Financial Acumen:
Cost Management Tools
Instructor Guide
(C) 2013, BJC HEALTHCARE (ST LOUIS, MISSOURI). ALL RIGHTS RESERVED.
Contents
Lesson Plan Guide.................................................................................................................. 3
Materials Required ................................................................................................................ 3
Room Setup and Equipment ................................................................................................... 3
Facilitator Preparation .......................................................................................................... 4
Welcome and Introductions ................................................................................................... 6
Understanding the Business and Financial Structure of BJC .................................................... 8
Understanding your HSO’s Financial Performance ................................................................ 14
Understanding Your Department’s Financial Performance ................................................... 30
Wrap-Up and Conclusion ..................................................................................................... 50
2
Lesson Plan Guide
Lesson Step
Time
Welcome and Introductions
10 min.
Understanding the Business and Financial
Structure of BJC
Understanding your HSO’s Financial Performance
40 min.
Understanding your Department’s Financial
Performance
60 min.
Wrap-up and Conclusion
15 min
APPROXIMATE TOTAL TIME
180
min.
55 min.
Notes
(Includes a 10 minute
break)
(2-4 Hours depending
on optional activities)
Materials Required
Pre-work
 Online Video
 Online Financial Acumen Survey
 Participants to bring their Department Budget Variance
Reports to Analyze
In Class






Sign-in Roster
Name Tents
Facilitator Guide
Participant Guide (1 per person + 3 extra)
Report Samples (1 per person + 3 extra)
Evaluation Forms (1 per person + 3 extra)
Room Setup and Equipment
Room Setup
Equipment
 Set room in team tables
 Write Agenda on Chart Paper (Use Lesson Plan Guide to
create Agenda)
 Computer
 PowerPoint file
 LCD projection
 Easel/Pads for Parking Lot issues
3
Facilitator Preparation
Purpose
Many managers are anxious about dealing with financial reports and making financial
decisions. Calculations can seem difficult or confusing, and managers may not know
where to turn for help. In this course, Participants will learn to easily identify, analyze,
and control costs more effectively. They will also become familiar with resources
available to help them with this task.
Target
Audience
Newly promoted managers, supervisors or managers who are new to healthcare.
Course
Objective
This class is designed to equip new managers and supervisors, both clinical and
operational, with the tools to make good financial decisions and to manage costs.
Learning
Objectives
Upon completion of this material, Participants will be able to:
a) Describe how healthcare business is different from other types of business.
b) Understand your department’s financial performance
c) Identify the metrics used at the HSO level
d) Create a plan for better financial management, focusing on finding and
resolving variances
e) Create a plan for better financial management, focusing on finding and
resolving variances
Prework
Participants will view the video of BJC Executives stressing the importance of a
manager’s role in the finances of BJC, as well as an overview of how BJC does business
and gets paid.
Participants will take an online survey to gauge their familiarity with the concepts to be
covered in class.
Facilitator needs to review survey results before class to facilitate discussion.
Considerations
We recommend follow-up to this initial course to continue the learning for all
Participants.
Option: Develop a plan and timeline to detail how learners will implement new
practices into their department management.
4
Facilitator Preparation, Continued
Course
Content
Understanding the Business and Financial Structure of BJC (Slides 3-16)
 This section is a review of the prework which included an online video and
an online survey. The video features BJC leaders describing the importance
of the role that managers and supervisors play in being good financial
stewards for BJC, the unique structure of healthcare, and how BJC gets paid.
The intent is for Participants to understand how BJC does business, and to
familiarize managers with key financial terms that are related to decisions
they make. This section will reinforce that what managers do on a daily
basis impacts the sustainability of BJC.
Understanding their HSO’s Financial Performance (Slides 17-32)
 During this section, Participants will learn about their specific HSO
performance. There are several optional activities to familiarize managers
with HSO level reports, with specific focus on the income statement. Impact
of payor mix and the difference between operating and capital budgets are
discussed. Faculty should be familiar with the terms and examples. They
may want to have examples of reports to aid Participants in recognizing
them.
Understanding their Department’s Financial Performance (Slides 33-72)
 During the final section, Participants will use their department-specific
reports to identify and analyze variances, and create an action plan to
explain and correct those variances. Activities include working through
calculations to control labor and supply costs. Facilitators should be
prepared with additional examples, and be prepared to answer any
questions about specific scenarios. In addition managers and supervisors
should leave the class knowing who and what their resources are within
their HSO (i.e., finance department members for assistance with questions,
and any tools available).
Working Session – Accessing Monthly Financial Reports (Slides 72 - 80)
 If time allows and facilitators deem necessary, each participant can log into
their own reports. Facilitators can pose similar questions to exercises
completed earlier in class.
5
Welcome and Introductions
Display PowerPoint slide 1.
1 minute
DO
Greet the Participants as they
arrive and ensure everyone has
signed the roster, made a name
tag.
