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The American Organization of Nurse Executives

CONTINUING EDUCATION CERTIFICATE

The American Organization of Nurse Executives (AONE) is accredited as a provider of continuing nursing education by the American Nurses Credentialing Center’s Commission on Accreditation. Program: Finance and Business Skills for Nurse Managers Date: August 22, 2017 Place: Omni Severin 40 W. Jackson Place Indianapolis, IN 46225

Provider: American Organization of Nurse Executives (AONE)

155 N. Wacker Drive, Suite 400 Chicago, IL 60606

This is to certify that:

__________________________________________(Name of Learner) has attended and completed a continuing professional education program and earned a total of 7.0 Continuing Education Contact Hours. The American Organization of Nurse Executives is accredited as a provider of continuing nursing education by the American Nurses Credentialing Center's Commission on Accreditation. AONE is also a provider of continuing education for the State of California. Provider # CEP15740.

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Finance and Business Skills for

Nurse Leaders

August 22, 2017

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Faculty

Jan Phillips, DNP, RN, CENP

VP Nursing, Adult Acute Care & Emergency Services

Penn State Health: Milton S. Hershey Medical Center

Chuck Alsdurf, MAcc, CPA

Director, Healthcare Finance Policy, Operational Initiatives

Healthcare Financial Management Association (HFMA)

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The pressure is too much to bear alone

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Together we can get through this and succeed!

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Collaboration required for quality care

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Collaboration required for successNursing controls substantial resources and related costs

+Resource and cost management is critical part of value based model

Nursing and Finance need to become BFFs

$

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Realignment Is Erasing Traditional Healthcare Boundaries

Driven by demands for care transformation, the healthcare industry is realigning at an an unprecedented pace.

The Triple Aim framework was developed by the Institute for Healthcare Improvement in Cambridge, Mass. (www.ihi.org).

SHARED GOAL

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Open Questions

• Now that we’ve answered the “why” collaboration is necessary,

here are a few questions to think about:

– What obstacles exist within your organization that prevent or

inhibit collaboration? How can those be overcome?

– What can finance do to better support the clinicians?

– What can clinicians do to better communicate their needs and

challenges to finance?

– What gaps still exist?

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Pre-work Review – Nursing

• How do we define Nursing Value?

• How can we leverage technology to identify nursing intensity?

• What data elements are needed to develop predictive analytics for nurse staffing?

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Healthcare Reform Update

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Survey Question

When you read or hear ‘Healthcare Reform’ what initially comes to mind?

a. The Affordable Care Act

b. Opportunity to improve healthcare

c. Repeal and Replace

d. I’d rather not think about it

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The Uninsured Rate is Decreasing

http://www.gallup.com/poll/201641/uninsured‐rate‐holds‐low‐fourth‐quarter.aspx

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Varying by Demographic

While this was survey done by Gallup reflects an 10.9% rate, the CDC released a report with an uninsured rate of 10.4% for 2016.

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Exchange Plan Options Decreasing

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Exchange Plans Premiums Increasing

http://www.kff.org/health‐reform/issue‐brief/2017‐premium‐changes‐and‐insurer‐participation‐in‐the‐affordable‐care‐acts‐health‐insurance‐marketplaces/

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Example: Indiana Family

40 year old married couple; 2 children; $50,000 annual income (Indiana state median)

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Administration - HHS

Rep. Tom Price (R‐Ga.) has been confirmed as the next HHS Secretary

Background:

– Orthopedic surgeon by training

– Currently Chair of the House Budget Committee

– Does not support mandatory Alternative Payment Models, feels it is an federal overreach

• Recently overturned mandate on Cardiac EPM bundles

– Supports interstate insurance sales

The Politics…

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Administration - CMS

Seema Verma has been confirmed as Administrator of the Centers for Medicare and Medicaid Services (CMS)

Background:

– Indiana native with close ties to Vice President‐Elect Pence

– Designed Pence’s Obamacare Medicaid Expansion “Healthy Indiana 2.0”

– Worked on other Medicaid expansion proposals for Republican governors

– Not a proponent of Medicare voucher concept

The Politics…

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Deep Impact

Source: http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000806-The-Cost-of-the-ACA-Repeal.pdf/

