Is your CEO rethinking home care’s value?

Could you justify your existence?

Timing is everything. If your new fiscal year (FY 99) began in October, you already know what the interim payment system (IPS) is doing to your bottom line. If it begins in January, you still may be in for a surprise when you calculate the aggregate per-beneficiary cap.

To be more accurate, your hospital CEO will be in for a surprise, and surprise runs downhill in bureaucratic organizations especially if your hospital-affiliated agency ends up owing money to the government rather than the other way around.

You may find yourself in a similar position to that of Ben Kawaguchi, RN, BSN, PHN, MA, director of CliniShare-Glendale Home Health at Glendale (CA) Memorial Hospital and Health Center. Kawaguchi, whose Medicare-certified agency makes approximately 36,000 visits annually, recently found himself wedged between two hard realities: dwindling Medicare resources and a hospital CEO worried about the disappearing home health cost shift.

Why keep a money-losing operation?

Kawaguchi says he was told "to justify the feasibility of keeping rather than joint venturing our agency with a proprietary agency." No easy task for someone with an agency of which between 65% and 70% of his patients receive Medicare benefits with the rest covered under MediCAL, California’s state funded Medicaid program.

"In the past, hospitals kept home health agencies for continuity of care, of course, but a lot of the reason was for cost-shifting," Kawaguchi explains. Now, he says, CEOs are asking themselves why they should have home health agencies if they’re going to be losing money on them. A good question from a financial standpoint, and one that demands a well-thought out answer.

Smart directors of hospital-affiliated agencies won’t wait until they’re asked to explain their worth — they’ll have their answers ready. "Don’t wait until the CEO puts pressure the on," warns Kawaguchi.

It could happen to you

Already the cost shift, due to be eliminated when a prospective payment system (PPS) is implemented in 1999 or 2000 or later, has been virtually eliminated by IPS. As home care attorney Elizabeth Hogue of Burtonsville, MD, notes, "There’s nothing left to shift."

"The gravy train is over," says Kawaguchi. "Home health is going to be service-oriented. We will use disease state management. There will be less direct patient care. We’ll need to do intense teaching [of patients and caregivers, who will take on more of the care at home.] It will be teach and get out, and that’s sad. It will be safe, minimum standards from now on."

As IPS continues to hammer away at the industry, it’s not only proprietary agencies that are closing. In Texas recently, three of Southwest General Hospital’s home agencies closed. Nationwide, industry trade associations such as the National Association for Home Care in Washington, DC, and the American Federation of Home Health Agencies in Silver Spring, MD, estimate that more than 1,400 providers have closed since the Balanced Budget Act of 1997 was passed and even more closings can be expected, even though Congress addressed the IPS issue before the October recess. (See related story, p. 182.) For despite the industry’s months-long pleas to reform IPS or eliminate it altogether, Congress only passed limited relief before it adjourned.

The number of agency closings will likely swell, with the majority constituting hospital-based providers, predicts Susan Schulmerich, RN, MS, MBA, executive director of Montefiore Medical Center Home Health in Bronx, NY.

Moreover, according to industry experts, hardest hit will be smaller, rural hospital-based agencies, which often are the only available home health resource for local Medicare beneficiaries. "Now," says Kawaguchi, "there will be little or no care." However, it’s not just the small providers that will suffer. Montefiore, one of the largest hospital-affiliated agencies in the country, will be looking at a $1.3 million shortfall in Medicare reimbursement for FY 99 revenue, Schulmerich says.

Find a niche

Faced with such harsh financial realities, directors of hospital-affiliated agencies might consider a strategy similar to Kawaguchi’s, which includes cutting costs and finding a more secure niche for his agency. A 36-year veteran of home care, Kawaguchi admits proving the hospital needs home care has not been easy.

"In terms of finances, we had no justification. As a profit center, forget it. We do well to break even with costs of $65 to $67 a visit," he says.

To keep up, field nurses’ salaries were dropped 6%, he says, and clerical staff saw a 2% to 3% reduction of pay. "Our choice was to make a few cuts and lay people off, or to have everybody take a cut and we’d keep everybody," he says. It helped, he notes, that an employee left and the resulting vacancy was never filled. Not surprisingly, cross-training has become more popular within his agency.

