1. Financial Acumen: Cost Management Tools

2. Course Objectives Describe how healthcare business is different from other types of business Understand your department’s financial performance Identify the metrics used at the HSO level Create a plan for better financial management, focusing on finding and resolving variances Practice accessing your monthly reports to perform similar activities to those in class

3. Review: Videos and Survey

4. Reimbursement depends on Payors/payor mixes Patient Population Length of Stay Readmissions Our Relationships With physicians With patients Affiliations Different from other Businesses Customers Ability to Pay Per diem Fee for Service Case Rates Types of Reimbursement Video Review: How is healthcare “business” different than other businesses?

5. Video Review: What is unique about the structure of BJC HealthCare? Not for Profit We reinvest in ourselves We share profits internally We invest in capital improvements We invest in our employees through competitive salaries, benefits, education, and training Community Benefit Expanding/Adding Community Services through our Profits Charity care Education and research Safety net services Community health programs Different types of HSO Community HSOs Academic HSOs

6. Video Review: What are the Key Result Areas at BJC HealthCare? Patient Satisfaction/Clinical Quality Employee Engagement Growth Performance Reporting Productivity Improvement Unit Cost Management

7. “Meeting financial budgets, having quality outcomes for our patients and the staff being happy with the environment. These three intertwining things are the crux of our jobs as front-line managers.” Elaine Thomas-Horton Clinical Nurse Manager Barnes-Jewish Hospital “Being able to make all the metrics fit is a balancing act. Maintaining good employee engagement scores, good patient satisfaction scores, and meeting your budget is a delicate business. You can’t go too much on the budget side. You reduce staffing to get under budget, this may make your employee engagement or your patient satisfaction scores decline. It’s all a balancing act.” Tom Chiarelli Director of Finance St. Louis Children’s Hospital From the HSOs: How do you affect the Key Result Areas at BJC HealthCare?

8. Activity Not-for Profit vs. For-Profit

13. $500,000,000 in Billed Charges Total Net Revenue = $230,000,000 Managed Care = 55% reimbursement rate $151,250,000 Managed Care = 55% reimbursement rate $151,250,000 Managed Care charges = $275,000,000 Managed Care charges = $275,000,000 Government = 35% reimbursement $78,750,000 Government = 35% reimbursement $78,750,000 Government Charges = $225,000,000 Government Charges = $225,000,000 Government Charges Managed Care Charges HSO Performance: Impact of Payor Mix

14. HSO Performance: Why is there a difference between gross and net revenue?

15. Standard Rate Charity Cases – Payor Rates Net Revenue Standard Rate Charity Cases – Payor Rates Net Revenue Gross Revenue = our standard rate we charge for services Revenue Deductions = difference between our rate and reimbursement 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.

16. HSO Performance: Operating Margin Percentage “How much of our revenues did we retain as profit?” Operating Income Operating Revenue = Operating Margin

17. HSO Performance: Operating Margin Percentage

20. HSO Performance: How are Budgets established? To help set budgets, we look at HSO history Projections Reimbursement BJC Targets Two kinds of budgets Operating Capital

21. HSO Performance: How Budgets are Established What is it? What is it based on? Who puts it together? What if conditions that the budget was based on change? Who owns it? Operating Budget:

22. Capital Budget: What is it? What is it based on? How is it spent? HSO Performance: How Budgets are Established

23. The Numbers Game

26. Original Score Original Score Percentage of Increase Final Score ( _____-_______) / _______ = ________ %

27. Department Performance

28. Department Performance: Income Statement How much income the department is making or losing.

29. Department Performance: Income Statement Activity 1.Did this department make money in December? 2.How did actual earnings compare to budgeted earnings, favorable or unfavorable? 3.Were actual earnings favorable or unfavorable for this month compared to last year? By how much? 4.What report line provides this information? 5.What types of charges are Inpatient (IP)? 6.What types of charges are Outpatient (OP)? 7.How did this month’s actuals of Inpatient and Outpatient revenue compare to last year, favorable or unfavorable? 8.What are some of the “charge capture systems” you use to enter these charges? 9.What are your responsibilities for capturing charges?

30. Department Performance: Income Statement Activity

31. HSO Performance: The Income Statement…

32. 10 minute break

33. It's only a penny…

34. Department Performance: Your Cost Management Tools

36. Department Performance: Unit Cost Total Cost + Labor Per Stat Supplies Per Stat Unit Cost # of Cases = =

37. Department Performance: Calculating Unit Cost

38. We had 50 fewer lab tests than we budgeted, so our volumes were down. But was our cost per lab test also down? Department Performance: Calculating Unit Cost

41. Department Performance: Calculating Unit Cost - Activity

43. Department Performance: Next Key Metric - Labor Per Stat The biggest thing you can control is labor costs. Labor can be 50-70% of your costs. Labor Per Stat (LPS) - the cost of labor it takes to provide a specific service. Also called: – Labor per service, or – Labor per patient day. LPS formula is similar to Unit Cost formula – Total Labor Cost/# of Cases = Labor Cost

44. Department Performance: Labor Per Stat How do you control the biggest thing in your budget? Our Labor Per Stat (LPS) Tool: Two ways to control your labor / improve the LPS: – Increase volume – Reduce hours

