Moving into data collection step by step
Hard work upfront will pay off in the end
(Editor’s note: Last month, Home Infusion Therapy Management provided you with an overview of the importance of data collection and how it should be used to your benefit in the current marketplace. In Part II of the series, Judy Lewis, BSN, president of Creative Health Care Services, a home infusion agency in Tempe, AZ, shows how her agency created an internal process for doing its own cost analysis.)
Computing costs for therapies is a process, not an event. This may require a mindset change as you begin to analyze your infusion costs.
Here is the process Judy Lewis, BSN, president of Creative Health Care Services, a home infusion agency in Tempe, AZ, followed:
• Time studies.
To start the ball rolling, Lewis provided each department with forms that required staff to record how much time it took to do various functions, down to the minute.
"It basically consists of following people who do tasks and finding out how long it took them to complete those tasks," she says. "We had to find out how long it took a pharmacist not only to mix a drug but also do the paperwork for the Joint Commission and the other regulatory bodies we have."
• Review and allocate.
While Lewis’ staff conducted time analysis, she and Frank Connell, president of The Primus Center for Management Studies in Phoenix, looked at the agency’s general and administrative (G&A) costs and allocated those to various areas.
Connell says this is the area most often overlooked or done improperly.
"They often miss their G & A pretty badly, and that has a major impact," he says. "Agencies aren’t allocating it appropriately, or they don’t have a real good handle on it because, frankly, it’s not an industry that has had to be concerned about that."
Joe Cabaleiro, president of Excel Consultants in Cary, NC, agrees that this can be a tricky area. "It’s difficult knowing how much of your overall management overhead for the organization can be attributed to that drug ," he says. "People tend to figure out their cost of goods but overlook pharmacy time, electricity, and how much to allocate to some of these cases."
Connell notes that specific areas of trouble include supplies and delivery costs of providing out-of-state or regional services.
• Account for the entire process.
It’s easy to look at a therapy and account for the supplies you and the patient see. But they’re rarely the only supplies involved.
"We had not anticipated the costs of goods required to prepare something, whether it’s in the pharmacy or nursing," says Lewis. "There were extraneous goods, such as needles, alcohol wipes, and tubing in the pharmacy."
• Pull it together.
Once Lewis completed her cost study and the staff finished its time analysis, she passed the information to Connell, who in turn used an internal, proprietary computer program to come up with a cap utilization rate, in addition to costs of various therapies.
Connell points out that it may sound like a big job, but making the commitment to do it right may be the hardest part.
"It’s not rocket science, but they have to be committed to go in and analyze what they’re doing and what it costs them," he says. "They’ve got to take the time to analyze how long it takes to do certain tasks, and what are their costs associated with delivery, personnel, supply, and overhead costs. If they’re willing to do that, it’s simple."
Once Creative Health Care completed it’s initial self-analysis, keeping a close eye on costs required, Lewis constantly revisited the process.
For example, Lewis conducts a random cost analysis of a therapy each quarter, so when a capitated bid comes up, the agency knows exactly what it can bid to make money, and its figures aren’t outdated.
Keeping the system up and running should also be used not just to watch your costs, but to fine-tune them and save money in areas you otherwise wouldn’t likely consider.
"You should use this to make your company more competitive," says Cabaleiro. "If you can use this to cut your administrative overhead and delivery expense and, hence, your expenses are 25% less than the other guy who doesn’t have access to this information, you’re going to be 25% more competitive in pricing and still be able to knock down a reasonable profit."
The process helps Lewis do just that, in addition to shopping for real "bargains" rather than a quick, upfront savings.
"We use this system to evaluate new products," she says. "Instead of a manufacturer saying This is $1 cheaper,’ I’ll say it may be a dollar cheaper, but let me look at pharmacy time, warehouse storage, and nursing time to train and adapt the patients to it. We have rejected and accepted a number of products based on this, such as elastomeric products, pumps, pre-filled syringes, and outsourcing."
After the initial research and set-up was completed and the internal system in place, monitoring your costs is easy.
"It probably takes a couple of days a quarter to pull the information," says Lewis. From there, you simply plug the data into worksheets or a computer program. (See sample, at right.)
Knowing the business so well has also allowed Lewis to budget more accurately and effectively.
"This was an excellent learning experience for me because it allows me to take a closer look at the operation," she says.
Do it yourself
Connell notes that every agency should undertake such a task themselves.
"Our approach is not to go in and do everything for them," he says. "We can do that, but realistically speaking, people can’t afford it and can do a better job themselves at it sometimes than we can."
Connell insists that once an agency is placed on the right track and given the tools to properly evaluate their costs, they’re better off.
"I don’t think we’ve ever had an organization we’ve worked with that hasn’t said they thought they knew a lot about their business before they started working with us, but they know a heck of a lot more now," he says. "This forces you to analyze your costs of doing business, both your overhead and individual costs" much closer than you ever would.
Another reason you need to do this yourself to arrive at your own figures is because using a benchmark cost for a therapy is like comparing apples to oranges. No two agencies operate identically and pay the exact same costs for supplies, staff, etc.
"A good number for agency X is not a good number for agency Y because there may not be a correlation between each agencies’ cost," says Connell.
Not only does Lewis do most of the work herself, much of it is done manually.
"I haven’t found a system that will fit what I’ll do with it," says Lewis. "There are some out there, but under my cost analysis of the programs, they’re not affordable products for us. There’s no way I can afford to pay $20,000 to $50,000 for software that is going to make me have to revise all of my internal software, and in addition to that increase, my monthly maintenance cost."
As a result, the agency has developed its own internal worksheets.
In the end, CIGNA ended up staying at fee for service, but Lewis wouldn’t have changed a thing. She says there are two reasons every infusion agency should take the same steps as Creative Health Care:
"First, if they’re not doing capitated business now, they will be," she says. "And number two, it certainly isn’t the heyday we had in the 70s. With shrinking margins, now that I know where my costs are, I know where I can make adjustments. If we don’t know what our costs really are, we won’t survive."
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