North Dakota Hospital Association
Critical Access Hospital Conference
Best Practices in Critical Access Hospitals
October 11, 2011
Best Western Doublewood Inn
Bismarck, North Dakota
Eric Shell, CPA, MBA
Presentation Overview
• Best Practices in Critical Access Hospitals
1. Understand Rural Hospital Economics
2. The “Right” Medical Staff
3. Focus on both Inpatient and Outpatient Volume
4. Effective Organizational Design
5. Strong Revenue Cycle Practices
6. Understand Physician Practice Management
7. Facility Design that Supports Patient Care Model
8. Developing Information Technology Systems
9. Current Third Party Contracts and Charge Master
10. Accurate Medicare cost report
• Summary/Discussion
2
Rural Economics
Medical Staff
IP/OP Volume
Organizational Design
Revenue Cycle Practices
Practice Management
Facility Design
Information Technology
Third Party Contracts
Cost Reports
Summary
Understand Rural Hospital Economics
Rural Economics
• Common Findings
– Over emphasis on cost report management
• Managing the “RCCs”
– “If we increase our charges, our RCCs will go down”
• “How do we increase our Medicare per diems to increase
cash flow?”
– Over emphasis on expense management
• “Revenue management?? That’s what the CEO does!”
– Belief that because we are a CAH, we should operate
differently than PPS hospitals
4
Rural Hospital Cost Structure
Rural Economics
• Variable Cost
– Definition: Expenses that change with changes in activity
– E.g.: Pharmaceuticals, reagents, film, food
• Fixed Cost
– Definition: Expenses that do not change with changes in
activity
– E.g.: Salaries and benefits (??), rent, utilities
• Mixed Cost (Step Fixed Costs)
– Costs that remain fixed through a range of volume
growth, then jump to next level
– E.g.: Salaries and benefits (??)
• Rural hospitals have inordinately high fixed (or step
fixed costs) costs relative to revenue
– E.g., ER standby, acute care nursing costs, etc.
5
Rural Hospital Cost Structure (continued)
Rural Economics
• A look at fixed and variable costs
Dollars
Total Cost
Fixed Cost
Fixed costs do
not change with
increased service
volumes
The difference
between fixed
and total costs
are the “variable
costs”
Service Volumes
6
Rural Hospital Cost Structure (continued)
Rural Economics
Understand Rural Hospital Economics
• Profits and Losses
Revenue
Dollars
Profit Zone
Cost
Loss Zone
Service Volumes
7
Evaluating Rural Hospital Economics: A Model
Hypothetical Model Assumptions:
Expenses:
Inpatient:
Acute Variable Costs/Day
Swing-Bed SNF Variable Costs/Day
Total Fixed Rountine and Ancillary Costs
Outpatient:
Outpatient Variable Costs/Unit
Total Fixed Outpatient Costs
Revenue:
Inpatient:
Acute Revenue/Day (Non-Cost Based)
Swing-Bed SNF Revenue/Day (Non-Cost Based)
Outpatient:
Outpatient Revenue Per Unit (Non-Cost Based)
Payer Mix:
Inpatient:
Medicare Acute Payer Mix
Medicare Swing-Bed SNF
Outpatient:
Medicare Outpatient Payer Mix
Rural Economics
$
$
$
200
100
2,600,000
$
$
35
2,600,000
$
$
950
250
$
150
60%
100%
35%
8
Rural Economics
Economic Model: Inpatient Total Costs
• Hypothetical example (continued)
– Acute Variable Costs = $200/day
– Swing Bed Variable Costs = $100/day
– Fixed Costs = $2,600,000
$3,500,000
$3,000,000
$2,500,000
SB SNF Variable
$2,000,000
Costs
Acute Variable
$1,500,000
Costs
$1,000,000
Acute Fixed Costs
$500,000
$-
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
Acute and Swing Bed Average Daily Census
9
Rural Economics
Economic Model: Outpatient Total Costs
• Hypothetical example (continued)
– Outpatient Variable Costs = $35/unit
– Outpatient Fixed Costs = $2,600,000
Outpatient Total Cost Analysis
$4,000,000
$3,500,000
$3,000,000
$2,500,000
OP Variable
$2,000,000
Costs
$1,500,000
OP Fixed
Costs
$1,000,000
$500,000
$12,500
15,000
17,500
20,000
22,500
25,000
27,500
30,000
32,500
35,000
37,500
Outpatient Volume
10
Economic Model: Inpatient Per Unit Costs
Rural Economics
• Hypothetical example (continued)
– As volume increases, fixed costs are allocated over large base
– Result  lower Unit Cost
Acute Unit Cost Analysis
$1,400
$1,200
$1,000
$800
$600
IP Unit Fixed Costs
$400
Acute Variable Costs/Day
$200
$-
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
Acute and Swing Bed Average Daily Census
11
Economic Model: Outpatient Per Unit Costs
Rural Economics
• Hypothetical example (continued)
– Same applies to Outpatient costs!
