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Changing the Health Care Delivery System to be More Effective and Less Costly Presented by John F. Tiscornia, MBA, CPA Estes Park Institute Senior Fellow.

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Presentation on theme: "Changing the Health Care Delivery System to be More Effective and Less Costly Presented by John F. Tiscornia, MBA, CPA Estes Park Institute Senior Fellow."— Presentation transcript:

1 Changing the Health Care Delivery System to be More Effective and Less Costly Presented by John F. Tiscornia, MBA, CPA Estes Park Institute Senior Fellow Health Financial Planning & Governance 1 © 2012 Huron Consulting Group. All rights reserved. Proprietary & Confidential.

2 Objective Provide participants with strategies and practical approaches for reducing the rate of healthcare cost increases, while maintaining and improving quality of health care. 2

3 Outline  Current Financial State of Hospitals  Trends  The Second Curve  Market Demands  Case Studies  Setting the Foundation  Changing the Delivery Model  Integration and Portfolios  Next Steps  Focus on Fundamentals 3

4 Current Financial State of Hospitals Stand-Alone Hospitals & Single-State Healthcare Systems Medians Net patient revenues (mil $) Operating margin (%) Excess margin (%) Debt service coverage (x) Cash on hand (days) Cushion ratio (x) Accounts receivable (days) Payment period (days) Average age of plant (years) Debt to capitalization (%) Capital spending ratio (x) Source: Moody’s Investors Service Not-For-Profit Healthcare Medians for FY 2011

5 Current Financial State of Hospitals Stand-Alone Hospitals and Single-State Systems Median Ratios by Rating Category “A” 2011 Your Hospital At 12/31/2014 Sample Size 198 Net patient revenues (mil $)544.1 Operating margin (%)2.7 Excess margin (%)5.7 Debt service coverage (x)5.0 Days cash on hand187.2 Cushion ratio (x)17.2 Accounts receivable (days)45.1 EBIDA margin (%) Average age of plant (years)10.2 Debt to capitalization (%)37.9 Capital expense (%)1.2 Source: Moody’s Investors Service Not-For-Profit Healthcare Medians for FY

6 Leading the Transition 6 Curve 1 –All about volume –Reinforces silos –Little incentive for real integration Curve 2 –Shared saving program –Bundled payments –Value-based reimbursement –Rewards integration, quality, outcomes, and efficiency

7 Second Curve Performance Improvement  Still a lot left on the table in performance improvement efforts even in high-performing organizations.  Second curve performance improvement is more complex and intense, but the potential yields – financial, cultural, operational – are greater than ever before  Shift from optimizing current operations to re-imagining and re- tooling operations to achieve the IHI Triple Aim (patient experience/cost/quality, population health, cost) © 2012 Huron Consulting Group. All Rights Reserved. Proprietary & Confidential. 7

8 Market Will Demand 20 to 40% Improvement COMPELLING NEED TO DEVELOP A MULTI-PRONGED APPROACH © 2012 Huron Consulting Group. All Rights Reserved. Proprietary & Confidential. 8

9 One Hospital’s Success Story Results for 5 months: – Operating revenue up $14.4M vs. prior year; Why? Revenue Cycle best practices Better administration of managed care contracting 3% rate increase from a major payer – Operating expense down $9.1 million; Why? EVERY line item is down (except Medical fees and depreciation) – Operating income improved $23.5M – Net assets up $30M – Cash up $25M 9

10 Total Expense Per Adjusted Patient Day

11 Supply Expense Per Adjusted Patient Day

12 2010 The Situation

13 Assessment of ???? Healthcare

14 Current Situation 9.5% Margin YTD

15 Lessons Learned Medical Staff Involvement Communication

16 16 Setting the Foundation

17 Building a Burning Platform CRITICAL ELEMENTS  Ownership by the business units (vs. finance)  Clearly outlined and delivered by the CEO  Clearly defined: Targets Roles and responsibilities Timelines  Frequent communication on actual performance to plan  Sustainability © 2012 Huron Consulting Group. All Rights Reserved. Proprietary & Confidential. 17

