CEOs wear a lot of hats--HR, Operations, Marketing, Sales, Finance, Legal. But responsibility for those departments should rest largely with the department heads themselves.
The CEOs job consists of leadership, alignment, and capital allocation across those business units. Today I’m going to focus on capital allocation as it often gets overlooked.
When the Circle Social team goes into a behavioral health provider, there are always a ton of things that can be improved upon; that’s the nature of any organization. But no organization is perfect, nor will it ever be. The key is to focus on the priorities that will move the needle.
Then the question becomes, what areas do we focus on and how much effort, time, money, and labor do we apply to each? Answering this question is really why we get called in. While we often do find opportunities that leadership teams were unaware of, just as often they are aware that problems exist, but they are unsure what to do about them or which ones are most important.
So how do you determine which problems to solve or which opportunities to explore first? This is where capital allocation analyses come into play. It’s a simple ROI formula of how much do we need to invest to get what kind of return?
To make this more concrete, let me provide two easy examples we come across all the time.
The problem: Lower than desired census.
Areas of Exploration: Marketing, Length of Stay, Reimbursement, Admissions
Most of the time, providers think marketing is their problem. While we’ve yet to go into a provider that didn’t have strong room for improvement in their marketing efforts, it’s usually not the primary culprit.
Culprit #1
Missed Calls. It is not at all uncommon for us to perform a simple call analysis and find that as much as 30% of all calls are missed during the day. That means the provider is missing 30% of their potential admissions. Even if they do callbacks, the opportunity is often lost if not answered on the initial call.
Think about ordering a pizza. If nobody answered at your favorite pizza place, would you leave a message and ask them to call back or simply call another pizza place?
You’d call somewhere else--and this is your favorite pizza place that you’re already attached to. Patients have no previous attachment to your treatment program.
Let’s say you’re a small program only admitting 10 patients a month currently. Simply answering the phone every time someone called would admit an additional 3 patients per month. What’s the cost of hiring additional call center staff? $40,000-$60,000 a year per rep. So for the cost of 1 additional rep, you could end up with 36 additional patients a year at a small program. That’s good capital allocation.
Culprit #2
AMAs and early discharges. If the phones are getting answered and patients are admitting steadily, but census is still low, this is almost always an Average Length of Stay (ALoS) issue. It doesn’t matter if you admit 50 patients a month, but ALoS is only half of allowable days. Low ALoS can happen for a number of reasons:
- Bad business development, marketing, or call center dialogues where the patient is told one thing, but receives something different upon actual admission into the program. This is why messaging alignment across departments, starting with clinical, is of paramount importance.
- Outreach and marketing to the wrong communities. There are many people struggling with addiction who are often just looking for a brief respite or a place to stay more than to actually find recovery. These are often the easiest to get into treatment and some business development reps know this. But these patients aren’t committed and rarely stick around long.
- Lack of protocols for dealing with different levels of severity or complexity. It’s human nature to want to take the path of least resistance, which means clinicians and therapists who don’t want to deal with difficult cases. This results in the clinical team screening out patients before they arrive or administratively discharging them early because they don’t want to work with them. The best providers have clinical teams committed to doing what it takes to help patients. While there should be safety guidelines in place based on internal capabilities, we find that a lot of screening out has more to do with a desire to make the clinical team’s job easier than it does with an actual safety issue.
- Clinicians approve early leave for any number of reasons. We had one provider where fully half of their patients were discharged while only halfway into the program. Clinicians gave tons of different reasons for why each one was appropriate, but, in our view, an early discharge should be incredibly rare. As we all know, the longer a patient stays connected to care, the higher their chances of long-term recovery. 30-60 days is nowhere near enough as it is, much less cutting that short, so any early discharge is almost always a disservice to the patient.
To fix culprit #2, investing in extremely clear SOPs, then training the teams on them is a limited expense that pays significant dividends.