Outpatient Unit Cost Analysis
$250.00
$200.00
$150.00
OP Unit Fixed Exp
$100.00
OP Unit Variable Exp
$50.00
$12,500 15,000
17,500 20,000
22,500 25,000 27,500 30,000
32,500 35,000 37,500
Outpatient Volume (In "Units")
12
Rural Economics
Acute Per Unit Revenue
• Hypothetical example (continued)
– Non Cost-Based Per Diems > Cost-Based Per Diems once
Acute unit cost falls below $950
• Note: Slightly higher acute variable costs cause higher breakeven
IP Acute Unit Revenue
$1,600
$1,400
$1,200
Cost-Based Acute
Rev/Day
$1,000
Non-Cost Based
Acute Rev/Day
$800
$600
Total Acute
Costs/Day
$400
$200
$0
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
Acute and SB SNF ADC
13
Outpatient Per Unit Revenue
Rural Economics
• Hypothetical Example (continued)
– Non Cost-Based Payment > Cost-Based Payment once Acute
unit cost falls below $150
Outpatient Unit Cost Analysis
$300.00
$250.00
$200.00
OP Total Expense
$150.00
Non Cost-Based Rev
Per Unit
$100.00
$50.00
$-
Outpatient Volume (Units of Service)
14
Rural Economics
Successful Profit Strategies
• Strategy 1: Decrease Expenses
– Fixed Nature of standby costs, regulatory costs, etc. often
make this a difficult option - Most rural hospitals have
expenses right
– Reducing expenses reduces a portion of total revenue
Revenue
Profit
Zone
Dollars
Cost
Loss
Zone
Service Volumes
15
Rural Economics
Successful Profit Strategies
• Strategy 1: Decrease Expenses (continued)
– Comparison with national standards example
Sample of Selected Departments
Department
Nursing - Med Surg
Performance
Indicator
Per Patient Day
Nursing - Surgery - minor
Nursing - Recovery Room
Surgery Subtotal
Per Case
Per Case
Emergency Room
Nursing Home - Nursing Staff
UR/Case Mgr/Soc Ser
Nursing Administration
Subtotal Nursing
FY 2011
Hourly
FTEs @
Volume Standard (1) Standard
2,240
12.00
12.92
Actual
FTEs (2) Variance
18.58
5.66
346
346
5.50
3.30
0.91
0.55
1.46
4.16
4.16
3.25
(0.55)
2.70
Per Case
Per Day
Patient Days
Per Adjusted Admissions
5,850
24,752
2,240
2,939
2.40
3.60
0.75
1.75
6.75
42.84
0.81
2.47
67.26
8.40
54.55
1.00
5.88
92.57
1.65
11.71
0.19
3.41
25.31
Radiology
Lab/Blood Bank
Physical Therapy
Cardiac Rehab
Cardio/Pulmonary
Pharmacy
Subtotal Ancillary
Subtotal - Clinical
Per Procedure
Per Test
Per Treatment
Per Procedure
Per Procedure
Per Adjusted Day
9,610
71,126
26,546
15,629
1.44
0.25
0.50
1.31
0.60
6.65
8.62
6.38
4.51
26.16
93.42
8.04
8.82
10.39
1.00
1.46
2.67
32.38
124.95
1.39
0.20
4.01
1.00
1.46
(1.84)
6.22
31.53
Hospital Administration
Information Systems
Human Resources
Marketing/Planning/Public Rel
Volunteers
Telecommunications
General Accounting (5)
Security
Patient Accounting
Admitting/Patient Registration
Medical Records
Cent Supply/Mtl Mgmt/Sterile
Housekeeping
Dietary
Plant Ops/ Maintenance
Laundry and Linen
Subtotal Support
Per Adjusted Admissions
Per Adjusted Admissions
Per Adjusted Admissions
Per Adjusted Admissions
Per Adjusted Admissions
Per Adjusted Admissions
Per Adjusted Admissions
Gross Square Feet
Per Adjusted Admissions
Per Adjusted Admissions
Per Adjusted Admissions
Per Adjusted Day
Net Square Feet
Meals Served
Gross Square Feet
Lbs of Laundry
2,939
2,939
2,939
2,939
2,939
2,939
2,939
111,826
2,939
2,939
2,939
15,629
79,876
96,122
111,826
349,015
1.65
1.00
1.10
0.28
0.75
0.36
1.23
0.02
3.00
4.25
3.50
0.30
0.31
0.25
0.12
0.02
2.33
1.41
1.55
0.40
1.06
0.51
1.74
1.08
4.24
6.01
4.95
2.25
11.98
11.55
6.45
3.36
60.86
154.28
5.51
1.00
7.46
8.13
6.81
2.64
19.54
15.83
6.13
5.39
78.44
203.39
3.18
(0.41)
(1.55)
(0.40)
(1.06)
(0.51)
(1.74)
(1.08)
3.22
2.12
1.86
0.39
7.56
4.28
(0.32)
2.03
17.58
49.11
(1) Hourly Standards based on Stroudwater sample of hospitals
16
Rural Economics
Successful Profit Strategies
• Strategy 2: Increase Fees
– Charge master update
– Renegotiate third party contracts
– Better Revenue cycle functions
– Cost report improvements
– Improved service mix
Revenue
Profit
Zone
Dollars
Cost
Loss
Zone
Service Volumes
17
Rural Economics
Successful Profit Strategies
• Strategy 3: Increase Volume or Improve Service Mix
– More volume reduces the average cost per unit of
service by spreading the high fixed costs over more
patients
Dollars
Revenues
exceed costs
at this point
Revenue
Profit
Zone
Cost
Loss
Zone
Total revenue
increases as services
volumes increase
Service Volumes
18
Successful Profit Strategies
Rural Economics
• Strategy 4: Grow Non-Medicare Business
– Strategy assumes incremental margin on non-Medicare
offsets reduction in Medicare per unit revenue
Cost
Dollars
Losses
Medicare
Revenue
• Medicare revenue mirrors
the total cost, but only
covers its share of the total
• Medicare revenue will never
exceed costs
Service Volumes
19
Successful Profit Strategies
Rural Economics
Understand Rural Hospital Economics
• Strategy 4: Grow Non-Medicare Business (continued)
– Commercial revenue is the only potential source of profit
– Overall services must be increased to exceed unit costs
Dollars
Commercial revenue goes
up evenly as service
volumes increase. It is
directly tied to volumes.
Commercial
Revenue
Cost
Service Volumes
20
Rural Economics
Medical Staff
IP/OP Volume
Organizational Design
Revenue Cycle Practices
Practice Management
Facility Design
Information Technology
Third Party Contracts
Cost Reports
Summary
Determining Provider Supply as a Planning Tool
Provider Supply (FTEs) for Service Area of
Medical Staff
12,200
Supply Indicators
Group Health Health Partners
5.7
2.7
1.4
3.3
0.9
1.3
8.1
7.3
Primary Care
Family Practice
Internal Medicine
Pediatrics
Subtotal
Kaiser
1.7
3.4
1.5
6.5
Non-Phys Providers
Subtotal
Medical
Allergy
Cardiology
Dermatology
Endocrinology
Gastroenterology
Hem/Oncology
Infectious Disease
Nephrology
Neurology
Pulmonary
Rheumatology
Surgical
ENT
General
Neurosurgery
OB/GYN
Ophthalmology
Orthopedic
Plastic Surgery
Urology
1.6
8.1
2.8
10.9
0.8
8.1
0.1
0.4
0.3
0.2
0.3
0.3
0.1
0.2
0.2
0.1
0.1
0.2
0.4
0.2
0.0
0.3
0.3
0.1
0.2
0.3
0.3
0.2
0.1
0.4
0.2
0.1
0.2
0.3
0.1
0.2
0.3
0.2
0.1
0.3
0.7
0.1
1.3
0.5
0.5
0.1
0.3
0.4
0.8
0.1
0.9
0.5
0.8
0.1
0.9
1.1
0.5
0.2
0.4
22
Provider Supply as a Planning Tool, contd.