Introduce myself and the Content Experts in the room.
SAY
Making sense of financial reports and managing costs can be challenging. This
class is designed to ease your anxiety about making financial decisions and
controlling your costs.
During the next few hours, these content experts and I will do our best to help
you learn how to analyze your reports.
ASK
You will also perform calculations to about control your labor and supply costs.
I want to hear from each of you. Please introduce yourself, where you work
and for how long. Also, tell us one thing you hope to learn today.
DO
6
Chart ideas of topics of interest.
Display PowerPoint slide 2.
2 minutes
SAY
These are our learning
objectives for our time together.
We will start by reviewing the importance of financial management in a not-forprofit organization. Then we will look at the big picture – the HSO's financial
performance.
ASK
Are you familiar with the term: HSO?
It is another way that we refer to our hospitals and organizations inside BJC. It
stands for Hospital Service Organization.
We will also learn key terms that will help you understand the numbers:
 unit cost,
 labor per stat,
 supply per stat
We will ask you to talk about what you will do next to manage your
department's finances. Time permitting, each of you will log into your own
reports and we will run through
After this session, back on the job is where you’ll really learn how this applies to
your department.
DO
Conclude with a thorough explanation of how to use the glossary beginning on
page 35 of the Participant Guide.
7
Understanding the Business and Financial Structure of BJC
2 minutes
DO
ASK
Review posted agenda. Be sure to mention that there will be two short breaks
along the way.
 How does the agenda sound?
 Is anything missing?
 Do you have questions/topics that you’d like to add?
Explain to turn off cell phones, no texting/emailing during class, breaks:
restrooms/coffeebar,
Display PowerPoint slide 3.
3 minutes
SAY
ASK
We showcased a new learning
methodology with your PreWork, Flipped Learning.
FL is where you watch/listen to
lectures before class so time
with experts can be used to apply the learning.
We will spend less time lecturing and more time working through problems and
scenarios that come across your desk every day.
Perhaps information was included that you already knew but we wanted to
provide it in totality in the context of making better financial decisions.
SAY
What did you find most memorable about what our three executives shared?
How will this affect how you do your job?
DO
ASK
8
You also were asked to take an online survey.
We asked you to do this before the class, so we could see:
 where to focus our class time,
 provide practical application of the contents of this class.
Review questions with: most diverse answers, most incorrect answers.
There is a follow-up survey for you to complete after this class. You’ll be able
to show what you’ve learned.
Display PowerPoint slide 4.
2 minutes
Optional: Click on video graphic to
review playback.
SAY
Content
Experts
Add
clarification as
needed.
Let’s review what you learned
from the video which explained
the differentiators of healthcare.
PAX pg 3
9
Display PowerPoint slide 5.
2 minutes
Optional: Click on video graphic
to review playback.
SAY
Let’s review what you learned
about the unique structure of BJC
HealthCare.
Content
Experts
Add
clarification as
needed.
PAX pg 4
We are Not for Profit so what we do with our profit is different.
All profits are reinvested, there no stockholder payments.
Explain how we share profits internally for capital improvements, software
initiatives, etc. Reinvest into the HSO, for example, buying tools and equipment
such as the 3T MRI.
Profit enables us to invest in our employees with competitive salaries, benefits,
education, and training.
These are the benefits we provide the community (how we maintain our tax
exempt status):
• Profits enable us to serve the community by adding or expanding services
and fund capital improvements. Things like building buildings.
• Example: Personally, if you make $50K a year, you don’t spend it all
but save some in case you need a roof for $3K.
• Show figures from the Annual Community Benefit Report – total from 2010
is $495M. Include specific stats from: Charity care, Education and research,
Safety net services, and Community health programs
BJC has different types of HSOs to provide different services.
Different types of HSOs for BJC HealthCare: One serves our community and the
other serves the community by teaching medical staff.
•
•
10
Community HSOs
Academic HSOs
Display PowerPoint slide 6.
2 minutes
Optional: Click on video graphic to
review playback.
SAY
These are the Key Result Areas of
interest to BJC. KRAs are
identified strategic directives
because BJC is measured by these statistics.
Content
Experts
Add
clarification as
needed.
PAX pg 5
Patient Satisfaction and Clinical Quality scores affect how much
Medicare/Medicaid reimbursement we receive.
Employee Engagement is affected by you directly. The way you manage your
department affects the engagement of your employees.
Growth is reflected in the VPI (Volume Performance Index). It is the weighted
average increase (or decrease) in volume from last year to this year.
Performance Reporting is shown through the Best in Class Reporting.
Productivity Improvement is the structure and processes we have built so we
can do more with our current resources.
Unit Cost Management – At the HSO level, we are graded on our ability to
manage costs.
11
Display PowerPoint slide 7.
2 minutes
DO
Point participant’s attention to
the slides.
