Need to cut $1.3 million from budget? It can be done

Use invoices, timesheets, and benchmarks to find savings

A $1.3 million cut in an annual budget is no easy feat, but management at Horizon Home Care & Hospice in Brown Deer, WI, was able to make the cut without affecting quality or requiring across the board staff layoffs.

The agency, which provides hospice, home health, private duty, and meals on wheels services, cares for more than 2,500 patients daily but had to find a way to cut costs when Medicare reimbursement was cut by 5% in January for home health.

"At this time the significant reimbursement cuts from Medicare and Medicaid affect only home health, so our focus was on home health but we looked for cost savings throughout the entire agency," explains Mary Haynor, president and chief executive officer of the agency. It makes sense to improve cost-effectiveness and efficiency in hospice now, because the same reimbursement challenges will affect hospice in the future, she adds.

With a philosophy that the agency can't spend more than it takes in, Haynor and her management staff combed through all of the expenses of the agency. "We identified 50 different areas in which we could become more efficient and cut costs," she says. "We did eliminate 4 manager positions through attrition and did not replace them," she says. It was possible to divide the caseloads among other managers, she adds. The one layoff was a receptionist whose position was eliminated, she says.

"It wasn't easy but we evaluated every single expense of the agency," says Haynor. "Nothing was sacred and we found ways to save on cell phones, mileage, some benefits, drugs, and staff pay," she says.

"There is never an advantage to defer looking at your costs," says Walter Borginis III, CPA, MBA, executive vice president of finance & administration and chief financial officer for VNA of Greater Philadelphia, PA. "You must be proactive and I'm an advocate of using benchmarks to evaluate our performance," he says. Some hospice managers are reluctant to use benchmarks because they believe their programs are very different from others, he admits. "I think we are all more similar than different, and if you do have a service that is different, just recognize that your costs may appear higher due to a specific service," he suggests. "The most important thing is to review your costs, trends in costs, and industry benchmarks to monitor how you are doing."

Once you have compared your costs to industry benchmarks, the challenge is determining why costs are higher, says Borginis. "Hospices are struggling with new payment systems and many managers don't know where costs are," he admits. "Go to your staff and ask them why they think some costs may be high," he suggests.

Use of aides examined

National Hospice and Palliative Care Organization's benchmark report revealed that his agency orders more home health aide hours than most hospices, says Borginis. The finding led to development of some changes and tools used by schedulers and clinicians that resulted in a savings of about $400,000 between the end of September 2010 and May 2011. (See story use of aides on page 100.) We were automatically ordering 7 days a week of home health aides for every patient and had been doing so for years," he says. This practice was a "sacred cow" that no one had questioned so it became a habit, he adds.

Another area that is often overlooked, as a place to cut costs is indirect costs, such as lease expense or legal or accounting fees, says Borginis. "People think of indirect costs as fixed, but you can always renegotiate contracts and should do so on a regular basis," he recommends. "Don't let contracts automatically renew because they usually have a built-in increase," he warns. With property values and office space rentals declining in many areas, you may be in a good position to negotiate a new rental agreement, he suggests.

Don't forget to evaluate back office efficiencies on a regular basis as a way to improve financial efficiency, suggests Michael Horsley, BS, RPT, owner and administrator of All Coast Therapy Services in Lady Lake, FL. By monitoring every aspect of the back office's performance including accounts receivables days, claims returned for corrections, and underpaid claims, you can pinpoint the areas in which you can improve, he says. "Sometimes poor back office performance is a lack of training and sometimes it is inadequate monitoring," he admits. You have to monitor on a weekly and monthly basis to identify potential problems before they become difficult to address, he adds.

Although staffing costs are a significant portion of any agency's budget, Horsley warns against cutting staff as a first step to address financial challenges. "If there is a drop in revenue, the first step is to check with marketing and evaluate your competitors," he recommends. "Find out if this is a long-term or short-term situation," he says. If it appears to be short term, look for ways to cut costs in other areas, without cutting staff. "If your first reaction is to cut staff, especially non-clinical staff, you may end up overworking the remaining staff as census increases," he says. "If you overload the back office staff, you increase the risk for billing mistakes that may cost your agency more revenue," he explains.

Because Horsley's agency is in Florida, he sees a major seasonal fluctuation in business every year. "We plan for the fluctuation by scheduling some jobs, such as archiving medical charts, for the off-season," he says. "This ensures that staff members are productive and working efficiently no matter how may patients we may have at the time."

Be aware of public perception

Layoffs at your agency might also create a negative impression in the community, points out Borginis. "Not only do you want to maintain the capacity to expand, especially if your downturn is seasonal or short-term, but your competitors might use the fact that you have laid off people to gain a competitive advantage," he points out. Even if you do have to restructure staff, or reduce positions in some areas, be sure you can always accept new patients so the community and your referral sources maintain confidence in your ability to provide care, he suggests.

Timing changes throughout the agency is also important, suggests Borginis. "Don't wait until you are in trouble," he warns. Evaluate the need for changes carefully and be reasonable about how quickly you can make the changes, he suggests. Some items can be changed quickly but realize that many changes require your clinical staff to be on board with you, he says. "You can't do everything right away, so be flexible on your timeframe," he says.

The key to getting everyone on board with changes, big and small, is communication, says Haynor. There is no such thing as too much communication, she points out. An added challenge is the nature of agencies that provide care to patients in their homes, she admits. "We don't see all of our employees every day so they do feel isolated," she says. "Also, we have to remember that managers who are involved in identifying and implementing the changes are spending hours and hours of discussion to which most employees are not privy," she points out. Because the general announcement of changes is often the first time employees become aware of the need for changes, it is important to include explanation of why the changes are being made, and how much time and effort went into identifying changes that are good for the agency with no impact on quality care, she adds.

Even though Haynor and her managers spent many hours communicating with staff at meetings and through e-mail and newsletters, there were still employees who needed additional information. "One nurse was convinced that our efforts were targeted at senior staff nurses who had the highest salaries, even though our changes affected all employees equally, and no clinicians were laid off," she says. "Any change is scary and people are so busy that they don't always hear the full message the first time," she says. "They hear the pieces of information that impact them the most and they miss the big picture."