1. Cost Containment Strategies for Home Health November 1, 2015 William J. Simione, III Principal Simione Healthcare Consultants, LLC

2. INGREDIENTS FOR SUCCESS 2

3. STRATEGIC INITIATIVES FOR SURVIVAL :  Cost Efficient Home Health and Hospice Programs. – It is anticipated that Operating costs will need to be reduced by up to 10 to 20 percent in most organizations in the next 3 to 5 years.  Develop Key Performance Indicators that drive Best Practices. 3

4. WHERE DO I START?  Income statement (gross vs. net margin) by service line Home Health Hospice Private Duty Etc  If information isn’t analyzed by service line, a thriving service may hide a weakness or inefficiency in another

5. GROSS MARGIN 5

6. Gross Margin is where you need to start in any financial analysis. Everyone’s performance has an affect on Gross Margin. Direct revenue minus direct expenses  Direct Revenue – All Net Payer Revenue  Direct Expenses – Salaries, payroll taxes, workers compensation, benefits, contract, mileage and supply costs from direct patient care

7. GROSS MARGIN What do you notice about gross margin?  As there continues to be rate pressure, margins will decline if we operate “as we always have” Look at the correlation of revenue to gross payroll  Gross payroll/revenue  Is the percentage increasing?

8. GROSS MARGIN REGIONAL Financial Monitor Data as of June 30 th 2015:  Region Gross Margin – 37% 51% 26% 17% 4% 0% 10% 20% 30% 40% 50% 60% Medicare PPSMedicare Advantage Medicaid (any)Other

9. GROSS MARGIN NATIONAL Financial Monitor Data as of June 30 th 2015:  Gross Margin – 43% 50% 29% 27% 23% 0% 10% 20% 30% 40% 50% 60% Medicare PPSMedicare Advantage Medicaid (any)Other

10. HOME HEALTH - REGION Case Weight Mix  SOC at RAP -.976  EOE at Final – 1.01 Reimbursement Per Episode  $2,650  Therapy % of Total Episodes  Upcodes – 19%  Downcodes -22% Percentage of Recert Episodes  27% LUPA %  9% 10

11. HOME HEALTH - NATL Case Weight Mix  SOC at RAP -.981  EOE at Final – 1.03 Reimbursement Per Episode  $2,484  Therapy % of Total Episodes  Upcodes – 9%  Downcodes -21% Percentage of Recert Episodes  23% LUPA %  11% 11

12. HOME HEALTH-REGION Visits per Episode – All Episode Types  Nursing – 7.8  Therapy – 5.8  MSW -.2  HHA -2.7  Total -16.5 12

13. HOME HEALTH-REGION - NATL Visits per Episode – All Episode Types  Nursing – 7.3  Therapy – 6.2  MSW -.1  HHA -1.1  Total -15.7 13

14. COSTS Review your payment models  Pay Per Visit  Salary  Contract Services Productivity  Visits per day Telemonitoring Benefit Plans Supply and Mileage Costs

15. DIRECT COST DISTRIBUTION – HOME HEALTH REGION DisciplineSalariesTaxes & BenefitsContract Services Transportation SN69%14%10%7% PT70%14%13%3% OT81%20%5%4% ST79%10%5% MSW79%17%0%4% HHA48%10%35%7%

16. PRODUCTIVITY Productivity  Don’t be afraid of the productivity issue  Common Pitfalls Not getting buy in from managers Allowing the staff to dictate the weighting (if you chose to weight) Not being consistent in monitoring Ignoring caseloads  Case Management Model Case Managers vs revisit nurses

17. GROSS MARGIN Are we as productive as we can be?  Weighted versus un-weighted productivity  How much time do clinicians have to make visits?  Calculating days available to work