Display PowerPoint slide 8.
2 minutes
SAY
PAX pg 6
Please look at the bottom
section of page 6 in your
Participant Guide.
Either work by yourself or
partner up with someone and work together to enter either “yes” or “no” in
each column.
Let’s answer the first one together. Is this a charactierist of a Not-for-Profit or a
For-Profit
Display PowerPoint slide 9.
2 minutes
SAY
12
Review/discuss answers.
Display PowerPoint slide 10.
2 minutes
Read/discuss answers.
DO
Display PowerPoint slide 11.
2 minutes
DO
Read/discuss answers
Display PowerPoint slide 12.
2 minutes
Read/discuss answers.
ASK
Why do you think we did this
exercise? Elicit answers.
SAY
We may not want to think of
ourselves as being concerned about “profit.” That may have a negative
connotation. But “for-profit” and “not-for-profit” are legal distinctions that
have to with limits on how profits are distributed, the ability to receive tax
deductible donations, and tax exemption.
13
Understanding your HSO’s Financial Performance
Display PowerPoint slide 13.
2 minutes
SAY
CONTENT
EXPERTS
Let’s look at our mix of payors,
and their different
reimbursement rates, because
these have a large impact on the HSO's financial performance.
Let’s say our standard charges are $500 million.
Managed Care, which includes Blue Cross, Healthlink, and Group Health Plan,
makes up about 55% of the HSO's total charges. That’s how much they make up
of the payor mix pie. They reimburse us approximately 69% of charges.
Government payors make up 45% of the HSO's total charges. Government
payors include Medicare and Medicaid. Government reimburses only 43% of
charges.
14
Display PowerPoint slide 14.
2 minutes
ASK
PAX pg 8
CONTENT
EXPERTS
Direct Participants to the Chart
included on Participant Guide:
page 8.
I’ll give you a few minutes to
answer these questions.
Learners to answer these questions in their books.
The following statements are a fill-in-the-blank for them to complete.
1. What is Gross revenue? The standard rate that we charge for services.
2. Why is there a difference between gross revenue and net revenue?
3. What are Revenue Deductions?
The difference between our standard rate and the amount we are reimbursed
by payors, such as insurance companies.
What we discussed in Payor Mix.
Number four is on the next slide.
Display PowerPoint slide 15.
2 minutes
SAY
4. 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.
15
Display PowerPoint slide 16.
2 minutes
SAY
ASK
CONTENT
EXPERTS
Since, we’ve just discussed our not for profitability, we know that we still must
make a profit.
What is the difference between BJC HealthCare and a for-profit? It’s what we
do with the profit? We invest in the community.
We will look at the Operating Margin Percentage.
The operating margin percentage is a formula that tells us how much of our
revenues we retained as profit.
It provides insight into how well we’re controlling expenses.
Display PowerPoint slide 17.
2 minutes
SAY
CONTENT
EXPERTS
Here is a sample with numbers
plugged in.
We’ve divided operating income
by operating revenue.
This tells us the percentage of revenues that were retained after expenses.
The percentage of revenues retained is 9.28%.
16
Display PowerPoint slide 18.
6 minutes
DIRECT
I would like you to practice calculating operating margin percentages on page
10 of your book.
PAX pg 10
SAY
Who can tell us how you get your operating margin %?
Remember to divide operating income by operating revenue to get the
operating margin percentage.
Any questions?
Answers are on the next slide.
Display PowerPoint slide 19.
2 minutes
PAX pg 10
Content
Experts
Let’s take a look at what you
found.
Discuss answers.
What do you think about this? Should we be concerned?
Discuss the financial performance trend.
Now, can see why budgets are important? We need to be able to watch trends
to be able to create sustainable budgets. Next, let’s take a look at budgets.
17
Display PowerPoint slide 20.
2 minutes
SAY
Content
Experts
Since we judge our financial performance in relation to our budget, let’s talk
about how the budget is established. Elicit answers to cover the points on the
slide.
Budgets are designed by looking at a lot of things.
Not all HSOs do the same thing to design budgets.
To help set budgets, we look at our HSO history.
 Where have we been?
 What have been our spend rates?
 Revenue Generation?
Our projections
 What are we projecting in volume, cost increases, payor rate increases?
Reimbursement
 Is there going to be any change in the reimbursement environment?
BJC Targets
 Then we compare these to the BJC targets, margins to generate, etc.
 How we get there is up to us.
 Our budgets must match the BJC targets.
There are two types of budgets: operating and capital.
18
Display PowerPoint slide 21.
2 minutes
ASK
Content
Experts
What is it?
A budget can mean different things to different people. I think of it as a
financial plan for a future period.
The operating budget is the type of budget with which you are most familiar. It
includes volume, revenue, expenses, and income. It is created yearly in the
August/September timeframe.
What is it based on?
