Here’s something we can all agree on: The management of a business in the behavioral health industry is very different than other industries. Not only do you have to constantly try to improve your financial bottom line, but you also have to work very hard to provide quality care to your patients.
Therefore, you can’t use typical strategies for financial management in healthcare organizations. Luckily, you don’t have to go into the financial aspect of your facility blind!
In this article, we will explain the core elements of financial health for your facility. Then, we will give you 7 top tips to improve your organization’s finances.
Let’s begin with the basics.
Key Elements of Financial Health
For starters, there are 3 critical elements that contribute to the financial sustainability of your behavioral health organization:
- Revenue
- Costs
- Productivity
Keep reading to learn more about each of these important elements.
1. Revenue
As most business owners already know, revenue refers to the money that comes into your facility. But, generating revenue for a behavioral health business comes from different sources and requires varying strategies.
For instance, there are 3 main sources of revenue:
- Public – the majority of your revenue will come from here. This is the revenue that comes from places like Medicaid, state funds, and local funds.
- Private – Another source of revenue is from private donors such as foundations, fundraising events, and private insurance.
- Fee-for-Service – This revenue is from agency contracts where they pay a rate for a service.
In order to raise funding for your treatment center, it is important to understand these 3 sources of revenue. You might even want to consider speaking with a trusted financial consultant who can help you determine what you will need to begin raising funds.
2. Costs
The next element, which is not as fun, is cost. There are several costs to consider in the behavioral health industry.
- Personnel – This includes your employees’ salaries and benefits such as health plans, social security, and unemployment taxes.
- Occupancy – These costs encompass all property expenses like rent, insurance, and taxes as well as utilities and maintenance.
- Operating Expenses – This is your day-to-day costs like supplies, equipment, and software.
- Overhead Expenses – These are administrative expenses such as human resources, finance and IT departments, and executive staff.
- Allocated Costs – This type of cost covers processes such as staff training, billing, quality assurance, and contract management.
Every type of cost is as important as the other, so you should not skip out on any category. Instead, determine areas in each category that you can save on without affecting your quality of service.
3. Productivity
To calculate productivity, you need to look at the number of services you need to provide to meet total costs and keep your business running.
First, calculate billable hours per full-time equivalent (FTE) employee. To do so, calculate the total hours worked by an FTE employee. Then subtract that by the hours given for paid time off and sick leave. Finally, estimate the number of non-billable hours they work and subtract that as well.
The goal is to align the resulting billable hours per FTE with the costs of delivering services.
So, how can you do that? Simple: Follow these 7 financial management tips for healthcare organizations, and you will be on your way to saving money and organizing your capital!
7 Tips for Financial Management in Behavioral Healthcare Organizations
The key to your behavioral health organization’s financial management is understanding the ins and outs of the 3 elements mentioned above. For instance, you need to be able to find opportunities to increase revenue and productivity while decreasing costs.
In order to do so, here are a few tips your behavioral health organization needs to begin implementing this strategy.
1. Leverage Technology
Medical technology such as telehealth can help improve your profit margin. The use of technology can also reduce service costs and provide efficient care.
For example, automating administrative tasks through integrations with your Electronic Health Record system (EHR). Improving utilization review processes translates to a higher quality of care with less time spent duplicating documentation and more time for direct service. Enhanced utilization review integrations show improved reimbursement and better relationships with payors.
Additionally, keeping up with the latest technology, such as virtual kiosks, can improve accessibility at a relatively low cost to you.
2. Reduce Readmissions
One study found that a reduction in readmission can lead to higher operating revenues.
With that being said, high readmissions rates can cause financial repercussions from the Centers for Medicare and Medicaid Services (CMS). Additionally, preventable readmissions can lead to a decrease in patient satisfaction. This leads to a decrease in CMS reimbursement and your reputation, which can cause a decrease in new admissions.