The Politics…

Repeal without Replacement Would Significantly Increase the Number of Uninsured at the National and State Level

0

10

20

30

40

50

60

With ACA Without ACA

# of Uninsured in 2021 – Nationally With and Without the ACA

Δ+81%

Millions

0

2

4

6

8

With ACA Without ACA

# of Uninsured in 2021 – CaliforniaWith and Without the ACA

Δ+122%

Millions

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Mid-Term MathThe Politics…

The 2018 “Election Map” Increases the Likelihood of Compromise…and Unexpected Outcomes

# of Senate Democrat Seats for Re‐Election in States President Trump

Carried

# of House Republican Seats for Re‐Election in Expansion States

10

15

President Trump Secretary Clinton

124

123

Expansion Non‐Expansion

Sources:1) http://www.slate.com/blogs/the_slatest/2016/11/14/democrats_unlikely_to_take_the_senate_in_2018_midterms.html2) HFMA analysis3) http://fivethirtyeight.com/features/obamacare‐has‐increased‐insurance‐coverage‐everywhere/

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Volume to Value Does Not Mean Volume is Bad

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Overview

• FFS to Outcomes Based Payment

• ACO and Bundled Payment Contracts

• Impact on Nursing

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CMS’s Long‐Term Goal Is to Shift Providers to Prospective Population Based Payments

FFS to Outcomes

CMS’s Glide-Path to Outcomes Payment

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FFS to Outcomes

0%

20%

40%

Capitation

Partial Capitation

Shared Risk

FFS ‐ Shared Savings

Nationally, Only 20% of Commercial Payments Are Outcomes Based

Source: http://www.catalyzepaymentreform.org/news‐and‐publications/publications

% of Commercial Health Plan Revenue by Payment Mechanism

Slow Transition to Risk Based Payments

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FFS to Outcomes

CMS Is Attempting to Align Quality Measures Across Payers

Very inconsistent Somewhat inconsistent

Somewhat consistent Very consistent

How Consistently Are Value Metrics Defined Across Carriers in Your Market?

In Response to Negative Feedback from Providers…

Sources:1) HFMA Value Project Research2) https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact‐sheets/2016‐Fact‐sheets‐items/2016‐02‐16.html

…CMS Has Defined Core Measure Sets with Groups Representing Health Plans and

Providers

• ACO, PCMH, PCPs• Cardiology• Gastroenterology• HIV and Hepatitis C• Medical Oncology• Obstetrics and Gynecology• Orthopedics

Specialties That Have Core Measures Sets

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FFS to Outcomes

Under Outcomes Based Payment, A Large Number of “Covered Lives” Allows for Decreased Performance Variability and Provides A Sufficient Population to Support Existing Delivery System

Assets

Volume Still Matters

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Implications

• Outcomes Risk Is Being Pushed to Delivery Systems, though It’s Occurring Slowing

• Many of the Models for Transferring Risk to Delivery Systems Are Experimental

• CMS Recognizes the Need to Align Efforts with the Private Sector but Hasn’t Done so on a Broad Scale Yet

• Volume (Lives under Management) Will Still Drive Profitability

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Overview




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From a Structural Perspective ACOs Can Include A Variety of Provider Types

Source: The Brookings Institute; Issue Brief: Accountable Care Organizations; March 2009

Examples of Different Combination of ACO Components

ACOs and Bundled Payment Contracts

What is an ACO?

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Payment Models - Risk Varies

As ACOs Assume More Outcomes Risk, the Incentive to Redesign Care Delivery Increases

Risk Bearing Payment Models vs. Incentive to Redesign Care

Inc

en

tive

to

Re

de

sig

n

Ca

re D

elive

ry

Degree of Risk Assumed by ACO High

Low

Fee for

Service w/

P4P

Shared

Savings

Shared

Savings/

Loss

Partial

Capitation

Full

Capitation

http://healthaffairs.org/blog/2015/06/16/the‐revised‐medicare‐aco‐program‐more‐options‐and‐more‐work‐ahead/