Historical results with adjustments for such things as inflation, growth or
reduction in services, new services, or improved performance.
Who puts it together?
It’s established collaboratively by BJC and the HSO. We consider historical
performance, the projected economic environment, and the need for capital.
What if the conditions that the budget was based on change?
We live in a changing world. It is inevitable that the budget/plan may be off
somewhere. We expect to adjust to changes. For example, if volume goes up or
down, we need to adjust the resources to meet the new volume demand. If the
economic environment changes, we need to change with it.
Who owns the budget?
We all do. We are all responsible for carrying out the financial plan.
What questions or concerns do you have about the operating budget?
19
Display PowerPoint slide 22.
2 minutes
CONTENT
EXPERTS
ASK
What is it?
A capital budget is a two year plan completed every other year.
Its purpose is to invest back into our organization through such things as
buildings,land, equipment and technology.
Capital investments are defined as any expenditure >$5,000 or individual items
costing <$5,000 but as a group purchase exceeds $10,000 with a durable life of
two years or more.
What is it based on and how is it allocated?
The available BJC capital budget is based on 9% of net revenues.
BJC reserves
 3% to fund Campus Renewal programs
 The remaining 6% to be allocated as follows;
o 1.9% to fund Base facility renewals/renovations, infrastructure,
equipment and base discretionary I.T.,
o 2.0% to fund Strategic Facilities including major facilities an
equipment purchases,
o 1.8% to fund Strategic and Enterprise I.T. initiatives and
o .3% reserved as CEO Contingency to be managed by BJC.
20
Display PowerPoint slide 23.
4 minutes
SAY
Next, we’ll jump into the reports.
Let’s play a quick game before we
do that.
PAX pg 13
This is just for fun – no grade. It is
a timed activity, so don’t start until I’ve finished the directions.
Turn to page 13 in your Participant Guide.
When I say Begin, you will circle the numbers on the first sheet in order – 1, 2,
3, and so on.
You will have 1 minute to see how high you can get.
ASK
Has anyone played this game before?
Thanks for being a good sport and playing along.
Before we start, are there any questions?
SAY
Okay, Begin!
(Call time after 1 minute.)
- How did you do?
- What was the highest number you were able to circle?
- Write that number at the top of the page in the blank for Round 1
Score.
ASK
Let’s see if you can improve your score.
21
Display PowerPoint slide 24.
2 minutes
SAY
Go to page 14 for Round 2.
Draw a line down the middle of
your second worksheet, like this.
PAX pg 14
Here’s an important hint:
Odd numbers are on the left and even numbers are on the right. See if that
helps you. Ready for round 2?
Start time. After 1 minute, call time.
ASK
What was the highest number you circled? Record your Round 2 score. We’ll
have one last round, with another hint.
Display PowerPoint slide 25.
2 minutes
SAY
PAX pg 15
ASK
22
Draw two lines across your third
sheet on page 15 for Round 3,
like this.
The numbers are sequenced in
order by the way you read.
Look for the first number in the
Upper left. The second number can be found in the Upper right.
The third number will be in the Lower left. And the fourth in Lower right.
Ready for your final round? (Start the timer. Call time at 1 minute.)
What was your final score? Write it at the top of round 3, page 15.
Display PowerPoint slide 26.
3 minutes
SAY
PAX pg 15
At the bottom of page 15 is a
formula for calculating the
percentage by which your scores
improved.
Your final score is the score you
achieved on the third round.
Your original result was the score you achieved on your first round.
Take a minute to measure your improvement.
Allow a couple of minutes for people to do the calculation.
ASK
How did you do? (Congratulate everyone for improving.)
Was this fairly painless?
SAY
Normally, people improve their scores significantly in each round of play. Let’s
see who improved by 5%? 15%? 50%?
For many of us, working with financial reports can be a little like round 1 of the
game. But with some pointers on how to read the reports, you got better
results. That's what we will do with financial reports.
The calculations won’t get any more elaborate than what we just did.
We will try to do away with the mystique that can surround financial
management. If you can multiply, divide, add, and subtract, you will be
successful.
23
Display PowerPoint slide 27.
2 minutes
SAY
Now, that we’ve seen an overview of the financial structure of an HSO, we will
narrow our view to a specific department.
In this section, you will use department-specific reports to identify and analyze
variances. You will work through calculations to control labor and supply costs.
Each of your departments affects your HSO which in turn affects BJC
HealthCare. This is why it is critical for you to understand your department’s
financial status.
We are going to distribute the Budget Variance Summary Report that we will
examine together. After this, each of you will log in and look at your own
reports. The Budget Vairance Summary report is formerly known as the
Responsibility Report.
While I’m distributing them, our Content Expert, Phillip will highlight the GL
Structure.
CONTENT
EXPERT
24
Distribute the PeopleSoft Reports to all learners.
Brief discussion of the GL Structure: HSO > BU >
Display PowerPoint slide 28.
