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

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

V Generally Accepted Accounting PracticesVTH Accepted Accounting Practices = /

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

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

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

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

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

“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

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

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

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

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

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

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

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

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

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

Example of a Primary service section profit

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

Top expense items Motivating Factor #2 - Shared information

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

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

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

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

VTH Year-end profit Fiscal year ended 1998$573, $1,210, $1,615, $1,560, $1,649,998

VTH Year-end profit Fiscal year ended 2003$1,822, $2,831, $3,262, $3,358, $3,651, $3,861,931 Projected 2008 profit of $3,843,368 was only off by $18K

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

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

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

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

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

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

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

“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

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

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

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

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!!

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.