18. GROSS MARGIN How many visits can they do per day?

19. GROSS MARGIN What if?  Reduce Non Benefit time by 50%

20. GROSS MARGIN What if?  Reduce Documentation time by 25%

21. GROSS MARGIN Savings

22. PRODUCTIVITY What are the barriers to meeting productivity?  Average miles per visit  Time available to visit  Patient acuity  Average Length of Stay Shorter = higher % of SOC  Supply ordering  Software or hardware issues  Duplication of paperwork

23. PRODUCTIVITY Ensure the clinical service delivery model  Promotes efficient assignment & scheduling of patients & clinicians Are clinicians assigned to geographic teams? Are you using the IT system scheduling package? What is your scheduling process?  Promotes effective interdisciplinary patient management Communication between disciplines Effective use of the EMR Case conferences done efficiently

24. PRODUCTIVITY Ensure the clinical service delivery model  Promotes appropriate assignment of tasks to clinical & non-clinical staff Do the teams have adequate clerical support to minimize time spent on non-clinical tasks? Are clinical support resources available to assist the team with problems in the field? Do clinicians have reliable communication tools?

25. PRODUCTIVITY - CAUTION Managing to only 1 Key Performance Indicator Cutting direct staff salary and benefits can result in:  High employee turnover  Cutting corners in patient care  Overworked staff All will have a negative impact on productivity and quality

26. PRODUCTIVITY - CAUTION What are the pitfalls of increasing productivity?  Incentives which reward the number of visits without considering outcomes  Cutting corners on patient care  Increased need for care Readmissions to home care Re-hospitalizations Emergency room visits  Impact on patient or consumer satisfaction

27. NON EMPLOYEE COSTS Medical Supplies/Ancillaries  Send out an RFP to determine if you are getting the best deal  Review your formularies Look at transportation costs  Are you reimbursing at the IRS allowable or less than that?  Do you have an automated way of tracking mileage for accurate recording?  Do you randomly audit mileage?  Will leasing cars result in lower costs?

28. NET MARGIN 28

29. NET MARGIN REGION Home Health  Regional– Overall – 1%  By Payer: 22% -16% - 40% -55% 0% 10% 20% 30% 40% 50% 60% Medicare PPS Medicare Advantage Medicaid (any) Other

30. NET MARGIN NATIONAL Home Health  National– Overall – 7%  By Payer: 19% -13% - 20% -13% 0% 10% 20% 30% 40% 50% 60% Medicare PPS Medicare Advantage Medicaid (any) Other

31. NET MARGIN Management/Finance Responsibility  Are you staffed properly based on projected patient volume and payer mix?  Have you reviewed your non employee costs?  Are your operations and reporting automated?  Where are their strengths and weaknesses with in your documentation and reporting processes?  Breaking down you cost by department and type.

32. NET MARGIN Must look at the whole picture when reviewing indirect costs.  The cost compared to the benchmark  The performance of the department  The affect on incoming revenue  Staffing of the organization (overworked staff = cash flow and compliance issues)  The future of the industry What are partners looking for? What roles/responsibilities will be more on the executive team? What will be centralized?

33. MARKETING COSTS National – 3.27% Region – 1.95% Hold Marketers accountable for admission NOT referrals Educate your marketing team on the importance of Medicare admissions compared to Managed Care/Medicaid Review Admissions per Marketing FTE Best Practice  100 Admission per Marketing FTE per Quarter  80% Referral to Admission Conversion Ratio – Home Health Review your Advertising Campaigns – do they generate business? Review any Marketing cuts and their impact on revenue. Who will be your future Marketers – CEO, President, Owners. CRM/Market data review for opportunities

34. INTAKE DEPARTMENT National – 2.91% Region-2.59% Patients per Intake FTE Best Practice  273 Patients per Intake FTE (Quarterly) Collections start with Intake! Review amount of denied authorization and reauthorizations Authorization per Intake FTE Ensure proper authorization process is in place for non Medicare patients

35. BILLING DEPARTMENT Billing/Finance Department  National – 2.01%  Region– 1.49% Review days from SOC to RAP and EOE to final claim  Days to RAP – National 16/Region 15 Days  Days to Final – National 24/ Region 29 Days Ensure all claims are sent electronically (non-Medicare as well) Evaluate staff – do you have the right person for the job? No other task – just collections

