1. The Business Case for CUSP William J. Ward, Jr., MBA Associate Professor of Health Finance and Management Associate Professor of Nursing Director, Master of Health Administration Degree The Johns Hopkins Bloomberg School of Public Health

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3. Framing the Business Case How hospitals operate Revenue & expense behavior Connecting the dots The valid business case Why CUSP matters – the financial pay-off Questions and Answers

4. The Process of Hospital Care l The orchestrated application of caregiver knowledge, skills, and expertise; technologies; supplies and medications l A process as opposed to a single intervention or a series of isolated events

5. The Process of Hospital Care l The orchestrated application of caregiver knowledge, skills, and expertise; technologies; supplies and medications l A process as opposed to a single intervention or a series of isolated events A System

7. How Hospitals are Paid Fee For Service (FFS) – Payments for individual services rendered – Per lab test, patient day – Less work equals less revenue DRG or Case Based – Payment for a case regardless of work performed – Less work equals more profit

8. How Hospitals are Paid Hospital ChargesCase 1Case 2Case 3 Room & Board $ 4,500 $ 5,000 $ 5,500 Laboratory 500 600 700 Diagnostic Imaging 400 500 600 Medications 800 1,000 1,200 Other Charges 800 900 1,000 Total Billed $ 7,000 $ 8,000 $ 9,000 DRG Payment $ 8,000

9. How Hospital Costs Behave Fixed costs – hold constant regardless of volume Variable costs – rise and fall along with volume Semi-variable – fixed over a range of volume, then vary sharply, then fixed again – “step costs”

10. Profile of Fixed & Variable Costs Expense Category Percent of Total Cost Fixed Proportion Variable Proportion Salary & Benefits 65%60%5% Supplies & Services 15%10%5% Interest10%10%0% Depreciation10%10%0% Total100%90%10%

11. How Hospital Costs Behave Fixed costs – hold constant regardless of volume Variable costs – rise and fall along with volume Semi-variable – fixed over a range of volume, then vary sharply, then fixed again – “step costs”

12. Semi-Variable Costs 010 1 20 2 3

13. Semi-Variable Costs and Revenue 010 1 20 2 3

14. Semi-Variable Costs and Revenue Profit Loss

15. Improved Profits Controlled Costs Increased Revenue Increased Bed Turnover Reduced ALOS Reduced Infections Static Bed Count Increased Admits ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Connecting the Dots (from fewer infections to more profit)

16. Improved Profits Controlled Costs Increased Revenue Increased Bed Turnover Reduced ALOS Reduced Infections Static Bed Count Increased Admits Connecting the Dots (from fewer infections to more profit)

17. Improved Profits Controlled Costs Increased Revenue Increased Bed Turnover Reduced ALOS Reduced Infections Static Bed Count Increased Admits Connecting the Dots (from fewer infections to more profit)

18. Improved Profits Controlled Costs Increased Revenue Increased Bed Turnover Reduced ALOS Reduced Infections Static Bed Count Increased Admits Connecting the Dots (from fewer infections to more profit)

19. Improved Profits Controlled Costs Increased Revenue Increased Bed Turnover Reduced ALOS Reduced Infections Static Bed Count Increased Admits Connecting the Dots (from fewer infections to more profit)

20. Improved Profits Controlled Costs Increased Revenue Increased Bed Turnover Reduced ALOS Reduced Infections Static Bed Count Increased Admits Connecting the Dots (from fewer infections to more profit)

21. An ounce of prevention is worth a pound of cure.” Benjamin Franklin

22. Importance of Infection Control DISCHARGEDISCHARGE ADMISSIONADMISSION Infections Nursing Care Ancillary Services Support Services Other Factors

23. Improvements in quality and patient safety can yield... – Cost efficiency – Real cost reduction – Revenue enhancement – Balance sheet improvements – Intangible improvements Connecting the Dots (from fewer infections to more profits)

24. Improved HAI rate yields Improved HAI rate yields ■ Increased capacity ■ Increased work output ■ No change in total cost Same cost ÷ increased work output = Reduced Cost per Unit of Work Cost Efficiency Model

25. Improved HAI rate yields Improved HAI rate yields ■ Increased capacity ■ No change in work output ■ Reduction in staffing levels Workload Reduction ÷ Original Workload = Potential Percentage Staff Reduction Real Cost Reduction

26. Improved HAI rate yields Improved HAI rate yields  Increased patient throughput  Reduced OR case cancellations  Increased surgical cases  Reduced ER divert hours  Increased ER visits and admissions  Increased follow-up visits and procedures  Increased revenue and increased cash Hospital Throughput

27. Improvements in HAI rate leads to improved throughput – Maximized brick & mortar investments – Additional funds available for capital purchases – Reduced need for cash or borrowing to increase capacity Balance Sheet Improvement

28. Reduced malpractice claims Higher satisfaction scores patient, family & staff Better reputation Better market position Intangible Hospital Benefits

29. Getting Down to Cases # 1 66 years old Medicare patient Grandmother of 2 Diabetic, hypertensive, obese, nonsmoker Elective admission for CABG

30. Getting Down to Cases # 1 66 years old Medicare patient Grandmother of 2 Diabetic, hypertensive, obese, nonsmoker Elective admission for CABG  Day 5 – fever of 103 o  Day 9 – 15 vent dependent  Day 22 – transferred to LTAC Ooops

31. Revenue Impact Day 1 Day 22 Case # 1 – DRG payment $12,689 Case # 1 – $12,689 Case # 2 – $12,689 Case # 3 – $12,689 One case w/complications Versus three cases w/o complications Revenue of $ 12,689 versus Revenue of $ 38,067 One case w/complications Versus three cases w/o complications Revenue of $ 12,689 versus Revenue of $ 38,067

34. Source: NEJM Archive / NEJM.org / December 15, 2011 / Copyright © 2010 NEJM

35. April 2010 “… they are disappointed when the reduction in the number of HAIs does not yield the anticipated cost savings.” “… and, so, seek the opportunity cost …”

36. The Real CUSP Payoff Values shown are strictly for purposes of illustration and are not meant to approximate real results Average Length of Stay - CLABSI Cases (days)28.8A Average Length of Stay - All Cases (days)4.8B Reduction in ALOS (days) (1)24.0C Potential Incremental Case Throughput5.0D = C / B Average Net Revenue per Case (2) $7,078.00E Potential Incremental Net Revenue Opportunity per Avoided CLABSI$35,390F = D x E Potential Annual Avoided CLABSI Cases100G Potential Annual Incremental Profit Opportunity$3,539,000H = F x G Sources: 1. CDC 2. HFMA (William O. Cleverley and James O. Cleverley)

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38. Questions and Answers