Medical Staff
• Comparison between population based need and
actual
Physician Shortage/Surplus Adjusted Service Area Population 12,200
Primary Care
Family Practice
Internal Medicine
Pediatrics
Physician Primary Care Range
Non-Phys Providers
TOTAL Primary Care Range
Medical Specialties
Cardiology
Dermatology
Endocrinology
Gastroenterology
Hem/Oncology
Infectious Disease
Neurology
Pulmonary
Rheumatology
Surgical Specialties
ENT
General
Neurosurgery
OB/GYN
Ophthalmology
Orthopedic
Plastic Surgery
Urology
1
Supply Study
Range
1.7 - 5.7
1.4 - 3.4
0.9 - 1.5
6.5 - 8.1
0.8 - 2.8
8.1 - 10.9
0.4
0.2
0.0
0.2
0.3
0.1
-
Existing
(1)
3.50
1.50
0.50
5.50
4.65
10.15
(Shortage)/Surplus
Range (2)
(2.2) - 1.8
(1.9) - 0.1
(1.0) - (0.4)
(2.6) - (1.0)
1.9 - 3.8
(0.8) - 2.0
0.4
0.3
0.2
0.3
0.3
0.1
0.11
0.00
0.00
0.11
0.00
0.00
(0.3)
(0.3)
(0.2)
(0.2)
(0.3)
(0.1)
0.2 - 0.3
0.1 - 0.3
0.1 - 0.2
0.00
0.00
0.00
(0.3) - (0.2)
(0.3) - (0.1)
(0.2) - (0.1)
0.1
0.7
0.1
0.9
0.5
0.5
0.1
0.3
0.11
0.22
0.00
0.00
0.00
0.11
0.00
0.00
(0.3)
(0.7)
(0.1)
(1.3)
(0.5)
(0.7)
(0.2)
(0.4)
-
0.4
0.9
0.1
1.3
0.5
0.8
0.2
0.4
-
-
(0.3)
(0.2)
(0.0)
(0.1)
(0.3)
(0.1)
0.0
(0.5)
(0.1)
(0.9)
(0.5)
(0.4)
(0.1)
(0.3)
Physician FTEs calculated as 18 days per month = 1.0 FTE
2 See Attachments for detail of Supply Studies.
23
Successful Hospitals
Medical Staff
• Medical staff development is a constant strategic priority
• Have developed a comprehensive physician recruitment strategy that
includes, but is not limited to:
─ Asking medical staff about additional specialty physician needs; e.g.,
cardiology, orthopedics, urology
─ Contacting the State Office of Rural Health and/or Department of Health
for US trained physician recruitment and J-1 Visa recruitment
─ Asking medical staff about their personal physician contacts
─ Using contingency fee head hunters only after other avenues exhausted
─ Recruiting with the local physicians, not independent of them
─ Engaging community (realtors, newspaper, Chamber of Commerce, etc.)
to assist with physician recruitment
• Use available population-based tools to evaluate need for
additional providers
─ Present physician needs assessment to current medical staff to obtain
buy-in for active and aggressive recruitment of additional full time
providers
• Reconsider strategy of maintaining independent primary care
practices and consider employing local primary care providers
through RHC, using production-based employment agreements
─ Will both stabilize and focus local providers
24
Rural Economics
Medical Staff
IP/OP Volume
Organizational Design
Revenue Cycle Practices
Practice Management
Facility Design
Information Technology
Third Party Contracts
Cost Reports
Service Area
Summary
IP/OP Volume
Why Both Inpatient and Outpatient?
• CAH economics review
– All growth in IP services (OP volume remains constant)
• IP growth limits both losses and profits
Inpatient & LTC Breakeven Analysis
(IP Growth - Assumes Constant OP Visits)
$6,000,000
$5,500,000
$5,000,000
$4,500,000
Total IP Rev
$4,000,000
IP Costs
$3,500,000
$3,000,000
$2,500,000
$2,000,000
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
Acute and Swing Bed ADC
26
Why Both Inpatient and Outpatient? (contd.)
IP/OP Volume
• CAH economics review (continued)
– All growth in OP services (IP volume remains constant)
– OP growth creates more losses at lower volumes and
higher profits at higher volumes
Outpatient Breakeven Analysis
(OP Growth - Assumes Constant Acute and SB ADC)
$6,000,000
$5,500,000
$5,000,000
$4,500,000
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
Total OP
Rev
Total OP
Costs
Outpatient Visits
27
IP/OP Volume
Focus on Both Inpatient and Outpatient
• Controllable factors
– Gain of inpatients was due to
• Re-establishing relations with physicians
• Bringing back the community
Inpatient Admissions
1,600
1,400
1,200
1,000
800
600
400
200
0
1998
1999
2000
Med/Surg/Pedi Admits
2001
2002
2003 ytd
Deliveries
28
IP/OP Volume
Focus on Both IP and OP Volume
• Controllable Factors (continued)
IP Bed Utilization
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2002
2003
2004
2005
532
554
809
972
M/S Days
1,787
1,931
2,389
3,404
SB D/Cs
32
61
44
81
SB Days
181
333
325
629
Observation Days
298
306
244
189
Med/Surg D/Cs
– Gain of inpatients was due to replacement facility
29
IP/OP Volume
Focus on Both IP and OP Volume
• Controllable Factors (continued)
Inpatient Services
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
FY 2006
FY 2007
FY 2008
Acute Discharges
Acute Days
Swing -Bed Days
FY 2009
Observation Days
– Loss directly related to RAC implications
30
IP/OP Volume
Focus on Both IP and OP Volume
• Controllable Factors (continued)
– Medicare IP Market Share
30%
28%
27%
25%
Lincoln County
Medical Center
20%
SSM Saint Joseph
Hospital West
17%
SSM Saint Joseph
Health Center
12%
Barnes-Jewish Saint
Peters Hospital
15%
10%
7%
7%
5%
Saint Luke's Hospital
All Other
0%
2005
2006
2007
2008
2009
– Loss related to new competitors and “Cost Based
Reimbursement”
31
IP/OP Volume
Successful Rural Hospitals
• Inpatient Acute
– Monitor emergency room admission rate by provider
• Target between 7% - 10%
» Higher if specialty services available (i.e., surgery)
Emergency Department Admission Rates
14%
12%
12.9%
10%
8%
5.9%
6%
4%
7.1%
7.4%
4.7%
2.9%
4.6%
3.5%
2%
0%
FY 2007
FY 2008
% ER Admissions
FY 2009
FY 2010
% ER Transfers
– Meet with physicians periodically, individually and informally, simply
to inquire about their concerns – ask how we can help them do
their job with higher quality, more efficiently, or with greater income
32
Successful Rural Hospitals
IP/OP Volume
• Inpatient Acute, continued
– Recruit and retain nurses who are trained and comfortable with
the service mix offered at the rural hospital
• At almost any cost!
