Managing Finances

Managing Successfully @ UMHS

Purpose

To provide supervisors with a fundamental understanding of the complexity of the

Health System & their roles and responsibilities as financial stewards of

UMHS Assets

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Agenda

• Opening

• Financial stewardship policy for supervisor’s & all UMHS employees

• Financial Accounting Overview

• Financial State of the Health System

• Internal Controls

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Create the future of health care through discovery

Become the national leader in health care, health care reform,

biomedical innovation and education

UMHS Vision

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UMHS OverviewNationally recognized U-M Health System (UMHS) includes: Medical School (MS) Faculty Group Practice (FGP) Hospitals and Health Centers (HHC) School of Nursing Michigan Health Corp

Medical School Over 3,100 faculty 650 medical students 1,200 house staff 3,900 staff members 575 graduate students

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UMHS OverviewFaculty Group Practice

1,650 physician members from 20 clinical departments Cohorts include primary care, hospital based, internal

medicine (non-primary care), medical departments (excluding internal medicine) and surgical departments

Hospital and Health Centers 990 licensed beds ~45,000 admissions ~90,000 ER/urgent care visits ~48,000 surgical cases ~4,000 deliveries ~1.9 million clinic visits annually

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U-M Revenue Components

How Do We Compare?

#392- Mutual of Omaha Insurance Co. $6,602B

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# 390- O’Reilly Automotive $6,649B

Fortune 500 Companies with similar revenue

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UMHS Strategic Goals

Create the ideal patient care experience

Engage in groundbreaking discovery and innovative collaboration

Cultivate an interdisciplinary, continuous learning environment

Promote diversity and cultural competency among faculty, staff and students

Attain market leadership in key areas

Translate knowledge into practices and policies that improve health and access to care

Generate margin for Health System investment

Supervisor’s Financial Management Responsibility

• U of M highly decentralized • Executive management responsible for fiscal

integrity • Guidance is provided within policies (SPG, School &

Department level)• Each employee is responsible for Financial Controls

relevant to their role.

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Responsibilities Con’t

• Departmental-level requirements include:– Preparing annual/quarterly forecasts– Processing financial transactions – Financial review (reporting & analysis)– Internal controls and management– http://spg.umich.edu/policy/500.01

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Responsibilities Con’t

• Unit managers audit responsibilities:– Ensure unit has controls (i.e., separation of

duties, oversight, etc.)– Maintain a level of professional skepticism– Provide administrative oversight

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Revenue and Expenses in the Health System

Revenue

• Facility Revenue• Professional Revenue• Research Revenue• Philanthropy• General Funds (MS specific)• Other Revenue

– Sales & Service– Recharge

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Expenses Payroll Supplies Other operating expenses

Rent Utilities Contract services Maintenance

Depreciation

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Non-Operating Items

• Incurred by activities not related to the core operations of the business– Examples:

• Investment Income• Endowment Interest Transfers• Commitment Funding• Other

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The stronger our academic programs, the more likely we are to attract the best faculty, students and staff.

The more outstanding our faculty, students and staff, the better positioned we are to:

– Deliver the ideal patient care experience– Enhance our research portfolio– Strengthen our competitive advantage as the place

where tomorrow’s health care professionals learn and thrive

UMHS Interdependence: More Than Money

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HHC Statistics

• Discharges• Length of Stay (LOS)• Patient Days• Observation Cases• Clinic Visits• OR & MPU Cases• Deliveries

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Accounting Overview

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Who uses financial statements?