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Shifting Risk

Capitation

Low

Pay for

Coordination

Pay for

Performance

Episodic

Payments Shared SavingsFee for Service

Additional per capita payment

based on ability to manage care

Payments tied to objective

measures of performance

Payment based on delivery of services within

a given timeframe

Shared savings from better care

coordination and disease management

Providers share savings from better care

coordination and disease management

High

Paid for each unit of service w/o constraint

on spending

Payment System Reforms Will Require Providers to Bear Greater Population-Based Financial Risk

Degree of Population Risk Transferred to Provider by Payment System

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Definition and Purpose of Bundled Payments

• Single payment for all services provided during the defined episode of care

– Typically less than the sum of the individual services

• Creates a package for patient and payer simplifying billing and cost for these parties

• Incent reduction in provider cost by shifting risk

– Should result in lower patient cost as well

• Increase collaboration across hospitals, physicians, and post‐acute providers

• Improve patient outcomes and experience

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Current Models• Reconciliation Model

– Billing practices remain the same

– Total savings or overages are determined after ‘performance period’

– If savings target achieved, payer sends payment to provider(s)

– If target not achieved, provider(s) send payment to payer

• Example: Comprehensive Joint Replacement (CJR) model

• Global Payment Model

– Consolidated claim/bill submitted

– Single episodic payment received by primary provider or ACO and then distributed amongst all providers for that episode

• Would require agreement with other providers in advance of care being provided

• System mechanics would need to be revised

• Example: Medicare Acute Care Episode (ACE) model

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Current Models

• Per Member Per Month (PMPM) Model

– Similar to Periodic Interim Payment structure (PIP)

– If performance targets achieved, payer sends payment to ACO, if not, ACO owes payer

– May or may not follow financial structure of Global Payment model in that the ACO will adjudicate claims/bills from care providers

– Example: Medicare Oncology Care Model (OCM)

• Direct Employer and Commercial Payer Models

– Employers are beginning to work directly with providers in an effort to deliver affordable, high quality care to their employees

– Commercial payers utilizing various models depending on region, providers and patient population

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Bundled Payment System:

Current Payment Methodology:1:

2:

- 3 Days Admit Discharge + 7 days + 14 days + 19 days + 30 days

MS-DRG Pmt Physician Fee Schedule (PFS)

Home Health PPS Episode

Readmission:MS-DRG Pmt

+ 27 days

30 Day Episode of Care

Sample Inpatient Stay

MAC

MS-DRG + PFS+ Avg. PAC Cost – “Efficiencies” –Readmissions

Negotiated Pmts

Payment

Medicare Provider

Illustration of Bundled Concept

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Volume Remains an Important FactorValue: Public Payers

Not Surprisingly, the Bundled Payments for Care Improvement (BPCI) Episodes Including the Most Common MS‐DRGs Are the Most Prevalent

Source: CMS Innovation and Health Care Delivery System Reform, Amy Bassano, Director Patient Care Models Group, CMMI, Presentation to HFMA’s BPCI Council, June 22, 2015

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Direct Contracting with Centers of Excellence

Transplants

Cardiac Surgery

Spine Surgery

Cardiac Surgery

Sources:1) http://thehealthcareblog.com/blog/2012/10/18/walmart‐moves‐health‐care‐forward‐again/2) http://my.clevelandclinic.org/about‐cleveland‐clinic/newsroom/releases‐videos‐newsletters/lowes_expands_heart_healthcare_benefits

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Several Models Already in Place

• Large Population Programs

• Pioneer(Next Gen) ACO

• Medicare Shared Savings Program (MSSP

• Medicare And CHIP Reauthorization Act (MACRA)

• Specific Population Programs

• Bundled Payment for Care Improvement (BPCI)

• Comprehensive Care for Joint Replacement (CJR)

• Oncology Care Model (OCM)

• Episode Payment Model for AMI, CABG and SHFFT* (EPMs)

• *SHFFT = surgical hip/femur fracture treatment

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Sharing More Appealing Than Downside Risk

NextGen ACO Model = 44 MSSP Track 1 (one‐sided) = 438

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Medicare ACO Models

Issue MSSP Track 1 MSSP Track 2 MSSP Track 3 Next Gen ACO

Min # Beneficiaries Attributed

5,000 5,000 5,000 10,000*

Assignment Preliminary Prospective w/ Reconciliation

Preliminary Prospective w/ Reconciliation

Prospective Assignment w/ Beneficiary Attestation Allowed

Prospective Assignment w/ Beneficiary Attestation Allowed

Risk Adjustment Newly AssignedAdjusted by CMS‐HCC; Continuously Assigned by Demographics Unless HCC Decreases

