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Productivity: Planning for the Future by Improving Efficiency and Reducing Costs February 19, 2015 HFMA Heart of Kansas
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Firm Background Stephanie Dorwart is the President and CEO for the national consulting firm Altius Healthcare Consulting Group, formerly American Healthcare Solutions. Altius is based in Pittsburgh, PA and was established in 2004 Altius focuses on improving the financial performance of hospitals and healthcare systems through operational improvement, as well as the reduction of labor costs systematically over an extended period of time. Altius works with hospitals ranging from critical access facilities to large academic medical centers and has helped to save clients in excess of $250M over a ten-year period. Key services include: ◦ ◦ ◦ ◦ ◦ ◦
Proprietary Benchmark Database Labor Management Productivity: Benchmarking, Action Planning , Management Education and Reporting Organizational Assessments and Strategy Initiatives Interim Executive Placement Physician Productivity Property and Copyright by Tria DBA Altius Healthcare Consulting Group.
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Overview 1
Current Environment
2
Why is Productivity Important
3
Benchmarking Strategies
4
Steps to Take Now
“We are what we repeatedly do. Excellence, therefore, is not an act but a habit.” Aristotle
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Current Climate Softening Inpatient Volumes ◦ Hospitals Reporting Decrease in Admissions
Growing Outpatient Services and Home Health Medicare Tidal Wave and Newly Insured ◦ Increasing Patient Demand
Evaporating Margins ◦ Increasing Costs and Decreasing Reimbursement Shaving Margins ◦ Healthcare Reform and Deficit Reduction Accelerating Change - Medicare Reductions/Medicaid Reductions/Pay for Performance
Limited Capital ◦ Funding Difficulties ◦ Hospitals Reporting Reduction in Capital Expenditures Property and Copyright by Tria DBA Altius Healthcare Consulting Group.
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Productivity in an Era of Reform Improving efficiency listed as a top priority among executives Improvement must be made without impacting quality CMS designed incentives to force providers to reduce waste, improve care coordination (ACOs) and develop quality process standardization In order to be successful, hospitals must operate at the lowest possible cost per adjusted discharge or cost per visit while providing the highest possible quality care
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What is productivity? “ Labor productivity is a measure of the amount of goods and services that the average worker produces in an hour of work. The level of productivity is the single most important determinant of a country’s standard of living, with faster productivity growth leading to an increasingly better standard of living.” Economic Policy Institute
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Productivity Defined Productivity and Efficiency are different, but related Productivity is: ◦ ◦ ◦ ◦
About outputs Amount of desired results produced per labor hour About doing the right things Effectiveness
Efficiency is: ◦ About inputs ◦ Amount of labor hours put in to create an output (hour per work load unit) ◦ About doing things right
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Why is productivity important? Mortgage on the house – 5% Essential Services – 14% - Maintenance Contracts - Equipment - Facilities Repair - Utilities - Software contracts - Rent
Operating Expenses at a Typical Hospital 100%
90%
80%
70%
Examples
60%
Bad Debt – 4%
50%
Services – 7% - Legal - Travel - Education - Contract Labor - Medical Professional fees
40%
Supplies – 18%
30%
20%
LABOR LABOR COSTS COSTS
10%
0%
Salaries, Wages, Benefits – 52% Investments in Future Growth – 8% - New Equipment Technology - Physician Recruitment - Facility Improvements
Little Ability to Affect Some Ability to Affect High Ability to Affect
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Role of Productivity and Labor Management in Today’s Hospitals Provides a system to achieve sustained cost improvement Instills an accountability model that reduces the need for large-scale layoffs Structured hiring process controls FTE creep Action plans and process improvement expectations improve ability to achieve staffing targets Aligns the organization’s financial goals with staffing levels Drives hire clinical quality Improves patient experience Builds job security Creates resources to buy latest technology and equipment Enables healthcare organizations to fulfill their mission Property and Copyright by Tria DBA Altius Healthcare Consulting Group.
