Providing long-term care is expensive, especially if you cater to a niche, like long-term care for adults with Down Syndrome. You have special facilities, expensive equipment, and specialist staff. You must know your profitability to invest in resources for growth. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is the metric that shows your operational efficiency and operating profitability.
Is EBITDA Really That Important?
It is rather. It measures short-term profitability, so it won’t secure a mortgage but it will give you a snapshot of your operational performance over a set period. EBITDA identifies which operations in your practice need some TLC to function efficiently and helps you forecast future performance.
If you’re looking for merger opportunities or want to open up your facility to private investors, EBITDA demonstrates the kind of profitability they can expect over a set period. This is significant because if there’s one thing investors love it’s cash generation.
It’s also handy as a benchmarking tool because it takes non-operating costs out of the equation. This makes it possible to compare your facility to others in the market, as well as measure your performance against industry standards.
Identifying Cost Drivers in Long-Term Care
We’ve said long-term care is expensive, but what are the costs that you have to grapple with to maintain your facility and the quality of care?
- Staff: It’s not just salaries and wages. It’s medical and insurance benefits, paid leave, pension plans, and training – maybe even private office or consulting/therapy space.
- Supplies: Managing these costs includes negotiating better prices, especially if you start buying in bulk. You can bulk buy from one or two sources, reducing delivery costs from several suppliers.
- Overheads: There’s no hiding from overhead expenses. Not if you want to maintain your reputation for quality care and services. You can reduce expenses, however. Switch to renewable energy sources wherever possible, move to more suitable premises, and invest in high quality equipment that doesn’t need replacing as quickly as cheaper models.
- Insurance and regulatory compliance: Insurance is utterly non-negotiable. Insurance for premises, equipment, third-party liability. Basically, if it can be damaged or someone can be hurt, insure it.
- Inefficient billing and operations: You might start out with magic billing systems and super efficient operations, but time passes. Your facility grows; you provide more services; you specialize; technology advances. All of which leaves you with systems that are redundant and ultimately drive up operational costs.
Improving Revenue Streams
Reducing costs is great, but escalating revenue is even better. Start by automating your billing system to improve collection rates and reduce payment delays. Look at your contracts and really nail down payment methods, schedules, and penalties for outstanding amounts.
Diversifying services is perhaps trickier than it appears on the surface. If you specialize in niche services then diversification might not be for you, but you could give them a boost by increasing capacity, or adding new types of therapy. If you’re not committed to a niche, you could add extra services, like step down facilities for mid-term patients.
If you’re going to go to all the effort of improving your services, you want people to appreciate them. You can market your new and improved facility to attract new residents, especially new residents from a higher income bracket. Cash generation, baby!
Isn’t it awful when patients take the “long” out of long-term care? Even if you fill their beds quickly, a high turnover rate is cause for concern. Remember, it’s not them, it’s you. You must figure out why they’re getting the heck out of Dodge and implement strategies to increase patient satisfaction and stem the flow.
Private patients, don’t you just love them? When they pay promptly, of course. Reassess your target audience and see if you can enhance private pay rates. You don’t have to leave your current market behind, but you can collect money from Peter to pay for Paul.
Operational Efficiencies That Boost EBITDA
There are several ways to improve your facility’s operational efficiency. A good place to start is automating financial reporting tools. Advanced healthcare-specific accounting software like Sage Intacct, can automate:
- Accounts payable, accounts receivable, and expense tracking
- Invoice processing
- Inventory management
One of the primary benefits is that AR cycles are optimized and you don’t have to wait as long for payments.
You can reduce labor inefficiencies with better scheduling. Once again, there are several options. You can outsource certain accounting functions so your bookkeeping department can focus on day-to-day accounts management.
It’s a good idea to automate attendance tracking. Aside from keeping an eye on employee attendance, it also shows you how much time was spent on tasks. Admin tasks typically devour time. You can look for ways to optimise (automate) activities so employees can spend more time on patients.
Get the most out of your resources by allocating them effectively. This applies to supplies and equipment. For example, you can’t have too many hand sanitizers, but if your patients tend to avoid the library, you can cancel your Reader’s Digest subscription.
Where Tech Goes, Profits Will Show
Technology plays a major role in the financial success of any endeavor, including your long-term care facility. Don’t underestimate the value of advanced, cloud-based accounting software in reducing and managing costs across the board. This is because it does much more than manage your accounts.
The good stuff comes with a range of tools and features, like analytics capabilities and real-time data generation. You can get up-to-the-minute information on operational performance and efficiency and their impact on your facility’s financial status.
The good stuff also comes with easy-to-navigate financial dashboards that provide a wealth of information, including predictive analytics and financial forecasting. Integrating billing and patient management systems helps to streamline billing processes, reducing the time in accounts receivable and making your bank manager very happy.
You can make your bookkeeper very happy by automating critical and complex functions, like accurate reporting for in-depth financial analysis. And if you need help decoding financial analyses, you can always consult your outsourcing specialists for guidance.
EBITDA: Not as Daunting as the Acronym Sounds
EBITDA is a mouthful, but if you do it right, it’s also an account full … of profit. OK, that’s stretching it, but it’s a handy tool to measure your facility’s financial performance and efficiency at a particular point in time. However, while it’s fabulous for short-term insight and planning, don’t rely on it for long-term financial strategies.