Newly Assigned Adjusted by CMS‐HCC; Continuously Assigned by Demographics Unless HCC Decrease

Newly Assigned Adjusted by CMS‐HCC; Continuously Assigned by Demographics Unless HCC Decreases

HCC Model Allowed to Increase up to 3% Year Over Year

Waivers None None SNF 3 Day Rule (2017)Telehealth (2017)

SNF 3 Day RuleTelehealthHomebound Primary Care Co‐Pay

Source: https://www.naacos.com/news/RevisedSummaryACO‐ComparisonChart.htm

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Mixed Results for ACOs Continue in 2015• Over 400 Medicare ACOs generated more than $466 million in total program

savings in 2015 with 125 qualifying to share savings.

• The results show that more ACOs are sharing savings in 2015 compared to 2014 and that ACOs with more experience in the Pioneer ACO Model and the Medicare Shared Savings Program tend to perform better over time.

• While the cohort of Pioneer ACOs decreased between PY3 (2014) and PY4, they still generated total model savings of over $37 million.

– Of the eight Pioneer ACOs that generated savings, six generated savings outside a minimum savings rate and earned shared savings.

– Of the four Pioneer ACOs that generated losses, one generated losses outside a minimum loss rate and owed shared losses.

• The mean quality score among Pioneer ACOs increased to 92.26 percent in PY4 from 87.2 percent in PY3. The mean quality score has increased in every year of the model, with a total increase of over 21 percentage points since the first year.

Source: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact‐sheets/2016‐Fact‐sheets‐items/2016‐08‐25.html

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Initial Episodic Programs Still Ramping Up• ACE Demonstration: A three‐year experiment by the CMS, the Acute Care Episode

(ACE) Demonstration, that included 28 cardiac and nine orthopedic procedures led to savings of $319 per patient

• BPCI: For most BPCI models, results are preliminary and unspecified due to minimal timeframes of analysis and small sample sizes. In one model, early comparison group analysis showed lower cost growth during the hospitalization phase, but not during the post‐acute phase.

– In another model, post‐acute spending was lower. Preliminary results from other models showed either no statistical difference in overall spending, or results are unavailable.

– Early analysis found no notable differences in quality between BPCI and non‐BPCI participants across all four BPCI models.

– Three of the four models increased in provider participation since the start of the BPCI program

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Noticeable Impact on Care Delivery

BPCI Model 2 Early Results Suggest Participants Are Changing Care Pathways

% of PAC Users Discharged to Institutional PAC Model 2 Surgical Orthopedic Excluding Spine Episodes

Est. ∆ in Part A Pmt Per CaseModel 2 Surgical Orthopedic Excluding Spine Episodes

Source:Lewin Group, CMS Bundled Payments for Care Improvement (BPCI) Initiative Models 2‐4: Year 1 Evaluation & Monitoring Annual Report

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Attribution Rules Are Complex

“Precedence” Rules Govern Who an Episode Is Attributed to If Multiple BPCI Participants Are Involved in an Episode

Precedence Rules

Model 4

Later admission

Earlier admission

Models 2 & 3

Earlier or Same CE-PoP

Model 2

Attending PGP

Operating PGP

Non PGP (Hsp, SNF,IRF, HH,

etc)

Model 3

Attending PGP

Operating PGP


etc)

Later CE-PoP

Model 2

Attending PGP

Operating PGP


etc)

Model 3

Attending PGP

Operating PGP


etc)Source: Bundled Payments BPCI Program; Melinda Hancock, Partner DHG Healthcare; HFMA BPCI-CJR Council Web-Discussion; December 2014

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Primary Care Physicians

Specialty Care Physicians

Outpatient Hospital Care and

ASCs

Inpatient Hospital Acute

Care

Long Term Acute Hospital Care

Inpatient Rehab Hospital Care

Skilled Nursing Facility Care

Home Health Care

Model 1: All MS‐DRGs 1% Discount

Prospective

Model 1: All MS‐DRGs 1% Discount

Prospective

Model 4: Prospective Acute BundlingPart A & B Discount: “ACE DRGs” ‐3.25%; All Others – 3%