– Reconsider current inpatient space usage and ensure that it
meets community expected standards
– Recent movement toward ER/Hospitalists model
– Are aware of RAC implications
33
Successful Rural Hospitals
IP/OP Volume
• Swing Bed
– Target specific ADC goal and manage to it (e.g., SB ADC of 4)
– Develop discharge planning process that begins at admission
• Daily discharge planning team meetings
• Case manager (DON) to monitor all patients as potential Swing Bed
candidates
– Case manager (DON) to establish relationships with case
mangers from area hospitals
• Provide information regarding transfer rule – truly a “win-win”
– Ensure physical, occupational, and/or speech therapies 5-7
days/week
– Provide physicians assistance with Swing Bed program
• Inform physicians regarding financial importance of Swing Bed
utilization
• Assist physicians with proper billing codes
• Ask physicians to assist identify potential Swing Bed transfers that
are (or plan to be) hospitalized elsewhere; e.g., CVA and orthopedic
surgery patients
34
IP/OP Volume
Outpatient/Ancillary Services
• Volume increase over prior years due to
– Increased number of employed physicians; and
– Improved marketing of available services to physicians and
community
Other Radiology Operating Statistics
3,000
2,500
2,000
1,500
1,000
500
0
99-00
00-01
01-02
2003 proj.
Fiscal Years Ending June 30
Ultrasound (OP)
Mammography
CT Scans (OP)
Nuclear Medecine (OP)
35
IP/OP Volume
Outpatient/Ancillary Services, continued
• Increased surgical volume
• Bringing back the physicians
– More efficient OR throughput
Surgical Cases (Inpatient and Outpatient)
1,400
1,200
1,000
800
600
400
200
0
1998
1999
IP Surgical Cases
2000
2001
OP Surgical Cases
2002
2003 ytd
Endoscopy
36
Outpatient/Ancillary Services, continued
IP/OP Volume
• Increased Lab volume
– Promote services to community physicians
– New lab director
37
Successful Rural Hospitals
IP/OP Volume
• OP/Ancillary Services
– Develop radiology marketing plan that highlights exceptional
equipment and staff
– Meet with physicians to determine level of satisfaction with
current diagnostic tests and results and what can be done if less
than 100% satisfied
– Investment in having updated diagnostic equipment
– Aggressively pursue additional outpatient lab opportunities
• Because incremental costs of lab tests low, rural hospital can offer
favorable rates and beat reference lab in both price and service (e.g.,
on-site phlebotomists, frequent pick-up)
• Pursue not only clinics, but nursing home and public health
• To be competitive with outside reference labs, offer separate lab fee
schedule with volume reductions
• Accommodate physician needs as best as possible with reporting
formats, e.g., panels reported on one page
38
Successful Rural Hospitals
IP/OP Volume
• Physical therapy
– Develop physical therapy marketing strategy
• Measure and continuously improve patient satisfaction
• Interview physicians regarding rehabilitation service needs
• Remind physicians of the good work of rehabilitative services
• Provide patient outcomes to physicians and “thank you” notes for
referrals
– Measure PT productivity to determine when to increase staffing
• 12 visits/therapist/day is general guideline, but variable depending on
number of neurology vs. Ortho cases seen and payer mix
• Another guideline is 6.5 billable hrs per therapist per day
– Aggressively recruit therapist(s) to expand service and free Director for
marketing activity
– Establish rehabilitation as an integral part of swing bed patient
determination (Care Management Team) and swing bed patient care
– Regularly evaluate non core hospital services for profitability and fit with
mission
39
Rural Economics
Medical Staff
IP/OP Volume
Organizational Design
Revenue Cycle Practices
Practice Management
Facility Design
Information Technology
Third Party Contracts
Cost Reports
Summary
Theoretical Overview
Org. Design
• An effective organization, through sound leadership, will
enable its employees to make decisions taking into account
relevant data and hold employees accountable for these
decisions. The key elements of this OA are as follows:
– Leadership
• Maintaining visionary leadership while giving managers the tools to
make effective decisions and holding accountable managers to
improve the performance and value of the organization
– Decision Making/Accountability
• The goal within an organization is to place decision making at a level
that leverages local information while improving overall hospital value
– Compensation
• Compensation must be set at market rates and reward risk taking by
managers and other employees
– Performance Measurement
• Provides regular and timely information to managers to use in
effective decision making as well as to provide administrator with
organizational results
41
Common Findings
Org. Design
• Governance/Leadership
– Board involved in operations rather than strategy
• Lack of strategic plans/direction
– Decision Making and Responsibility
• Administrators with numerous direct reports
• Department managers disconnected from decision making and
accountability and unaware of their contribution to hospital
performance
– Compensation
• Salaried staff with raises based on longevity
– Performance Measurement
• Department managers not involved in annual budget
• Performance information not presented to managers
• Lack of performance information tied to organizational strategy
– Performance Improvement (PI)
•
•
•
•
PI as a “department”
Department directors design PI projects without administration input
Board member not conversant in strategic quality metrics
PI Director or Compliance Officer do not attend Board meetings
42
Successful Rural Hospitals
Org. Design
• Leadership
– Board’s focus on:
•
•
•
•
•
Strategic direction
Assure effective management
Fiduciary responsibility
Achieve quality goals
Represent community interests
– Develop action oriental strategic/operating plans which often
focus on:
•
•
•
