6 mistakes hospital-based home care directors make
Here's how to avoid making them
By Alison Cherney, MBA
President, Cherney & Associates
Rancho Pasos Verdes, CA
As hospitals, health systems, and payer sources drive more consolidation in the health care industry, hospital-based home care companies get dragged along in whatever direction their hospitals or health systems take them.
Hospital-based home care company directors and managers put themselves at a disadvantage in this process by not understanding how home care fits into the larger context of the entire health system.
The result is that directors and managers aren't taken seriously by their hospital and health system executives. CEOs don't always trust their home care managers because they may not see them as strategists, so they don't see home care directors as a part of the management team.
Hospital-based agency directors and managers have a lot to offer, but they need to be able to communicate it by learning the executive language, seeing past the small business of home care, and earning their health system executives' respect.
Directors put themselves at a disadvantage
These are six ways that home health agency directors put themselves at a disadvantage as home care and the whole health care industry evolve:
1. The hospital-based home care agency's strategy doesn't match its hospital's or health system's strategy.
A marked difference generally exists between the business strategies hospital-based home care agencies use and those that their hospitals or health systems use. The focus of the hospital/system may be much different than that of the home care business; therefore, many situations the strategy of the home care business is designed to handle and manage clash with the health system CEO's objectives.
Here are some common ways that a home care agency's business strategy can conflict with its hospital's or health system's strategy:
* Home care is less focused on winning managed care contracts than its hospital, making the entire health care system unattractive to managed care organizations.
Many hospital-based home care businesses aren't aggressive enough about getting managed care contracts because their administrators think they will lose money caring for managed care patients. The hospital needs its home care agency to help it reduce its acute care bed days per 1,000 managed care enrollees (BD/K), so the health system can compete better.
It is possible to reduce hospital-based home care companies' cost structures, but only if the administrators of these companies stop thinking in terms of how much Medicare reimburses them for doing as many visits as possible.
* The home care business doesn't focus sufficient promotional resources on the hospital's major target customers.
Directors and managers of hospital-based home care companies need to stop thinking that they cannot market their services because Medicare does not allow it.
To get managed care business, you have to make sales calls to physicians, skilled nursing facilities, infusion companies, managed care organizations, and any other referrals sources. Don't wait for business to come to you.
The best way to manage your company's promotional functions is to run your managed care business out of your private duty division or to set up a separate managed care division.
* Home care's pricing structures don't match the hospital's, which cuts home care out of global capitation.
Under global capitation, contracts cover everything from acute, subacute, and outpatient to home care. The contracts give hospitals and health systems in the United States about $120 to $150 per member per month. Home care's costs must fit within the parameters of the hospital's capitated contracts.
If a hospital-based home care agency can't bring its costs and utilization down to make the hospital's global capitated contracts profitable, the hospital will be forced to contract out the home care services for that contract to another home care agency that can.
Help your CEO set up alliances
* Home care doesn't help facilitate the alliances its hospital or health system is setting up with other providers.
To widen their geographic coverage and benefit from economies of scale, most hospitals and health systems are looking to form alliances with other providers. Frequently this will result in several different hospital-based home care agencies being pulled together to act as one business, meaning that the positions of several agency administrators, supervisors, or other staff will most likely be merged into one position.
The home care administrators who cannot integrate their operations well with these system affiliations and who start turf wars to protect their old positions put their careers at risk. This is the type of management faux pas that makes hospital CEOs see home care administrators as bureaucrats -- and not managers.
Instead, you should work with your hospital executives to show them you are willing to help re-engineer the company, and you are not afraid to eliminate unnecessary positions in home care. Ideally, you should tell your hospital CEO that you will go out and find the best partner for your company to merge with.
* Home care doesn't support a true continuum of care.
Often home care businesses lack a coherent strategy for supporting the growth of their hospitals' or health systems' specialty services, such as an increase of beds being put into the system for skilled nursing or psychiatric care.
When home care and the hospital don't coordinate which types of businesses they plan to grow, communication can break down between business units, and patient lengths of stay (LOS) and total costs can soar. The result is a broken continuum of care.
This is especially the case when case managers in each business unit only see their jobs within the context of their particular business unit, and not the entire health system.
Home care can help solve this problem by advocating for systemwide case management as a means of improving the quality of care and cost-effectiveness.
Know what your CEO is thinking
Before trying to address those conflicts, home care directors should understand the key elements of a hospital or health system strategy. They are:
* Target customers.
