The Financial Dynamics of Home Dialysis
There can be no doubt that given the appropriate set of accompanying circumstances, home dialysis has the potential to concurrently increase both the provider’s bottom line and the patient’s quality of life. However, when putting together proforma projection as a basis for investing in a home dialysis program, it is important to be financially realistic about what additional revenue will, and will not, ultimately be realized by encouraging home dialysis.
As always, each situation is unique and there are no blanket rules of thumb that can be applied without customized balancing of cost and expense drivers. In fact, if there is one common error that I believe is being made, both by those who choose to shy away from home dialysis programs and by those who enthusiastically embrace home programs, it is the use of a cross-the-board assumptions and generalizations, applied unequivocally, without adapting them to the specific circumstances of each patient population and renal micro–market.
Here are some factors I would strongly recommend considering when preparing any financial projections with respect to home dialysis.
Sustainability—Granted a given number of patients can reasonably be expected to join a new home program, how sustainable is this? Both patient preference and the competitive environment can change rapidly. Your projections should capture the sustainability dynamic and not simply assume a steady, stable growth rate without considering the “what if?”
Scalability—How large of a home program could you have? How great an economy of scale before reaching a cost or volume threshold?
Risk—How much additional risk is involved with developing a home program? Risk is a pure concept until it is realized and at that point it becomes a very real and expensive part of providing renal care. Don’t just look at costs and revenue, also examine these risks—patient risk, staff related risk, financial risk, regulatory risk—assess any risk you can reasonably envision.
Consider risk as a business metric, certainly the LDOs do this, insurance companies put a price tag on risk and so should every renal provider. Put a numerical value on the risk you are incurring (or avoiding) and build it into your proforma.
As a final thought, remember, home programs, if well designed, should be relatively straight forward to scale to an optimum size for your present clinical and operational situation, both now, and in the future.
As always, I invite you to send me your comments at Jahern@ahernconsulting.com and let me know what you think!
With offices located in Chicago and in Washington, DC, Jack Ahern provides cutting edge financial and management consulting services to the healthcare community. He has an MBA from the University of Chicago, and undergraduate degrees in both Chemistry and Engineering from Dalhousie University. He can be reached at (312) 997- 2177.