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Balancing the Broader Productivity Perspective Service Volume
Input
Quality
Output
Labor
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Continuous Improvement Cycle Benchmark & Evaluate
Monitor
Plan Output &
&
Implement
Adjust
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Benchmarking Strategies 1. Benchmark the organization and/or system on global metrics 2. Benchmark department performance 3. Analyze skill mix and job code mix within departments 4. Review the span of control and scope of management 5. Benchmark service line and physician practice performance 6. Utilize standard benchmarking resources 7. Engage a consulting firm to assist in the process
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Global Productivity Targets Used in Conjunction with Department Targets Unite Organization’s Effort Around Common Goals Link Productivity Targets to Overall Budget Select 2-6 Indicators to Drive Improvements in Productivity Efficiency and Labor Management Costs ◦ ◦ ◦ ◦ ◦
Personnel Expense as a % of Net Patient Revenue/Operating Revenue Personnel Expense per Adjusted Discharge FTE per Adjusted Occupied Bed Total Operating Revenue per FTE Total Paid Hours per Adjusted Discharge
Should include patient days, discharges, cost and revenue
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Compensation Ratio Personnel Expense as a % of Net Patient Revenue (Total Operating Revenue) Definition: (Salary Cost + Benefit Cost + Agency Cost)/Net Patient Revenue Poor (25%)
Median (50%)
Better (75%)
Best (90%)
National Acute
56.90%
48.45%
40.90%
33.48%
Regional Acute
54.32%
45.37%
38.37%
30.5%
State Acute
49.55%
41.70%
37.72%
31.54%
National Critical
61.39%
53.47%
46.67%
38.62%
Regional Critical
66.09%
55.96%
48.01%
40.57%
State Critical
63.04%
54.11%
46.26%
29.85%
Source: Altius Healthcare Consulting Group Proprietary Database
If your hospital is operating above 45%, improvements will be necessary Property and Copyright by Tria DBA Altius Healthcare Consulting Group.
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FTE/AOB Full-Time Equivalents per Adjusted Occupied Bed Definition: Full-Time Equivalents Divided by Adjusted Occupied Beds To calculate full-time equivalents, utilize a value of 2,080 hours per employee. The adjustment factor is defined as Total Revenue/Inpatient Revenue. Exclude nursery days, if applicable
Poor (25%)
Median (50%)
Better (75%)
Best (90%)
National Acute
5.94
4.85
4.04
3.47
Regional Acute
5.83
4.79
3.97
3.50
State Acute
7.40
5.79
4.62
4.05
National Critical
6.35
4.69
3.61
2.73
Regional Critical
6.30
4.62
3.54
2.69
State Critical
8.67
5.19
3.77
1.87
Source: Altius Healthcare Consulting Group Proprietary Database Property and Copyright by Tria DBA Altius Healthcare Consulting Group.
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Net Patient Revenue per FTE Definition: Total Net Patient Revenue divided by Full-Time Equivalents To calculate the Full-Time Equivalents divide total hours (including contract) by 2080. Hospitals with more outpatient than inpatient revenue will experience lower performance levels
Poor (25%)
Median (50%)
Better (75%)
Best (90%)
National Acute
$124,574
$150,125
$179,933
$222,439
Regional Acute
$125,678
$156,305
$190,863
$235,032
State Acute
$150,210
$177,496
$224,582
$268,854
National Critical
$98,147
$119,479
$144,272
$168,522
Regional Critical
$83,084
$103,694
$132,415
$148,427
State Critical
$102,916
$121,471
$142,329
$167,391
Source: American Healthcare Solutions Proprietary Database
Hospitals that experience poor performance with this indicator, should review both their labor expense of the organization and the revenue cycle performance. Property and Copyright by Tria DBA Altius Healthcare Consulting Group.
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Additional Metrics and Opportunity Paid Hours per Adjusted Discharge Personnel Expense per Adjusted Discharge Personnel Expense as a % of Operating Expense Sample Hospital
Best Practice
Potential Cost Reduction Opportunity
5.90
4.27
$1,598,857
148.11
101.75
$1,023,175
$102,102
$180,181
$1,656,189
Personnel Expense per Adjusted Discharge
$4,672
$3,137
$1,596,861
Personnel Expense as a % of Net Patient Revenue
51.9%
42.3%
$1,210,363
Personnel Expense as a % of Operating Expense
52.7%
43.9%
$1,239,433
Indicator FTE/AOB Paid Hours per Adjusted Discharge Net Patient Revenue per FTE
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Department Review and Assessment Qualitative and Quantitative Analysis Department survey Items Reviewed ◦ ◦ ◦ ◦ ◦ ◦ ◦
Day-to-day operations Barriers to efficiency Work Flow Volume Indicators Productive and Paid Hours, including overtime, agency and orientation Vacancies and turnover Annual goals – volume increase, additional providers, decrease turnover, etc. ◦ Non-traditional roles/responsibilities ◦ Minimal staffing Property and Copyright by Tria DBA Altius Healthcare Consulting Group.