•
•
•
•
Facility planning
Medical staff development planning
Growing patient volume
Human resource development and alignment with current strategies
Information technology vision and strategy
Quality improvement/patient safety
An affiliation strategy
43
Org. Design
Successful Rural Hospitals
• Affiliations
– Regularly assess value of a potential affiliation
– Understand value they bring to a relationship
Clinical
Integration
Commitment
H
Physician
Integration
Technology
Integration
L
Value
Management Support
Service Coordination
Purchased Services
Image
L Franchise
Support Services
Focused Service Linkage
Distributed Overhead
Rural
Clinical
Integration
Capital
Investment
H
Gap
Gap
H
Regional
Investment
Financial & Clinical
Transparency
Broad Physician
Deployment
H
Urban
Integrated
System Capacity
44
Org. Design
Successful Rural Hospitals
Cox-Barton County Memorial Hospital CAH Contribution Margin Analysis
• Affiliations (continued)
Cox North
Springfield
Missouri
– Understand CAH Contribution Margin
Net Income (Loss):
Total Operating Revenue
Total Operating Expense
Operating Income (Loss)
Depreciation Expense
Non Operating Income
Net Income (Loss) Less Depreciation Expense
$
$
Indirect Cost Allocations to CAH Affiliates:
Estimated Administrative and General Costs (Source: Below Analysis)
Medicare Cost-Based Payer Mix (Source: Below Analysis)
Net Increase in CAH Cost Based Reimbursement
$
Net Income Less Depreciation Expense Plus Fixed Allocated Costs
Transfer Benefits
Total 2014 Est. Discharges for CAH Service Area (Source: Thomson Rueters)
Current Cox Medicare Market Share (Source: 2009 CMS Med Par Data)
Estimated Cox Discharges from CAH Service Area
Estimated Net Revenue Per Discharge (Source: AHD.com; 2009 Data)
Estimated Net Inpatient Revenue from CAH Service Area
Est Net OP Rev From CAH Service Area (source: AHD OP % of IP Charges)
Total Net Transfer / Referral Dollars to System from CAH Affiliates
Estimated Contribution Margin % (Source: Estimated)
Estimated Contribution Margin on Net Revenue from CAH Service Area
Contribution Margin Per 1% of Inpatient Market Share
Esimtated Change in Market Share % with Competitive Entry into CAH
CM from Loss of existing or potential gain of CAH Service Area Market Share
Total Benefit / Cost to System from Cox CAH Affiliates
17-Jun-11
Barton County
Memorial
Hospital
Lamar
Missouri
$
(I)
$
10,657
$
128%
$
$
60%
(II)
(II)/(I)
$
$
$
$
20,240,158
20,840,695
(600,538)
1,725,218
835,058
1,959,739
1,798,602
47.52%
854,709
2,814,449
2,886
3%
86
10,657
919,553
1,179,709
2,099,262
60%
1,259,557
421,282
10%
4,212,816
7,027,265
45
Successful Rural Hospitals
Org. Design
• Decision Making and Responsibility
– Create accountabilities for performance at the departmental levels through
use of budget-to-actual reports and regularly scheduled meetings with
Administrator
– Convene a “senior management team” that meets on a weekly/bi-weekly
basis
• Reduce the number of administrator direct reports
• Compensation
– Create entrepreneurial incentives for the senior management team and
department managers to focus on enhancing service volumes within key
ancillary service centers including:
• Jointly establish performance targets with department managers and
reward managers for obtaining results
– E.g., prior year +10% or a moving average that is trending upward
• Structure department manager compensation to reward enhanced
market share, customer satisfaction, and other appropriate attributes
• Regularly measure and trend ancillary operating statistics to shift focus
to profit-generating services
46
Org. Design
Successful Rural Hospitals
• Compensation, continued
Health Services - Incentive Program
Tier
(1)
Ind/Facility avg
1
2
3
4
5
6
7
8
9
10
Audited
Margin (2)
2.00%
2.20%
2.40%
2.60%
2.80%
3.00%
3.20%
3.40%
3.60%
3.80%
4.00%
Financial
Goal met
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
(3)
Quality
Goal met
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Customer
Svc scores (4)
89%
90%
91%
92%
93%
94%
95%
96%
97%
98%
99%
Service
Goal met
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Turnover
rate (5)
32%>
30%-31%
28%-29%
26%-27%
24%-25%
22%-23%
20%-21%
18%-19%
16%-17%
14%-15%
<14%
People
Goal met
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
NOTES:
1. The previous year's Industry and Facility numbers will be averaged each year to come up with a benchmark. Our new facility
goals will be tiered from the benchmark. The intervals used between tiers may change to ensure tier 10 is attainable.
2. Audited Total Margin (as defined by industry practice) is from a combined audit of the hospital, nursing home, and clinics.
Sales tax money is included in the calculation. Proceeds from the sale of bulk assets will be excluded from the calculation.
3. This goal will be added next year after our ability to measure quality gets more sophisticated.
4. Customer Satisfaction scores are an average of ER, Nursing Home, Outpatient Svcs, and Clinic surveys.
5. Turnover is a facility average. It excludes promotions, transfers and retirements (20+ yrs of svc or age 60+).
6. Eligible employees include those that have been employed at least 13 months at the time of distribution which is in December
each year. Part-time employees will get a prorated incentive.
7. Lawrence Health Services is under no obligation to pay an amount to employees that is greater than the overall profit for the
fiscal year that was recently audited.
8. Contract employees are not eligible for the incentive.
9. This incentive is in addition to any other incentive pay that employees are receiving.
47
Successful Rural Hospitals
Org. Design
• Compensation, continued
– Simplified Approach
“The SB program is going great guns. Our ADC was 5.5 almost double our goal
of 3. We did implement an incentive plan. The idea was to implement something
simple to track, simple to explain, correlated to financial and brand success,
achievable and meaningful. We identified 6 goals:
1.
