In 2022 there were 55.8 million Americans aged 65 years or older—more than double the number than in 1980 with just 25.5 million.  Since older individuals tend to need more healthcare than younger people, it is no surprise that the significant growth rate of this population has contributed to the rise of medical costs for everyone. Sky-high prescription drug prices, more advanced technology and inflation rates have all added fuel to the fire, causing expenses to really pile on for providers and patients alike.

Long-term post-acute care providers are constantly challenged to reduce the cost of care without impacting the quality of care. While it is not an easy task, providers can be more successful in their efforts to reduce costs if they start monitoring their existing expenses more closely. Expenses generally fall into two categories: variable costs and fixed costs. 

Variable costs are expenses that allow flexibility and change, depending on the current census, occupancy and other needs of the organization. These include:

• Dietary needs
• Medical supplies
• Staffing/payroll
• Employee training programs
• Marketing budget

Fixed costs are typically set and remain consistent, regardless of the company’s position or performance. These include:

• Rent
• Property taxes
• Insurance
• Equipment
• Vendor expenses

Since variable costs are more easily adjusted or minimized, it makes sense to focus your cost-containment efforts on these expenses first, for the biggest and quickest impact to your organization’s bottom line. And although fixed costs may be more difficult to change, there may still be opportunities to cut costs strategically, without impacting essential business functions.

To reduce costs within your organization without compromising quality of care, consider taking the following actions: 

• Assess the use of costly dietary supplements: There may be alternatives such as superfoods that are not only cheaper but likely more tasteful for residents. If supplements are used, take your resident’s flavor preferences into consideration to help avoid unnecessary waste (for example, do not buy them chocolate flavor if they will only take vanilla).
• Study your meal plan: Are your residents enjoying the food being served, or is waste driving up your food costs? Observing your residents at meal time can help you understand whether the food is palatable and relative to the tastes and culture of the overall population. 
• Track your inventory: Avoid overpaying for last-minute supplies or re-ordering supplies you already have on hand, by keeping up-to-date inventory. Plan for your foreseeable needs and always check your inventory before submitting new orders. Abiding by the first in, first out stock rotation method will also help ensure any perishables like food, beverage, supplements and medications are used before they expire and need to be tossed.
• Evaluate your overhead payroll: Even though many providers are struggling with labor shortages, it is still necessary to monitor expenses in this category because it is such a significant cost. In addition to gross wages, providers need to factor in costs for insurance and other benefits, and decide whether it is more beneficial to outsource. Pay particular attention to your spending in housekeeping, maintenance and dietary positions. 
• Embrace online training: Ongoing employee training is crucial but when budgets are tight providers should skip the in-person workshops.  Save money that would have been spent on travel, hotels, catering and other personal expenses, and use online training forums instead.
• Negotiate favorable contracts: Get in the habit of reviewing all your recurring expenses on a quarterly basis, including any vendor bills or invoices you may not see on a regular basis. Verify that what you are being billed for is being delivered, and do not be afraid to negotiate better rates even under your existing contract. Shop around to compare services and pricing so you understand all your options.
• Consider lease vs. buy: Medical equipment is expensive to buy and, in many cases, newer technology rolls out before existing equipment is paid off. Depending on the type of equipment, it may be more expensive to rent than buy it outright. Be sure to weigh the pros and cons of leasing vs. owning so you can make the right decision for your organization.
• Pay on time: When you make a habit of paying your invoices late, the additional fees can really add up. Avoid this unnecessary cost by making sure payments to your vendors are submitted on time, every time.
• Capture your expenses: It is easier to overspend when you are in the dark on your financial position. Recording your expenses right away will help you better understand where your money is going, and when you may need to cut back.
• Collect timely AR: Waiting too long to collect your outstanding receivables can certainly impact your cash flow and profitability. Make sure you are consistently sending bills out on time, and following up immediately when payments are delayed. Preventing loss is equally as important as cutting costs.
• Form strategic partnerships: Expenses are a critical component of your organization’s profitability and controlling them is a necessary but time-consuming undertaking.  Professional advice can help you better understand your current spending habits and mitigate operational costs while keeping quality of care the priority. 

Enhance Outcomes with Richter

Richter works with providers of all sizes and scopes on budgeting, accounts payable, cash management and more. To learn more about our comprehensive solutions contact us here or call us at 866.806.0799.