Updated: Jun 10
Why Your Business Is Not Reaching Its’ Full Potential!
I have chosen to write this white paper in outline form to hopefully make it an easier read. I hope you enjoy and most importantly, TAKE ACTION!
Is it any wonder that it gets harder and harder every day to turn a profit in this business? Let’s count the obstacles that stand in our way:
1. Consolidation of Payor Networks
a. More and more payors are restricting who can get in network and who can’t
b. If you are not in network, then you are receiving out of network reimbursement and having to collect from more patients
c. Out of network benefits cost the patients more so it is even more difficult and expensive to acquire new patients.
d. Having to turn down business because many payors do not offer out of network benefits.
2. Payor Audits & Appeals
a. We all know that Medicare has been conducting numerous audits and ADR’s. Whether it is a MAC, TPE, RAC, CERT, or ZPIC audit, Medicare audits are here to stay and I truly believe that you will see a step increase in RAC audits because RAC contractors are paid a percentage of the recovery amount and can go back three years and secure a much bigger payday than an ADR or TPE audit.
b. Medicaid audits are increasing, as well as, Humana, UHC, Aetna, and BCBS are increasing their volumes of audits of missing medical records. The commercial payor denials and audits are going to be particularly challenging since almost every contract state “Follows Medicare Guidelines” but we all know they do not… what most suppliers and providers don’t know is exactly what Medicare guidelines they DO follow.
3. Fee Schedules & Payor Guidelines
a. We must work harder for our reimbursement. More payors, products, and line items are requiring PAR’s. Payor guidelines are tightening and it feels like they are looking for more ways to deny services rather than approve services.
b. Many commercial payors are outsourcing appeals and audits to outside contractors who, in my experience, are not well versed on Medicare/payor guidelines. (if the contractors don’t know the guidelines, then how are the suppliers/providers supposed to know???)
i. On a side note, in a past life of mine, Humana outsourced their recoupments to an outside vendor. It was clear from the onset that they did not understand guidelines, nor did they know how to interpret how to apply Medicare LCD’s. Luckily, we had a highly qualified registered nurse on our team who is a Medicare and payor guideline expert and she was able, over many months, to (in essence) train the contractors how to apply the LCD’s. She saved us A BOAT LOAD of money by halting the recoups and winning the appeals.
4. Rising SG&A and Decreasing Reimbursement
a. No one told our landlords, employees, benefit companies, and vendors that our reimbursement is decreasing. So, we immediately have more pressure on our margins due to rising SG&A, unbilled revenue, denials, audits, consolidated payor networks, patient acquisition costs, and COGS. That’s right, no one told our manufacturers that our margins are under assault, or they just refuse to listen as their product costs continue to rise. Higher product costs-lower reimbursement is a recipe for disaster.
I could go on with the doom and gloom, but what can we do to improve our margins and EBITDA…and overall valuation of our business.
Ten years ago, when I got started in this business you could make money just by being in the “game”. Suppliers and providers did not have to be good. In a previous life of mine, we were generating margins above 70% and EBITDA exceeding 30%. That’s right, you could make a ton of money and, quite honestly, suck at this business.
THOSE DAYS ARE GONE!
Today, many people are trying to generate positive cashflow due to product margins in the 25%-40%...and that is before SG&A. It is now common for companies to have EBITDA in the low teens. The good news is that due to regulatory oversight and everything stated above, many of the companies that tarnish our business are out of business or in jail. OIG PROSECUTIONS
But how do YOU make money in this business today?
Here are the TOP 5 ACTIONS that you can take action today and begin maximizing your profits.
1. Labor is the largest cost most business owners face. We MUST fully OPTIMIZE our labor force in order to secure the greatest ROI on their efforts. How?
a. Investing in their development and training.
i. We need EXPERTS; not jacks of all trades.
1. New Account Experts
2. Customer Service Experts that ensure we retain our customers
3. Insurance Experts that ensure we avoid bad debt write-offs due to errors
4. Documentation Experts…This is FOUNDATION of any healthcare company in today’s turbulent regulatory waters.
a. Without Medical Records Experts you will ship before you should, bill before you should, lose audits and appeals, frustrate and lose referral sources, have rising unbilled revenue that cripples cashflow, lose good outside sales reps, and have more compliance issues than you can handle. If you can only choose one area to become AWESOME in, choose documentation verification!