• Management: financial planning, assessing debt capacity, pricing, assessing competition

• Board of Trustees (Regents)• Creditors, both current and potential• Owners/Investors, both current and potential• Employee unions• Regulatory agencies• Philanthropic foundations and potential donors• Public

Finance Terms / Concepts

• 3 TYPES of FINANCIAL STATEMENTS: –Income Statement–Balance Sheet–Statement of Cash Flows

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Income Statement• Presents the results of the entity’s operations

during a period of time, such as one year.Net Income = Revenue – Expenses

• Revenue: payment received for the delivery/manufacturing of a product or rendering of a service

• Expenses: costs incurred to produce the product or service

• May also referred to as a Profit & Loss Statement or Statement of Changes in Net Assets

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Balance Sheet• Statement of the Financial Position at a given point in

time• 3 Sections of a Balance Sheet are: Assets, Liabilities

and EquityThe Accounting Equation “Balanced” Sheet

TOTAL ASSETS = TOTAL LIABILITIES + EQUITY• Assets and Liabilities are either Current or Non-Current

• Current – expected to occur in the near future, usually < 1 year

• Non-Current – expected time frame exceeds 1 year• Equity is the earnings retained by the University

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Cash Flow Statement

• Converts the accrual basis of accounting used to prepare the income statement and balance sheet back to a cash basis

• Summarizes activities by the source and use of cash

• Indicates if there is enough cash available to carry on routine operations

• Days Cash on Hand=Current Cash Balance

Average Daily Operating Expenses + Depreciation25

Systems and Chartfields

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UMHS Systems

Variety of tools are available throughout the University & Health System

Tools vary in flexibility

Common Data Source’s

May require additional training and access

Examples:

Datamart, Everest, Wolverine Access/Business Objects, M-Reports

M-PathwaysAccounts Payable

M-PathwaysPayroll

M-PathwaysAsset Mgt

M-PathwaysStudent Data

M-PathwaysAccounts Receivable

M-PathwaysJournal Entries

M-PathwaysInventory

HHC Financial

Data Mart

MonthlyReports

ActivityPlan

EpsiStandards

CDM#’s

Revenue Plan& Rate Increase

ExpensePlan

Budget/ForecastingAssumptions

Med School University

Budget Development

Provost’sOffice

Operating Revenue

Forecasting

Non-Operating Items Forecasting

Medical School Forecasting

PlanSpreads

M-PathwaysGeneral Ledger

MonthlyReports

(on MS Server)

OperatingExpense

Forecasting

Everest (MS Database)

Process & Usage Flowchart

28MS Everest to transition to Hyperion in FY 2013

Monthly Reports

Reports typically reviewed at month end to maintain financial oversight:

• Actual vs. Actual• Statement of Activity (SOA)• Gross Pay Register• Charges and Usage Report

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Routine Process – All UMHS

• Review and Reconciliation– Start at the high level and drill down – Actual on course with Budget?– Is variance due to: timing, activity, error in budget? – Anything that doesn’t “look” right?– Statement of Activity – any obviously incorrect/misplaced charges?

• Correction– Materiality?– Between major units, projects, funds, budget line items?– Errors in prior months? Need to go back and correct?– Correct in Wolverine Access; via Accounting prior to close

• Reporting on Results– Periodic commentary and analysis required by leadership 30

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Chartfields

Account The type of transaction. It is NOT the shortcode.

Fund Source and intended purpose of monies and how they should be spent.

Department ID The academic or administrative unit. Also NOT the shortcode.

Program Additional reporting layer for the dept.

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Chartfields (cont.)

Class The functional nature of the expense.

Project/Grant Identifies a specific pool of money or activity.

Shortcode A shortcode represents a string of chartfield values. Shortcodes are required to process payroll transactions, gift/development processing, order through Marketsite, use Concur reimbursement system, and may be used with Service Unit Billings in place of Chartfields.

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Chartfields (cont.)

• Account, Department and Shortcode are all 6 digit numbers.

• It is important to know the differences and correct usage of each.

• Example:• OCG has incurred fees for a search firm related to a

position in the Health System Legal Office

• HSLO is asked for a shortcode to reimburse OGC

• 309855 is the response to this request.

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Chartfields (cont.)

• Result:• 309855 is the HSLO Department ID

• Shortcode 309855 is in the Law School

• The expense will be incorrectly moved

• The correct Shortcode would be 226604

• http://www.mais.umich.edu/fin/web_converter.html

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http://www.med.umich.edu/finance/FinancialSystems/

Financial Systems Resources

Financial State of the Health System

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• One of 17 hospitals that made this year’s prestigious U.S. News and World Report Honor Roll, marking the 18th year in a row of being named to the honor roll.

