Reality: Your Financial Results are Your Most Important Measurement to be a Sustainable Organization

January 1, 2012 - 12:00am -- site admin

It’s 2012 and changes are coming NOW in how we operate our hospices. It is an ideal time to look at your benchmarking numbers. Go ahead and print out your Executive Dashboard report from the MVI BA. It should only take you less than a minute. Take a hard look at your numbers compared to the Median (50th percentile). 

  • Are you average, above the median, or below the median? 
  • If there are significant deviations, is it intentional? 
  • Are the numbers where you WANT them to be?
  • Is there enough profit so that you have 7-9 months of operating reserves without receiving any payment from Medicare?

These are good questions. In 2011, too many hospices DID NOT have banner years. This is of concern since things will get tougher in the predictable future. Facing brute reality can be difficult, but credible leaders deal in reality. For example, having 35% Indirect Costs is NOT acceptable. Yet, many will self-justify it and cop-out saying, “Andrew does not understand our circumstances.” Some hospices will have 42% Direct Labor costs when we know that a hospice, working with intention, can provide the SAME quantity of interactions, and with even higher levels of quality, spending only 32% of NPR. Saying, “This can’t be true,” does not make the quantified truth go away or less true. The most “inelastic” category of costs is Patient-Related which normally can only be reduced to about 13% (from 18%, with some hospices going a bit below this) with a few relatively simple moves. Therefore, Indirect Costs (specifically Indirect Labor) and Direct Labor are the areas with the most potential for cost improvements. However, all of this means nothing if you don’t know where your organization stands in relation to the industry. To operate in a vacuum is unwise and unnecessary when the information is at your fingertips on a monthly basis with the BA.

If you don’t know your numbers and your relationship with the hundreds of other MVI clients you are at a serious disadvantage. With the sheer volume of clients submitting data to the database, students of statistics knows, the median in the BA is 98-99% reliable in most areas. Let me reiterate some things related to this serious review of your current reality:

  • Your financial results are the most important measurements in order to be a sustainable organization. I recognize that quality is also necessary to be sustainable as well, since hospice is dependent upon repeat business though satisfied patients, families and referral sources (and staff). However, miss a payroll and see how long your hospice lasts… 
  • Always benchmark against ALL hospices in the database with NO filters. These are the reports you use to educate your staff regarding the present state of the hospice world and your relationship with it. You don’t want to use “special criteria” to make your performance look good…a common human self-justification mechanism.
  • Do specialized queries, such as comparisons of your hospice with others according to census size, tax-status, and other filter criteria, AFTER you get the “big picture” view first. 
  • Your hospice has to BEAT the Median! If your hospice only meets the median, then your performance is mediocre. Median should not be good enough. Median is the best measure of central tendency, but it is only a RELATIVE comparison number…a benchmark. 
  • Without comparison benchmarking, you have no real basis to demonstrate differentiation, at least in financial terms and some of the other measurements such as Median Visits Per Patient, Visit Durations, Computed Caseloads, top FEHC and AIMs scores, et cetera. (Also, regarding the FEHC and AIMs, most hospices are not uploading this data. It takes all of five minutes per quarter to do. Therefore, we advise it.)
  • As a CEO or leader, interpret the numbers in light of your experience. Communicate good news as well as bad news. Always be suspicious if all news is positive and good leaders can always see how things can be improved.

Absolute measurement is impossible. All measurements are flawed in some way. However, you have a statistically incredible reliability in the MVI Median measurements. Looking at this every month will give you an indication of whether your hospice is moving forward, regressing or staying in place. Set your hospice Net Income goal for at least 14% and your overall organizational Net Income goal at 10% or more – WITHOUT community support. Make 2012 a great financial year by doing what needs to be done. It will take courage to reduce costs in relation to revenue, but it must be faced if action is needed.

- by Andrew Reed


Program: The MVI CFO Program:
“Thank you Andrew! Being new to the Hospice and Medical industry, this material and training will absolutely change my perspective of the job that I am in. I have been challenged out of the comfort zone and have been armed with a great selection of tools that I can take back and Teach!”


Barry Dowell, Mountain Valley