The Role of Financial Reserves - Multi-Pedia
The Role of Financial Reserves in a Hospice
Reserves play an important role in a Hospice. They are a symbol of strength and capability. They decrease stress and anxiety. They provide a physiological as well as a very real material advantage. Hospice leaders need to have a clear idea of the value of having financial reserves. They are part of the Vision of a World Class organization.
How much does a Hospice need?These are important questions. A Hospice needs enough money to fund its Vision. This may sound like an easy, pat answer, but it is the truth. Some Hospices need $100,000,000 in the bank. Some need $10,000,000. Many need less. A Hospice that has cash in the bank can rapidly move on projects such as inpatient units, new programs, drive competition into the ground, etc. Not having cash reserves may eventually mean the end for many Hospices.
Reasons to Be Profitable and Build Reserves
This section is repeated in many of the MVI materials because it is so important. The reason a Hospice needs to be profitable and thus build reserves, is simply the fact that an organization cannot survive in the long-term without reserves. An event or combination of events WILL occur in the future of every organization that will test its capabilities. No Hospice is immune to these challenges. Money makes things easier.
We also need to have top-of-mind awareness of the reasons why we need reserves so that we respond to daily decisions with balance. This is part of the culture shift. Every staff member should be aware of WHY being profitable and building reserves is critical. Here is our stock list of reasons:
- Can your Hospice outlast changes in Medicare ? Changes in Medicare can last a long time, even decades before relief comes after over-reactions by those in control. A Hospice needs to have reserves to outlast these seasons.
- Can your Hospice outlast ADRs and focus edits? Severe Medicare Administrative Contractor focus edits and other revenue withholding mechanisms can severely disrupt Medicare payments for the better part of a year when combined with sequential billing.
- CMS is actively seeking to reduce Medicare payments. Reviews of cost reports, ADRs, CR5567, MedPAC, and phase-out of the budget neutrality act all point to an effort to reduce reimbursement. If history means anything, in the future, our rates will be decreased.
- There are ever-increasing competitive pressures in Hospice. At present, there are more Hospices or "Hospice-like" services.
- Costs are increasing. Consider DME . It is an area that is increasing rapidly due to a limited number of vendors and higher operating costs like the cost of gas. Nursing costs will continue to increase due to the nursing shortage.
- A Hospice needs funds to weather PR (Public Relations) disasters. If your Hospice is accused of killing a person, I guarantee that you will have a few "dry" years in the community support department. We have seen large Hospices cease to exist in a matter of months after major PR disasters.
- A Hospice needs funds to take advantage of opportunities that arise. This could be the purchase of a nursing home that could be converted into an Inpatient Unit or to acquire a Hospice in a contiguous service area. Money in your pocket is a great thing.
- A Hospice needs reserves for "management surprises. "What if accounting has done a poor job of reporting Pass-Through expenses? Pass-Throughs can be substantial amounts...even millions. We have witnessed cash-short Hospices merge or cease business over Pass-Though surprises.
- Lawsuits are becoming more of a problem in Hospice. They can be VERY expensive and also lead to a PR disaster if mishandled.
- Occasionally, a Hospice can have a "super duper" high cost patient. If you have money salted away, you can weather the situation. If not, you may be looking for a partner to merge with.
- Hospices need money to possibly undercut competitor margins by introduction of additional products and services.
- Hospices need funds to take care of indigent patients. This has been the classic response...and it is as true today as ever.
- Some Hospices are one patient away from bankruptcy.
- It is just good common sense to build reserves.
It is just a "nice feeling" to be able to afford to care for high cost and indigent patients or to build an Inpatient Unit and say, "No problemo!" It just feels GOOD!