5. QC Experts that ensure compliance and quality and ensure we avoid costly errors
6. Billing & Collections Experts that ensure we get paid every single penny we have rightfully owed to us. Insurance companies know most companies don’t follow up regularly on collections, so those that make the most consistent noise get paid first.
b. If your labor costs are above 20% of revenue, then you need to immediately look at your labor, processes, compensation plans, staffing ratios, etc. and find a way to get your labor in check.
2. Management of Unbilled Revenue
a. If you are shipping on verbal orders or dispensing orders, then undoubtedly your unbilled revenue is growing. If you are a Brightree EHR customer, then other CMN and HCPCS issues could be causing approved items to become unlogged and put on a hold. I imagine this will occur with other HER systems that are HCPCS driven, but I know for a fact that this is a silent reality with Brightree.
b. Manage your unbilled revenue DAILY. I can’t even begin to tell you how many suppliers/providers manage it monthly, if at all. This lack of oversight also leads to an increase in untimely filing denials and write-offs.
c. Once again, documentation/medical records issues will also drive this number up, creating aging that makes it almost impossible to collect documents and release holds, and cause erosion to patient satisfaction and retention, as well as referral source satisfaction and retention.
d. You have an opportunity to increase profits if your unbilled revenue exceeds 5% of your monthly shipped revenue
3. Improve Your Analytics and Accountability
Here are a few quotes to illustrate the importance of analytics
“You cannot manage what you cannot see”- Peter Drucker
“You cannot fix problems if you don’t recognize them”- Jamie Dimon
“A company without an effective data and analytics plan is a company without an effective plan”- Michael Breslin
a. It never ceases to amaze me how many companies are surprised that they are not making money. Or that they can’t figure out why they are not making money. Or they can’t tell me where they are spending money ineffectively.
b. In god we trust, everyone else bring data. Effective utilization of data drastically reduces “gut” reactions, bad planning, bad decisions, doomed to fail initiatives, underperformance, negligence, etc.
c. Effective utilization of data allows you, your leadership team and your team members to learn how to win the game. Believe you can win the game. And understand why you will win the game. It allows you to make decisions based on sound logic and historical performance. It provides effective talent management through relative performance metrics. Here are just a few metrics that must be managed effectively, and by doing so, your financial performance will skyrocket:
i. Units per hour by role, department, team, and team member
ii. Absentee rate. If the team doesn’t show up, you simply can’t win.
iii. Conversion rate: lead to order and order to ship
iv. Recur rate for businesses with consumable product lines
1. Average span dates between orders to identify sweet spots to engage
a. Cost per Acquisition
b. Revenue per order
c. Time in Process: by role, team member and process
d. Patient Retention Rate
e. Referral Source Order Rate
f. DSO by payor and overall
g. Bill & Collect Rates
h. Contact rates for businesses with tele-sales functions
i. Labor Cost to % of Revenue
j. Shipping Cost to % of Revenue
k. SG&A Costs to % of Revenue
l. AR Aging
m. Work in Process Aging and historical bucket levels
n. Bad Debt Rates…should be at or below 10%
o. Audit and appeal win rates
p. Audit and Appeal time in process/response time
q. Payor mix
r. Labor Utilization Rates
v. With data you can create control charts that clearly identify when something “out of the norm” occurs. It will illuminate risks, opportunities, what is working, and what is not working.
vi. You can create effective staffing plans that ensure labor ROI is maximized and clearly define when you need staff, when you don’t and when you have moral/management issues that are silent but extremely deadly killers to motivation and growth.
vii. Improve Accountability at all levels
1. Team Member performance and quality
2. Team/Department level reporting and accountability
3. Executive accountability
4. Utilize your reporting to create work plans that provide the logic and how to’s to hit your operating plans. This should be on a daily level, so each team member knows what is expected of them today, this week, and this month. This plan is critical because it illustrates, using data and logic vs. dream goals, as to exactly how you plan on reaching the goal, when you plan on reaching the goal, and why you believe the goal is attainable.
a. This is critical to obtaining buy in. No on is going to believe what they cannot see and understand how, who, when, and how.
