Maximizing the Value of Cost Accounting to Support Strategic Decision-Making Jay Spence

Transcription

1 Maximizing the Value of Cost Accounting to Support Strategic Decision-Making Jay Spence Vice President, Industry Solutions Kaufman Hall

2 Our Speaker Jay Spence Vice President, Kaufman Hall & Associates Jay is a 20-year veteran of the Enterprise Performance Management (EPM) industry with strong leadership experience and a proven track record developing and marketing EPM solutions tailored to industry specific needs. Jay brings a strong background across a broad set of EPM disciplines, including strategy management, planning, profitability and performance analytics, as well as, deep healthcare industry experience. As Vice President of Solutions Marketing and member of the senior leadership team at Kaufman Hall, Jay is directly involved in shaping the strategic direction and roadmap of new and existing solutions to meet market needs. In addition, his team actively supports and strongly influences all aspects of our go-to-market strategy from solutions development, to marketing & lead generation activities, as well as, supporting prospect-facing sales activities. Jay joined Kaufman Hall in April 2014 as part of Kaufman Hall s acquisition of Axiom EPM. At Axiom EPM, he was a Senior Vice President of Industry Solutions. In addition to his software background, Jay was a Director in Finance at The Queen s Medical Center in Honolulu, HI. 2

3 Learning Objectives Share how industry dynamics were the catalyst to improve LifePoint s cost accounting processes; Review four ways to optimize your costing model to improve costing accuracy and efficiency; Highlight how executive reporting is evolving to improve visibility to performance trends and support more detailed population analysis. 3

4 Agenda Industry Trends Driving Demand for Cost Accounting & Margin Analysis Cost Accounting Approaches and Common Challenges Four significant ways LifePoint streamlined their process Approach to Executive Reporting today and future state 4

5 Case Study LifePoint Hospitals - Costing Initiative What drove the need for an improved costing process? Executive demand for reports Need for more timely data Technology improvements Cumbersome tools Extended auditing cycles Shift focus from data to analysis 5

6 About LifePoint Hospitals LOCATION: Headquartered in Nashville, TN 68 hospital health system located in 21 states STATISTICS: $3.5 billion annual revenues 28,000 employees 3,000 physician partners 300,000 IP admissions 1,500,000 OP visits 6

7 Key Goals to Transform Cost Accounting into a more Strategic Function 1. IMPLEMENT Migrate 50+ hospitals to a new system in 1 year. 2. STREAMLINE - data reconciliation and validation tasks 3. IMPROVE - executive reporting, more timely and insightful views 4. SHIFT - our teams focus away from auditing tasks and move to more strategic analysis 7

8 Cost Accounting in Healthcare Approaches & Common Challenges 8

9 Define Cost Accounting: Overview of Data and Process Flows INPUTS VALUE ADDED PROCESSING OUTPUTS Financial Patient Detail Reference Tables COST SUMMARY Department Account Level Costs summarized into Cost Pools. Overhead Allocations CHARGE SUMMARY Cost Factor Workbooks RVU s, Cost Per Unit stored by Department Charge Item. Allocations to Patient Cost Assignment Derive Product Lines Estimate Net Revenue ENCOUNTER Clinical, Demographic and Financial Data by Patient Encounter. Cost Summary ENCOUNTER CHARGE DETAIL Encounter Charge Item Detail by Date of Service. REPORTING Service Line Trends Population Analysis Payor Trends Physician Analysis Strategic Modeling Workload Projections Ad Hoc and distributed reporting 9

10 Define Cost Accounting: Overview of Data and Process Flows INPUTS VALUE ADDED PROCESSING OUTPUTS Financial Example: Patient Detail Radiology GL Accounts: Reference 6200-Supervisor Tables 6300-Tech 1 S/W 7400-Film 7400-Contrast H/M COST SUMMARY Department Account Level Costs summarized into Cost Pools. Overhead Allocations CHARGE SUMMARY Cost Factor Workbooks RVU s, Cost Cost Types: Per Unit stored by Department Charge Labor Item. $ Supplies $ Implants $ Allocations to Patient Cost Assignment Derive Product Lines Estimate Net Revenue ENCOUNTER Clinical, Demographic and Financial Data by Patient Encounter. Cost Summary ENCOUNTER CHARGE DETAIL Encounter Charge Item Detail by Date of Service. REPORTING Service Line Trends Population Analysis Payor Trends Physician Analysis Strategic Modeling Workload Projections Ad Hoc and distributed reporting 10