SB ADC >=3
2.
Psych ADC>=6
3.
10% growth in radiology procedures over same quarter year ago.
4.
20% growth in OR procedures over same quarter year ago.
5.
Improvement in overall Core Measures over same quarter year ago.
6.
Improvement in ER Patient Satisfaction Willingness to Recommend
and Willingness to Reuse over same quarter year ago.
Each goal is standalone, meaning if we hit the goal we pay $35 for employee,
$50 for manager. Hit all 6 we pay $210/$300. Hit none we pay $0/$0. We
calculate by quarter so there are 4 payouts per year. We print a separate check to
hand out to the employees so that the benefit does not get lost in a bi-weekly
payroll. We just completed our first quarter. We paid on 3 of the 6 goals, so the
employees got $105/$150, but also got to see that with a little more effort they
could have doubled the amount.”
48
Successful Rural Hospitals
Org. Design
Effective Organizational Design
• Performance Measurement
– Financial statements reflect cost-based nature of Medicare
reimbursement
– Department managers to be involved in developing annual
budgets
– Budget to actual reports to be sent to department managers
monthly
• Variance analysis to be performed through regularly scheduled
meetings between CFO and department managers
– Create charts of key departmental performance indicators
• Indicators may include: monthly charges, expenses, volume statistics,
staffing to volume ratios, combined with clinical indicators etc.
• Information must be available over a longer period to identify trends
– Use charts and graphs to identify trends and opportunities for improvement
– Consider Balanced Scorecard Methodology to link operations,
strategy, and performance results
49
Rural Economics
Medical Staff
IP/OP Volume
Organizational Design
Revenue Cycle Practices
Practice Management
Facility Design
Information Technology
Third Party Contracts
Cost Reports
Summary
Revenue Cycle
Strong Practices: Measurement
• Days Revenue in Accounts Receivable
– Benchmark for rural hospital is between 55 and 60 days
– Difference between Net Days in A/R and Gross Days
• Look at both
Days in Net Accounts Receivable
Net Accounts Receivable*
Net Patient Revenue*
Hospital Rate
6/30/2005
$
5,004,012
$ 22,099,000
82.6
6/30/2006
$ 5,850,109
$ 21,711,000
98.4
6/30/2007
$ 7,174,929
$ 21,631,000
121.1
Benchmark
75th percentile
65.72
64.27
64.27
Median
55.13
53.85
53.85
25th percentile
46.28
45.98
45.98
Benchmark for small, rural hospitals from 2007 Sourcebook (Solucient, based on 2005 data).
*Note: Net of contractual allowances and bad debt expense
Days in Gross Accounts Receivable
Gross Accounts Receivable
Gross Patient Revenue
Hospital Rate
6/30/2005
$ 11,660,959
$ 44,908,000
94.8
6/30/2006
$ 13,593,351
$ 52,178,000
95.1
6/30/2007
$ 18,382,709
$ 60,381,000
111.1
Benchmark
75th percentile
65.7
64.3
64.3
Median
55.1
53.9
53.9
25th percentile
46.3
46.0
46.0
Benchmark for small, rural hospitals from 2007 Sourcebook (Solucient, based on 2005 data).
3/31/2008
$ 8,147,345
$ 28,406,973
104.7
64.3
53.9
46.0
3/31/2008
$ 17,569,599
$ 67,897,333
94.5
64.3
53.9
46.0
51
Successful Rural Hospitals
Revenue Cycle
• Key performance indicators
– Have developed performance measurement systems to
measure key revenue cycle metrics on a monthly basis and use
them to drive better performance into revenue cycle operations
– Better performing revenue cycle functions generally track many
performance indicators including (source: HFMA):
•
•
•
•
•
•
•
•
•
•
Cash collections
Gross A/R and Gross A/R days
Net A/R and Net A/R days
In-house and Discharged Not Final Billed Receivables
Third party aging over 90 days
Cash percentage of net revenue
Cost to collect
Bad debt and charity as a percentage of gross charges
Denials as a fraction of gross charges
Point of service collections as a fraction of goal
52
Successful Rural Hospitals
Revenue Cycle
• Key performance indicators – Case Study
53
Revenue Cycle
Successful Rural Hospitals
• Key performance indicators – Case Study (continued)
Memorial Hospital
Liquidity Analysis
Days Cash on Hand
Average Payment Period
Days in Net Accounts Receivable
80
68.1
67.8
64.2
60
51.2
Days
48.5
46.9
40.7
50.2
49.1
40
44.6
35.6
33.7
20
21.1
16.2
12.9
FY 2008
FY 2009 proj
FY 2005
FY 2006
FY 2007
54
Successful Rural Hospitals
Revenue Cycle
• Upgrade patient registration
– Patient registration operates with core responsibilities of preregistering most scheduled services (surgeries, MRIs, CTs, etc.),
registering all patients, verifying insurance, and collecting copayments
– Effective pre-registration process for scheduled OP services
• MD office faxes over order, patient demographics, and insurance
information
• Insurance is electronically verified and patient is called with
scheduled time and co-payment information
– Point-of-service collections for both emergent and elective care
• ER policy - after full medical screening, patients deemed non-urgent
are required to make $75 payment or services will be discontinued
and charges waived
• Re-registered patients will not receive service unless they have made
arrangements to pay either co-payment or 25% of estimated patient
payment
• Once per month, point of service receipts per clerk are reviewed as a
performance measure
– Establish weekly process to monitor collected upfront copayments and deductibles
– Provide expanded financial counseling to assist self pay patients
in filling out Medicaid applications and to set up payment plans
55
Successful Rural Hospitals
Revenue Cycle
• Additional best practices
– Adjust medical staff by-laws for physician time for chart
completion from 30 to 15 days
– Establish a documented collection policy and follow it!
