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Financial Acumen: Cost Management Tools. Describe how healthcare business is different from other types of business Understand your department’s financial performance Identify the metrics used at the HSO level
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Describe how healthcare business is different from other types of business Understandyour department’s financial performance Identifythe metrics used at the HSO level Createa plan for better financial management, focusing on finding and resolving variances Practice accessing your monthly reports to perform similar activities to those in class Course Objectives
Video Review: How is healthcare “business” different than other businesses? • Per diem • Fee for Service • Case Rates Types of Reimbursement Reimbursement depends on • Payors/payor mixes • Patient Population • Length of Stay • Readmissions Our Relationships • With physicians • With patients • Affiliations Different from other Businesses • Customers • Ability to Pay
Video Review: What is unique about the structure of BJC HealthCare? Community Benefit • Expanding/Adding Community Services through our Profits • Charity care • Education and research • Safety net services • Community health • programs • Different types of HSO • Community HSOs • Academic HSOs Not for Profit We reinvest in ourselves We share profits internally We invest in capital improvements We invest in our employees through competitive salaries, benefits, education, and training
Video Review:What are the Key Result Areas at BJC HealthCare? • Patient Satisfaction/Clinical Quality • Employee Engagement • Growth • Performance Reporting • Productivity Improvement • Unit Cost Management
From the HSOs:How do you affect the Key Result Areas at BJC HealthCare? • “Being able to make all the metrics fit is a balancing act. Maintaining good employee engagement scores, good patient satisfaction scores, and meeting your budget is a delicate business. • You can’t go too much on the budget side. You reduce staffing to get under budget, this may make your employee engagement or your patient satisfaction scores decline. It’s all a balancing act.” • Tom Chiarelli • Director of Finance • St. Louis Children’s Hospital “Meeting financial budgets, having quality outcomes for our patients and the staff being happy with the environment. These three intertwining things are the crux of our jobs as front-line managers.” Elaine Thomas-Horton Clinical Nurse Manager Barnes-Jewish Hospital
HSO Performance:Impact of Payor Mix $500,000,000 in Billed Charges Government Charges = $225,000,000 Managed Care charges = $275,000,000 Government Charges Managed Care Charges Managed Care = 55% reimbursement rate $151,250,000 Government = 35% reimbursement $78,750,000 Total Net Revenue = $230,000,000
HSO Performance:Why is there a difference between gross and net revenue?
HSO Performance:Why is there a difference between gross and net revenue? Standard Rate Charity Cases – Payor Rates Net Revenue Gross Revenue = our standard rate we charge for services Revenue Deductions = difference between our rate and reimbursement So Net Revenue is Gross Revenue minus Charity Care payments and minus revenue deductions needed because our payors do not pay our full standard fees.
HSO Performance:Operating Margin Percentage Operating Income Operating Revenue = Operating Margin “How much of our revenues did we retain as profit?”
HSO Performance:How are Budgets established? Two kinds of budgets • Operating • Capital To help set budgets, we look at • HSO history • Projections • Reimbursement • BJC Targets
HSO Performance:How Budgets are Established • What is it? • What is it based on? • Who puts it together? • What if conditions that the budget was based on change? • Who owns it? Operating Budget:
HSO Performance:How Budgets are Established Capital Budget: What is it? What is it based on? How is it spent?
The Numbers Game ( _____ - _______) / _______ = ________ % Final Score Original Score Original Score Percentage of Increase
Department Performance:Income Statement How much income the department is making or losing.
Department Performance:Income Statement Activity • Did this department make money in December? • How did actual earnings compare to budgeted earnings, favorable or unfavorable? • Were actual earnings favorable or unfavorable for this month compared to last year? By how much? • What report line provides this information? • What types of charges are Inpatient (IP)? • What types of charges are Outpatient (OP)? • How did this month’s actuals of Inpatient and Outpatient revenue compare to last year, favorable or unfavorable? • What are some of the “charge capture systems” you use to enter these charges? • What are your responsibilities for capturing charges?
Department Performance: Unit Cost + = Labor Per Stat Supplies Per Stat Total Cost = Unit Cost # of Cases
Department Performance: Calculating Unit Cost We had 50 fewer lab tests than we budgeted, so our volumes were down. But was our cost per lab test also down?
Department Performance: Next Key Metric - Labor Per Stat The biggest thing you can control is labor costs. Labor can be 50-70% of your costs. • Labor Per Stat (LPS) - the cost of labor it takes to provide a specific service. Also called: • Labor per service, or • Labor per patient day. • LPS formula is similar to Unit Cost formula • Total Labor Cost/# of Cases = Labor Cost
Department Performance: Labor Per Stat How do you control the biggest thing in your budget? • Our Labor Per Stat (LPS) Tool: • Two ways to control your labor / improve the LPS: • Increase volume • Reduce hours
Department Performance:Calculating Labor Per Stat - Activity
Department Performance:Calculating Labor Per Stat - Activity
Department Performance:Last Key Metric – Supply Per Stat • Supply Per Stat (SPS) - the cost of supplies to provide a specific service. Also called: • Supplies per service, or • Supplies per patient day • SPS formula is similar to Unit Cost formula • Total Supplies Cost/# of Cases = Supplies Cost
Department Performance:Last Key Metric – Supply Per Stat How do you control the Supplies in your budget? • What affects the SPS • Two ways to control your supplies / improve your SPS • look for these items on your Budget Variance Report: • Big ticket items • Compare quantities
Department Performance: Summary Questions? Unit Cost Labor per Stat Supply per Stat