Prospective

Model 4: Prospective Acute BundlingPart A & B Discount: “ACE DRGs” ‐3.25%; All Others – 3%

Prospective

Model 2: Acute Care Episode with PAC Bundling Part A & B Discount: 30 and 60 Day Episodes – 3%, 90 Days – 2%

Retrospective

Model 2: Acute Care Episode with PAC Bundling Part A & B Discount: 30 and 60 Day Episodes – 3%, 90 Days – 2%

Retrospective

Model 3: Post Acute Care (PAC) Episode BundlingPart A & B Discount: 3% Regardless of Length

Retrospective

Model 3: Post Acute Care (PAC) Episode BundlingPart A & B Discount: 3% Regardless of Length

Retrospective

The Voluntary BPCI Program Offers Four Different Models, Two of Which Involve Retrospective Payments

Multiple Models with Different Criteria

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Recently Announced Bundles

• CMS will set targets each year on historical regional and hospital‐specific data for inpatient stay and care provided 90 days post‐discharge.

• Beat the target and meet quality metrics to keep savings. Miss target and pay Medicare at end of the year.

• The calculation will shift from relying mostly on hospital‐specific data in the first two years of the program to only regional data in the final two years.

• Risk will be phased in with hospitals held harmless for first 15 months, capped at 5% for remainder of second year, 10% in year three and 20% in years four and five.

• The upside is capped at 5% for first two years and follows same schedule as downside in years three through five.

*SHFFT = surgical hip/femur fracture treatment

Overview of EPM for AMI, CABG and SHFFT*

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CJR Mandates a 90‐Day Episodic Payment for Lower‐Joint Replacement for 25% of IPPS Hospitals

HFMA Executive Summary: http://www.hfma.org/Content.aspx?id=45125

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Some Moving From Voluntary to Mandatory

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Some Moving From Mandatory to Voluntary

CMS proposing cancelling major bundled payment initiatives

CMS has proposed canceling the cardiac and expanded joint replacement bundled payment models.

The rule would cancel mandatory bundled payment programs for heart attacks and bypass surgeries, as well as the expansion of the Comprehensive Care for Joint Replacement (CJR) model to include surgical treatment for hip and femur fractures (SHFFT). These are currently slated to take effect Jan. 1, 2018

Physicians would have the opportunity to earn a 5 percent bonus for participating in the cardiac bundles or the expanded CJR model, as the initiatives qualify as Advanced Alternative Payment Models under MACRA’s Quality Payment Program.

Once finalized, the CMS rule would eliminate the bonus opportunity for physicians.

http://www.beckershospitalreview.com/finance/cms‐will‐cancel‐major‐bundled‐payment‐initiatives.html

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Identify the Savings Opportunity

Given the Index Admission Spending Is Fixed, Most Savings Will Come from the Post‐Discharge Period

Source: Maximizing Success in a Bundled Payment Environment, Melinda Hancock, Partner – Healthcare, DHG; Presentation at HFMA’s 2015 Annual National Institute

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Collaboration

• Relationships and agreements will need to be established for compliant and efficient operational and financial structures

• Need for infrastructure investments to support operational model necessary for high performance

• All providers involved in episode of care must work together to increase coordination and efficiency

– In addition, areas like finance, revenue cycle, and IT need to understand the challenges facing the clinicians to better support increased efficiency and innovation

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Implications

– Many different programs following a variety of financial and quality models

– Most programs producing savings, though many participants are not sharing in savings.

– Identify at risk (clinically and socioeconomically) patients and proactively manage

» Improve low cost cost/high convenience touch points

» Engage and activate patients/families in their own care

» Partner with community groups to Provide Social Support

» Initiate tracking of episodic costs for those populations likely to be bundled

– Understand the cost/quality impact of referral decisions

» Be selective about partners (non‐employed MDs and Post‐Acute providers)

– CMS will continue to roll out new programs where they see opportunity for quality and cost improvement.