15 minutes
SAY
The Budget Variance Summary Report provides us with our Income Statement.
This is an overall review of the your department’s activity. Think of an Income
Statement like a checking account.
ASK
Taking a close look at this report, who can tell me what department this is?
What is the date of this report? When was it run?
PAX pg 17
I’d like you to work with the Budget Variance Summary Report to work through
the questions on page 17 in your book. You can pair up with someone if you’d
like. Try to answer as many questions as you can. Don’t worry if you can’t
answer them all.
A few questions are not based on the report, but come from your experience.
I’d like you to discuss those and answer them as best you can.
DO
Allow people about 10 minutes to complete the worksheet. When most are
done, say, “I’ll give you about another minute.” Then call time.
Use the next few pages to lead the debrief discussion.
Allow about 10 minutes for that discussion.
Read each question and elicit answers. Then show the slide with the answers
and give people time to make notes in their workbooks.
25
Display PowerPoint slide 29.
3 minutes
CONTENT
EXPERTS
1. What’s the “Bottom line”?
Did this department make
money in December? By how
much?
Yes. $447,210
2. How did actual earnings
compare to budgeted earnings
for December, favorable or
unfavorable? By how much?
Unfavorable by more than
$700,000. $1,177,064 - $447,210 =
$729,854 is the difference between actual and budget.
3. How did actual earnings this month compare to this month last year,
favorable or unfavorable? By how much?
Unfavorable by more than $800,000.
$1,300,052 vs. $447,210
4. What report line (Account Description) provides this information?
Excess of revenues over expenses
5. What types of charges are Inpatient?
(Possible answers include: room and board, ancillary charges when a patient
is admitted)
6. What types of charges are Outpatient?
(Possible answers include: EU, SDS, Ancillary charges while an outpatient ; for
example, radiology, labs, audiology, therapy, psychology)
7. How did this month’s actuals of Inpatient and Outpatient Revenue compare
to last year, favorable or unfavorable? Unfavorable
8. What are some of the “charge capture systems” you use to enter these
charges? These are different per department, similarities exist horizontally.
9. What are your responsibilities for capturing charges?(answers may vary)
A. Set up good controls to insure front line staff enters all charges
accurately. Good controls include setting clear expectations and training
people on how to enter charges. In addition to doing post-reviews daily.
B. Review daily charge reports.
26
Display PowerPoint slide 30.
3 minutes
ASK
PAX pg 18
Content
Experts
Participant Guide – page 18.
1. What is the largest expense
line item?
(Pause for answers before
clicking on slide to reveal arrow)
You’re right, salaries. They are
about 40 - 50% of all expenses. That’s where our primary focus need to be
when we think about managing costs, so that we don’t lose money we don’t
even realize we are losing.
Let’s take a minute to look at the different types of expenses listed
2. What is the second largest expense item that impacts your budget?
Supplies
3. Which expenses vary depending on the volume of patients or work?
(Elicit answers. Salaries, supplies, and sometimes purchased services and
other expenses.)
27
Display PowerPoint slide 31.
2 minutes
Say
Content
Experts
Before we take a short break,
let’s review a few points on the
Income Statement.
What does the income
statement allow us to compare?
(Actual revenues to expenditures.)
How can use this information to improve our departments?
(Shows us where we may have opportunities to improve.)
The income statement tells us whether we have generated a profit or loss.
28
Display PowerPoint slide 32.
10 minutes
DO
Take a 10 minute break.
Display PowerPoint slide 33.
2 minutes
DO
Show video when Participants return from break.
29
Understanding Your Department’s Financial Performance
Display PowerPoint slide 34.
1 minute
SAY
Now we’ll focus on tools you can use to manage costs in your department.
CONTENT
EXPERTS
Explain tools here: for example:
 PeopleSoft Monthly Financial Report
 MyTime reports
1 minute
PAX pg 19
CONTENT
EXPERTS
Display PowerPoint slide 35.
Direct participants to their
book pg. 19.
Explain the tabs on the PS
Reports.
Important to mention: how to get to these?
Report Manager?
30
Display PowerPoint slide 36.
2 minutes
DO
Play video by clicking on the
picture once
PAX pg 20
ASK
Content
Experts
Let’s look closely at Unit Cost.
What is the Unit Cost Metric?
We call it a stat (statistic).
Unit cost is all of the costs associated with one case, or procedure.
A simple way to look at it is: unit cost is calculated by dividing our expenses by
our volume.
Example: 1 OR case.
Unit cost is looking at all of the costs associated with this one OR visit.
• The labor
• The supplies
• If rental equipment is needed
• Benefits of the employees are paid who work in the OR
Everything that’s paid for to provide this service. This makes the total cost.
When the patient moves to the Surgical Floor, then we are capturing the cost
when they move to the floor. Then the stat changes to “per patient day”. Or
per service.
