How SNFs are cutting costs without cutting back on care
Betsy Rust, CPA
As if managing the health of patients wasn't difficult and time-consuming enough, skilled nursing facilities now have to do more to manage their increasingly complex businesses as well.
Why? To begin, revenue isn't rising at the same rate as expenses.
A large percentage of this swelling cost is related to staffing, which already represents about 60% to 65% of a facility's operating costs, according to a report about the industry's need to adapt.
Finding staff when the economy is good is challenging enough; there's an ongoing shortage of registered nurses, licensed patient nurses and nurses' aides. Staffing for direct care, especially RNs, is also a key element in the Centers for Medicare & Medicaid Services' Five-Star Quality Rating System, encouraging operators to beef up staffing.
On top of this, SNFs are experiencing the census volatility that comes with short-stay post-acute programs. Nursing homes and rehabilitation centers might be full one day and left below break-even occupancy levels the next, as short-stay patients discharge home. Longer-stay patients are not helping to bridge the gap with so many other alternatives like assisted living and PACE available.
To be successful, SNF operators must develop staffing models that help mitigate these census fluctuations while, at the same time, assist with recruitment and retention of key staff. This is not a simple proposition. How do you convince somebody to take a job when your model calls for a staff shift cut when beds aren't filled?
It's a whole new world out there. Seeking cost efficiencies on a daily basis, cutting staff quickly but not too much, providers are in a quandary about how they can cut costs meaningfully without running afoul of staffing-related issues or the Five-Star Quality Rating System (particularly with the new Payroll-Based Journal (PBJ) system).
This is where benchmarking reports can be especially helpful for SNFs. By taking a holistic view of the industry — whether focused on broad topics such as labor costs, or more niche topics such as Medicare profitability — these reports can provide SNF leadership with an inside look at industry best practices in a wide range of areas. With this information, they can make better informed decisions about the direction of their own businesses.
For example, one area where SNFs might find fat to trim is in nursing administration. Benchmarking reports tell us that direct nursing wages and supply costs represent 41% of the total routine cost of care, with nursing administration representing an additional 7%. This is an area where potential cost savings can be found if staffing is adjusted for census. What about finding efficiencies in housekeeping or dietary departments? What about administrative services? Are operators using technology to leverage what they're doing or are you still carrying a lot of staff performing clerical and duplicative administrative tasks?
The bottom line is that SNFs have to be more efficient with their operating models, but at the same time make sure they are reinvesting capital in their facilities.
At some SNFs, nursing or other costs can be — carefully — reduced. But cutting too deep can backfire, as quality and resident satisfaction must remain your top priority After all, even if a facility is efficient, it still also has to be a desirable place for patients to stay.
This is just the beginning.
Census fluctuations will likely be the norm well into the future. Therefore, now is the time for owners and operators to step back and assess whether or not there are opportunities with people, processes or technology to revamp their operations and weather the storm.
Those who think they can just manage with business as usual and rely on models from decades ago may be among the first to close their doors.
Betsy Rust, CPA, is a senior care and living consulting partner at the accounting firm and consultancy Plante Moran in Detroit, MI.