• The University Hospital received honor recognition in six of the 16 adult specialties considered, with eight specialties listed in the top 20 in their respective categories.

• Of the 4,793 hospitals considered for the rankings, only 148 made the list in even one specialty.

• In June 2012, the U.S. News and World Report magazine ranked the C.S. Mott Children’s Hospital among the best pediatric hospitals in the nation – ranking 4th in Cardiology & Heart Surgery.

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• One of 65 hospitals named by the Leapfrog Group as a Top Hospital, placing in top 5% of hospitals surveyed. Only one of three hospitals that appear on both the Leapfrog list and the U.S. News and World Report Honor Roll of Best Hospitals in America.

SpecialtyAdult Rank

Children's Rank Specialty

Adult Rank

Children's Rank

Overall 17 Cardiology & Heart Surgery 22 4

Ear, Nose, and Throat 13 Endocrinology 16 17

Rheumatology 16 Kidney Disease 35 37

Urology 13 41 Cancer 14 41

Digestive Disorders 30 34 Gynecology 33

Geriatrics 15 Orthopedics 40 14

Respiratory Disorders 20 35 Neonatal 23

Ophthalmology 13 Neurology / Neurosurgery 30 21

Awards and Accolades

• The University of Michigan Medical School is consistently recognized as being in the top 10 schools in overall funding from the National Institutes of Health (NIH).

– During FY 2011, the UM Medical School ranks #6 in NIH awards totaling over $319 million.

• The UM Medical School ranks 10th among the top research-oriented medical schools in the most recent U.S. News and World Report survey.

• The UM Medical School received Top 10 recognition in four of eight specialties considered by U.S. News and World Report:

Specialty Rank Specialty RankFamily Medicine 7 Internal Medicine 6Geriatrics 6 Women’s Health 5

• North Campus Research Complex (NCRC), acquired in FY 2010, allows the University to broaden its contributions as one of the nation’s premier research institutions.

– Over 1 million net assignable square feet of office / laboratory space currently occupied by approximately 1,700 FTEs, with room for growth and expansion.

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Awards and Accolades

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• Unfavorable state demographics and economic climate

• Increasing regulatory environment

• Increasing competition for patients

– UMHS relies heavily on more distant geographies for patients and margin

• Increasing revenue and expense pressures

– Increased depreciation and salary expense associated with recent opening of the new Children’s and Women’s facility.

– Complexities and implementation challenges associated with significant information technology investments.

– Continued shift towards Governmental/Uninsured patients, which require significant subsidy to service.

• Increasing competition for top faculty

Challenges and Threats

Meaningful Use and MiChart

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• MiChart

– Provided by Epic Systems Corporation

– Complete and integrated set of applications that support virtually all functions related to patient care . Replaces or augments existing clinical systems

– February 2012: Revenue Cycle

– June 2012: Emergency Department

– August 2012: Ambulatory Care

– June 2014: Inpatient

• Health Information Technology for Economic and Clinical Health Act (HITECH)

– Established programs under Medicare and Medicaid to provide incentive payments for the "meaningful use" of certified EHR technology

• Penalties exist if you do not implement an EHR technology solution by certain dates (2015)

– MiChart helps UMHS demonstrate meaningful use

Patient Protection and Affordable Care Act (PPACA)

• Key Provisions– Covering the uninsured (starts in 2014)– Insurance reforms (starts in 2010, many delayed until

2014)• Ban on refusal to insure pre-existing conditions

– Changes in Medicare – Hospital Payments• Reimbursement rates decline and increased emphasis on pay for

performance

– Changes in Medicare and Medicaid – physicians• New quality reporting program

– Additional delivery system changes• Significant payment reductions – Home Care, Medicare Advantage

plans

Population Health Management

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• Initiatives 1. Pioneer ACO 2. Michigan Primary Care Transformation Project (MiPCT)3. POM ACO (Medicare Shared Savings Program) BCBSM Organized Systems of Care

(Under discussion)4. BCBSM Physician Group Incentive Program (PGIP)5. Other FGP incentive-based payment arrangements

• Pioneer ACO

– 3 to 5-year Medicare care coordination initiative.