36. KEY REVENUE CYCLE BENCHMARKS CLAIMS PROCESSING BenchmarkMedicare Advantage MedicaidOther Home Health Benchmarks *( In Thousands) Claims Processing $1,250 - $1,500 /Per Month $1,000 - $750 /Per Month $250 - $300 /Per Month Hospice Benchmarks *( In Thousands) Claims Processing $1,500 - $1,750 /Per Month N/A$250 - $300 /Per Month

37. KEY REVENUE CYCLE BENCHMARKS HOME HEALTH BenchmarkOverallMedicare Advantage MedicaidOther National Benchmarks DSO5954745872 AR > 90 Days11%8 %14 %18 %16 % AR > 180 Days8%6 %5 %11 % Regional Benchmarks DSO5242486285 AR > 90 Days7 %5 % 4 %14 % AR > 180 Days17%20 %11 %6 %15 %

38. KEY REVENUE CYCLE BENCHMARKS HOSPICE BenchmarkOverallMedicareMedicaidOther National Benchmarks DSO59545872 AR > 90 DaysN/A7 %19 %14 % AR > 180 DaysN/A2 %19 %14 % Regional Benchmarks DSO564314987 AR > 90 Days7%5%21%20% AR > 180 Days9%8%29%7%

39. CLINICAL SUPERVISION/SUPPORT/QI  National – 7.79% of Total Revenue  Region - 10.08% of Total Revenue  Patients per Supervisor FTE Best Practice 181 Patients per Clinical Supervisor FTE (Quarterly)  Supervisors must hold clinicians accountable to productivity standards  Coordinators must schedule staff to be efficient to achieve productivity measures  Support staff must assist with any field issues  QI must ensure that clinicians and staff are compliant with all rules and regulations.  Outsource coding function?  Maximize case weight mix

40. INFORMATION TECHNOLOGY  National – 1.01%  Region – 2.05%  Simione IT Study June 30 th 2015 National Total IT Cost as a % of RevenueAverage Gross Margin 5% or More31% 2.5% to 5%39% 1.0 to 2.5%46% Less than 1%27%

41. INFORMATION TECHNOLOGY Educate and train your clinicians and back office staff on how to best use the EMR system to create efficiencies Outsource hardware and server support Research new technology that can improve efficiencies:  Patient Portals  Telehealth  New devices/Applications Are you using all of the systems you paid for?

42. INFORMATION TECHNOLOGY Be aggressive in your contract negotiations. Ask for multiple year renewals with no increase in annual maintenance charges. Why should you incur inflationary increases if CMS doesn’t give it to you? Ask for a price break with each new purchase. Are you using all of the systems you paid for?

43. NET MARGIN Look at Non-Employee Expenses  Space Occupancy  Insurance  Communications  Bad Debt  Legal  Other

44. IMPLEMENTATION STRATEGIES Warning: Cost reductions are just one part of a comprehensive plan to deal with these Medicare payment reductions and unfunded mandates. You must build revenues in order to avoid a death spiral on continual cost reductions.

45. IMPLEMENTATION STRATEGIES Try to implement all staff reductions at one time and express the belief that these cuts will address the situation. It is important for employee morale to establish stability after the staff reduction and not give the impression that more reductions are pending.

46. The future depends on what we do in the present. Mahatma Gandhi 46

47. 47  SIMIONE.COM Simione™ Healthcare Consultants provides solutions for your core home care and hospice challenges – organizational, financial, sales & marketing, technology, and mergers & acquisitions. More than 1,500 organizations use our practical insight and tools to reduce costs, mitigate risk and improve efficiencies to improve business performance. William J. Simione, III Principal 4130 Whitney Avenue Hamden, CT 06518 203.287.9288 800.949.0388 wsimione3rd@simione.com