Those are examples of capital allocation. For minimal expense or effort, we can significantly increase revenue. We do that cost/benefit analysis on any efforts. There are three main criteria:
- How much will it cost? (This is a simple function of capital expense + labor cost)
- What’s the expected increase in returns?
- What’s the probability that expected increases will be achieved? (You don’t need to run a Bayesian analysis here, though it won’t hurt, but often just demarcating as low, medium, and high probability is enough.)
You then compare those numbers across projects and projected efforts to determine which route is best.
Scenario #1
Local business development reps are bringing in admissions at a cost of $500 per admission with a new rep ramp-up time of 3 months. You have 3 local reps who have already started crossing paths too frequently. There is a low probability of another rep being able to operate locally without stepping on the toes of the existing reps.
Non-local reps are bringing in admissions at a cost of $1,000 per admission with a new rep ramp-up time of 4 months. You can add more reps, but it seems that the farther afield you go, the more difficult of a time they have. You assign a 50/50 probability to the effectiveness of another hire in a new territory.
SEO brings in admissions at a cost of $500 per admission with a ramp-up time of 6 months. You have strong admissions from your alcohol silo on your website, but few from the cocaine silo, which has been a growing problem in your area. As the SEO team evidenced strong capabilities in the alcohol silo, you think there is a high probability they’ll be able to do the same again in another silo.
Based on the above, we can run the rough math and see that investing in non-local reps and SEO are both likely to be worthwhile efforts. If capital expense was a concern, we would implement SEO first, then non-local reps second.
Scenario #2
Every minute a business development rep is not spending time focused on driving referrals is time not well spent. An extremely common problem in many programs is that BD rep’s primary KPI is admissions, which is a mistake.
Why? Because they spend a ridiculous amount of time hounding the admissions team about their referrals as well as arguing with other teams, such as marketing, about who “gets credit” for the admission. I don’t think I’m overstating the case to say that this happens with all the reps 100% of the time.
This is why BD reps should never be held accountable for admissions, only qualified referrals. Once they pass a referral off to the admissions team, they no longer have control, so any time spent there is a waste of time.
Hours BD rep spends on following up with admissions team: 2 per week: $100 (Labor Cost)
Hours admissions rep spends reporting back to BD team: 2 per week: $60
Hours leadership team spends talking about the problem of attribution, let’s say 4 people at 1 hour of discussion together each week. $240
Altogether, the program is spending $400 a week per rep on something that should be a non-issue. At 5 reps, that’s $2,000 a week of wasted labor! This is not counting the opportunity cost lost of all those staff not connecting with referrals, not answering a phone, or not focusing on organizational growth in other areas.
Spend a couple hours revamping KPIs and rolling it out, then be done with it.
Here are some other common scenarios::
- BD Reps that go through 1 week of onboarding, ramp up in half the time and deliver twice as many referrals. Is it worth building out an onboarding program?
- Inexperienced call reps making 50K a year admit 10% fewer admissions than ones getting paid 75K a year. Is it worth it to pay more?
- Cost per call at $50,000 a month Google Ads spend in a single metropolitan area is $120, while at $100,000 it’s $210. Conversion to admissions stays the same. Is the second $50,000 best used in Google Ads or on another channel?
Any series of projects can be compared in this way. Some things, like building reputation, will always be very hard to quantify. That’s where leadership and vision come in to take the big bets with the long-term payoffs while trying to mitigate risk. But most projects are less amorphous. As long as there is good tracking and record-keeping in place, even a rough analysis will help a CEO focus in the right direction.
The final point I’d add is that focus, like financial investing, is often cumulative. If an executive bounces from project to project, focus to focus, constantly, they’ll get average or mediocre returns. But if they stay focused and let compounding do its magic, then they’ll see massive returns from their investments. This is why it’s best to have no more than three strategic priorities at any one given time. It’s not that other avenues aren’t important, but they simply won’t provide the same level of returns, so choose wisely.
Need help creating a capital allocation strategy for your program? Get in touch.