5. Create daily reporting of actual vs projected and weekly accountability presentations as to what has occurred, why it occurred, and if it is a missed target, what you are doing to rectify it and what the get-well date is. If it is an exceeded target, why it occurred, what is being done to duplicate the success. We need to know if it is sustainable or if it is due to bad planning or a one-time event.
6. It is a PROVEN FACT, that once people know what is expected of them, why it is expected of them, and how they will achieve it, then you will improve performance and results. People MUST see & believe they can hit the goal.
7. You obtain everyone’s buy in. You get everyone to commit to achieving their goals. You report out actual vs projected performance and variance to projected. You discuss outcomes based on historical logic, and you do not accept excuses. It will take the team approximately three weeks to fully buy in; mainly because they are testing to see if you are REALLY going to hold them accountable and be consistent with accountability, or if you will move on to something else.
8. It is a CRUCIAL to your success that you “Inspect What You Expect”or it simply won’t happen. This is precisely why most initiatives fail (other than not using data). Therefore, you need executive accountability as well. Are you REALLY committed to this or will you move onto something else and expect the team to police themselves? The lack of accountability and the lack of data driven logic is the # 1 killer of attaining operational and financial excellence. All the reasons above are obstacles and challenges we must successfully plan for and navigate through. Without data, planning and accountability we are destined to fail; we just become aware of it too late.
4. Improve Your Processes with Six Sigma
a. The key to successful, efficient, and effective process flow is ensuring that you can eliminate duplicative processes that drain labor, drain morale, increase time in process, decrease conversion rates, decrease recur rates, etc. Duplicative processes, simply put, kill the financial health of your business.
b. Six Sigma processes focus on eliminate defects. Defects cause things to break, slow down, cost more, use more, etc.
c. I constantly run into businesses that do not regularly review, update, and modify their SOP’s, process flows, and retrain to ensure compliance and knowledge retention. Most companies operate on old, outdated, ineffective knowledge and processes that drive up costs, denials, bad debt, labor, and duplicative processes.
d. Most companies address changes to SOP’s or process changes in silos. Never understanding interdependencies and impact to other business owners. This lack of understanding and partnership drives trust issues, error rates, rework, process breaks (defects), and everything bad. Nothing about silo’s is effective, efficient or operationally excellent.
e. Take away:
i. Review Your Processes
1. Do they still apply?
2. Do they still work?
3. Are their duplicative touches?
4. Follow orders from lead to posting and identify duplicative, ineffective touches that you can eliminate
ii. Conduct time studies
1. Before and after. Is the new processes less timely? If not, go back to the drawing board and challenge yourself to drive improvement
iii. Review your SOP review process and make the necessary changes to ensure that the processes and knowledge that your team is utilizing is accurate and effective.
iv. Review training and remedial training programs
5. Improve Talent Management
a. I am dumbfounded as to the lack of attention and investment into talent management amongst most, if not all, organizations that I have come across over the past 25+ years. Companies fail to:
i. Invest in training
1. If the team does not know how to achieve success in their role, then how do we expect the company to?
2. If the team has partial information that just makes them more dangerous because they “think” they are experts when in fact they are something less than an expert… and it is not their fault
3. Why are most entry level managers and mid-level managers typically the weakness in an organization?
a. Here is what I have experienced:
i. We promote out of convenience.
1. They are already on the team
2. We feel comfortable with them
3. They typically are above average to top performers
ii. These non-experts now have the imaginary badge to run a team(s)
iii. They receive little to no training in the following critical areas:
2. Conflict Resolution
3. How to avoid HR issues
4. Leadership and inspiration vs motivation
5. Sharing the vision and selling the vision
6. Metrics/KPI’s; understanding, coaching, etc.
7. Resolving problems
8. Boosting morale and building dynamic teams and cultures
9. Industry knowledge
10. Effective coaching skills
11. Effective communication skills
12. Effective presentation skills
iv. They typically ONLY know one way to run this business: the way their current company knows how to do it
ii. Invest in accountability
1. We look at many of the TOP 5 Actions You Can Immediately Take to Maximize Your Profits as just more work; more things to do and/or manage
2. We fail to understand that these are THE CRITICAL TO QUALITY events that are directly related to the overperformance or underperformance of your company.