MACRA

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Overview




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Impact on Nursing

• Innovation in nursing will be required for the industry to overcome the financial and operational challenges

• Short‐term it will be painful for all as the primary resource in healthcare is labor and nursing comprises a large portion of this resource

• Long‐term nursing will play a huge part in creating solutions

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Pre-work Review – Finance

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Pre-work Review - Finance

• What did you takeaway from the articles? Theme(s)?

• What did you like about the articles?

• What didn’t you like or agree with in the articles?

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Finance Fundamentals

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Why do you need to know this?

• Developing nursing leaders/champions drive a culture of performance improvement

• Applying a shared language to discuss data

• Extending a business acumen that support strategies to convert financial and clinical data into action

• Helping support physicians to drive care delivery changes involving varying degrees of risk assumption

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Purpose of healthcare management:

“to provide the community with the services it needs, at a clinically acceptable level of quality, at a publicly responsive level of amenity, at the least possible cost”

Healthcare Financial Management

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• To generate a reasonable net income

• To respond to federalregulations

• To facilitate relationships withthird party payers

• To influence the methods and amounts that third party payers pay

• To monitor physicians and their possible liability to the organization

• To protect the organization’s tax status

Healthcare Financial Management

Purpose of healthcare financial management:

“to provide accounting and finance information that assists healthcare managers accomplish the purposes of theorganization”

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Governing Body

• Fiduciary duty including loyalty and responsibility

• Duty to develop, utilize, and maintain all resources

• Duty to provide quality patient care

• Utilize committees to monitor organizationalperformance

• Executive Committee

• Finance Committee

• Audit Committee

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Chief Financial Officer

To establish, coordinate, and maintain

an integrated control plan

To measure performance against

approved operating plans and budgets

To measure and report on the

validity of the business objectives

10

To report to government agencies and

to supervise all matters related to taxes

To interpret and report on the effect of

external influences on the attainment

of business objectives

To provide protection for the assets of

the business

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Financial accounting & reporting

Managerial accounting

Taxaccounting

Accounts Payable

Payroll

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Managing working capital

Managing investment portfolio

Managing capital financing

Controller Treasurer

Finance Leadership Roles

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Budgeting & Strategic Financial Plan

Cost Accounting & Profitability Analysis

Variance Analysis

Operations support

Reimbursement (varies) 63

Oversees registration, HIM, chargemaster, revenue integrity, billing & collections

Handles billing compliance, RAC, etc.

Pricing strategy, transparency

Financial Counseling

Care Management (varies)

Head of Financial Planning or Decision Support

Head of Revenue Cycle


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To conduct compliancereviews

To investigate potential fraud and abuse problems

To examine relationships forpossible illegal actions

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Employee of the organization

Protects assets from fraud,error, or

loss

Corporate Compliance Officer Internal Auditor


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Independent Auditors

• Responsible for ensuring that the financial reports sent to external agencies are correct as to accounting format

• Assists Board of Directors in performing their Fiduciary Duty

• Provides report to Audit Committee of the Board

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Why all these Finance Positions?

"There are risks and costs to a program of action, but they are far less than the long‐range risksand costs of comfortableinaction."

President John F. Kennedy

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Orange Jumpsuits & Silver Bracelets are

not a good look for anyone…

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Finance Terminology

Speaking the Language

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Income Statement – reports revenues and expenses. Used to measure performance over a specific period. Also known as P&L, Statement of Operations

Balance Sheet – reports assets, liabilities and net assets (net worth) of the organization. Perpetual in nature and reported as of a specific date in time.

Bond/Credit Rating – equivalent of organizations credit score and used to obtain cash via debt offerings to investors. AAA is the highest, most non‐profit healthcare organizations are rated from BBB to AA+, if they have a rating. The better the rating, the lower the interest rate on the debt.

Revenue – proceeds from services rendered or products sold. In healthcare we categorize Patient revenue and other operating revenue separately to tie the activity metrics back to the revenue. Also known as Charges.

Cost – for the healthcare provider this is the price of all goods, services, labor and overhead required to provide care

Expense – financial recognition of resources utilized for overhead or operational purposes.

Budget – financial blueprint resulting from a strategic planning process. Typically prepared and approved once a year and includes anticipated revenues, expenses, cash flow, volumes. The Income Statement, Balance Sheet and Statement of Cash Flows are typically prepared with the budget figures.

