Economies of Scale?

With all the talk of “scale” and the “economies of scale” in hospiceland, I think that many folks are missing a lot of opportunity. Let’s really think about this… Consider your hospice, especially if you are a hospice with an ADC of 100 or more. You may be saying to yourself…

“If I only had more census… If I only had more patient volume… If only LOS was longer… If I only had… If…” 

Do you really think that “more” patients would make you more profitable? If this is so, then why are there so many hospices with censuses near or exceeding a thousand patients a day that have “mico-profit” margins and some EVEN losing money from hospice operations?  The reality of the human condition, as I see it (and I am no genius – if I could get to an IQ of 70 I’d be happy), is that most leaders will spend in the same patterns regardless of ADC size. I have seen this my entire career. Human beings are the accumulation of habits…thought habits. Unless the thought habits change, the behaviors won’t change. The fact is that we all change over time. Some of us become better at the allocation of resources to gain ROI (Return on Investment) while others, become sloppy and spend freely when money is plentiful. I have seen poor to average CEOs become devastatingly effective as well as CEOs that were once highly profitable and frugal become lax and wasteful (By the way, frugal is en vogue now as CASH is the best strategy in uncertain times… For that matter, was it ever really not a good idea?).

My advice is to toughen up and

Farm less ground well…

“Yeah, Andrew but we’re not farmers!” Bear with me on this analogy. A farmer with 500 acres of meticulously cultivated land will out produce (per acre) a conglomerate of 25,000 acres farmed with average intention. There is an inherent loss of efficiency when things get bigger. By virtue of size, there is inherently more to manage, more to break or go wrong…more to do. We all know that when we try to do too much and overextend, quality suffers and things are more apt to fall through the cracks. Energy levels are stretched. The same holds for our hospice businesses. 

Now Wall Street is in love with BIG! In fact, big money is not attracted to small…UNLESS it is a “system” that can be replicated on a larger scale. In fact, you’re always selling your system, or at least should be (if it is indeed, extraordinary)! Quality only comes from a system! Even if you’re an NFP hospice, you are selling your system as well…to consumers, ACOs, payers and other constituents. They are all “buyers.” This gets us back to the Model, “the creation of a high-quality, predicable experience for every patient, every time that is financially balanced… Heck, not only financially balanced, but is phenomenally profitable (if done really well!). The question is “How good is your system?”

The fact is that you can make more money with fewer patients IF the hospice is managed well. Translated another way, you can make more money with less revenue IF you manage well! If you have been reading the last few data-grids in the FlashPages, you will note that the most profitable hospices by ADC size were the 30 and 100 ADC levels. Do you think a small hospice with a couple of HIGHLY committed nurses and other clinicians would/could create a high-quality, highly predictable experience and be tightly managed? You bet!  If it’s your house that’s been mortgaged and is on the line, you tend to mind the shop extremely well!   

Economies of Scale? This idea sells really well to the well-meaning, perhaps stressed but unclear CEOs and/or CFOs.  Yes, I get the math on “economies of scale”…I’ve done it in reality. I am still an anal-retentive CPA/System Analyst. I’ve designed and have been part of hospices that actually achieved economies of scale. But we were disciplined about our spending…we were creative…and we ignored (to a practical extent) how most hospices operated. But “economics of scale” is a “myth” for most hospices or ventures UNLESS they have established prudent and measured spending thought habits. In the Profitability Program, I hit this subject with great force because it is SO needed and is so valuable to right the ship. 

A good business is a good business. Hospice is a good business to be in and to be expert at…at this present time! When other people are ducking their heads, get busy and farm your plot of ground well and you should come through in great shape! The present hospice environment is sorting out the “professionals” from the amateurs. Managing a hospice in years past was relatively easy… Now, the market is finding out who is really good at managing…and this is evidenced by your bank account and profit margins. If you press things, you will be surprised how effective and creative your Indirect Areas will become out of necessity. You will be surprised…

Your objective friend,
~ Andrew