These might include Medicare and Medicaid consumers, as well as payer-based managed care organizations (MCOs) such as health maintenance organizations, preferred provider organizations, self-insured people, and third-party administrators. Target customers also may include provider-based MCOs, including medical groups and networks.
* Medical specialty niche programs and carve outs.
These can include women's health care, geriatrics, psychiatric services, sports medicine, and transplants.
* System integration.
The components of integration can include local, regional, and national business units, geographic service area coverage, and integrated delivery network participation.
* Pricing structures.
A business strategy would include pricing components such as fee for service, case/episode rates, per diems, and global capitation participation.
Home care directors should take into consideration all of the issues that a hospital or health system CEO has to address, and know how these figure into the development of a hospital or health system business strategy.
For example, hospital senior executives have significant pressures on them from their boards to maintain or drive up total system revenue, contain expenses, minimize inflationary expenses, and enter new businesses to the system.
Also, the following trends are forcing hospitals to become health care systems:
* decreasing private indemnity;
* increasing managed care market penetration;
* increasing Medicare population;
* potential rate reductions from Medicare;
* decreasing acute care LOS (acute care LOS is predicted to be 50% of the current rate over the next few years, as managed care penetrates 95% of the population);
* managed care rate reductions (cuts of 7% to 8% per year are predicted);
* increasing labor costs;
* increasing pressure on operating margins in the acute care side of the business.
Don't call it a hospital
Hospitals (which CEOs now want referred to as health care systems) have responded to these trends in a number of ways including:
* creation of niche strategies to focus the health system into medical specialty areas in order to maintain a competitive advantage;
* development of feeder networks to move patients from rural and secondary population markets into tertiary facilities;
* integration of facilities into larger systems, thereby creating integrated delivery networks that have much larger geographic service coverage and giving the system more clout with managed care organizations;
* right sizing, downsizing, re-engineering, or redesigning to eliminate unnecessary job functions;
* restructuring of marketing of new business and managed care contracting functions;
* outsourcing as many functions as possible (i.e. dietary and pharmacy services) when the decision to purchase on the outside makes more financial sense than managing that particular business unit directly;
* investment in medical group practices and alternate site businesses, including home care;
* filling acute care beds with subacute, rehabilitation, psychiatric care, skilled nursing facility, or extended care patients to decrease the number of costly acute care beds and drive up the system's revenue;
* development of outcomes measurements, critical pathways, and other quality gauging devices to standardize clinical practices and contain costs;
By keeping those concerns that hospital and health system CEOs have, hospital-based home care agency administrators will be better able to extend their own duties to thinking in terms of their entire company, and not just the home care agency.
2. The home care company and its managers can't see past the Medicare model of doing business.
This can be a problem for both Medicare certified agencies and home medical equipment companies that derive a majority of their revenue from Medicare.
For example, where a hospital or health system may only have 40% of its total revenue from Medicare, the home care business may have 70% of its total revenue from this payer source.
Get out of the Medicare box
As the population moves toward managed care and if hospitals are allowed to set up their own Medicare managed care networks (referred to as provider service networks or PSN legislation), the home care business needs to be well-positioned from a cost and organizational standpoint to handle managed care business. In fact, too many turn it away or do not aggressively pursue this business, which can be frustrating to the senior executive team at the hospital.
If, for example, an agency's cost structure is at $90 per visit and the managed care organization's rate is $55 to $60, the tendency will be to either turn down this business or accept it at a loss. Neither of those propositions is a positive one.
In 1995, my research showed that just 5% of American hospitals had capitated contracts. Yet, nearly all of them had contracts on a per diem or discounted fee-for-service basis with managed care organizations. This is not the case with most Medicare-focused businesses. Per diems should include the continuum of care, and home care businesses need to be prepared to be cost centers under global capitation and manage this business profitably.
The re-engineering of a home care business requires much the same efforts that hospitals have undertaken over the last decade. Establishing separate managed care teams, new business units, and new systems, retraining of personnel, hiring of new personnel, etc., will be essential to making the move from a Medicare to a managed care model.
3. Managed care contracting functions are not well-defined.
Most hospital-based home care companies have several problems with their managed care contracting function. The most common is a lack of communication between the hospital and home care managed care contracting functions.
