Editor's Note:This month we begin a new monthly feature, “On the Money.” Every month we'll introduce you to colleagues who are saving their facilities money in a big way. Let us help you get through these tough economic times by sharing time, money, and resource-saving ideas from professionals like yourself who grapple with these challenges daily.
Even though long-term care organizations are extremely familiar with the need for cost control, there's been no time like the present for its absolute necessity. James Formal, president/CEO of the Maple Knoll Communities, Cincinnati, Ohio, discusses with Consulting Editor Richard L. Peck several initiatives in operational review, budgeting, fringe benefit administration, and more to keep his multifaceted organization-encompassing skilled nursing, assisted living, independent living, and home care-on an even keel in these stormy economic times.
Peck: What sorts of operational review procedures have you put into place to keep costs under control?
Formal: We're a fairly complicated organization, with skilled nursing, two retirement communities, home healthcare, affordable housing, even our own radio station-so we have a lot of things in the air at once. But one thing I determined when I started here five years ago was to get my hands dirty and learn everything I can about operations in order to make good decisions. I do have line departments that report to me, which is probably unusual for a CEO. My executive team meets periodically with every manager in the organization and we go line by line through their general ledger accounts, justifying everything. This is a good exercise for them, and great for me, because I learn about a lot of things I otherwise wouldn't have realized. As an example, our food service department ran an employee cafeteria that was in fact used by only about 10 to 15 people-this, with a staff of over 600. So we renovated the space as a staff break room, with vending, a microwave, a flat-screen TV, opening it up for use by more staff and saving $100,000.
Our annual budgeting is set up to be maximally cost-effective. In times like these, when you have so many moving targets-the state talking about funding cuts, banks doubling letter of credit fees, our census being affected by the down housing market-you have to be flexible. We do “scenario” budgeting, developing a budget for each of three or four possible economic scenarios for the year. If the state cuts our funding by 2%, we'll go one way; if not, we'll go in another. We can adjust our budget on the fly so that when the fiscal year starts, we're as ready as possible to go in the appropriate direction.
Peck: How do you get staff to adjust to this “tough on costs” regime?
Formal: We try to be as transparent as possible. They read the newspapers, they know what's going on, so if you share performance data with them, you can get some very constructive ideas. For example, at a recent monthly managers' meeting, it was noted that overtime was costing us about $1 million a year. One manager suggested that rather than automatically ask someone to go on overtime when someone else calls off, we should establish a decision-making tree for managers to follow in deciding whether to cover that. This has reduced our overtime from $50,000 to $7,000 per pay period.
Peck: I understand that you have a unique healthcare benefit program that gets at that high-cost challenge. Would you describe this?
Formal: We have what we call a Medical Expense Reimbursement Program, or MERP, and this is offered two ways. We have a spousal MERP, which requires any staff person whose spouse has coverage to sign on with that coverage, with us paying the difference if the spouse's plan has higher costs. Second, we offer a large-case MERP, in which anyone whose healthcare costs exceed $50,000 on our self-funded healthcare plan is required to go on a commercial or state-funded policy that we pay for. These policies are expensive, but a lot less than $50,000. These plans have been extremely successful, with savings amounting to about $600,000 on a base of 650 employees. They're popular with employees, too; they like that access to the commercial coverage when they need it.
Peck: What are some other important steps you've taken?
Formal: We've bought into a liability insurance company alliance consisting of 25 not-for-profit organizations around the country that are similar to us. Caring Communities Insurance Company (CCIC) has been extremely successful not only in helping to control insurance costs, but it has also pioneered some cutting-edge risk management techniques that ultimately benefit those we serve. This ensures that all CCIC members are on the same risk management plan and minimizes risks to the extent possible. We also have our own rehabilitation company that gives us direct control of those post-acute services and costs, and we're looking to do the same by setting up our own pharmacy company, or “pharmacy within a pharmacy,” as we're calling it. As planned, we would rent out a corner of a large pharmacy organization, purchase our own inventory, have our own license, and pay the pharmacy company to manage it. We know that a consulting pharmacist service, to be profitable, needs about 1,200 beds; we have 250 beds between our two campuses, so this approach will give us a way to participate in the pharmacy's profitability and control our own destiny.
Peck: Finally, would you tell us a little about your “blue ribbon” resident council?