For every department that touches that patient we get a “per stat”.
Radiology is “cost per rad test”, in the lab it’s “costs per lab test”.
• You take the total cost and divide it by the number of cases in the OR to
get your unit cost or Cost per Service.
31
Display PowerPoint slide 37.
2 minutes
SAY
Let’s see how to calculate the
Unit Cost.
ASK
Based on this, do you think the
lab’s financial performance looks okay?
Elicit answers. Looks fine. Actual costs are not higher than budgeted costs.
Display PowerPoint slide 38.
2 minutes
SAY
Now let’s add the volume of
tests we performed.
We budgeted for 150 tests, but
only provided 100. So our
volumes were down.
ASK
32
But did we adjust our expenses?
Display PowerPoint slide 39.
2 minutes
SAY
We divided our expenses by our
volume to get out unit cost.
Looking at this, how well did we
do at flexing for our lower
volume?
DO
Elicit answers.
SAY
We did not adjust.
Our cost per unit went up to $10 from the budgeted amount of $6.60.
Display PowerPoint slide 40.
2 minutes
SAY
ASK
To find out how much we were
off, we can calculate the Unit
Cost Percent of Variance.
We divide the unit cost variance
by the budgeted unit cost.
Do we have a significant variance?
Elicit answers.
Yes. Our cost per lab test was 51.5% higher than we budgeted.
33
Display PowerPoint slide 41.
4 minutes
SAY
PAX pg 21
Now, I would like you to work
either by yourself or with a
partner, to calculate unit cost
and unit cost percent of
variance.
ASK
Any questions?
SAY
This is on page 21 in your Participant Guide.
Should we update these with numbers from the GYN-OR Report we are
sampling?
Display PowerPoint slide 42.
4 minutes
Let’s see how your answers
compare.
SAY
Review together.
DO
ASK
ASK
34
What’s the Unit Cost?
$3.30 instead of $3.06, unfavorable variance of -.24
What did you come up with for the unit cost percent variance?
7.8%
What does that variance tell you?
Our cost per lab test was 7.8% higher than budgeted.
What questions do you have about this calculation?
Should we update these with numbers from the GYN-OR Report we are
sampling?
Display PowerPoint slide 43.
2 minutes
SAY
Labor per Statistic is a measure
of a department’s labor hours
per unit of production.
CONTENT
EXPERTS
Depending on the department/service, the Labor can be labeled differently:
Labor per service, labor per stat, labor per patient day.
In your Monthly Departmental Budget Variance Summary reports, you will find
Labor in … Per Unit Summary …
There are productive hours and total labor hours
it will be called “hours per unit” in the Unit Summary section. Both Productive
Hours per Unit and Total Labor Hours per Unit are displayed under the Per Unit
Summary.
You use a similar formula for labor per stat, only thing different is the
numerator that you divide by. Now, you want to see how many labor hours did
it take to support this case. When the patient arrives on the Surgical Floor, then
we are capturing the cost when they move to the floor. Then the stat changes
to “per patient day” or “per service.” These costs include all nurses, techs,
assistants, housekeeping, or anyone who affects the patient’s stay on the
surgical floor.
You add all of this time together and divide it by the number of OR cases to get
the Labor per Stat (Hours per Case).
When they get to the Surgical Floor, then we are capturing the cost when they
move to the floor. Then the stat changes to “per patient day.” Or per service.
35
Display PowerPoint slide 44.
2 minutes
SAY
Content
Experts
The tools we use to manage our staff are the Kronos Labor Analytics and the
My Time reports.
These reports provide close to real time data on labor, utilization, and volume
for every unit at the HSO.
Every unit has a grid that tells how many nurses you should have per census.
They are measured by hours per patient day or ratios of patient to nurses.
There are two ways control your labor or improve the LPS.
The first way is to increase volume.
The second way is to reduce hours by flexing staff, while maintaining staffing
guidelines.
36
Display PowerPoint slide 45.
2 minutes
SAY
CONTENT
EXPERTS
As we said before Labor per stat
follows the same principles as
unit cost. The only difference is
that the focus is on labor hours
expensed instead of cost. So the formula is the same except that hours
expenses replaces total expenses.
In this example, it took five hours of labor to perform a test while the target
was four hours of labor. Another way of looking at it is that it took 25% more
labor to do a test than what had been anticipated in Lab’s budget.
Should we update these with numbers from the GYN-OR Report we are
sampling?
Display PowerPoint slide 46.
10 minutes
SAY
PAX pg. 24
Now I would like you to work in
pairs on page 24.
Calculate the unit cost and labor
per stat and variance
percentage.
DO
Give people several minutes to complete the activity.
SAY
Let’s go over your answers. If you have any questions or came up with different
answers, please speak up.
Should we update these with numbers from the GYN-OR Report we are
sampling?
37
Display PowerPoint slide 47.