Finance Terminology

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Finance Terminology (continued)

FTE (Full Time Equivalent) – calculated by taking the hours worked or paid divided by the full time daily, weekly or monthly total. Example – 36 hour nursing position equates to a .9 FTE or 36/40 = .90.

Flexible or Variable Budget – tool that calculates the volume adjusted budget using an established hours or dollars per statistic. Example – Nursing unit’s volume is 10% over budget, so the hours per patient day X actual patient days = Flexible budgeted hours. This allows for a comparison to your budgeted expenses and hours based on the actual volume that will almost always be different than the budgeted volume.

Statistics – operational and financial metrics, activity indicators, volumes, acuity indicators. Examples include admissions, discharges, Case Mix Index, patient days, CT Scans, Lab Tests, etc.

Outpatient Equivalents – approximated calculation of outpatient activity into comparable inpatient activity or volumes.

Adjusted Admissions – approximated calculation accounting for outpatient activity and/or acuity using a Case Mix Index factor.

Patient Class – category of patient’s billing status. Examples include Inpatient Acute, Outpatient, Observation, Swing Bed, SNF, Inpatient Rehab, Bedded Outpatient, Inpatient Surgical, etc.

Financial Ratios – calculations drawn from financial statements for benchmarking and comparability amongst similar organizations. Example is Debt Service Coverage Ratio which measures an organization’s ability to repay their debt.

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Starting the Conversation

When I say REVENUE CYCLE, what words immediately come to mind?

A. Billing& Collections

B. Medical Records/HIM

C. Chargemaster

D. Revenue Integrity

E. Registration/Scheduling

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Starting the Conversation

When I say REVENUE CYCLE, what words immediately come to mind?

A. Billing& Collections

B. Medical Records/HIM

C. Chargemaster

D. Revenue Integrity

E. Registration/Scheduling

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The Patient-Centric Revenue Cycle Roadmap

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The Healthcare Environment

Employers

• Who are the major players?• Where do they interact with the revenue cycle?

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Impact of Revenue Cycle

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Accounting Fundamentals

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Accounting Standards & Governance

• Generally Accepted Accounting Principles (GAAP) guide the uniform accumulation and communication of historical and projected economic data relating to the financial position and operating results of an enterprise. These principles are governed by the Financial Accounting Standards Board (FASB).

• The Financial Accounting Standards Board (FASB) mission is "to establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision‐useful information to investors and other users of financial reports.“1

1 Facts about FASB

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Credit Ratings Overview

Personal Credit

Agencies:

Experian

Transunion

Equifax

Rating/Score:

Best = 850

Worst = <500

Business Credit

Agencies:

Standard & Poor’s (S&P)

Fitch

Moody’s

Rating/Score:

Best = AAA (Aaa)

Worst = D (Ca)

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Importance of Credit Rating

• An organization’s credit rating determines their ability to access the capital markets (borrow)

• ‐Buildings, large renovation projects, equipment, etc.

• The better the score the more likely they will be able to borrow and at a low interest rate, lowering the interest expense

• ‐Lower interest expense means more to spend on other things – like nursing staff!

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How Credit Rating is Determined

Both quantitative and qualitative analysis is completed by rating agency

Quantitative factor examples:

• Financial statements, key ratios, market share

‐These are compared to other peer organizations

• Qualitative: Reputation, employee satisfaction, strength of leadership, competitive position, staff turnover rates

• May influence rating even if quantitative metrics below peer average

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Balance Sheet

• Assets

– Cash and Investments

– Accounts Receivable

– Inventory

– Property, Plant and Equipment

• Liabilities

– Accounts Payable

– Payroll Payable

– Bonds/Loans Payable

• Net Assets

– A.K.A. Fund Balance, Net

Assets, Net Worth,

Capital Equity,

Stockholders’ Equity

– Assets – Liabilities = Net

Assets

– Total of all capital

infusions and earnings

less all losses and

dividendsAssets – Liabilities = Net Assets

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Statement of Operations aka Income Statement aka P&L

• Periodic statement produced to reflect operating performance

• Includes Revenue, Expenses and Income

• Revenue

– Receipts driven by delivery of product or service

• Expense

– Resources used to produce or deliver service. (Note: capital items such as equipment are expensed over a period of years of useful life, called depreciation)

