Let’s Get Serious About Money and Profitability!!!
Money moves the human world. It drives an enormous amount of human behavior. It is often the determining factor in whether we do or don’t do something. Money translates into capacity and the drive for life derived from the survival instinct. Money is highly, highly emotional… We want to “feel” we have enough nuts stored away. This applies to nearly everyone.
In the coming season of MVI, I am addressing profitability with full force. I have been described as a “financial barracuda” or Darth Vader gliding along in my Hospice Death Star (I would like to add that I’m a nice Darth if that be the case.). I am hurt by such statements. But the message is worth some personal pain. The TRUTH is that ALL hospices (FP and NPF) need to be profitable and get over any indigestion regarding making money from doing excellent work. The confused of our movement think that “if we are highly profitable, then Medicare will whack us.” Well, let me say, they are going to whack you regardless AND (trust me on this) most hospices will not choose to do extraordinarily well financially. Only the wise minority will do so. As hospice leaders, we should not settle for unprofitable operations or even the milk toast mediocre “median.” We should expect hospices to be world class…and a world class hospice would have world class financial results as well!
Unprofitability is unacceptable, unhealthy and uncool.
There comes a time when a leader needs to say “Enough is enough!” and draw a line in the sand and proclaim with absolute resolve “This organization is going to be HIGHLY profitable and I will lose EVERY person that cannot perform to the standards needed to achieve this result.” Does this sound harsh to you? Difficult decisions are the privilege of rank. The point is that money is the fuel of organizations…and people as well…in concrete, contemporary reality.
I LOVE PEOPLE, but unproductive and sub performers can’t stay if we truly serve the mission in this balance of purpose and profitability. However, I WILL rip this “deficit-accepting cancer” out of an organization without hesitation. I will say and do what everyone else is thinking but is afraid of addressing. I will put practices in place that are used by the successful minority. I would advise hospice leaders to do the same.
People that say “Money is not important” have either not fully considered their opinion or are ignorant. I am not trying to be condescending, but they truly have not thought it through. Look at how much time most people spend earning and thinking about money. It often determines or impacts what we can do, where our kids go to school, our peace of mind, our health, our ability to help others, our self-image and a thousand other things. I rest my case…
As a leader of a hospice, you were hired with the expectation that you were a good businessperson. That is, you know how to run an organization that provides a quality product and/or service that is profitable. In years past, if you couldn’t make money in hospice, having gold bars surrounding us, then something was wrong. Today, it is a bit tougher, but THE TIMES ARE STILL GOOD! HOSPICE IS GOOD BUSINESS! It’s just that the environment is forcing real business competence and is widowing out those that can’t hack it. I make no distinction between a FP or NFP hospice. If someone I love needs hospice, I want them to have the Cadillac hospice and not the Pinto. I don’t care if they are large or small, For-Profit or Not-for-Profit. I want a hospice that has meticulously considered virtually every aspect of the care experience that can create it predictably for my loved one. Tax status doesn’t matter. The care experience does! Many NFP leaders and Boards are confused about the idea of profitability. “We are Not-For-Profit” is the flagship excuse for low to mediocre financial results. THESE MINDSETS MUST BE ERRADICATED! We must get clear about the absolute NEED for profits and financial reserves. If you are a quality and profitable For-Profit hospice, I congratulate you. If you are a quality and profitable Not-for-Profit, I congratulate you. However, it is difficult for me to understand why any NFP is not tremendously successful financially. I feel nauseated when NFP’s fail, because they don’t grow back. For-Profit hospices do not have the same advantages as NFPs. How can a NFP NOT make money considering these points?
- A typical NFP can make 14%+ from Hospice operations.
- An NFP receives community support in terms of cash inflows.
- An NFP usually receives a large amount of virtually free labor in the form of volunteers.
- An NFP doesn’t have to pay taxes. Normally a FP pays 40% of its profits in taxes!
How can you NOT make money? It has to be mismanagement or confused thinking.
Years ago, I couldn’t bring myself to even say the word “profit” having come from a NFP background (I listened to my messages from the 90s!). I called it a “Positive Residual!” I was a Weenie. Now I call it what it is, using a term that everyone understands, that requires no explanation. I spoke passionately about practices that could help folks become great managers and businesspeople, but the P-Word (actually there are two, Profit and Productivity) seemed dirty. Well, we evolve and grow up. Profit is fantastic! It is positive! It means advancement and health. Loss, losing, in-the-red, squeaking by and deficits are NOT inspiring nor are they sustainable.
