Taking Your Company’s Viability Temperature

Given the current and upcoming conditions of our industry, wouldn’t it be nice to take an arbitrary business temperature to see if you’re running a fever or are just fine at 98.6 degrees?

Managing a home care operation, whether it is a $1 million mom ‘n’ pop or a multiple-location enterprise, is a little like operating a restaurant. The restaurant and your HME both have good employees and faithful customers who frequently refer others to the business.

However, this is where the similarities end. Where the restaurant’s customer is whipping out his cash or credit card to pay his bill while he’s still licking pie crumbs from the plate, you are licking your cash-flow wounds as you stare vacantly at your Medicare ANSI-driven report, asking, “Where’s the money?”

At the end of the day, our restaurant owner knows the exact state of his financial health because the cash in his till represents the sum total of the cash flow of his entire enterprise to the minute. You, on the other hand, work in a cash-flow world that stretches over months.

Lastly, the local boil-and-fry cookery primarily deals with one regulatory source — the local health department. You deal with HIPAA, JCAHO, FDA, OIG and others. An extemporaneous visit by the food inspector with his cooking thermometer clipped to his shirt pocket can be resolved on the spot: “Yes, sir, I’ll turn up the fry pan and get those burgers to 155 degrees.” You, in your worst-case scenario, are “assuming the position” while the FBI carts away your files.

It’s time to take your company’s viability temperature to ensure the worst-case scenario remains an improbability.

Taking Your Vitals

The following conditions correspond to the letters on the risk-analysis chart on the next page. Think carefully about each category, and assign yourself a position on the risk continuum. Then, you will be able to score the results to see if your company is at risk for future problems.

A. Market Conditions

Are all your eggs in one basket? What is the percentage of high payers to low payers? Caveat: You could have a large number of high payers, but it’s a one-egg (Medicare) basket. What happens when national competitive bidding hits? Do you have any long-term contracts, or does your business run by rotating referral? What’s the strength of your sales staff? Finally, what is your product mix of DME to oxygen?

B. Regulatory Issues

Are there any current, past or pending violations that could come back to haunt you or affect your company’s future viability?

C. Reimbursement

The big bugaboo, NCB, may not hit your area until 2007 or 2009, but what about current issues: accounts receivable days sales outstanding, operating margins?

D. Debt Repayment Ability

This applies to monthly operating expenses and short- and long-term liabilities. While certainly not on the radar screen of any provider back in the old Golden Commode Era — many mom ‘n’ pops didn’t even bother to collect co-pays, such were the gross margin profitabilities from primary payers alone — today’s reimbursement and ability to get paid on a consistent cash-flow-timed basis is crucial. So take a long, hard look at your day-to-day survivability index, such as cash on hand and the sources of all income as a function of their individual reliability. Think slow-pay Medicare versus a slower-pay Medicaid when compared to a local payer with whom you have a personal relationship. Finally, can you walk into a bank and get a signature loan for $50,000 today?

E. Legal

Short of the FBI walking into your business with guns drawn and commanding everyone to step away from their computers, what is your relative legal liability exposure? A low-impact vehicle accident caused by one of your drivers may be only a minor variance; conversely, a sip-and-puff power chair that went awry and killed its occupant may leave you holding the bag. Regulatory-wise, what’s your history?

F. Personnel

Can you sustain payroll and benefits to ensure quality performance in view of shrinking margins? Can you afford to maintain the number and type of personnel you need? More importantly, can you afford not to keep such a high-maintenance crew given their support to your business’ success?

G. Personal Issues

How is your health? Your financial partners’ health? Your spouse and children? Any of these, whether business or personal family issues, can distract you from paying crucial attention to items A through F in the chart above. What’s your future mental and emotional commitment to the business? Does golf or that mid-40s Harley crisis consume your thoughts?

Note that the more heavily weighted indices — A, C and D above — simply cannot be ignored. These are the Holy Trinity of your business. While other items can be stalled or at least assuaged — for example, in the legal category an impending trial may be months away or cancelled — your market condition, getting paid and the ability to pay back or secure further funding can put you on the road toward a negative outcome if your company is lacking in any of these three areas.

Jerry A. O’Ryan, RRT, RCP, is the owner and CEO of Physicians Preferred Home Healthcare with locations in Dayton and Cincinnati, Ohio. O’Ryan has been a respiratory therapy practitioner for 37 years and has been in the home care field for more than 20 years. He is the author of two medical texts, “Pulmonary Rehabilitation: From Hospital to Home” and “Home Respiratory Care.” Physicians Preferred Home Healthcare is a respiratory company providing oxygen and respiratory medications with an accent on disease management of COPD and asthma. O’Ryan can be reached at 937/294-9355 or by e-mail at [email protected].

Additional Risk Considerations

Your Retirement

The increasing rapidity of the coming reimbursement crunches and your ability to turn your business into a future retirement nest egg are somewhat proportional to the number of years you are away from the arbitrary retirement age of 65.

Your current age as a business owner or high-ranking manager is crucial in terms of where you would like to be when you finally cash in and get that Harley. So, here’s the exercise: starting at a numerical risk of 8, decrease your risk rating by one number for each five years you have until retirement.

The farther you are from retirement, the more time you have to plot your game plan and win in the long-term scheme of the home care game. Sure, it’s arbitrary, but it is a wake-up call.

Your Industry I.Q.

Chances are if you’re reading this article, you are someone who truly cares about your business, your employees and certainly your referral sources and customers. Now, take an inventory of how much time you devote to reading about or participating in our industry’s professional organizations at the local, state and national levels.

You can answer this next question on a purely emotional level. Assuming you’re not a workaholic, and that you otherwise lead a balanced life, is the home care business you own or manage a part of your life’s work or is it just the work you do to have a life? If your answer is the former, give yourself a personal numerical rating on the lowest end of the scale — and may your fortunes continue to shine.

A final word after you take your temperature and arrive at a preliminary diagnosis: Whatever your business viability thermometer reveals, don’t self-direct your own medical fix. Consult your CPA, your attorney or other trusted advisers and begin holding honest, open discussions with your immediate managers. I call this doing an “internal Chapter 11.” Do it for yourself before someone else forces you to do it.