18 Develop the Case for Change Quantify the impacts of likely reimbursement, revenue and cost pressures Articulate the likely local, regional, and national change drivers Include key leaders from throughout the organization (fosters later buy-in) Create and Monitor a Multi-Year Financial Model Impact on revenue of exchanges, bundled payments, value based pricing, etc. and expected expenses by entity Summarize in one page table CEO & COO Share the Message With the Organization Executive (expectations by entity) Physicians and employees , town hall, webcasts, etc. Communicate Mission and engagement model Roles and responsibility Next steps Building a Burning Platform OWNERSHIP BY THE BUSINESS ENTITIES VS. FINANCE © 2012 Huron Consulting Group. All Rights Reserved. Proprietary & Confidential. 18

19 Communication Strategy and Plan  Adaptable, working communication plan  Builds the case for change  Focuses on local communications with local leaders delivering messages  Promotes personal communications with many key audiences  Proactive and transparent with target audiences  Ongoing communication to highlight developments and successes  Targeted messages for each audience  Use multiple venues and forums for communication © 2012 Huron Consulting Group. All Rights Reserved. Proprietary & Confidential. 19

20 High-Level Communication Plan Stakeholder GroupMessaging Goal(s) Communication Methodology(s) Minimum Frequency/Timing Project Sponsor Detailed project updates and guidance In person meetingsWeekly Leadership Team Steering Committee Project progress; stakeholder input; ensure alignment with other initiatives In person meetingsEvery 3-4 weeks Boards of Trustees Project progress; stakeholder input; ensure alignment with HS initiatives In person meetingsAs appropriate Department Chairs / Physicians Project progress; stakeholder input; input on administrative challenges; communicate changes Department Chair meetings; Physician survey Monthly Department and Unit Administrators Project progress; stakeholder input; communicate changes Department Administrator meetings Every 4-6 weeks Staff Project progress; co mmunicate changes Town Hall meetings; Project website; newsletters Monthly Community At Large Project progress; communicate changes Town Hall meetings; Project website 2-3 meetings after initial assessment © 2012 Huron Consulting Group. All rights reserved. Proprietary & Confidential. 20

21 Establish a Performance Improvement Office RESPONSE TO BARRIERS 21 What is the Performance Improvement Office (PIO)? A strategic response to align, coordinate and focus resources (e.g. decision support, lean teams, PMO etc….) Internal partner to assist in planning and provide implementation resources where necessary An organization focused on system wide process improvement and best practices An empowered organization reporting to the CEO/COO/CFO Results driven with disciplined benefits measurement © 2012 Huron Consulting Group. All rights reserved.

22 Assessment Feasibility: Overall Impact by Year © 2012 Huron Consulting Group. All Rights Reserved. Proprietary & Confidential. 22 **Approximately $9M of the “Unachievable” will not be realized in future years Achievable in % Questionable 10% Unachievable in % Total Dollars: $122.9M $43.0M $67.6M $12.3M Overall Operations Improvement Plan Feasibility Assessment

23 Conceptual Model IMPACT OF DIFFERENT PERFORMANCE IMPROVEMENT STRATEGIES 23 Close gap through changes in delivery

24 Legend for Conceptual Model Slide Target Operating Margin Projected Operating Margin Traditional Performance Improvement Traditional PI + UM/CM/LOS Traditional PI + UM/CM/LOS + Appropriateness of Services Traditional PI + UM/CM/LOS + RC + MD Alignment 24

25 Next Steps Recognize the situation Build Burning Platforms Develop Communication Plan Involve the Organization and Physicians Establish P.I.O. Prepare Strategy for Second Curve Develop a Culture of Change

26 …. “There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new.” Nicolo Machiavelli; The Prince,

27 © 2012 Huron Consulting Group. All Rights Reserved. Proprietary & Confidential. 27 Focusing on the Fundamentals

