For most of the nation, autumn ushers in seasonal fun like football, bonfires, and pumpkin spice. But for those whose job requires developing the organizational budget for the following year, the pressure heats up as temperatures cool down.
September is the month budgeting takes a serious turn at most home health and hospice agencies. Productivity charts come out, projections and reports are due, and a little nail-biting has been known to take place outside the boardroom door.
Smaller agencies may not have to deliver the same formal presentations as larger agencies, but most examine the numbers just as carefully, with many of the same concerns. How will the ongoing staffing shortage impact direct labor costs? How much of an impact will the return of sequestration have?
It's a busy time of year for SimiTree finance consultants, who work with clients to develop reasonable budgets and establish sound budgeting processes to assist with hospice budgeting mistakes. The goal is to help clients build budgeting skills and confidence along with their budgets.
“SimiTree is dedicated to providing each client with a customized budget that aligns their goals with industry standards,” said SimiTree Senior Manager Jonathan Dickinson. “At the end of the budgeting process, the clients walk away with a template they can use for future budgeting purposes. We teach all the sound business planning strategies needed to put it together, from benchmarking and tracking key performance metrics to forecasting.”
On average, it takes about three weeks for a client to gather the necessary information and complete a customized budget under the supervision of SimiTree consultants, Dickinson said.
“The goal is for the client to walk away with both a budget and an understanding of how to continue adjusting that budget for the future, making any changes that may be needed three months or six months from now,” Dickinson said. “And we want the client to know how to easily construct another budget in the future.”
Dickinson and other SimiTree consultants see a few common hospice budgeting mistakes crop up year after year. They’ve compiled a list of 10 of the most common hospice budgeting errors to avoid.
10 common budgeting errors
- NO FORMAL BUDGET. Some agencies, particularly smaller ones, forego the official document and rely on the previous year’s data to guide decisions. Not a good idea, SimiTree consultants say. Not having a budget can trap agencies into thinking that what happened last year will happen again, limiting growth and failing to adequately adapt to market changes. A budget is a guidepost offering important measures of the organization’s financial status from month to month. It can help track trends and identify problems so that they can be corrected before they magnify.
- IT’S A BUDGET, NOT A STRATEGIC PLAN. A realistic budget should be based on day-to-day operations, driven by work rather than on numbers desired by the agency leadership. Desired numbers belong in strategic plans, with steps outlined for reaching those goals. Budgets should be accurate representations of current financials and projections, grounded in current reality.
- ACCOUNT FOR SHIFTING REVENUE STREAMS. Traditional Medicare is accounting for fewer patients these days, as the number of Medicare Advantage and other payers increases. Sound budgets will reflect this shift, planning for increased staffing in back offices to handle an increasing volume of work related to verification and meeting requirements that vary from payer to payer.
- DON’T USE FAULTY STAFFING MODELS. SimiTree consultants say this one is especially tricky in the current labor market, where shortages can require unplanned overtime or additional contract work. A cascading model for direct care should capture costs for salaried team members first, then staff paid per unit, then contract work. Productivity standards should be realistic.
- TAKE INTO ACCOUNT INDUSTRY STANDARDS. Benchmarks are an important part of budgeting. Is the agency operating within industry standards? SimiTree uses SHP data as well as data from a variety of internal resources to provide clients with a baseline for fuller understanding.
- CONTINGENCY PLANNING IS A REQUIREMENT. One of the first rules of hospice budgeting is that there’s no such thing as a normal month. The unexpected can and does happen. From a sudden influx of would patients necessitating higher supply costs and utilization to a sudden staff walkout, many things can impact a budget. “Think COVID, and always have a backup plan,” Dickinson said.
- UNDERSTAND HOW TO USE DATA. Using data for forecasting is an important part of budgeting. But many agencies aren’t sure which data to use, where to find it or how to interpret it for planning purposes. Historical data may not be updated in the agency’s IT system.
- LEAVE ROOM FOR GROWTH. A budget shouldn’t be stagnant. Include room for projected growth, with a realistic marketing plan designed to identify and create potential growth. SimiTree can provide the market data to understand referrals and pinpoint opportunities for growth. Our new Market Analysis Program (MAP) helps clients understand exactly where opportunities are available to grow their businesses.
- GIVE THOUGHT TO RENEGOTIATING CONTRACTS. Contracts are updated annually. Before you automatically renew yours, consider current market conditions, payment rates and more. Make certain rates accurately reflect market changes.
- DON’T OVERCOMPLICATE THINGS. Simplifying the budget will keep it easier to manage and make it more valuable to your organization in the long run. Identify key performance indicators and spend your time and resources tracking them, not the KPIs that don’t impact bottom line.
SimiTree can help
SimiTree’s friendly and knowledgeable financial consultants provide the financial expertise your agency needs for growth and profitability. We’ll customize a budget to your needs, and make sure you understand the process so that you can adapt it going forward.
Wondering how the proposed 4.2 percent rate cut will impact your agency next year? Our data analysts can quickly prepare a customized PDGM impact analysis showing the anticipated impact on your agency in 2023 if the decrease goes through as proposed.
Use the form below to reach out to us today, and let’s begin the discussion about your agency’s profitability.