Over more than 30 years in home health, I have worked with almost every type of agency—large and small, freestanding and facility-based, not-for-profit and for-profit.

One of the most important lessons I have learned is that the best agencies do not choose between providing excellent patient care and achieving strong financial results. They understand that long-term success requires both, being patient-focused and profitable—regardless of the type of agency they are.

Different Organizations May Begin With Different Perspectives

Home health agencies operate under different ownership structures, missions, and priorities. Some are not-for-profit organizations. Others are privately or publicly owned for-profit businesses. Some are hospital-based, while most are freestanding.

Those differences can influence how an agency defines success and how it approaches patient care, growth, cost, and profitability. But they do not eliminate the need for financial and operational discipline.

The principal distinction between a not-for-profit and a for-profit organization is not whether it should generate a profit. It is the organization’s mission, ownership structure, and ultimately who benefits from those profits.

A not-for-profit organization reinvests its earnings in furthering its mission and benefiting the communities it serves. A for-profit organization generates earnings and value that can also benefit its owners. Both, however, need positive financial results to remain viable, reinvest in their operations, support their employees, and continue serving patients.

That distinction is not always fully understood.

I have worked with not-for-profit organizations that spent money near year-end primarily to avoid reporting a profit—as though generating one would somehow conflict with their corporate structure or mission. In reality, unnecessarily spending those resources can weaken the organization and ultimately work against the very mission it was established to serve.

A not-for-profit agency does not strengthen its mission by avoiding profitability. It strengthens its ability to fulfill that mission by using its financial resources responsibly and generating sufficient earnings to remain sustainable.

Quality and Profitability Are Not Opposing Goals

An agency that is patient-focused should be driven first by the needs and experience of its patients—not simply by the profit associated with each patient encounter.

That does not mean the agency should ignore the financial consequences of its decisions. There is not a disconnect between being patient-focused and striving to be profitable; they are not mutually exclusive concepts. The two perspectives can—and should—exist simultaneously.

From my perspective and experience, the best agencies combine these objectives. They are patient-focused first, but they also seek to provide that care as effectively, efficiently, and cost-effectively as possible.

That does not mean minimizing patient care to maximize profit. It means providing the right care, with the right resources, in the right manner—and understanding both the patient-care and financial results.

Quality reflects the care and patient outcomes an agency achieves. Effectiveness considers whether the care provided produces the intended result. Efficiency considers the resources required to produce that result. Profitability considers whether reimbursement is sufficient to cover the total cost of providing and supporting that care.

None of these should be evaluated in isolation.

An agency can provide excellent care but do so in a manner it cannot financially sustain. It can also be financially successful in the short term without operating in a manner that adequately supports its patients, employees, or long-term success.

The objective should be to achieve strong patient-care and financial outcomes together. Those are the agencies best positioned for long-term success.

What Are the Metrics Telling You?

How does an agency determine whether it is achieving both?

Its financial and operational metrics and Key Performance Indicators (KPIs) should provide much of the answer.

Many meaningful indicators can be identified through the agency’s Medicare Cost Report. Additional KPIs should be developed through the financial and operational analyses it prepares throughout the year—preferably every month. Other measures, including publicly reported Medicare Care Compare information, can provide an external perspective on the agency’s quality and patient outcomes.

The information is generally available. In fact, Medicare Cost Reports are publicly available and can be obtained by anyone through a Freedom of Information Act request or directly through the CMS Cost Reports page.

The greater challenge is understanding what the information means. Information is of limited value without understanding.

Metrics and KPIs can reveal that a problem or meaningful variance exists. They generally will not, by themselves, explain why the problem or variance exists. That requires further analysis and an understanding of how the agency actually operates.

Consider an agency whose RN cost per visit (CPV) is $300 when the average in its market is approximately $170.

Why would the agency not make understanding and addressing that difference a priority? It should.

