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Indirect Labor

Indirect Labor % of Net Revenue = Indirect Labor / Net Patient Revenue

Indirect Labor - All labor that is NOT Direct Labor: CEO, CFO, Clinical Managers, Medical Director, QI, Education, Medical Records, HR, Finance, IT, Housekeeping, Maintenance, etc.

Cost Category Average Acceptable Excellent
Indirect: Salary Costs 23% 17%

For most Hospices, the largest component of Indirect Cost is Indirect Labor.

The reason many Hospices have trouble controlling Indirect Costs is that they have become sloppy and lazy, with people not doing things right in the first place. So, to solve this problem, we hire more people to "check up on people." This is basically an accountability problem and adding more bodies to fix the situation is NOT the solution. The solution is to expect people to do things right the first time and to hold people accountable. Do not throw bodies at problems...think through to solutions.

Look at your organization right now. Compare the number of Indirect FTEs with where you were 4 years ago. Yes, indirect positions should increase in proportion to the size of the organization, but at a lesser pace! Usually, if left unchallenged, indirect staff will creep up over time as seemingly great ideas are adopted. If you do not zero-in on bureaucracy every so often, an organization will naturally build layers...unintentionally. So you ALWAYS have to look to eliminate it.

The two ways to reduce Indirect Labor Costs are:

Of course, the best thing is to do BOTH of these points simultaneously. It is ALWAYS healthy for an organization to get rid of B and C players.

Nobody wants to have to eliminate positions. It's human nature. However, it is absolutely the responsibility of the Hospice's top management to be thinking about this issue all of the ensure a viable future for the overall organization. Pockets of duplication and redundancy are bound to build up over time. For example, Hospices have a tendency to overreact in some areas...especially to governmental requirements relating to clinical documentation. Instead of sampling charts for compliance and technical correctness, some Hospices audit 100% of the charts. This may have sounded like a great idea at the time, but is it really necessary to achieve the desired result? Could you eliminate 90% of the cost by sampling 10% of the charts? This is the type of questioning and examination that needs to take place.

"Work will expand to fill the time allowed...however, the opposite is also true. The less time we have, the more efficient we become out of necessity." AR

"Even if you implement a RIF (reduction in force), you may not reduce cost in the long-term as the work has not changed. In fact, you may end up with higher Indirect Costs as you gradually replace the RIF'ed staff with less experienced staff." AR

"RIFs are usually a BAD idea." AR


ADC Average Length of Stay Benefits Percent Caseload Expectations Computed Caseloads Crisis Care Percent Served Days Cash on Hand Days in AP Days in AR Debt to Equity Development to Return Ratio Development Signature Programs Direct Labor % of All Labor Direct Labor NPR Direct Labor PD Direct Patient Related Expenses NPR Direct Patient Related Expenses PD Facility Mix Percentage Facility Related Facility Team Patient Days Percent Indirect Labor Marketing Incentive Median Length of Stay Mileage Rate Net Operational Income Net Revenue PD Operational Costs Organizational Net Income % of Hospice Homecare Net Revenue Revenue to Payroll Dollar Segment Indirect Percent Net Revenue Segment Net Income The Role of Financial Reserves Total Indirect Volunteer Level of Activity What is Net Patient Revenue What is The Model