11 Define Cost Accounting: Overview of Data and Process Flows INPUTS Example: VALUE ADDED PROCESSING OUTPUTS Radiology Procedures: Chest Financial X-Ray W/C Arm X-Ray Pelvis X-Ray 1 V Ankle 3 View Patient Detail Reference Tables COST SUMMARY Cost Per Test: Department Account Labor $ Level Costs Supplies $ $12 summarized into Cost $6 Pools. $12 $3 $15 $3 Overhead Cost Factor Allocations $10 Workbooks $3 CHARGE SUMMARY RVU s, Cost Per Unit stored by Department Charge Item. Allocations to Patient Cost Assignment Derive Product Lines Estimate Net Revenue ENCOUNTER Clinical, Demographic and Financial Data by Patient Encounter. Cost Summary ENCOUNTER CHARGE DETAIL Encounter Charge Item Detail by Date of Service. REPORTING Service Line Trends Population Analysis Payor Trends Physician Analysis Strategic Modeling Workload Projections Ad Hoc and distributed reporting 11

12 Define Cost Accounting: Overview of Data and Process Flows INPUTS VALUE ADDED PROCESSING Example: OUTPUTS Financial Patient Detail Reference Tables COST SUMMARY Department Account Level Costs summarized into Cost Pools. Overhead Allocations CHARGE SUMMARY Cost Factor Workbooks RVU s, Cost Per Unit stored by Department Charge Item. Allocations to Patient Cost Assignment ENCOUNTER Charge Detail Encounter XYZ Clinical, Demographic and Procedures: Financial Data by Patient Encounter. (Rad)Chest X-Ray (Lab) CBC (Lab) WBC (ICU) Private Rm Derive Product Lines Estimate Net Revenue Cost Summary ENCOUNTER CHARGE DETAIL Encounter Charge Item Detail by Date of Service. Date: 6/12 6/12 6/12 6/12 Cost: Qty: REPORTING Labor 1 $12 Service Line Trends 1 Population Analysis $9 Payor 1 Trends $8 Physician Analysis Strategic 1 Modeling $450 Workload Projections Ad Hoc and distributed reporting 12

13 Define Cost Accounting: Overview of Data and Process Flows INPUTS VALUE ADDED PROCESSING OUTPUTS Financial Patient Detail Reference Tables COST SUMMARY Department Account Level Costs summarized into Cost Pools. Overhead Allocations CHARGE SUMMARY Cost Factor Workbooks RVU s, Cost Per Unit stored by Department Charge Item. Allocations to Patient Cost Assignment Derive Product Lines Estimate Net Revenue ENCOUNTER Clinical, Demographic and Financial Data by Patient Encounter. Example: Cost Summary Encounters ENCOUNTER CHARGE Encounters: DETAIL Encounter Charge Item XYX Detail by Date of ABC Service. DEF REPORTING Service Line Trends Population Analysis Payor Trends Physician Analysis Strategic Modeling Workload Projections Ad Hoc and distributed Summarized reporting Cost: Labor $2500 $1200 $750 Supply $5600 $350 $200 13

14 Typical Process Challenges INPUTS OUTPUTS Costing & Patient Assignment Process $ Process Re-process a Reconciliation to Financials! Outliers Exist Assign Product Lines Costing Model Separate Query Tool Reformat in Excel, then Distribute. Load data Compute & assign costs Assign product lines Distribute reports 1 week 2.5 weeks 2 days Ad hoc System & time intensive process. Time consuming effort, facility-by-facility (50+ in total). A pre-requisite step to report distribution that took days. Very manual process, data downloads to Excel & ed 14

15 4 Approaches to Effectively Streamline Your Costing Model 15

16 Cost Accounting: Streamline the process 1. An improved data model 2. Efficient data reconciliation 3. Improved RVU & Cost Modeling 4. Improved transparency to cost allocations 16

17 1 Improved Data Model PROBLEM: Detail established during cost modeling is LOST when it is summarized to Patient Level. Variable cost of $1,974,426? Where does this number comprise? Labor?, Drugs?, Other Medical Supplies? 17

18 1 Improved Data Model PROBLEM: Detail established during cost modeling is LOST when it is summarized to Patient Level. Table: Dimensions: Detail: COST SUMMARY Department Medical Supplies Consistent Detail Captured thru Encounter Detail CHARGE ITEM SUMMARY Department/ Charge Item Medical Supplies ENCOUNTER CHARGE DETAIL Encounter/ Charge Item Medical Supplies ENCOUNTER Encounter Medical Supplies SOLUTION: Implants Implants Implants Implants Intuitive data model where cost detail is retained across financial and patient views. Pharmacy Patient Care Labor Purchased Services Pharmacy Patient Care Labor Purchased Services Pharmacy Patient Care Labor Purchased Services Pharmacy Patient Care Labor Purchased Services Additional detail helps reveal outlier trends related to cost of care. Process: Indirect Facilities Costs Mapped Indirect Facilities Costs Derived Indirect Facilities Cost Assigned Indirect Facilities Costs Summarized 18

19 2 - Efficient Data Reconciliation PROBLEM: Costing is often performed in black box, difficult to tie back results to financial statements. Automated Review By Facility Example Audit Alert Template: SOLUTION: Scheduled audit checks Automated by orgl/department Data-driven exceptions (alerts) Outliers Flagged Process: Costs Mapped Costs Derived Cost Assigned Costs Summarized 19