– Establish sliding fee schedule for low-income patients that is
applied consistently for all patients
– Have a prompt pay discount policy up to 30% across the board
and communicate policy to patients
– Establish a process for working claim denials in a timely manner
– Ensure current collection policy is sufficient to allow Medicare
bad debts to be reimbursable
– Begin tracking of each collection agency’s performance relative
to each other
– Formally establish a revenue cycle meeting on a bi-monthly
basis that includes all important stakeholders to the revenue
cycle function
– Target a reduction in bad debt expense from 12% of gross
charges to 9% of gross charges and develop strategies to
achieve new target
– Develop a process to accurately demonstrate community benefit
by improving process for classifying a patient as charity care
56
Rural Economics
Medical Staff
IP/OP Volume
Organizational Design
Revenue Cycle Practices
Practice Management
Facility Design
Information Technology
Third Party Contracts
Cost Reports
Summary
Evaluating Physician Practice Performance
• Framework:
Practice Mgmt.
Financial Performance
Organizational Structure
Revenue
Visits
Price
Expense
Non-Provider
Provider
RVU
Benchmarks
Collections
Staff Ratios
Compensation
Visit
Benchmarks
Fee Schedules
Overhead
Expenses
Physician
Ratio
New Patients
Payer Mix
Throughput
Coding
58
Practice Mgmt.
Provider Compensation
• Benchmarking is essential for providers to understand their
productivity relative to peers
– Benchmarking with “Scientific” data
Productivity Measures
FP (no OB) Benchmarks:
Charges (excludes TC)
Ambulatory Encounters
Relative Value Units
Work Relative Value Units
Compensation
Comp to Work RVU
Dr. A
Charges (excludes TC)
Ambulatory Encounters
Relative Value Units
Work Relative Value Units
Comp to Work RVU
Year Ended
12/31/2010
25th
Percentile
MGMA (2010 Report - 2009 Data)
75th
90th
Median
Percentile
Percentile
463,762
3,213
7,007
3,937
151,207
33.66
$
506,521
4,238
8,107
4,612
61.76
$
540,973
4,151
8,521
4,670
51.17
$
366,696
2,823
5,904
3,115
62.45
595,153
4,008
8,855
4,845
183,999
39.13
762,303
4,925
10,593
5,865
233,948
46.94
956,813
6,070
12,814
7,004
297,760
58.38
X
X
X
X
X
Dr. B
Charges (excludes TC)
Ambulatory Encounters
Relative Value Units
Work Relative Value Units
Comp to Work RVU
Dr. C
Charges (excludes TC)
Ambulatory Encounters
Relative Value Units
Work Relative Value Units
Comp to Work RVU
X
X
X
X
X
X
X
X
X
X
59
Provider Compensation
Practice Mgmt.
• Create productivity based compensation models
– Best Performing Practices (BPP) frequently include physician
incentives in provider compensation formulas to encourage
physician efficiency and control costs
– Positive effects
– Revenue enhancement
• If structured well, physicians like them
• Rewards effort
• Last patient seen
• Accepting larger patient panels
• Achieving higher efficiencies through better use of staff
• Retaining more cases with less referrals
– Expense management
• Converts a portion of fixed costs to variable costs
60
Practice Mgmt.
Fee Schedule
• Review Charge Master on an annual basis for changes in RVUs
Code
Description
Evaluation and Management Codes:
99201 Office Visit New 1
99202 Office Visit New 2
99203 Office Visit New 3
99204 Office Visit New 4
99211 Office/outpatient visit, est
99212 Office/outpatient visit, est
99213 Office/outpatient visit, est
99214 Office/outpatient visit, est
99215 Office/outpatient visit, est
99231 Subsequent hospital care
99232 Subsequent hospital care
99238 Hospital Discharge
99395 Prev visit est age 18-39
99396 Prev visit est age 40-64
2011
RVUs**
1.25
2.16
3.13
4.81
0.56
1.25
2.10
3.09
4.16
1.08
2.11
2.09
2.82
3.08
Current
Fee
Conversion Medicare
% of
Factor (CF)
CF
Medicare
$ 65.00 $
$ 95.00 $
$ 137.00 $
$ 183.00 $
$32.00 $
$65.00 $
$83.00 $
$122.00 $
$183.00 $
$92.00 $
$120.00 $
$141.00 $
$101.00 $
$103.00 $
52.00
43.98
43.77
38.05
57.14
52.00
39.52
39.48
43.99
85.19
56.87
67.46
35.82
33.44
$
$
$
$
$
$
$
$
$
$
$
$
$
$
33.98
33.98
33.98
33.98
33.98
33.98
33.98
33.98
33.98
33.98
33.98
33.98
33.98
33.98
153%
129%
129%
112%
168%
153%
116%
116%
129%
251%
167%
199%
105%
98%
** 2011 Fully Implemented Non-Facility Total
– Review third party contracts on an annual basis taking into account
transitioning RVUs
• 99213: 2007 – 1.66; 2011 – 2.10
– 26% increase in RVU weight!!!
– Depending on market conditions, establish charges between 125%
and 150% of Medicare fee schedule
61
Practice Mgmt.
Coding Relativity
Understand Practice Management
• Review E&M coding relativity on a regular, often quarterly
basis, and offer providers coding education as necessary
– “What does it matter, my clinics are RHCs!” – WRONG!
Percentage of All Visits
E&M Visits, Established Patients
80%
60%
40%
20%
0%
99211
99212
BMC Providers
99213
99214
99215
Rural Benchmark
62
Rural Economics
Medical Staff
IP/OP Volume
Organizational Design
Revenue Cycle Practices
Practice Management
Facility Design
Information Technology
Third Party Contracts
Cost Reports
Summary
2011 Rural Hospital Replacement Facility Study
Design
S P E C I A LFacility
INDUSTR
Y R E P Oto
R T Support
Facility Design
Care Model
2011 RURAL HOSPITAL
REPLACEMENT FACILITY
STUDY
Prepared and sponsored by:
Sponsored by:
64
2011 Rural Hospital Replacement Facility Study
Facility Design
2011 Eligible CAHs (n=114)
2011 Eligible CAHs (n=); Future Replacements (n=)
Future Participants (n=70)
NO DATA
LOW
Included in Study
Future Study Participants
State Median
Cash Flow
HIGH
65
2011 Rural Hospital Replacement Facility Study
Facility Design
• % Change in Total Volume by Year (Adjusted Patient Days)
Percent Change in Total Patient Volume
By Year Pre and Post Replacement
15%
11%
10%
7% 7%
% Change
7%
8%
8%
6% 6%
5%
3%
3%
3%
1%
1%
0%
0%
0%
-1%
-2%
-3%
-5%
Year -2
Year -1
Year 1
Year 2
Year 3
Year 4
Year 5
Year of Replacement
2005 or earlier (36 hospitals)
2006-2007 (29 hospitals)
2008 or later (49 hospitals)
66
2011 Rural Hospital Replacement Facility Study
Facility Design
• Annualized change in Adjusted Patient Days
67
2011 Rural Hospital Replacement Facility Study
Facility Design
• Quality Reporting
100
90
80
81
76
85
80
84
82
74
70
60
73
69
63
74
66
64
77
67
75
70
60
50
VBPP Range (Minimum=Threshold/Maximum=Benchmark)
Median - Study participants
Median - all CAHs reporting
68
2010 Rural Hospital Replacement Facility Study
Facility Design
• Patient Volume
– We have surpassed all expectations for volume growth. We are
now expanding building and doubling parking lot.”