28 Clinical Transformation – 6 to 14% Improvement TYPICAL IMPROVEMENT AND IMPLEMENTATION COMPLEXITY InitiativeTypical Benefit Ease of Implementing CLINICAL EFFICIENCYIncome statement benefit of 2% - 4% Case ManagementMedium Interdisciplinary Care CoordinationMedium Patient PlacementMedium House Management (Bed Turnaround, TransportationEasier CARE VARIANCE MANAGEMENTAchieved a 5 – 25% reduction in LOS in targeted DRGs Targeted DRGs (COPD, Sepsis, Heart Failure, etc.)Harder Targeted Tests & Treatments across all DRGs (Blood Utilizn.)Harder Critical & Intermediate Care UtilizationHarder SURGICAL FLOWIncome Statement benefit of 1% - 3% Surgical SchedulingEasier Pre-Admission ServicesEasier Asset ManagementMedium Care DeliveryMedium EMERGENCY DEPARTMENT FLOW30% - 35% reduction in waiting time Intake ProcessMedium Patient FlowMedium 28

29 Workforce Opportunities – 5 to 10% Improvement TYPICAL IMPROVEMENT AND IMPLEMENTATION COMPLEXITY Initiative Expense Improvement Ease of Implementing LABOR-SYSTEM Position Requisition Process 6%Easier Overtime Utilization2%Medium Productivity Mgmt. Tools 6%Medium Span of Control8%Harder LABOR- DEPARTMENTAL Imaging Services6%Easier Laboratory Services5%Medium Food and Nutrition Svcs.5%Easier Inpatient Nursing Svcs.5%Medium Respiratory Care Svcs.5%Medium Emergency Services5%Harder Initiative Expense Improvement Ease of Implementing LABOR DEPT. (Continued) Surgical Services4%Harder Home Care Services3%Easier Human Resources3%Medium Fiscal Services2%Medium Facility Services2%Medium Pharmacy Services2%Harder Information Technology2%Harder Benefits Expense – Medical 7%Medium Contingent (Agency) Labor7%Easier Salary Expense (Non-MD)7%Harder 29

30 Non-Labor Opportunities – 5 to 8% Improvement TYPICAL IMPROVEMENT AND IMPLEMENTATION COMPLEXITY Initiative Expense Improvement Ease of Implementing CONTRACT SERVICES Copiers and Print Management 10% - 20%Harder Energy2% - 6%Harder Equipment Rental12% - 50%Medium Office Supplies10% - 30%Easier Transcription5% - 10%Medium CLINICAL SUPPLIES Ortho Implants: Orthopedic, Spine, Trauma 2% - 9%Harder Reprocessing15% - 40%Easier Linen Utilization5% - 20%Medium PHARMACY 340B Program Enhancement 10% - 30%Medium Initiative Expense Improvement Ease of Implementing PHARMACY (Continued) 340B Employee Prescriptions 10% - 30%Medium 340B Contract Pharm.Network 25% - 40%Harder Contrast Media Purch.&Utilzn 5% - 10%Easier FOOD & ENVIRONMENTAL Floor Stocks10% - 25%Medium Waste – Muni, Red Bag, Hazardous 5% - 10%Medium LABORATORY FACILITIES MANAGEMENT Elevator contracts5% - 15%Harder Energy & Utilities Utilization2% - 6%Medium Security5% - 20%Easier 30

31 Revenue Cycle Opportunities – 3 to 6% Improvement TYPICAL IMPROVEMENT AND IMPLEMENTATION COMPLEXITY InitiativeTypical Net Revenue % Ease of Implementing Net Revenue Recovery3.00% Point of Service Collections0.20%Harder Account Resolution1.20% Denial Management0.50%Harder Net Revenue Enhancement1.50% Clinical Documentation Improvement 0.30%Medium Managed Care Contracting0.75%Harder Charge Capture0.30%Medium Strategic Pricing0.15%Easier 31

32 Physician Opportunities – 10 to 15% Improvement TYPICAL IMPROVEMENT AND IMPLEMENTATION COMPLEXITY CategoryInitiative Typical % Improvement Ease of Implementing Physician Services – Provider Provider Productivity Improvement 10%Harder Physician Services – Provider Compensation Review DesignVariesMedium Physician Services – LaborAmbulatory Staffing & Span of Control 5%Medium Physician Services – Provider Governance & Administrative Structure VariesMedium Physician Services – Provider Medicare 340B Analysis & Implementation 5%Medium 32


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