An agency does not necessarily need to operate at the market average. But management should always know how its costs and CPVs compare with appropriate market benchmarks, understand why they differ, and determine whether those differences are reasonable given the results achieved.

An agency may make a deliberate operating decision that drives its costs above the market average. Perhaps its nurses spend more time with patients during each visit, including additional teaching and training. If that approach results in longer but fewer visits per patient, better outcomes, and a lower aggregate cost per patient or payment period, a somewhat higher CPV might reflect an intentional and effective operating model.

But there are limits to what can reasonably be explained by a different operating model.

When an agency’s CPV is 30%, 50%, or more above an appropriate market benchmark, it becomes increasingly difficult to view the difference as reasonable—even if the agency generally provides longer and fewer visits. A variance of that magnitude should create a strong presumption that meaningful inefficiencies exist—and place the burden on management to demonstrate otherwise.

Management should not merely assume that the additional cost is producing a corresponding benefit. It should be able to demonstrate it.

If the higher CPV is not producing measurably better outcomes, lower utilization, or a lower aggregate cost per patient or payment period, then the agency is simply spending considerably more than other agencies to produce the same—or possibly worse—results. Where is the value in that, and how long can any organization afford to operate that way?

Even a not-for-profit agency that uses donations or other community support to offset those inefficiencies may eventually face difficult questions. Donors and communities may decide that there are more effective and efficient ways to use their charitable resources. If that support declines, what happens to the agency’s ability to continue serving its community and fulfilling its mission?

An agency’s CPVs are only one indicator. Visit utilization, productivity, revenue per payment period, payer profitability, LUPAs, Outliers, case-mix results, quality outcomes, and Medicare margins are some of the other measures that may warrant consideration.

No single metric tells the complete story. Collectively, however, they can reveal whether an agency is delivering quality care effectively, efficiently, and profitably.

Identifying the Symptom Is Not the Same as Treating the Cause

None of this should be considered a trade secret. From almost any perspective, it would seem to be common sense.

So why do some agencies—particularly those already experiencing financial or operational challenges—continue doing things the way they have always done them, even when their results demonstrate that those methods are not working?

Sometimes the information is not available in a useful form. Sometimes management does not fully understand what its financial statements, metrics, and KPIs are saying. Sometimes unfavorable results are explained away because changing established practices can be difficult.

And sometimes everyone is so focused on addressing today’s problems that no one steps back to determine what is causing them. This is commonly known as ‘putting out the fires‘ and is unfortunately all too often the reason why an adequate amount of time and resources are not spent searching for the cause.

As healthcare providers, home health agencies understand that treating symptoms without identifying and addressing their underlying cause rarely produces a lasting solution. Yet many agencies do exactly that when addressing their own financial and operational performance.

They respond to a cash shortfall, reduce selected expenses, push for more referrals, or address the latest operational problem—often without completing the analysis necessary to determine what caused it. Those actions may temporarily relieve the immediate symptoms, but if the underlying cause remains unidentified and untreated, the problems will continue—and often become more serious over time. I have seen this many times, and it creates problems that could have been avoided or, at a minimum, been identified and addressed much earlier..  

Failing to act is still a decision. Continuing to do things the way they have always been done is also a decision, particularly when the agency’s own results indicate that a different approach is needed.

Organizational structures and priorities may differ, but every HHA must combine patient focus with financial sustainability. Its metrics help determine whether it is doing so, but only when management understands what those metrics mean, evaluates them for reasonableness, identifies their underlying causes, and acts accordingly.

The most successful agencies do not necessarily have more information. They understand what their information is telling them, determine why their results differ from expectations or meaningful benchmarks, and act on that understanding.

Quality and profitability are not opposing goals. The right financial and operational analysis can help an agency strengthen both.

If your agency’s patient-care, financial, or operational results are not where they should be—or if you have the information but remain uncertain about what is driving those results—IFS4hh can provide the experienced outside perspective needed to identify the underlying causes and help determine what should happen next.