How does a home health care agency become profitable? Is it worth the investment?
Healthcare business resources for your growing business.
How does a home health care agency become profitable? Is it worth the investment?
Starting a home health care agency can be filled with many questions. Ultimately, the biggest question of all is when will the financial benefit generated from the home health care agency exceeds the expenses, costs, and taxes involved in sustaining the home health care agency. Business planning is the key to being successful and generating enough revenue from all the different payor sources that are available to a home health care agency. Several key factors come into play when discussing this topic for proper business planning such as income from payors, taxes, payroll, marketing, and initial investments. These topics are going to be covered in this article to help build a better understanding of what goes into making a home health care agency profitable and if they are worth the investment.
Business Planning for a Home Health Care Agency
Firstly, Business planning is an art that crafts the future of all businesses not just home health care agencies. Researching before investment is always the best option and the smartest as well. Building a business plan can seem daunting but it is just answering a series of questions that pertain to each home health care agency.
An example of a series of questions would be:
- What services are being provided?
- What makes the services provided stand out?
- What is the mission statement of the home health care agency?
- What do I call the home health agency? Is it one of a kind? Memorable? Easy to read and pronounce?
- What demographic will this marketed too?
- Where will it be?
- Does the census of that area target the demographic?
- How will the home health care agency advertise?
- How much is being charged for services and what are the competitors charging?
- Who is going to manage the day to day? Do I meet the requirements, or do I have to hire an Administrator or Registered Nurse to fill the role?
If a new business owner cannot answer these questions initially it may be time to speak to a professional(s). Organization and proper planning will make the difference between a successful home health care agency and one that will fail.
Budgeting for a Home Health Care Agency
Secondly, Budget for success which if someone has ever heard the age-old proverb “it takes money to make money” and “time is money” is completely correct. The average budget of a normal start up home health care agency should be at least $85,000 and obviously the higher the better because it gives more flexibility and stability to initial investments. Every factor that goes into licensing and certification of a home health care agency does not happen overnight and can take up to 18 Months to fully develop and complete payor enrollments in most cases. There are always exceptions to the rules where the time frame or amount of money needed to sustain the home health care agency come into play and planning for that buffer period is crucial.
Payroll Management for a Home Health Care Agency
Thirdly, Expenses are the initial investment and can seem to get out of control fast. Payroll will always be a home health care agency’s biggest expense. Home health care agencies are selling their services and the people they employ are the product and say a lot about the quality of an agency. First and last impressions are what makes a home health care agency memorable and will decide whether or a home health care agency will get future referrals. Quality employees do not come cheap in most cases and making sure they get paid on time is a huge deal. Managing this expense is the top priority of every home health care agency and unless the owner has a solid plan for recording time, pay roll and paying taxes on the hours worked could result in having nothing and everything that was planned ends in ruin. No employees mean no product which means no income. Retention is the key to success especially during a startup process because training and orientation cost more money than sustaining a good employee. There are several ways to plan for this whether it be through a self-managed system such as Quick Books® or a payroll company such as Paychex®. Whatever the home health care agency decides this should always be the top priority above all else.
Marketing for a Home Health Care Agency
Fourthly, Marketing should be the 2nd most important expense because if no one knows your business is open for business, there will be no business. Developing a logo and website is the most important part of marketing to start with because it sets the tone that your business has a brand and is reputable. Appearances are everything when it comes to marketing. Have you ever visited a web site and thought that logo or the something about the site seemed too basic or of low quality? This can build doubt as it creates new questions about how the home health care agencies work ethic is the same. Don’t let first impressions be the last impression make sure your marketing tools are of the highest caliber. Marketing tools can be a great way to get the name and brand out such as pens, note pads, brochures, and other direct marketing tools. Hiring professionals is great way to foster the home health care agency’s options and build a great experience for potential clients.
Acquiring Revenue and Properly Billing for a Home Health Care Agency
Fifthly, How does a home health care agency generate income? Following the steps laid out will greatly help but the biggest part of everything is what reimbursement programs are available to home health care agencies. Private pay is cash for services provided but not everyone is independently wealthy can afford paying for services up to $15-$120 dollars an hour. National Averages put the income rations to about $24 an hour for home health care agencies. Health insurance payments will be most common as it will generate 65-75 percent of all revenue. Home Health Care Agencies cannot simply bill insurance without becoming an enrolled provider with each different insurance carrier. Each insurance company whether it is considered state, federal or private will pay different rates and want a signed contract to complete the enrollments. Insurances can bill back money for claims that are not filled out correctly and cause the agency to have to rebill and follow up to obtain the money owed. These processes can be cumbersome if the agency has never acquired enrollments. Billing should always be done by a professional even if the agency should have to pay a separate arrangement for a billing company to assist, they usually only consume 2% of revenue at best. Never leave money on the table by missing the opportunity to bill for services and supplies that the insurances will cover.
Profitability of a Home Health Care Agency
Sixthly, Profitability is what makes it all worth it at the end for a home health care agency with the fringe benefit of providing a quality service to the community. Organizations often prioritize how they will make the most money by proper assessment of the current environment and opportunities. There is a formula that is used to determine profitability which is: “income – expense = Profit/Loss”. The average of $24 dollars for services with the overhead and payroll average being about $16-17 per hour leaves $7-8 dollars profit per hour which means it is approximately 33% percent profit ratio. Service prices with vary and so will overhead so this is just an estimate but from this formula the home health care agency can deduce how much profit will be generated from billable hours.
- 40 Billable hours X $24 = $960 x .33 = $316.80
- 80 Billable hours X $24 = $1920 x .33 = $633.60
- 120 Billable hours X $24 = $2880 x .33 = $950.40
- 160 Billable hours X $24 = $3840 x .33 = $1267.20
- 200 Billable hours X $24 = $4800 x .33 = $1584.00
Obviously, the key is billable hours, this will vary from patient to patient which is deduced from the doctors’ orders for services needed. The home health care agency should have a proper intake system which will be able to tell whether the services will be profitable or not. Levels of services will determine the amount of billable hour available.
- Companion services usually average bout 9-12 hours per week
- Personal Care Services with iADL’s (adult daily living services) average 15-20 hours per week
- Registered Nursing Services average 10-20 hours per week
- Therapies Average about 10-15 per week
- Full range of services can be as much as 30-44 hours per week.
Home Health Care Agency’s do have a decent profit margin and can be worth the worth the investment if they are properly structured and the overhead and payroll are aligned with the income ratios. Averaging everything together would put each client at about 26 hours per week. The number of clients, also known as the census, will be the final number example.
Examples profit per week
- 50 Clients x 26hrs = 1,300hrs x $24.00 = $31,200 x .33 = $10,296
- 100 Clients x 26hrs = 2,600hrs x $24.00 = $62,400 x .33 = $20,592
- 150 Clients x 26hrs = 3,900hrs x $24.00 = $93,600 x .33 = $30,888
- 200 Clients x 26hrs = 5,200hrs x $24.00 = $124,800 x .33 = $41,184
Consultation for a Home Health Care Agency
Lastly, Hiring professional helps can make a world of difference and take out the worry of prolonging the processes which will cost more money than hiring professionals. Certified’s home health care consultants know the process, have working relationships with state officials, and will greatly reduce the amount of time for licensing and certification. Building professional marketing tools, proper implementation of business planning, and setting the home health care agency up for success is what we do. Call us today to find out more about your state.