In the past month or so I have had a lot of conversations with various entities ranging from providers to investors about the financial state of the industry. The majority of the discussions have been around all things financial – reimbursement in particular and as this topic goes, so goes expenses. Understandably the economic and policy landscape tends to drive conversations and what with healthcare reform, Medicare cuts, state budgets and Medicaid, stimulus (or lack thereof) and now Cap and Trade in the headlines, much of the industry is focused on the “metrics” or the numbers. Being a numbers and a policy guy, all of this talk has been pretty good for business but I have this foreboding sense that too much discussion may diminish another set of metrics that need to be tied to the financial metrics – the quality metrics.
The crazy thing about the SNF industry (and frankly, any healthcare segment where patients receive direct care) is that quality both makes and costs money. There is an interdependent relationship between the financial results of the business and the quality results the patient receives. With the present upward pitch of regulators yammering about “resident centered this and that” and five star ratings published on the internet, the push is on, at least by the Feds, to force the industry to promote more quality in the care residents receive. Arguably, the regulatory process is bereft with insanity and ill-conceived standards impossible to fully comply with but that has frankly, always been the case. What is at the heart of the issue is that financial performance via any long-term measurement and quality of care are inseparable – conjoined in such a manner that were quality eliminated from the picture, the other would surely suffer and perhaps die.
Why does quality matter? If at the simplest level one believes in two types of money, smart and stupid, then focusing on quality is the antidote to spending stupid money. Smart money is therefore, the dollars (and I don’t mean enormous) that are invested in, at a minimum, promoting and doing the “right” things. When smart money is spent in a rational and proportionate manner, the avoidance of spending stupid money (incrementally far greater in volume and dollars) is the minimal return expected. The return that comes longer term from smart money investments in quality is typified by higher Medicare, private pay and other census, lower Medicaid census and resultant, higher revenue and better margins.
To understand how quickly stupid money can rack up is to understand some of the basic pitfalls that exist in the industry today. Things like fines, lawsuits, worker’s comp claims, denials of payment for new admissions, billing probes, etc. are all current industry woes and excellent examples of stupid money spending. With each of these problems comes more stupid money spending on top of the base cost each presents in the form of lawyer bills, public relations headaches, higher insurance premiums, loss of reputation that leads to loss of census and eroding payer mix, etc. As the cycle continues, staffing problems can arise compounded by the need for external pool costs to fill positions, unionization activities (if no union is present) and recurring survey and enforcement issues that never seem to go away without spending additional money on consultants to aid in remediation of the initial problem.
Smart money and a continued focus on quality is a hedge, an inoculation if you will, against the disease of “stupid money”. Oddly enough, smart money need not be typified by exorbitant spending on “capital furnishings and equipment” – the bulk of which rarely does much for a resident outcome and only temporarily, gives the viewer the illusion that “this is a nice place”. Nice surroundings are important but opulence and expansiveness should never be confused with quality that is experienced by a resident or his/her loved ones. In fact, a bad experience with care in a very nice setting typically gives the customer a bigger gripe (“they can spend all this money on furniture but they can’t spend it where it counts” attitude).
The best smart money investments I have seen are in people, management and systems. Staff are critical to the outcomes residents receive and making sure staff are engaged, involved, variably compensated for performance and part of the decision-making process is not expensive and in all cases, an extremely important investment. With a solid staffing and human resource investment, staff make fewer mistakes, are engaged in improving the delivery, care about the organization, resist turnover, and resist costing the operator and owner stupid money by not giving a darn about the mission, vision and results of the business.
Bad management is the leading cause of stupid money spending. Management that is incapable of demonstrating solid human relations skills, active listening, agressive confrontation with poor performance and good performance (correcting the bad and rewarding the good) and problem solving should be eliminated from the picture. These managers, incapable of understanding how important outcomes and spending tied together are, will cost lots of stupid money over the short and long run.
System investments are frankly the easiest and the least expensive investments there are. Investing in common sense systems that seek complaints and errors, addresses them quickly, and educates both staff and residents in quality, topical issues doesn’t cost much and delivers enormous returns. The age old addage of “work expands to fill the time paid” applies; quality sytems make sure that the work is focused and measurable as opposed to confusing and time wasting. Most important, systems investments don’t need to come in the form of computers and software – good old fashioned paper, telephones, and meetings work just as well and sometimes, far better.
Not too surprising, when I encounter organizations that truly focus on quality they all tend to share a set of enviable statistics that many in the industry “wish” they could attain.
- Higher census and better payer mix
- Staff retention and low to no use of external pool staff
- Law suit free
- Low liability and worker’s comp premiums
- Limited regulatory involvement (no complaints, no regulators)
- Lower marketing costs – reputation delivers admissions
- Limited position openings – lower recruitment costs
- Stable, long-term management
- Generally, no unions and no costs associated with defending against a union organizing campaign
- Solid survey results and in all cases, results that don’t breed fines, forfeitures, and/or other regulatory (adverse) actions
- Limited use of “outside” consultants to assist with “fixing” problems
- A positive reputation in the community and definitely, within the desired referral sources.
In short, quality does in fact matter, if for no other reason than it produces results such as those above and more importantly, reduces dramatically, the resources wasted in the form of stupid money.