Kawaguchi knew these measures alone weren’t going to save his agency. What’s more, it became obvious that CliniShare-Glendale "had to lower the direct patient cost per visit," he says. "We decided to look elsewhere."

Branching out

Kawaguchi, a member of NAHC’s Hospital Home Care Association of America advisory board, admits that as far as a plan for justifying his agency’s merit goes, he’s "doing it as I go." That’s not to suggest that he has no focus. In fact, he is carving out a niche for his agency. With about 1 million people and five competing hospitals in the Glendale-Burbank vicinity, Kawaguchi says he has no other choice.

"You have to be known for something otherwise you won’t be any different than any other agency in the area. You need to think of something maybe even a little bizarre that no other agency is doing but that the community needs" he explains. "We’re a generalized medicine surgery hospital so now I am focusing on generalized short-term specialty programs until we find our niche."

Like many hospitals, Glendale Memorial has specialty programs, including cardiac and orthopedic rehab programs. Kawaguchi, in conjunction with those programs’ directors, has developed a short-term series of home visits with the goal of quickly transitioning the patient back into the hospital’s outpatient rehab programs.

His agency’s staff will provide "four to five visits to cardiac patients, getting them well enough to enter outpatient rehab. The hip replacement patients, after home care, go into outpatient physical therapy. We feed them back into the system. Our goal is to get them not homebound as soon as possible," he says.

Kawaguchi’s plan involves more than rehab, however. As part of a community outreach effort, he, along with hospital administration and staff in the community relations department, have developed a maternal/infant program. Drawing from a largely middle class suburban area near Burbank, CA, Glendale Memorial also has a prenatal clinic through which it provides home visits to teen-age mothers. "We assure these mothers we will make at least one visit following delivery. The OB doctors all love it," he says, adding that the post-delivery visit is helpful to the new mothers and allows nurses to check on the baby’s health.

Practically justifiable

Developing a niche is an extremely positive step in the right direction, and to get the most bang for your buck, Kawaguchi emphasizes the importance of conducting market and feasibility surveys: "Use the hospital service line managers. They know what the community has and what the community can take."

Schulmerich advocates a fiscal approach when it comes to convincing CEOs of home health’s worth. "Being able to demonstrate to the hospital what they save in hospital days by putting the patient in home care is probably one of the most critical elements in justifying your existence," she says. To illustrate her point, she uses the example of two patients that were at Montefiore with end-stage cardiac disease.

"Both patients had six-week life expectancies, and both were Medicare recipients," she says. Because the patients needed to be administered a drug intravenously that is covered by Medicare only when the patient is on the heart transplant list, the medical center asked "would we take patients home and absorb the cost of drugs," she continues.

"That was eight months ago. Both patients are still alive When you take eight months multiplied by two patients, what we did was open up hospital beds for those many days. I talked to medical center and said, Here’s what we saved you in bed days. We have given you the opportunity to generate revenue of close to $578,000.’"

It’s about improving quality of life

Perhaps less obvious are home care’s intangible benefits. "The quality of life for these people has been immeasurably improved," Schulmerich points out. "Home care is not only a cost-effective means of care but a very humanitarian one."

In addition, she encourages home health directors to go public. "You have to be in the [CEO’s] face all the time, hammering away to get on mapping committees. Point out that we can be marketing advocates because we go to community health fairs and when we put our name up, the hospital’s goes up too. And don’t forget that as hospitals downsize we are a natural recruiting place for some of their displaced staff if they’re qualified. It’s better than paying for unemployment."

No matter the approach, when it comes to justifying your agency’s existence it all boils down to the same thing. And Kawaguchi adds, "If hospital administrators don’t look at us as an integral part of the hospital, hospital-based agencies are going to be in trouble."


Elizabeth Hogue, Esq., Elizabeth Hogue Chartered, 15118 Liberty Grove, Burtonsville, MD 20866. Telephone: (301) 421-0143.

Ben Kawaguchi, RN, BSN, PHN, MA, Director, CliniShare-Glendale (Home Health), Glendale Memorial Hospital and Health Center, 1420 South Central Ave., Glendale, CA 91204-2594. Telephone: (818) 502-2363.

Susan Schulmerich, RN, MS, MBA, Executive Director, Montefiore Medical Center Home Health, 1 Fordham Plaza, Suite 100, Bronx, NY 10458. Telephone: (718) 405-4401.