ODYSSEY HEALTHCARE: A DEPARTMENT OF JUSTICE INVESTIGATION RELATED TO THE FALSE CLAIMS ACT

Journal of the International Academy for Case Studies, 2008 by Newbold, John, Sullivan, Laura

Rapid Expansion into New Geographies

In organizing for rapid growth, Odyssey established eight regional territories. Each territory was headed by a Regional Vice President, who, in turn, managed teams of District Managers. At headquarters, Odyssey maintained a dedicated acquisitions team, as well as a dedicated expansion/startup team for newly established operations. Having extensive coverage in a particular geography aids large for-profit hospices in receiving referrals from similarly broad-based health care providers. National and regional nursing home and assisted living communities often seek the administrative and service consistency benefits resulting from working with a limited number of broad-based hospice service providers.

Increasing Scale and Geographic Breadth

The hospice business model is also highly sensitive to scale. Once the average daily census breakeven point was reached (between 30 - 40 patients per month), operating margins in the 10% range were achievable and increased as the census rose.

Hospice providers who achieved significant scale were able to negotiate volume discounts on the purchase of pharmaceuticals, durable medical equipment and medical supplies. In addition, they were in a better position to enter into favorable contracts with private insurers HMOs and pharmacy benefit managers. Finally, large hospice operations were able to spread certain fixed costs (corporate overhead, IT infrastructure, and marketing spending) over a large patient population.

Controlling Operating Costs

In 2003-2004, Odyssey struggled to adequately control their pharmaceutical costs. In many locations, they were paying local rates. In 2004, Odyssey completed an extensive project whereby a national formulary plan and an electronic drug adjudication system was implemented. This system provided better visibility and control over the drug side of the business. Odyssey also completed a switch-over to a new internal management IT infrastructure. The new software and hardware system, obtained from the McKesson healthcare consulting firm, and dubbed the "Horizon" system, was intended to improve the clinical and billing systems. It provided management at Odyssey better real-time visibility into the day-to-day operations of the firm, such as drug usage rate, patient length of stay and Medicare Cap accrual issues. Perhaps more importantly, the system helped to prevent errors in claim preparation, thereby avoiding lengthy delays in Medicare reimbursements.

Odyssey's Marketing Strategies

Products/Services Strategy

In order to be certified by Medicare, marketers of hospice services were required to offer specific core and non-core services. However, marketers at certain for-profit hospices recognized the value of differentiating their services to appeal to certain types of referrers. Hospices were beginning to differentiate themselves by specializing in services for specific diagnoses. For example, some facilities began to invest in the durable medical equipment necessary to care for cancer patients with acute symptoms and a need for continuous care.