20 3 Online & Intuitive RVU Input PROBLEM: Cost Assignment process was an off-line manual process, prone to error. Old Costing Model Query downloads! Separate Query Tool Technical Process! Technical Process Changes are uploaded RVU Updates Re-formatted to Excel! Time Intensive Offline RVU model Manager Review 20

21 3 Online & Intuitive RVU Input PROBLEM: Cost Assignment process was an off-line manual process, prone to error. Example RVU Modeling Plan File: GL Accounts and $ s are mapped to cost pools SOLUTION: Leverage RVU plan file Leverages GL $ mapping RVU updates are interactive, change DB in real-time Cost per Charge Item logic is EASY to understand 21

22 4 Transparent Cost Allocations PROBLEM: Allocations were difficult to audit and (more importantly) explain. Direct patient support costs were being assigned to patients based on utilization instead of benefit and being categorized as indirect expense Indirect Department Groupings Allocation OUT ADMISSIONS CLINICAL ADMIN Allocation TO Patient Population 4 South 3 North Radiology Improved Reporting: Audit Reports that validate resulting for each Department by Allocation Category. Direct Departments 9,898 22

23 4 Transparent Cost Allocations PROBLEM: Allocations were difficult to audit and (more importantly) explain. Indirect Department Groupings Allocation OUT ADMISSIONS CLINICAL ADMIN Allocation TO Patient Population Direct Departments SOLUTION: Tailored reports to clearly show how dollars map from Indirect to Direct Departments. Identified areas where costs could be allocated directly to patients. 4 South 3 North Radiology Improved Reporting: Audit Reports that validate resulting for each Department by Allocation Category. 9,898 23

24 Service Line Reporting: Strategies that worked 1. Updated Product Line Definitions 2. Redesigned key reports 3. Provide more comprehensive views of performance 24

25 Reporting Objectives: What did they hope to accomplish? As Analysts: To be more responsive with an improved toolset Shift time from tedious downloads and reformatting to more analysis To deliver comprehensive reports that answered first line questions about performance trends For the Executives (CFO s): For data to be timely, well-understood, trusted Reports that are intuitive, easy to comprehend 25

26 #1 Update Product Line Groupings OBJECTIVE: Develop a consistent set of services lines across all facilities Derived by Procedure for IP & OP Populations. Cardiology Hospital Ortho Deliveries Provide consistency where possible across IP & OP populations. Pacemaker Major Knee Normal APPROACH: Derive Service Lines across populations using PROCEDURES Where necessary, they are evaluating Department & Charges Detail for assignments Failure Stents Knee Revision Replacement C-Section x/cc C-Section w/o CC 26

27 #2 More Intuitive Report Formats Choose Primary and Secondary Break Fields Filter & Qualify Per Case Trends MOVE AWAY FROM: Excel Pivot Tables Prohibitively large files Not terribly intuitive ADOPTING MORE DYNAMIC REPORTING: Refined Report Templates Filter- Wizards to streamline qualifications Pre-formatted, efficiently distributed 27

28 # 3 Comprehensive Trend Reporting OBJECTIVE: Shift time away from reacting to various ad hoc request to comprehensive reporting Snapshots in time show raise more questions: (*) Sample data is being used. Isolate variables volume, payor and cost per case measures. CASE VOLUME Is the volume changing overall? Increasing year-over-year? Or, Shifting across service lines? MARGIN What s change to prior year? Are high margin services up? Shifts due to revenue or cost? REVENUE Increasing?, Decreasing? What s driving change? Mix? Cost Per Case? VAR COST Is it cost or utilization driven? Do outliers exist? Increasing in certain services? 28

29 # 3 Comprehensive Trend Reporting OBJECTIVE: Shift time away from reacting to various ad hoc request to comprehensive reporting Isolate variables volume, payor and cost per case measures. APPROACH: Deliver a consistent set of reports ( push ) to Division CFO s Engage in follow-up to understand where additional review or analysis is needed. Highlight Trends in Service Line Margins across volume, revenue and cost drivers. Payor Mix & Rate Analysis Evaluate the impact of volume, payor mix and rate changes by Service Line (or population). Service Line Margin Analysis Cost Per Case Analysis Understand Cost Drivers, by Department, by Physician. 29

30 Benefits Achieved Reporting flexibility has led to wider utilization of costing data by non-financial users: EXAMPLE #1 - Physician Relation Initiative teams lacked sufficient data when engaging w/ physicians. They overcame this by creating physician volume reports now being utilized by facility growth teams The reports allow the user to see, by product line, physician volume over time and to see referral patterns across four different physician fields. This is leading to more accurate physician metric tracking and more effective tools to drive positive physician engagement Provides visualization of missing physician data points 30

31 Benefits Achieved EXAMPLE #2 - ED Dept Acuity Level Reporting Is now being utilized in the Emergency Rooms Tailored reporting now provides effective visualization trends of ER volume by acuity level 31

32 Questions & Answers 32