As you can see, readmission is a big no-no that everyone in the healthcare industry wants to avoid – including your patients! Here are some ways to reduce readmissions:
Implement follow-up care
Provide a full continuum of care
Finally, keep in mind that the CMS puts pressure on organizations to reduce readmissions in the behavioral health industry in order to ensure the person being served receives the best quality of care the first time. Therefore, you will definitely want to make readmission reductions a priority.
3. Manage Costs
One of the biggest factors that dig into your profits is the costs of your equipment. The first step to cutting costs is to perform a complete audit of your organization’s finances. Then, you can pinpoint areas of unnecessary spending.
Once you cut out any unnecessary spending, then you can look into any necessary spending and identify any savings you can get. Shop around to look at different brands and providers to see if there are any places you can get a deal.
While some might find it intimidating, we recommend negotiating with your vendors to get a lower bid. Or talk with your current vendor to see if there are any areas where you can reduce costs. After all, they might be susceptible to lowering their prices to keep you as a client.
4. Optimize Revenue Cycle
Revenue cycle management can help you track the revenue from patients from initial contact to final payment.
Therefore, when you can see the full picture, it helps to increase the clarity, accuracy, and precision of your payor claims and reimbursements. As a result, an optimized revenue flow can help you grow your bottom line.
For starters, you can use analytic tools to analyze any data in particular areas that need work and produce data-driven solutions.
5. Improve Your Billing Process
The easier you make it for your patients to pay their bills, the more likely they will!
One way to improve your billing process is to optimize the balance billing process. Balance billing is when you bill a person who served the difference after the insurer pays. In order to not get stuck paying this amount out of pocket, you need to contact your patient right away.
On top of balanced billing, you also need to collect copays and deductibles or you can get in trouble with insurance companies.
Lastly, you want to be sure you are also billing the correct rack rate to insurers despite the contracted rate.
6. Invest in Staff
Although it may have initial costs, investing in your staff can save you a lot of time and money in the long run.
The greatest asset in any organization is the people. Investing in organizational health for staff consistently yields high ROI and improved outcomes for those they serve.
For example, when you take the capital to invest in the proper training and ongoing learning of your staff, you can reduce errors and inefficiencies in the workplace… and even improve overall patient satisfaction!
Additionally, investing in your staff’s mental well-being can help ensure they provide high-quality care to your persons served. When you increase the satisfaction of the people you serve, you are more likely to get referrals and good reviews, leading to more business.
7. Go Green
Here’s an interesting tip for financial management in healthcare organizations: GO GREEN! Did you know that green initiatives can save you money by reducing energy consumption, which will help improve your profit margins? Imagine that!
One way to do this is by eliminating unnecessary lighting, using energy-efficient bulbs, and investing in insulated piping. Additionally, you can limit heating and cooling rooms to only when they are in use.
Another green initiative you can implement is to reduce paper usage. This not only puts more money in your wallet, but it also helps the environment.
Finally, going green not only reduces your utility costs, but can actually attract potential patients. Furthermore, there are even grants and incentives from the government if your company goes green! It’s a win-win for everyone!
Future Considerations
- Increase Revenue: Diversify your payor mix as well as leverage organizational outcome data and program specialties to improve negotiated rates with payors [ask us how].
- Manage Margins: Ensure your financial tracking includes Objective Key Results (OKR) and that Key Performance Indicators(KPI) are aligned and meaningfully integrated for everyone in the organization.
- Improve Productivity: Assess and track integrated workflows to reduce inefficient systems and processes through best practices.
- Enhance Workforce Development: Measure the cost of employee recruitment and retention to yield maximum value and sustainable staff development.
- Remain Teachable: Revise financial sustainability planning from the lessons you learned during the Covid-19 Pandemic.
Get Additional Financial Consulting with C4 Consulting
Need assistance improving your business’s bottom line? Our team of consultants at C4 Consulting have years of experience improving financial management in healthcare organizations, including behavioral healthcare facilities like yours.
From an economic analysis and financial assessment to creating a financial sustainability management plan, we can set your business up for long-term financial viability. We understand your industry and share your passion for achieving your business’s goals and profitability.
Visit our site to schedule a free consultation or call 866-329-7170.
