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Total Indirect

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

This is one of the three major cost areas of Hospice.

Indirect Costs - Costs other than Direct Labor and Patient-Related costs.

They can be categorized into three sub-categories:

Cost Category Average Acceptable Excellent
Total Indirect Costs 35% 26%

Indirect Costs are not fun to deal with. Indirect Costs are some of the toughest costs to keep under control in any organization.

With Indirect Costs, you have to draw a line in the sand and say, "This is all the overhead we're going to allow," and then force Indirect Costs back behind the line. If you don't take this hard approach, you will see Indirect Costs "creep up" every year. One or two percent can make a big difference to your bottom-line.

The two ways to reduce Indirect 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.

Indirect Costs are a pain, but they must be continually examined. As MVI says, "It is impossible to intelligently direct resources and energy without precise knowledge." All MVI charts of accounts contain the detail to intelligently direct your efforts in managing Indirect Costs. Use the Management Application (MA) and Benchmarking Application (BA). They will tell you what you need to work on. Also, common sense and questioning can usually lead you a long way in the right direction.

Why does MVI not recommend allocations of Indirect Cost in the General Ledger?

Because the allocation bases most often used for the allocation of Indirect Costs to departments and business units in the General Ledger do not represent reality. They are arbitrary at best and in most cases, are always suspect. It is better to isolate Indirect Costs and use a Contribution Margin approach to evaluate department or business segment performance. There should be enough contribution to offset Indirect Costs and provide for positive residual. If allocations are necessary, it is best to do this in financial report writers using calculations which can be adjusted easily.


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