45. Department Performance: Calculating Labor Per Stat

46. Department Performance: Calculating Labor Per Stat - Activity

47. LabActualBudgeted Variance Total Expenses395,960375,487(20,473) Volume (Lab Tests)73,32669,9233,403 Unit Cost5.39995.37(.0299) Unit Cost % Variance(0.56%) Total Hours9,1659,090(75) Volume (Lab Tests)73,32669,9233,403 Labor Per Stat.125.13.005 Labor Per Stat % Variance 3.8% Department Performance: Calculating Labor Per Stat - Activity

48. Department Performance: Last Key Metric – Supply Per Stat Supply Per Stat (SPS) - the cost of supplies to provide a specific service. Also called: – Supplies per service, or – Supplies per patient day SPS formula is similar to Unit Cost formula – Total Supplies Cost/# of Cases = Supplies Cost

49. How do you control the Supplies in your budget? What affects the SPS Two ways to control your supplies / improve your SPS – look for these items on your Budget Variance Report: Big ticket items Compare quantities Department Performance: Last Key Metric – Supply Per Stat

50. Department Performance: Summary Questions? Unit Cost Labor per Stat Supply per Stat

51. Let’s Review Important Concepts: FTE

52. FTE Cost: how much we pay each employee for the FTE they provide. range of costs i.e.premium for weekend-only options IMPT: to know how much the FTE is costing your department, as well as how many FTEs you have for your department. Your department has a designated amount of hours per patient, test, etc. to complete work. If you run over these allotted hours, your department will have a negative FTE balance. MONITOR: Late clock-outs AND Early clock-ins You must ensure that dollars are not directed away from patient care.

53. Let’s Review Important Concepts: FTE April YTD Nursing Division 3700 has paid a total of 12450 hours. April YTD Nursing Division 3700 has paid a total of 12450 hours. How many FTEs have been paid YTD? Total Hours Paid Hours YTD = FTEs _______/___ = ____ FTEs ____ hrs Jan ____ hrs Feb ____ hrs Mar + ____ hrs Apr ___ Hours YTD

54. Let’s Review Important Concepts: FTE April YTD Nursing Division 3700 has paid a total of 12450 hours. April YTD Nursing Division 3700 has paid a total of 12450 hours. How many FTEs have been paid YTD? Total Hours Paid Hours YTD = FTEs 12,450/685 = 18.2 FTEs 177 hrs Jan 160 hrs Feb 177 hrs Mar + 171 hrs Apr 685 Hours YTD

55. Let’s Review Important Concepts: Productive/NonProductive How do you figure out productive/nonproductive?

56. Activity: Productive RN Hours per Patient Day

58. Adjusted to Volume Activity 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? 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? Nursing Division 2500 has a budgeted census of 400 patient days and 7.00 budget productive RN hours per patient day.

59. Let’s Review Important Concepts: Accruals

62. Let’s Review Important Concepts: Accounts Payable (AP) Purchase orders needed for most items. Invoices are sent directly to AP for coding. Exception: Direct pay invoices (primarily for services). You code these and send to AP for payment. To send: Send an email to "MYBJCINVOICES". Each invoice should have a separate pdf file. You may attach up to 5 separate invoice files in one email. Send a fax to 314-747-1860. There should be a separate fax for each invoice.314-747-1860 If we have questions or encounter problems regarding Cardinal invoices, please contact Carol Payne in AP. If you would like to set up a Recurring Payment, please email Angelina Williams in AP directly after completing the Recurring payment form found in PeopleSoft.

63. What to do with your Variances? Start by determining why it occurred. What are some things you could try to mitigate issues you’ve found? What are some examples you’ve tried? Variances not addressed proactively will accumulate.

64. Actions to take to manage expenses How do you prepare when you will be asked for explanations? When you find a variance, dig in and look for causes Determine steps of what you will to correct it Make sure you: Know your numbers Be able to explain your numbers: “Volume was up, I had to bring people in and pay them overtime. I expect another month like this because it’s wintertime.” Have ideas on how to mitigate costs

65. Follow Up Cost Management Action Plan Create a way to transfer this knowledge into your job. – What steps will you take? Fill out Action Plan Include a timeline for implementation. – Email form to your manager/director one week from today. CLL will send you a reminder email to you and your manager/director 2, 4 and 6 weeks later with follow up questions/activities regarding your form. Class credit to be given after the form has been received.

66. Resources: Finance Support Finance Operations (from BJH) Financial/Capital Analysis Patient Access Patient Financial Services Health Information Management Compliance Officer Utilization Review Dept - works w/managers to figure out issues

67. Know Your Business Review Course Objectives – What is one thing you will do differently? Explain what impacts your business financially – We need to take good care of our patient but we need to be good stewards of our resources. Know that what you do everyday affects our bottom line – Treat this as if its your own money. – Good management of your finances looks good on your performance review.

68. Your turn! Accessing Monthly Reports

69. Accessing Monthly Financial Reports Steps 1 & 2

70. Accessing Monthly Financial Reports Steps 3 & 4

71. Accessing Monthly Financial Reports Steps 5 & 6

72. Accessing Monthly Financial Reports Step 7

73. Accessing Monthly Financial Reports Step 8

74. Accessing Monthly Financial Reports Step 9

75. Accessing Monthly Financial Reports Steps 10 & 11

76. Accessing Monthly Financial Reports Step 12

77. Accessing Monthly Financial Reports Steps 13 & 14