– ACOs are at risk for: Medicare expenditures (utilization) for a population.

• Can be both shared savings or shared losses

– The amount of shared savings awarded is based on performance on 33 quality measures.

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• During February 2012, UMHS signed a new affiliation agreement with Trinity Health-Michigan.

• In August 2012, UMHS and MidMichigan Health announced plans to affiliate as clinical partners.

– Currently in due diligence phase

Key Benefits– Expand access and enhance the level of care provided

throughout the region– Enhance UMHS brand presence – Diversify our care delivery settings– Expand and diversify education venues– Increase margins with market leadership

Clinical Affiliations

Internal Controls

Internal Controls - Objectives

Adopted annual unit certification practice in response to Sarbanes-Oxley Act• FY 2013 is the 9th year of requiring each unit on campus to

complete annual internal control review and certification of internal controls and financial information

• While Sarbanes-Oxley Act only focuses on accuracy of financial reporting, UM approach includes effectiveness/efficiency and compliance where applicable

• Goal is to develop broader understanding and accountability of financial results and internal controls at unit level

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Internal Controls

• Tools to be effective and efficient, avoid problems• Unit manager has audit responsibilities and serves as

trustee/overseer• Effective controls promote efficiency, reduce risk, and

ensure reliability of statements and compliance with laws and regulations

• Provide reasonable assurance to management of achieving their objectives

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Employment Process over $225 mil in gross pay each month, and 20,000-25,000 job related transactions (i.e. appointment related, pay change) per month

P-Card 6,150 P-Card holders across campus; 4,600 statements reconciled/approved monthly, representing approx. $9 mil or 33,000 purchase transactions per month

Journal Entries Process 45,000-50,000 non-system generated journal entries per year including 900,000 line items

Cash Handling Processed over 40,000 departmental deposits in FY 2011 totaling over $340 mils (excludes patient and student tuition)

University of Michigan statistics

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Why Have Internal Controls?

MYTHS:

Internal control starts with a strong set of policies and procedures.

Internal control: That’s why we have internal auditors!

Internal control is a finance thing.

Internal controls are essentially negative, like a list of “thou-shalt-nots.”

Internal controls take time away from our core activities of research, instruction, and patient care.

FACTS:

Internal control starts with a strong control environment.

While internal auditors play a key role in the system of control, management is the primary owner of internal control.

Internal control is integral to every aspect of business.

Internal control makes the right things happen the first time.

Internal controls should be built “into,” not “onto” business processes.

Internal Controls – Myths and Facts

Internal Controls

• How do we limit risk?– Segregate of job duties– Limit Authorization– Control access– Establish written procedures, review work and

approval– Record, verify and analyze financial reports

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Internal Controls

• How does U-M implement internal controls?– Guidance for common processes across University

• Employment/Payroll• P-Card• Journal Entries• Cash Handling• Gift Cards• Employee Travel Expense• Human Subject Incentives• Unit Administered Financial Aid• Financial Stewardship of Gifts

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Internal Controls

• How does U-M ensure compliance with internal controls guidance?– Front-End Process (Self-Reporting/Monitoring)

• Gap Analysis• Monitoring Reports• Annual Internal Controls Certification

– Back-End Process • University Audits

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• Communication‒ Right message to the right people‒ Clarify expectations and prioritization – “tone at the top”‒ Departmental discussions with UMHS Finance or/and Internal

Controls Office

• Involvement and participation‒ Getting control guidance to the “doers”‒ What areas are applicable (use gift cards, etc.)?

• Monitoring and oversight‒ Trends and exceptions

• Who can help address potential questions and concerns?‒ Within department‒ Health System Finance‒ Office of Internal Controls (www.finance.umich.edu)‒ Other

Internal Controls Best Practices

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Questions?

Contact Information

Shawn McIntoshshawnm@med.umich.edu

734-615-3468

Patrick Dunnpdunn@med.umich.edu

734-615-8218

Bobby Hewlettrhewlett@med.umich.edu

734-936-936754