3 minutes
ASK
What was the difference
(variance) between actual and
budgeted for each item?
PAX pg 24
Is the department meeting its goals?
Unit costs are high. Labor cost per stat is excellent.
Content
Experts
What was the difference between actual and budgeted expense? -$20,473
What was the difference between actual and budgeted volume? +3,403 tests
What was the actual and budgeted unit cost? Actual unit cost = 5.3999
Budgeted unit cost = 5.37
What is the unit cost percent variance? variance = .0299
What is the Unit cost % variance? Unit cost % variance = (.56%)
What was the difference between actual and budgeted hours? -75
What was the difference between the actual and budgeted volume of lab tests?
+3,403
What were the actual and the budgeted labor per stat? Actual LPS = .125
Budgeted LPS = .13
What was the Labor per Stat variance? .005
What was the Labor per Stat % variance? +3.8%
Is the department meeting its goals?
Unit costs are high. Labor cost per stat is excellent.
Do you think you would be called to explain these variances?
ASK
What other observations do you have?
What questions do you have about Labor per Stat cost or the percent of
variance calculations?
38
Display PowerPoint slide 48.
2 minutes
SAY
CONTENT
EXPERTS
ASK
Supply Per Stat –
Similar to Labor per Stat,
numerator changes to the cost
of supplies it takes to provide a
specific service.
How would the OR example look for Supplies per Stat?
Unit cost looked at these costs associated with this one OR visit.
• The labor
• The supplies
• If rental equipment is needed
• Benefits of the employees are paid who work in the OR
Display PowerPoint slide 49.
2 minutes
SAY
CONTENT
EXPERTS
ASK
Share journal
tab of report
on projector?
Content
Expert
We do not check supplies daily
like we do Labor per Stat
What affects the SPS Key Metric
– Supply per Stat?
• Physician Preference
• Pharmaceuticals – New
expensive drugs entering market, New Technology both supplies and
equipment, waste
There are two ways manage your supply costs. Using your Budget Variance
Report, Journal Tab.
- The first way is to look for big ticket items that may have offset your supply
costs.
- The second way is review your quantities to see how they compare to last
month.
Explain the Rate and Volume Variance Report (monthly).
39
Display PowerPoint slide 50.
2 minutes
SAY
ASK
DO
40
We’re going to move on to FTE
now.
Any final questions over Unit Cost, Labor per Stat or Supply per Stat?
Click on video to watch before advancing slide.
Display PowerPoint slide 51.
2 minutes
Turn to your Participant Guide,
pg. 24 and let’s talk about FTE.
FTEs are not actual employees,
they are designated hours.
SAY
CONTENT
EXPERTS
Here’s an example:
A cost center has 500 total
hours in one pay period.
To convert those hours into FTE’s for a pay period the calculation would be:
500/80 = 6.25 FTE’s
ASK
One FTE = 2080 hours in a year (2088 in a leap year.)
Hours can be broken down into various periods such as bi-weekly (pay period,)
month, etc.
SAY
What’s important to know about the cost of an FTE?
(__________________________________)
41
Display PowerPoint slide 52.
2 minutes
The cost of an FTE is how much
we pay the employee for the FTE
they provide.
SAY
There is a range of costs, like
premium for weekend-only
options.
You need to know how much the FTE is costing you, as well as how many FTEs
you have for your department.
Employee late clock-outs & early clock-ins are included in FTE hours.
Late clock-outs & early clock ins need to be monitored to ensure that dollars
are not directed away from resources dedicated to patient care.
A department has a designated amount of hours per patient, test, etc. to
complete work. When the department runs over these allotted hours, the
department will have a negative FTE balance.
42
Display PowerPoint slide 53.
4 minutes
Turn to your Participant Guide,
pg. 26.
SAY
You will need to figure out the
hours for January, February,
March and April.
Once you have the total hours, you can work on the total number of FTEs.
I’ve give you a couple of minutes to work through this exercise and then we’ll
discuss.
PAX pg 26
Display PowerPoint slide 54.
2 minutes
SAY
Review answers.
43
Display PowerPoint slide 55.
2 minutes
ASK
SAY
What is an example of
nonproductive time?
Productive Hours are “working” hours and nonproductive are “non-working”
hours.
Examples of non-working hours would include orientation, meetings,
training/class, ETO, Jury Duty, Bereavement, or Holiday time.
Display PowerPoint slide 56.
2 minutes
SAY
PAX pg. 27
Turn to your Participant Guide,
page 27.
Let’s work through an exercise on productive and nonproductive time.
Figure out the variances with a partner.
44
Display PowerPoint slide 57.
2 minutes
CONTENT
EXPERTS
Discuss answers.
Display PowerPoint slide 58.
5 minutes
PAX pg 28
Use page 28 in your Participant
Guide.
Read scenario.
