Ongoing Operating Expenses for a Hospice Business

Just like with other healthcare institutions, hospice businesses have certain ongoing operating expenses necessary for the steady functioning of the business, like management and documentation, billing, supplies, energy, rent/property maintenance, transportation, capital charges, cleaning, waste disposal, and other non-clinical personnel expenses.

Note that these overhead charges account for a major portion of total healthcare costs and are, to a certain degree, unavoidable.

Truth be told, hospice businesses that devise means to reduce overhead costs, and also invest in high-value overhead expenses, will increase their institutions’ competitiveness, and also have an immediate advantage over those that do not.

Have it in mind that reducing the total cost of care delivery is a critical issue for all healthcare providers worldwide. According to industry reports in the United States, healthcare institutions noted it as the number one area for improvement necessary to attain financial targets within a three-year time frame.

Note that fewer Americans these days are dying in a hospital, under the close monitoring of doctors and nurses. Hospice care is made available in the home, or sometimes in a nursing home. Right from the mid-1990s, Medicare has allowed the hospice benefit to cover more types of diagnoses and therefore more people.

As acceptance heightens among physicians and patients, the numbers continue to grow — from 1.27 million patients in 2012 to 1.55 million in 2018. Have in mind that a hospice business can be a very lucrative business if you can manage it well.

Your start-up costs will vary owing to the type of hospice care you intend to offer and the state your business will be situated in.

Also, note that both nonprofit and for-profit hospices receive funds from numerous sources. For most, charitable donations and grants represent a good percentage of their revenue. In addition, they’re reimbursed by private insurance, Medicare, and Medicaid for each terminally ill patient they care for.

According to industry reports, well-to-do hospice care business owners can earn around $120,000 to $175,000 in profit. However, this will vary depending upon the number of patients the business cares for, the average billable hour rate for services offered, and the number of hours each patient is provided each month.

Ongoing Operating Expenses for a Hospice Business

The exact ongoing operating expenses of a hospice business will vary based on the size of the business and the exact services offered. Here are the primary ongoing operating expenses for a hospice business.

1. Labor Expenses

Whether your hospice business is leveraging the productivity ratio or another staffing model, you must realize that the number of team members you employ, your payroll, and related expenses, represent 40% of the net revenue of hospice agencies and are most often influenced by the number of hours an individual works.

For example, if a hospice aide attends to the needs of ten patients a week; add to that the number of visits each team member completes and you can estimate payroll expenses. Although calculating both numbers is necessary, noting the specific number of employees that are working will ensure you better manage your labor expenses.

2. Equipment and Utilities

A hospice business will surely need advanced medical equipment and computerized record-keeping. Note that an existing hospice agency may update software systems as the need arises, howbeit, a hospice business should be detailed when choosing the most effective software program to meet their needs.

Also, have in mind that the cost of utilities depends on the size of the facility or office. Most often, utilities cost a few hundred dollars per month. Certain supplies and bedding will have to be replaced as time progresses. Consider budgeting around $500-$1,000 per month for these supplies and adjust your budget to ensure you better analyze your clientele’s needs and demands.

3. Insurance

In this line of business, adequate insurance is very vital. Since hospice businesses are associated with death, they are an extremely risky place to insure. Consider budgeting around 9% of sales to liability insurance, property taxes, and other legal bills.

Operators of multiple facilities have a better advantage especially since they can spread their insurance costs over a larger pool of patients.

4. Medications and Treatments

Most often, to provide hospice services, a hospice business will make available a nurse to work with the patient. Having the proper medical equipment in good working condition and the medical supplies required allows patients to receive care in the location of their choice.

These types of equipment include a hospital bed, medications, oxygen concentrator and portable tanks for power outages, and some Incontinence supplies. Note that Insurance carriers may cover some of these expenses, but not everything patients need for hospice care is covered under federal or personal health plans.

5. Meals and Entertainment

Nurses and staff listen to their patients’ natural signals of hunger and make available food or water when they need it. Hospice businesses do not restrict their patients from eating or drinking during hospice care. Instead, they are more active in making sure that patients are not overeating or over drinking, which can cause further suffering during the dying process.

If you are serving food at your hospice center, then it will genuinely count as an ongoing operating cost. Nutrition and certain entertainment are an expense that will have to be to be infused into your budget, and headcount remains one of the key variables required to approximate recurring expenses. Entertainment in the form of movies, gifts, and special events also should be considered in your budget.

Have it in mind that the cost of food and beverages most often depends on quality. However, budget several thousand dollars per month on sustenance for your patients, at least 15% of your business income (Excessive turnover drives those percentages higher.)