3. We must have accountability from top down and bottom up. Accountability drives performance. It teaches people the business and, more importantly, how to DRIVE the business and at least hit targets. It teaches them how to’s, planning, problem solving, staffing needs, maximizing staffing ROI, drivers, inputs, outputs and what levers to pull to ensure success. It teaches them how to coach and how to inspire.
4. Without Accountability…
iii. Invest in talent
1. In your business, labor dollars are typically our largest line item expense. We cannot achieve operational and financial success without maximizing our labor ROI. In order to achieve that we must do the following:
a. Manage up or manage out underperformers
b. Always be coaching
c. If you can’t reduce FTE’s then how do you reduce labor dollars?
ii. Performance base compensation plans?
iii. Learn to reward the behaviors that bring us closer to success. The behaviors that if we can consistently duplicate will deliver results and drastically reduce errors.
iv. We must learn emotional intelligence and how to tap into each team members discretionary effort.
1. If you do not know what discretionary effort is, I will explain it in a second, however, if you honestly do not know what it is, then I can GUARANTEE you that your labor dollars are NOT being maximized.
a. Discretionary effort is this.
i. Each team member has a reserve of energy, effort, commitment that they own. They will give it voluntarily if you give them reason to give it. What is in it for them? What will it cost me? What sacrifice will I have to make? Is it worth it to me? What are my chances of success or failure? Once all of those are answered, the team member will choose to either provide you access to their discretionary reserve or they will not.
2. How do you tap into discretionary effort?
a. Lead by example, sell the vision, coach/walk side by side with them (support them), share with them what is in it for them, why the team needs it and that you truly appreciate it.
2. Businesses/leaders fail to have any succession planning in place. Where does every team member rate, who is worthy of more responsibility, who is underpaid and/or underappreciated, who is underchallenged, who is overchallenged, who will we lose if we do not take some positive action.
3. We fail to plan; therefore, we plan to fail.
a. If you fail to plan on building and retaining the best possible team you can field, then you need to plan on missing the target. You need to plan on not maximizing labor, not maximizing leadership, not maximizing processes, not maximizing results. By failing to field your best team you have already decided to underachieve.
4. Focus on the ROI, not the investment. If investors focused only on the cost of a stock and not the ROI/performance of a stock, no one would ever own Berkshire Hathaway, Amazon, or Alphabet… but the reason the cost is so much is because the performance is so consistent and productive. Talent management is the exact same dynamic. You minimize labor dollars by investing in the success of your team members. Make them more knowledgeable, more confident, more engaged and you will reduce labor as a percentage of revenue because they will achieve more. You will achieve more with less. There will be less touches, less unproductive time, lower absentee rates, less errors, less analysis leading to paralysis, and much, much more productivity.
BONUS ACTION STEP:
6. Conduct a Reality Inventory Immediately
a. A reality inventory is an activity that I am a STRONG proponent of, but it takes one very difficult characteristic to ensure it is successful… HONESTY.
b. You must be 100% honest as to where you are today, where you want to go, what needs to be done to get there, and what you are willing to commit to.
c. How many of these action items do you CONSISTENTLY and RELENTESSLY do?
i. Why are you not doing them or not doing them consistently?
ii. Why are your results what they are? Can you explain the performance of your business in an intelligent and easy to understand (coach) manner? Can you do it in bullet point fashion vs Moby Dick version? Do you know exactly what needs to be done? Why not?
iii. Ask the 5 why’s to each question so you can get to the root cause. Unearth the realities of your business, your approaches, your knowledge level and identify exactly what you must do,
iv. If you find that someone does it better, then outsource it. We must achieve greatness not mediocrity.
v. If you find you do not know how to do it, hire an expert in the field. Someone who can teach you so you can sustain it.
vi. Regardless of where you are today, if you got this far into the white paper, then you MUST TAKE ACTION.
Here’s to your Success,
About the Author:
Michael Breslin is a proven business leader who is known for performance improvement, due diligence, coaching, and operational excellence. Michael is the Executive Vice-President of Boost Advisory Group, a company dedicated to helping others maximize their success through coaching, consulting, and outsourcing solutions. Michael can be reached at:Michael.Breslin@boost-llc.com/888-304-2480, ext. 1011 / www.boost-llc.com