Financial impact of home health care on the hospital

Abstract

A method for analyzing the financial impact of new home health-care (HHC) programs on the hospital is presented. Clinical service objectives and long-term goals for new programs must match patient needs with institutional opportunities and constraints. Planning and evaluating new HHC programs require an accurate analysis of the financial impact of the proposed program on the hospital. A method for financial program analysis is presented through three different hypothetical scenarios based on realistic situations of hospitals considering HHC alternatives. Marginal analysis is presented as a microeconomic tool, and the calculation of marginal cost from a linear total cost function is described. Pro forma spread sheets of revenue and expense are used to assess three different HHC program alternatives--an independent HHC agency, a hospital-based agency, and a joint venture between a vendor and a hospital. Net present-value calculations are explained and applied to one case. It is important to use realistic assumptions in estimating the financial performance of HHC programs.