

The objective is not simply to create a report containing more numbers. It is to connect the relevant information so management can understand:

• What changed?
• When did it change?
• Why did it change?
• What else did it affect?
• Is the agency’s performance improving or deteriorating?
• What, if anything, should management do about it?

Information tells management the number. Context helps management understand what the number means.

Dashboards Provide Information—but Do They Provide Context?

Dashboards are becoming increasingly common as EMR and other software vendors seek to provide agencies with greater visibility into their operations.

To the extent that these dashboards provide timely, accurate, and relevant information, that is a positive development. But presenting more information—or presenting it more attractively—does not necessarily provide management with greater understanding.

A dashboard may identify an important result, variance, or potential problem. What it may not explain is whether that result represents stability, improvement, or deterioration; what caused it; what else it affected; or what management should do in response.

In other words, a dashboard may alert management to something that deserves attention. Understanding requires going further.

Context doesn’t come from adding more numbers to a dashboard. It comes from selecting and connecting the information that explains what changed, why it changed, what it affected, and where the organization is trending.

Even the best operational dashboard may provide only part of that context. Understanding an agency’s performance often requires connecting information from the EMR with financial results, payroll and staffing data, reimbursement, the budget, and changes in the agency’s operating environment, much of which may reside outside the EMR.

That connection between financial and operational information is critical. Financial results are frequently the outcome of operational decisions and activity. Looking at one without the other can leave management with only part of the story.

Other Numbers That Need Context

Costs per visit are only one example. Home health leaders routinely receive numbers that appear meaningful on their own but become substantially more valuable when placed in the proper context. Consider a few other examples.

Revenue

Knowing that an agency generated $1 million in revenue during a month provides information. But does that represent an improvement or a decline? Was it consistent with the budget? Was the result driven by census, admissions, reimbursement rates, payer mix, case mix, or utilization?

And, perhaps most importantly, did the additional revenue produce additional profit and cash flow?

Revenue alone cannot answer those questions.

Medicare margin

A Medicare margin of 15% may initially appear strong. But its meaning changes when compared with the agency’s prior results, budget, MedPAC’s reported industry margin, reimbursement changes, utilization, productivity, and cost trends.

Has the agency’s Medicare margin declined from 20% to 15%, or has it improved from 5% to 15%? Are current results sustainable, or are underlying cost and utilization trends beginning to weaken them?

The number is the same. The context—and what management should do in response—may be very different.

Census and visit volume

An increasing census may appear favorable. But is the agency adding patients whose reimbursement is sufficient to cover the resources required to serve them? Does the agency have the clinical and administrative capacity to support that growth? Are visits, staffing costs, travel, overtime, and other expenses increasing faster than revenue?

Growth is not necessarily the same as improved financial performance.

Similarly, knowing that an agency completed 5,000 visits provides information about activity. Comparing those visits with census, admissions, patient acuity, planned utilization, productivity, outcomes, reimbursement, and cost helps management determine whether it used its resources efficiently and effectively.

Accounts receivable days

Knowing that an agency has 45 days in accounts receivable provides another piece of information. Whether that result is favorable depends on where the agency started, whether AR days are increasing or decreasing, which payers and aging categories are driving the result, and how actual collections compare with expectations.

Management should also determine whether bad debts were written off during the period, which would reduce reported AR days while adversely affecting profitability and cash flow.

An overall number may also conceal a developing problem within a particular payer, branch, or aging category.

In each of these examples, the number may be accurate. The limitation is not necessarily the information itself. The limitation is management’s ability to understand and act upon that information without the appropriate context.

Turning Information Into Understanding

All the information in the world is of limited value if it cannot be placed in the proper context and presented in a way that helps management identify trends, understand what is driving them, and formulate plans for moving forward.

Information is data. A single cumulative CPV, Medicare margin, revenue amount, census figure, or AR-days calculation is information.

Adding context transforms that information into understanding. That understanding makes the information actionable.

That context may include monthly and year-to-date results, prior periods, budgets and forecasts, reimbursement changes, external benchmarks, and the financial and operational factors that influence the result.

This is also why meaningful financial and operational analysis should not be limited to an annual Medicare cost report, a year-end review, or a dashboard containing isolated cumulative numbers. It should be an ongoing process that helps management understand not only what has already happened, but also what current trends may mean for the organization’s future.

Information alone rarely changes decisions.

Understanding does.

If your agency has substantial information but still struggles to understand what drives its financial and operational results, the issue may not be data availability. It may be the context in which that information is being evaluated and presented.

For nearly 30 years, I have helped home health and hospice organizations connect their financial and operational information, understand what is driving their results, and use that understanding to make better-informed decisions. Since 2008, I have provided this financial and operational planning and analysis as part of my consulting services through IFS4hh.

If your organization needs help turning its information into institutional understanding—and that understanding into action—I would welcome the opportunity to discuss how IFS4hh can help.