1. Creating Buy-In without a Bailout Pat LeBlanc, DVM, MS, Diplomate, ACVA Director, Veterinary Teaching Hospital Michigan State University President, AAVC Creating a sense of financial ownership in a VTH

2. Motivating Factor #1 Development VTH-accepted accounting practices. Motivating Factor #2 Individual financial sessions with every service Motivating Factor #3 Input regarding distribution of year end profit Three Motivating Factors

3. V Generally Accepted Accounting PracticesVTH Accepted Accounting Practices = /

4. Cost accounting is performed on each of the following areas: Dermatology Emergency Service (Small Animal) Equine Med / Surgery Food Animal Med / Surgery General Medicine Internal Medicine Ophthalmology Oncology Orthopedics Soft Tissue Surgery Anesthesia Central Sterilization Clinical Pathology Diagnostic lab Hospitalization Pharmacy Radiology Primary Service Support Service

5. Profit / Loss Calculation for each Section Motivating Factor #1 - Accepted Accounting Practices Gross revenues - Discounts Net revenues - Var. Expenses - Fixed Expenses Profit or Loss

6. Profit / Loss Calculation for each Section Motivating Factor #1 - Accepted Accounting Practices Gross revenues - Discounts Net revenues - Var. Expenses - Fixed Expenses - Overhead Profit or Loss

7. Overhead expenses Motivating Factor #1 - Accepted Accounting Practices Three reception areas Call Center Purchasing Laundry Word Processing Medical Records Info Tech department Business Office Overhead pool is approx $4M

8. Overhead expenses Motivating Factor #1 - Accepted Accounting Practices 3 Overhead pools Hospital-wide Small animal only Large animal only Allocation based of sections % of VTH revenue

9. “Primary Service Profit alone doesn’t accurately account for what we bring in! It is not the Real Thing” Motivating Factor #1 - Accepted Accounting Practices

10. How can we determine the Real Thing? Motivating Factor #1 - Accepted Accounting Practices

11. Primary Service Profit + Their contribution to support service profit (downstream profits) = Real Thing!! Motivating Factor #1 - Accepted Accounting Practices Acceptable Real Thing!!

12. For every $ of revenue a Primary Service generates, how much profit in each of the support services does that $ generate? Motivating Factor #1 - Accepted Accounting Practices

13. Support Service used by Int. Med Ratio of Int. Med codes charged to Support Service Codes charged Radiology141 % Diagnostic lab45 % Pharmacy61.7 % Clinical Pathology89 % Anesthesia24.8 % Hospitalization26 % Central sterilization0.4 % Example: Amount of support service revenue generated by the Internal Medicine Service

14. Support service revenue Support service profit margin (profit margin = Ratio of profit to revenue) X = Support service profit generated by the PRIMARY SERVICE Motivating Factor #1 - Accepted Accounting Practices

15. Support Service Profit Margin Radiology52.4% Diagnostic lab45.9% Pharmacy36.4% Clinical Pathology 27.5% Anesthesia18.9% Hospitalization- 10.8% Central sterilization - 39.3%

16. Usage Ratio Radiology141.0% Diagnostic Lab45.0% Pharmacy61.7% Clinical Path89.0% Anesthesia24.8% Hospitalization26.0% Central Sterilization0.4% Service Revenue $352,500 $112,500 $154,250 $222,500 $62,000 $65,000 $1,000 Profit Margin 52.4% 45.9% 36.4% 27.5% 18.9% -10.8% -39.3% Allocated Profit $184,710 $51,638 $56,147 $61,188 $11,718 -$7,020 -$393 Example: Int. Med revenue of $250,000 Total Allocated Service Section Profit to Internal Medicine for this period: $357,987

17. Profit of Primary Service + Portion of Support service profit = Total profit contribution to VTH Motivating Factor #1 - Accepted Accounting Practices

18. Individual financial sessions with each service Motivating Factor #2 - Shared information

19. Example of a Primary service section profit

20. Primary service section with allocated Support service section profits Motivating Factor #2 - Shared information

22. Top expense items Motivating Factor #2 - Shared information

23. Top expense items Revenue generating procedures Motivating Factor #2 - Shared information

24. Top expense items Revenue generating procedures Profit ranking Motivating Factor #2 - Shared information

25. Top expense items Revenue generating procedures Profit ranking Top referring vet clinics Motivating Factor #2 - Shared information

26. Opportunity to discuss marketing of any or all parts of the service

27. VTH Year-end profit Fiscal year ended 1998$573,870 1999$1,210,880 2000$1,615,065 2001$1,560,808 2002$1,649,998

28. VTH Year-end profit Fiscal year ended 2003$1,822,115 2004$2,831,260 2005$3,262,184 2006$3,358,556 2007$3,651,602 2008$3,861,931 Projected 2008 profit of $3,843,368 was only off by $18K

29. Years 1 – 5 average: $1,322,124 Years 6 – 10 average: $2,985,143 Fiscal Results

30. Year end profit distribution approved by: 1. Hospital Management Group 2. Section Chiefs 3. VTH Board Motivating Factor #3 - Faculty input

31. Hospital equipment fund 25% Academic departments 75% Motivating Factor #3 - Faculty input 2008 Year End Distribution of Profit

32. Increasing number of departmental faculty are paid for by VTH profit Motivating Factor #3 - Faculty input VTH Profits

33. Equipment purchases from year end profits Section Chiefs determine major equipment purchases (over $5K) Motivating Factor #3 - Faculty input

34. Equipment purchases from year end profits Motivating Factor #3 - Faculty input Creating Buy-In from MOST of the rest of the VTH

35. Regularly compare current VTH financials with current forecast to many VTH groups

36. “Wow, no wonder the VTH charges are so high!!! Up to date VTH financials presented at: Monthly Faculty meetings Monthly “Chat with Pat” sessions Quarterly Town Hall Meetings Monthly Section Chief Meetings Quarterly VTH Board Meetings

37. Staff and Benefit Reductions: Approximately $1M in salary and fringes Elimination of VTH funded travel expenses Other Expense Reductions: Reduction in CareCredit options Reduction in inventory Moratorium on Major Equipment purchases for 2009 Expense cuts in past 6 months

38. Informed employees understand staff and benefit cuts Those that don’t either refused to be informed and / or are “rumble strips”

39. Always happy Always Happy Generally Satisfied Constant Complainers Staff Happiness is normally distributed

40. Always happy Always Happy Generally Satisfied Constant Complainers If you never hear any noise from the “rumble strips”, you might be headed off the road!!

41. Summary Factor 1: Well accepted accounting system “Real Deal” Factor 2: Widespread Sharing of information Factor 3: Faculty involvement for distribution of year end profits We are far from perfect but at least we are trying to get to the same spot.