You may not think a single percentage point variance is a big deal. But, each percentage point represents a lot of money. As we look at profitability in the hospice world, it often boils down to single percentage points. Usually when a hospice is doing well financially, the operational profit does not come from one area of excellence. Rather, it is a percent here and a percent there with a surprising cumulative effect. All well and good, but this also means that, if a single area or cost category goes out of control, the entire positive residual is in jeopardy. If your profit is due to a percentage point here and a percentage point there — and you know it — then you know just what a balancing act you are performing.
Financial people often imagine that profitability is about having great cost controls in one or multiple areas of a hospice. That is not usually the case. It is more about having good cost control in most areas, and that comes down to single percentage improvements. It is easy to rationalize when we are over industry averages in a cost category. But it is just this attitude that robs us of our full-performance capabilities.
If you are a single percentage point over in an area where you should not be, don’t be passive. Attack the situation. This is a mindset that will keep your hospice on track and off the slippery slope of mediocrity.
One thing to realize is what is possible. A hospice can achieve a 20% Operational Net Income without compromising quality. The sad but true fact is that most hospices waste tremendous amounts of money.
FACT: The hospice of the future will provide superior products and services at less cost than we are achieving now. Think about it. This has to happen as reimbursement decreases and competition increases. The good news about competition is that it forces us to grow. And it forces us to think through solutions to our problems, one percentage point at time.
“Profitability is a war of single percentage points.”
– by Andrew Reed