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Representative Information Sample Department Comparative Assessment
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Monitoring (Accountability System) Link productivity/staffing targets with organizational financial goals Build or install monthly/biweekly/daily reports as needed Provide education on managing productivity and understanding reports Update goals and targets annually in sync with budget process
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Top Ten Productivity Pitfalls 1.
Outdated Targets
2.
Sharing comparative targets too often and never translating them to organization goals
3. 4.
Failure to link global productivity targets to the budget, strategic plan or department targets Concentrating reduction efforts only in specific areas (overhead, support, clinical)
5.
Viewing only clinical areas as variable
6. 7.
Failure to review span of control and corporate overhead Lack of integration between finance budget, operational improvement productivity targets and Human Resource position control
8.
Lack of education and appropriate tools
9. Poor accountability 10. Focusing on numbers instead of results Property and Copyright by Tria DBA Altius Healthcare Consulting Group.
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Rules for Success Establish targets/standards for ALL departments Update performance metrics annually Include manager input Relate the targets to budget and department strategic plan and/or scope of service Link targets and performance to position control and the job requisition process Develop through industry standards, historical performance and peer-group comparisons
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Steps to Take Now Review or develop global and departmental targets ◦ Gauge your performance against national and customized peer groups ◦ Establish recommended worked (productive) and paid targets on a department and organizational level ◦ Select realistic goals that are based on your local environment and patient care model
Establish a transparent accountability model ◦ Require all levels of management to respond to staffing overages in a timely manner ◦ Develop a “Back on Plan” report that requires managers not achieving targets to submit action plans and performance improvement steps ◦ Link annual performance reviews to productivity performance
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Steps to Take Now Implement a Vacancy Control Committee ◦ All positions, replacement or new, are reviewed and approved by the vacancy control committee ◦ Vice Presidents and managers must provide justification for all requested positions in departments not meeting the current productivity target and/or volume-adjusted budget ◦ Provide a space on the job requisition form for the managers to share their latest productivity performance and variance reports
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Job Requisition Form 1. Productivity standards are attached to the job requisition form 2. Managers must show that they will continue to meet their standard with the additional employee 3. All members of position control committee must sign off on the hire
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Steps to Take Now Link the budget process with productivity target and job requisitions ◦ Utilize your comparative benchmarks and current productivity performance to develop initial budgeted FTEs based on projected volume ◦ Once final budget is adopted, create alignment between productivity targets and budgeted FTEs ◦ Utilize target productive hours to guide job requisition process
Complete a physician productivity study and implement targets ◦ ◦ ◦ ◦ ◦
Include visits and revenue in addition to RVUs Study the downstream impact of the physician’s referrals Identify opportunities on a service-line basis Secure regional information in addition to national Monitor performance on a department and provider basis
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Additional Opportunities Complete a Span of Control and Scope of Management Review Benchmark Corporate Services Implement Prospective Staffing Needs Analysis Build a Flexible Work Force Reduce Non-Productive Time ◦ Strive to reduce your non-productive time to 12% or less of your total paid hours
Review Pay Practices Evaluate and Reduce Overtime and Agency Utilization ◦ Drive your organization below an overtime level of 2% for the organization and 4% for patient care areas ◦ Work to reduce or eliminate the use of agency or travelers ◦ Evaluate all contract labor Property and Copyright by Tria DBA Altius Healthcare Consulting Group.
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Call to Action Calculate your hospital’s labor management performance against the shared benchmark data ◦ Use the outcome to develop goals ◦ Create action plans to achieve the goals
Determine productivity targets for the hospital’s departments ◦ Base targets on historical and comparative data ◦ Ensure the targets link to the financial budget
Ensure the hospital has the appropriate labor management tools to dramatically improve its financial bottom lines Guide the integration of the productivity targets, position control system and job requisition process Property and Copyright by Tria DBA Altius Healthcare Consulting Group.
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Lasting Thoughts Critical Access Hospitals have traditionally lacked productivity metrics and tools to actively monitor labor costs Executives of Critical Access Hospitals often express concern about their cost report impact when reducing labor costs If your Compensation Ratio is higher than 50%, you must act to remain viable in the future. If you act now, your facility can significantly enhance financial outcomes through superior labor productivity and labor management Financially responsible labor management requires both internal and outside assessment and comparison. Seek help when appropriate
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Stephanie Dorwart President and CEO
[email protected] 724.337.3011
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