Cutting the fat when you're already thin
Cutting the fat when you're already thin
How to find waste in your organization's operations
Most home infusion providers would agree that today's health care environment places them squarely in a Catch-22. You want to provide the highest quality service at the lowest possible price while still turning a profit, but how much and how far can you cut before patient care - and income - suffers?
Even with the best intentions, it's highly unlikely you're operating at optimum efficiency. Even the tightest-run ship often has room for improvement in any number of areas, many of which are all too often overlooked.
Getting a fresh perspective
"Being a local independent, you tend to be heavy on the service side," says Ed Rivalsky, RPh, MBA, president of Clinical Specialties, a home infusion provider in Cleveland. "How do you retain that level of quality of service yet extract out your optimum operating efficiencies?"
Providers such as Clinical Specialties are forced to be a fine line between quality and profitability. While difficult, it's not impossible. For Rivalsky, the first step was getting a fresh perspective on how his business was operating.
"We needed a real objective view because we were too close to it," he says. So after years of bringing in consultants only prior to the Joint Commission on the Accreditation of Healthcare Organizations surveys, Rivalsky hired Michael Tortorici, RPh, MS, president of Alternacare of America, a Dayton, OH-based national health care consulting firm specializing in alternate sites, for help in improving his organization's operating efficiencies.
The first step Tortorici recommends to any provider looking to improve in that area is to carefully analyze your profit-and-loss statement.
"If you take a look at your broad categories of a profit-and-loss statement, there is gross revenue, the contractual allowances - essentially discounts off the customary price - and net revenue, which is the amount of money you expect to collect," he says. "It's important to analyze the profit-and-loss statement line item by line item to see if there is potential to reduce expenses."
Tortorici notes that many organizations claim to be too busy to conduct such a thorough evaluation of the numbers, but in effect, all they're doing is micromanaging while forgetting the big picture.
"The majority of organizations look at the top line, and it's the bottom line that is very important," he says.
Break out the fine-toothed comb
Finding areas in which you can cut costs isn't rocket science. In fact, it's often real-world measures that can save your organization the most.
"It can be with telephone expenses, cell phone expenses, or gasoline expenses," says Tortorici.
Often-overlooked areas include:
· Gas and mileage.
For example, Tortorici points out that if your drivers who get reimbursed for gas use full-serve rather than self-serve gas pumps, there's a 20% increase in price.
· Office supplies.
"Do price comparisons for pads and paper. Do you lease copiers and fax machines or purchase them?" he asks. Find out where the best deals are.
· Utilities.
Tortorici points out that Sprint currently has a program where calls made on Friday are free.
"I'm certain AT&T will match that, and if you're working Monday through Friday, that's a 20% reduction," he says.
For Clinical Solutions, digging into expenditures unearthed four areas for potential savings.
1. Accounts receivable.
Accounts receivable inefficiencies are common, says Tortorici. Typical mistakes include:
· Failure to regularly monitor accounts receivable.
"You should absolutely do this weekly or monthly, which consists of taking a look at what your dollars outstanding are and the time frames they're outstanding for," he says. "If one month you have $50,000 in 60 to 90 days, and the next month you have $100,000, that's a red flag. You should collect your money in at least 60 to 100 days."
· Neglecting staff who bill and collect.
"I encourage entrepreneurs to focus on this area and build in incentives to promote billing and collecting in a timely manner," notes Tortorici.
· Billing in a timely manner.
"Billing should be done on a weekly basis," says Tortorici. "If people bill on a monthly basis, their money is 30 days already, and home infusion providers are not in the banking business."
· Integrate payment terms in contracts.
"If people are going to sign a contract, it is appropriate if payment terms are in the contract," says Tortorici. "Payment terms should be included in managed care negotiations, and 30 days is acceptable."
· Get everything in writing.
"Get authorization for care in writing, so if someone refuses to pay, there is a hard copy, and should litigation take place, you have something substantial to go with," he says. "It's very important. In God we trust; For all others document."
Clinical Specialties' problem was under the none-of-the-above category, however.
"We were overstaffed in our reimbursement area," says Rivalsky. "We have since reduced staff in reimbursement, but even though the salaries are higher, the payroll is less."
After weeding out the least efficient employees, there was a significant increase in the remaining employees' productivity.
"When you pull out the people who aren't doing their jobs, morale goes way up and productivity goes up for each individual because it leaves the people who are dedicated," notes Rivalsky.
2. Streamlining deliveries.
The second area Clinical Specialties was dramatically able to reduce costs in was distribution services.
"We just didn't have a tight control on overtime and the coordination of deliveries," says Rivalsky.
By creating a new position - distribution services manager - the inefficiencies were gradually corrected.
"We're still a work in progress, but first and foremost we were able to minimize our on-call and overtime expenses by about $3,000 a month," says Rivalsky.
Another costly area was wasted products.
"If we had mixed a product that was scheduled to go out, it was never delivered because the dosage changed or the patient had to be hospitalized; in the past, that product was wasted," he says. "But now we've taken steps to try and recoup that."
For example, now the drug will be re-compounded using the original product. Keeping a technician later to re-compound instead of making up a new dose may cost more in overtime but still saves money because of the expense of drugs.
"Now we are creative in how to use that product in the mix," says Rivalsky. "We also sometimes wait until the last moment to compound a drug. If there is a high probability [that the drug may go to waste if mixed], then don't mix it early and pay someone overtime to mix it later."
Even with creating a new position - and the accompanying compensation - Rivalsky points out that the individual's salary has been more than made up for in savings.
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