Most health systems and their outpatient businesses do an excellent job of generating managed care contracts. The managers responsible for those contracts, however, have little knowledge of home care, so they do not aggressively pursue home care managed care contracts. Often they don't even have contact with the home care managers responsible for managed care contracting, if home care has someone in charge of managed care contracting.
Find ways to service managed care contracts
Another concern of hospital contracting managers is their inability to gain an exclusive managed care contract because the hospital's home care business lacks the facilities to service the entire enrolled base of the managed care organization. Home care managers need to find out what additional services they need to provide to be able to service those contracts, and then set up alliances or networks with other home care providers to meet those needs if they can't offer the service themselves.
In later-stage managed care markets, such as Los Angeles, Minneapolis, and Boston, medical groups and/or hospitals take on the financial risk for home care services. Hospitals can retain a lot of control in these situations. In some markets, there is a struggle between payers and providers in terms of how much home care contracting control will occur. Each market may have different winners.
A hospital-based managed care contracting function, closely tied to a home care contracting function, can be a powerful force. Few hospital-based home care businesses, however, have maximized this function.
4. Outsourcing is not considered often enough.
Hospitals are increasing the parts of their business they outsource, to cut costs. Home care should do the same. In a managed care world, operating all aspects of a home care business may not make sense.
As you re-engineer and redesign your hospital-based home care company, you should look for the parts of your business that you cannot improve. What you don't do efficiently, pay someone else to do better.
Those alliances may be with other home care businesses or subcontractors that allow the business to operate as efficiently as possible.
For example, your medical specialty programs, infusion therapy, extended care, home medical equipment, or other programs might be run best by a subcontractor. Explore all the possibilities, including:
* billing and reimbursement;
* delivery functions;
* specialty clinical teams;
* managed care selling functions.
The key issue to consider here is how the hospital-based home care business will move from being a solo operator to being one that has critical strategic alliances in place for its survival in a managed care market.
5. The hospital is driving critical path development for home care.
A critical pathway or care map can be an important tool for product and procedural standardization, which are two critical issues in a managed care environment.
When the hospital team drives this process, home care is an afterthought. Too often the home care group is too busy to be aggressive in the management of this process.
By taking the driver's seat in this process, home care can produce reductions in LOS and hospital readmissions. For example, if home care quality managers work with the hospital's quality improvement department, home care will be on the critical paths created, and the hospital or health care system will offer a true continuum of care. Then the whole system will cut costs and utilization because patients who could be cared for easily at home will no longer be hospitalized.
The home care industry is still in its infancy with this development, but as we learn more about how to take care of high acuity patients using non-Medicare guidelines, the industry will become much more creative and flexible with the types of care it can provide.
6. Home care is developing information systems that can't interface with the hospital's or health system's information systems.
A critical issue to manage in the future will be the development of information systems that can interface with outsourced home care providers, hospital and long-term care or subacute units, and managed care organizations.
Hospital-based home care companies put too little thought into the integration of these units, and this can cause a multitude of problems within a system. The data we collect and the ways we use it in the future are changing rapidly. As an industry, we need to embrace this function and work toward creating cohesive information systems that will link companies to other providers, other sites of care, and managed care organizations.
This isn't an easy problem to tackle, and it will take a lot of developmental time to resolve, but little of the budgeting for next year's business plan is earmarked for development. Administrators should think about the long-range issues of systems development and work with their hospitals' or health systems' information systems departments to design the systems they will need in two to three years.
Home care traditionally has been viewed as a minor part of a hospital's or health system's objectives, but it is becoming more important as acute care LOS decrease.
To stay competitive, hospital-based home care directors and managers need to participate in as many of the business strategies of their hospitals or health systems as possible, while they maintain and grow their own business. This is a delicate balancing act for home care directors, but those who master it will succeed during this time of consolidation and change in the hospital-based home care industry.
[Editor's note: Alison Cherney is president of Cherney & Associates, a marketing and sales consulting firm specializing in the home care industry. The firm conducts feasibility studies and market assessments, and creates strategic plans and strategies to grow home care businesses. Cherney's published books include How to Create a Homecare Marketing Plan, Marketing Homecare Products and Services to Managed Care, Managed Care and Case Management Negotiation Strategies, and The Capitation and Risk Sharing Guidebook. She can be contacted at: Cherney & Associates, 28910 Indian Valley Road, Rancho Pasos Verdes, CA 90275. Telephone: (310) 541-6620. Fax: (310) 541-9540.] *
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