Okay, let’s get on with it. Over the next few Flashpages, we will focus on Profitability and what you can do to increase it. But let’s start with a good overview list of some of the primary factors.
The profitability of a well-run hospice can be astounding without sacrificing quality. In fact, both can be raised to world class standards (the 90th percentile) with deliberate focus. The profit reality in hospice is that there are hospices that provide award-winning quality and have profits of 30% of NPR (Net Patient Revenue). I have personally helped create the proprietary Models for many such entities. Of course, this will translate into “doing” things that only outliers and the minority of hospices do and overcoming the fears with associated such actions.
A world class hospice has world class financial results (14% margins and upward). An extraordinarily, well managed enterprise is highly profitable as well as highly effective. Right or wrong, the world measures and recognizes success in financial terms. It is an undeniable FACT that money equates to capacity and sustainability for a business organization. Therefore, why not make your hospice highly profitable when it is readily doable and the hospice herd is SO slow? Take advantage of the opportunity and the excellent business climate.
The primary drivers of profitability (in order of priority) are:
- The CEO – The CEO is the Chief Financial Officer that establishes financial standards and policy. The CEO must firmly set the profit standard. The CEO must lead financial initiatives by reviewing performance and immediately addressing performance that not to standard as well as rewarding those that meet the standard (This establishes the cultural behavior that all other leaders will emulate). The CEO must be able to stand up to the Board of Directors, CFO or any other person that does not “get” the importance of being highly profitable. Any indigestion about making money and other outdated NFP mentalities should be dispensed with… Whether stated or not, everyone (Board of Directors, community and staff) expect the CEO to be able to guide the organization to financial success. Otherwise they would not have hired the CEO in the first place.
- Value – The value proposition of the organization must be extraordinary. Every patient, every time (the Model). The value should be undeniable. If high-value is not created or it is perceived as only “marginally” better than alternatives, the organization will not be highly profitable over the long-term. In EOL care, the hospice will be replaced by another hospice entity that uses Model principles in the future.
- Monthly Financial Benchmarking – This objective and frequent perspective is your #1 tool to influence others in a positive direction and tells you if your hospice is an outlier or is a follower of the mediocre majority. This monthly objective perspective is a must. How you perform in the external world is all that matters and you should want to know where you stand. This is one of your primary financial educational tools. Always benchmark against ALL other hospices in the database regardless of size, tax status, region of the country, etc. You want a national perspective. To provide a “filtered” perspective is to dumb down your team. Compare yourself with every hospice in the database as the most data-oriented and sophisticated hospices gravitate to benchmarking.
- Your Model – Your Model is your standards, both clinical as well as financial. Regarding the topic of profitability, this is your numeric communication of standards, including profit level. These standards must be crystal clear and everyone should know them. A large profit should be expected (14%+) and should not be a surprise. A surprise is when performance exceeds or is less than your Model. Each business segment must have a Model. A Model is not a goal. It is a standard.
- Accountability – This ties to your Model. There can be no meaningful conversation about accountability without clear standards. If a leader cannot meet the standards, they must be removed from the organization, otherwise standards are meaningless. Standards must be met 100% of the time. No exceptions. This would include accountability time-frame standards which are measured in weeks and not months following the CEO’s leadership example.
- The CFO – The CFO is the 2nd most powerful financial position as he or she holds influential financial data. IF a CFO thinks that an 8% profit is good, you have a problem. The extraordinary CFO is a teacher and helps staff create value and adhere to the Model for all the right reasons. He or she also forces out sub-performers efficiently.
- Compensation – Performance compensation is the most reliable and powerful structural tool for influencing healthy organizational behavior. Every paycheck becomes a report card for individual, team and organizational performance. This is the quickest way out of financial problems. This can only be done if clear operational standards have been created.
This list is a good place to start. But I would like your story to go like this:
You gave me a fish and I ate. You taught me how to fish and I was self-sufficient. You gave me a Bass Master Boat and I won tournaments! Now it is time to apply what you know! See you next month for another installment of Profitability in Hospice!
Your Objective Friend ~ Andrew