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Master Margins in the New Reality of Managed Care

May 27, 2015 | Mark Woodka

The New Reality of Managed CareFor many of us managed care is a reality in our markets, and for many more of us it soon will be.  By 2020 estimates are that Medicare Advantage enrollees will quadruple over 2005 levels, and over 15 states have either already moved dual-eligible patients into managed care or are planning to do so in the very near future.

The primary impact on providers will be further downward pressure on margins, which is going to drive home the fact, if it has not been driven home already, that we are in a fundamentally different business today than we were 5 or even 3 years ago.  Sustainability in this environment will be driven along three axes:

  1. Volume is critical to getting your overall margins back to where they once were.  As an example, if your margins per patient day are cut in half, you need to handle twice the volume of patients to maintain your overall margins.
  2. Quality is essential to maintaining referral relations and improving volume.  As more and more referral sources implement preferred provider networks and payment reform drives closer collaboration across the continuum, quality, expressed as consistent outcomes, will be the key to getting patients and residents into our centers.  You can drive quality by ensuring proper staffing based on future census and acuity levels.
  3. Cost control is critically important in an environment with margin pressure.  Staffing, as our number one operating expense, needs to be managed much, much more closely than it has been historically.  We cannot cut staff to improve margins because that could have an inverse impact on quality.  The key is to manage staffing levels, staffing mix and excess costs (agency and overtime) day-in and day-out.  If you are still looking at payroll reports or your P & L to manage staffing, you are at risk for having your lunch handed to you.  Many providers are still trying to manage scheduling and labor costs on paper or Excel spreadsheets, but this provides no visibility into future costs that can be avoided, nor does it provide the proper staffing levels vs. scheduled labor tied to fluctuations in census and acuity.  By the third day of the work week you should know what your overtime projections are for the week and be able to take corrective action.  Technology is key to being effective in managing labor because there are just too many variables to track on paper.

You’ve probably noticed that there’s a common theme to mastering margins, and that is staffing.  Dialing in staffing levels, staffing mix, and reducing excess costs day-to-day, if not shift-to-shift, will differentiate the providers that thrive in this new reality from the ones that merely survive.

Top photo by Stuart Miles from freedigitalphotos.net

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About Mark Woodka

Mark Woodka is CEO of OnShift and has over 25 years of experience in enterprise software sales and marketing, having worked for startup organizations as well as Fortune 500 companies. He often leverages his extensive background in technology-enabled process improvements speaking at industry conferences as well as authoring articles on long-term care trends and issues.

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