– “We are experiencing a 20% growth in both IP and OP volume.
We have begun recapturing volume that was driving by.”
– “Surgery volume has skyrocketed with recruitment of orthopedic
surgeon.”
– “We have increased swing bed census by 93% and have seen
significant growth in surgical volume.”
– “We were projected to lose $300K in year one. With growth in
volume, we actually made $700K and made $1.5M in second
year.”
– “The recent economic downturn has dampened growth.”
– “Not meeting volume projections. First year did really well. Then
economy and lack of flu season lowered volume.”
69
2010 Rural Hospital Replacement Facility Study
Facility Design
• Medical Staff
– “Medical Staff satisfaction has skyrocketed.”
– “Recruited FP in August 2009, contracted with another FP who
will finish school July 2012, and offer out for a general surgeon in
July 2011.”
– “Just recruited 3rd year resident. Residents rounding through
here ask if they can come work for us.”
– “We lost orthopedics with new facility because we did not have
space for them. We just finished new clinic space and they will
be starting up next month.”
– “We have increased from 5 FPs to 9 FPs in the community. Not
recruiting any more. We have physicians calling but we don’t
have a spot for them. “
– “Orthopedic surgeon recruited out of tertiary center said the ORs
here are better than at the University.”
– “Recruited a full time orthopedic surgeon starting in August and a
full time general surgeon beginning in January 2011.”
70
2010 Rural Hospital Replacement Facility Study
Facility Design
• Staff Recruitment/Retention
– “We now have no open nurse positions and are using no
travelers.”
– “We are fully staffed with people knocking on the door.”
– “Local community college is now visiting us as a clinic training site
for students.”
– “Lab manager feels she has died and gone to heaven.”
– “Our turnover rate has dropped and we now have multiple
candidates for open positions.”
– “Staff morale and pride have increased tremendously.”
– “We were able to recruit much higher quality staff. We were able
to change the culture from the ground up.”
71
Rural Economics
Medical Staff
IP/OP Volume
Organizational Design
Revenue Cycle Practices
Practice Management
Facility Design
Information Technology
Third Party Contracts
Cost Reports
Summary
Developing Systems
Information Tech.
• Common Findings
– Stroudwater believes that successful hospitals of the future will
deliver demonstrable quality, patient safety, and customer
service
– Many CAHs have made only limited investments in information
technology to date
• Information decision-support system is often limited
• Successful Rural Hospitals
– Have developed a 5-year IT vision and strategy with an end
goal of a community/ population-based care management
system that will increase hospital market share
• Need to demonstrate quality of care and patient safety to the
community at large
• Include in this plan the anticipated return on investment from
market share shifts or the cost of having market share swings away
from the CAH
73
Rural Economics
Medical Staff
IP/OP Volume
Organizational Design
Revenue Cycle Practices
Practice Management
Facility Design
Information Technology
Third Party Contracts
Cost Reports
Summary
Charge Master and Third Party Contracts
Third Party Contracts
• Common Findings
– Third party contracts not updated on a regular basis
• Essential to the profitability of a rural hospital
– Business office staff not aware of negotiated contracts
– Charge masters have not been updated for several years
• Successful Rural Hospitals
– Work with an outside vendors to perform comprehensive
evaluation of the hospital wide charge master
– Organize/catalog all third-party contracts and evaluate whether
any contracts should be renegotiated
– Establish process whereby all business office clerks are familiar
with third-party contracts and actively work all third-party
EOMBs to ensure accurate reimbursement
75
Rural Economics
Medical Staff
IP/OP Volume
Organizational Design
Revenue Cycle Practices
Practice Management
Facility Design
Information Technology
Third Party Contracts
Cost Reports
Service Area
Summary
Accurate Cost Reports
Cost Reports
• Common Findings
– Errors in cost report preparation that reduce eligible
reimbursement
•
•
•
•
•
•
•
•
•
•
Medicare Bad Debts
Nursing Administration
RHC Provider FTE Count
Double Counting of Expenses
RCC inconsistencies
Statistical Allocation of Costs
Reporting of NF Swing-Beds
LDRP Allocations
Physician Stand-by Costs in EDs
Related Party Cost Allocations
• Successful Rural Hospitals
– Understand cost reports
– Prepare accurate cost reports enabling full reasonable
cost reimbursement
77
Top 10 Cost Reporting Errors
Cost Report
• Physician Stand-by/On Call Costs in ED (continued)
– Worksheet A-8/2
• ER with 4,700 visits per year
– So what’s the problem???
» $519K/811K = 64% professional time
» 64% X 8,760 Annual Hours = 5,606 professional hours
» 5,606 hours / 4,700 ER Visits = 1.2 hours per visit
78
Top 10 Cost Reporting Errors
Cost Reports
• Physician Stand-by/On Call Costs in ED – Best Practice
79
Top 10 Cost Reporting Errors
Cost Reports
Standby Time
• Physician Stand-by/On Call Costs in ED – Best Practice
80
Top 10 Cost Reporting Errors
Cost Reports
Standby Time
• Physician Stand-by/On Call Costs in ED – Best Practice
81
Thanks for listening!
Eric Shell, CPA, MBA
eshell@stroudwater.com
82