SAY
DO
If the actual total census was 450 patient days, how many productive RN hours
could be paid and still deliver 7.00 budgeted productive RN hours per patient
day?
(450 pt. days X 7.00 Prod RN hours per Pt. Day = 3150 Prod RN Hours)
ASK
If the actual total census was 350 patient days, how many productive RN hours
could be paid and still deliver 7.00 budgeted productive RN hours per patient
day?
(350 pt. days X 7.00 Prod RN hours per Pt Day = 2450 Prod RN hours)
What is the constant in the two examples? 7.00 Prod RN hrs. per Pt Day
ASK
What other questions do you have?
45
Display PowerPoint slide 59.
2 minutes
SAY
How do accruals work?
Accruals are a necessary
transaction to record expenses
in the period that they were
incurred.
You need to be able to match revenuees with expenses.
Accrual allow you to put the expenses in the right period. So what does that
mean? Let me give you some examples.
Display PowerPoint slide 60.
2 minutes
SAY
The operating room receives
spine implants that are used for
cases done in September, but
the invoice isn’t paid until
October.
In September, the OR case is recognized because we bill the patient for the
spine implant. However, the payment is not made until October. We’ve
recognized the volume from the case, and the revenue, but not the expense.
So, we make an accrual. We record the expense of the spine implant in
September.
In October, when the spine implant invoice is paid, the accrual is reversed or
cancelled, so that we don’t charge for the expense of the spine implants twice.
46
Display PowerPoint slide 61.
2 minutes
SAY
CONTENT
EXPERTS
ASK
Let’s look at another example
together.
Why do we need to accrue this?
Invoice needs to be accrued in
December since the expense
relates to December.
47
Display PowerPoint slide 62.
2 minutes
Now, we’ll look at your
interaction with Accounts
Payable. (AP)
SAY
Read over these points to
yourself.
ASK:
Who can tell me the differences in how we handle purchase orders now?
Not on the slide/pax notes: No more "red envelopes".
Display PowerPoint slide 63.
5 minutes
SAY
Now, let’s discuss what can way
you do to affect costs in your
department.
What do you do when you find
variances? Share examples and allow learners to discuss as group.
CONTENT
EXPERTS
One example:
You know several physicians are going on vacation in a week or two; you can
adjust your schedules to make allowances for this. You may not schedule as
many RNs or PCTs because your census will be down.
Another example:
Or the OR cases for the afternoon have been cancelled so you wouldn’t keep
your RNs there all day, you’d start sending people home. You no longer have
the volume to require those RNs from the morning to stay through the
afternoon. This is one way to flex your staffing to adjust to your volume.
Bottom Line:
Variances not addressed will accumulate.
48
Display PowerPoint slide 64.
2 minutes
SAY
CONTENT
EXPERTS
You will be asked WHY there is a
variance and for an action plan
to correct it.
Describe how to create an action
plan to resolve concerns.
If you are meeting with your finance department or their Vice President you
should make sure you know your numbers and can explain your numbers.
Be prepared with ideas you have or can implement for an action plan to
mitigate these costs.
Display PowerPoint slide 65.
2 minutes
SAY
PAX pg 32
Page 32 of your Participant
Guide has an example of one
type of Action Plan form.
You can customize this and
discuss it with your manager to ensure follow up on any issues you may be
having with variances.
49
Wrap-Up and Conclusion
Display PowerPoint slide 66.
2 minutes
Content
Experts
What tips do you have for
managers?
If time permits, you may jump past these next two slides, to the Accessing Monthly Reports
section and allow the learners to log in and access their own reports.
NOTE: If you want to use the Cart of Laptops, please check with Angie Witter for access:
arh2413@bjc.org, 362-1587
Display PowerPoint slide 67.
2 minutes
Ask questions on slide.
Chart responses.
Record to include in a summary
email to be sent to all learners
and their managers/directors
after class concludes.
Making Medicine Better is our challenge at BJC.
We will not be able to achieve that if we are not good stewards of our financial
resources.
Have Participants complete the class evaluation. Thank everyone for attending
and dismiss the class.
Remind learners of :
 Post-survey to complete from the BJC Online Learning Center
 Action plans to be completed with their managers/directors – these will
be automatically sent the BJC Online Learning Center every 2 weeks (3
times total) as reminders.
50
Display PowerPoint slide 68.
2 minutes
Walk learners through these
steps on their own computers.
Display PowerPoint slide 69.
2 minutes
Display PowerPoint slide 70.
2 minutes
51
Display PowerPoint slide 71.
2 minutes
Display PowerPoint slide 72.
2 minutes
Display PowerPoint slide 73.
2 minutes
52
Display PowerPoint slide 74.
2 minutes
Display PowerPoint slide 75.
2 minutes
Display PowerPoint slide 76.
2 minutes
53
Display PowerPoint slide 77.
2 minutes
Finish exercise appropriately.
54
55