by Steve Katz
The second half of the year means it’s time to begin to prepare the 2011 Budget. Background information is being assembled, expense projections are being calculated and the process that each facility uses is at the ready. The supply expense side of the budget is relatively easy to compute. The amount available for each category is certainly going to be problematic for 2011 as reimbursement from government payers is reduced.
According to the Rockefeller Institute (www.rockinst.org), the projected NYS Budget for fiscal 2011-2012 is $14.3 Billion. The size of the deficit reflects the end of federal subsidy from the American Recovery and Reinvestment Act of 2009. NYS received $25 Billion from this intervention and used $11 Billion for Medicaid. In the current political climate, it seems unlikely that the federal government will provide an extension to this act. This fiscal reality assures that next year’s NYS budget will be both a political and economic nightmare.
Medicare may provide a brief respite for nursing homes next year, since Medicare reimbursement for nursing homes will increase by 1.7%. However MDS 3.0 and revisions to RUGS reimbursement may make it harder for facilities to see an increase in this revenue source. The RUGS system will eliminate the hospital look-back period, change the ADL scoring process and reduce the number of treatments that place an individual in the Extensive categories. Although Medicare remains the best payer source, its beneficial impact will be reduced.
For those facilities that consider operating budgets for future years, the picture is grim. Projected deficits in NYS increase significantly in the next five years. Beginning in 2014, PPACA (i.e.: Health Care Reform) will reduce federal funding for Medicare and Medicaid as well. So we enter the second half of 2010 facing a difficult road for the next several years. It is reasonable for facility executives to be focused on the macroeconomic issues described very briefly above. However, there are microeconomic interventions that can have a positive impact on the overall operation of a facility.
Second quarter 2010 profit and loss results for publically traded organizations are now available. The trend is clearly described in the NY Times; aggressive reduction and control of expenses can bring a facility profits even when sales revenues are not growing and even falling. Controlling supply costs is part of this aggressive business practice. It is an important question for nursing home executives to consider particularly when facilities are in the process of retrenchment and consider its impact on staff and the use of supplies.
How is the cost of supply expense affected by the collective psychology of the staff? Does the staff hoard supplies as a response to the perception that a facility is having financial trouble? Although there is little seminal research that deals with this phenomenon, anyone in operations has a sense of this reality. An article in the July 11, 2010 NY Times Sunday Business, “Factory Finesse, at the Hospital,” describes this occurrence. The article discusses how the staff stashed supplies when they believed they will have problems gaining access to them. When the staff believes that they will have difficulty accessing supplies, a negative feedback loop that artificially increases supply costs occurs. Staff members have their personal stash and keep the location to themselves. As a result it appears that there are not enough supplies, which causes the acquisition of unnecessary materials, which adversely affects the financial performance, which forces expense reduction programs, which effects staff psychology, which fuels hoarding. The article describes a simple solution to this problem and notes significant savings for the hospital presented in the article. Controlling supply expenses is never rocket science; it is about focus.
Caretech understands the challenges facing nursing home executives. There is a limited amount of executive and management focus available. The significant changes that are confronting nursing homes place a great strain on management’s time. Attention is focused on recruitment of Medicare admissions, maximizing RUGS reimbursement, culture change, and implementation of the electronic medical record, the revision of the survey process, competitive pressures and many other macro issues. Often Caretech hears that when a facility focuses its efforts on supplies it is able to reduce these expenses. However when Caretech asks about the sustainability of this initiative, the response is less definitive. Staff psychology is fragile and hoarding can reappear very quickly.
The solution to hoarding and control of supply expenses is clear: implement systems to assure staff that they will have the supplies that they need and provide oversight. There is nothing astonishing in this statement except that unless these interventions are maintained constantly, facilities will have problems with their supply expenses. There are so many priorities that supply expenses don’t get the consistent scrutiny they require.
The solution is to both focus and to outsource aspects of the operation that will benefit the overall integrity of the organization. Outsourcing supply expenses (purchasing, oversight, and payables) is a way to maximize efficiencies. Facilities can reduce back of the house expenses, reduce the price of supplies and reduce the excess utilization that can come from staff hoarding supplies. Caretech provides these options and can deliver a customized solution that works for your facilities. With over 10,000 beds under the Caretech umbrella, Caretech is able to help you maintain the micro focus as you address the macro issues that await the industry.
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