• Net Income(Loss)

– Amount remaining(or not) for the reporting period

This is the consolidation of all activity within the individual department budgets

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Statement of Operations

Gross Patient Service Revenue‐ Deductions From Revenue‐ Charity Care‐ Bad DebtNet Patient Service Revenue+ Other Operating RevenueTotal Operating Revenue‐ Operating ExpensesOperating Income(Loss)+ Non‐Operating Income (i.e., investment income)Excess of Revenue Over Expenses (or Total Income)

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Fee For Service (FFS) Payment Variation Example

DRG 234 CABG w/cc, LOS 9 days, Charge $48,350

• Medicare Weighted Case Rate Payment $33,019, Contractual Allowance $15,331

• Medicaid Weighted Case Rate Payment $28,587, Contractual Allowance $19,763

• Anthem Discount from Charge Payment $43,515, Contractual Allowance $4,835

• Free Care Payment $0, Free Care Allowance $48,350

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Statement of Operations (continued)

• Other Operating Revenue

– Cafeteria

– Property Rental

– Value/Quality incentive payments

– Meaningful Use

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Statement of Operations (continued)

Non‐Operating Revenue

• Investment Income, Interest, Dividends

• Gains(Losses) in Fair Value of Investments

• Donations/Gifts*

• Joint Venture Income

86*Sometimes recognized in Other Operating Revenue

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Fund Accounting

• Unrestricted or General Funds

• Restricted Funds- Temporarily Restricted or Specific Purpose- Permanently Restricted or Endowment

• Pension Funds

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Statement of Cash Flows• Important complimentary statement to the Balance Sheet

and Statement of Operations as it informs the reader of actual cash inflows, outflows and remaining balance for the reporting period

• Three sections include Operating, Investing and Financingactivities

• Operating activities primarily represent Statement of Operations less a few non‐cash expense items and changes in receivables and payables

• Investing activities primarily attributed to funds in stocks, bonds and other instruments as well as investments in building and equipment

• Financing activities relate to new or existing debt obligations (loans, issuance of bonds, repayments)

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Ratio Analysis

• Preferred approach for gaining an in depth understanding of financial statements

• Comparison of numbers to show a meaningful important to have context such as benchmarks or trends

• Financial ratios are especially important because they are used for credit analysis

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Categories of Ratios

• Liquidity‐How well is the organization positioned to meet its short‐term obligations? Can we pay our bills?

• Activity‐ How efficiently is the organization using its assets to produce revenues? Are we busy enough to justify our investments?

• Profitability‐How profitable is the organization? Is our bottom line where it should be?

• Capital structure‐ How are the organization’s assets financed and ability to take on new debt? Can and should we borrow more or use cash to pay for large investments?

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Key Liquidity Ratios

• Current Ratio-proportion of all current assets to all current liabilities

• Days in Accounts Receivable Ratio-How quickly a hospital is converting its receivables into cash

• Days Cash on Hand Ratio-number of days worth of expenses an organization can cover with its most liquid assets

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Key Activity and Profitability Ratios

• Operating revenue per adjusted discharge: measures total operating revenues generated from the patient care line of business based on its adjusted inpatient discharges

• Operating Expense per Adjusted Discharge: measures total operating expenses incurred for providing its patient care services based on its adjusted inpatient discharges

• Salary and Benefit Expense as a Percentage of Total Operating Expenses: measures the total operating expenses that are attributed to labor costs

• Operating Margins: measures profits earned from the organizations main line of business

• Return on Net Assets: measures the rate of return for each dollar in net assets

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Capital Structure Ratios

• How are an organizations assets financed?

• How able is this organization to take on new debt?

• Examine the statement of cash flows to determine if significant long term debt has been acquired or paid off OR if there has been a sale or purchase of fixed assets

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Key Capital Structure Ratios

• Long term debt to net assets: measures the proportion of debt to net assets

• Net assets to total assets: reflects the proportion of total assets financed by equity

• Debt service Coverage: measures the ability to repay a loan

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Understanding FTEs

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Interactive slide

Managing my NHPPD is a priority for my institution.

– A) Agree

– B) Disagree

– C) What is NHPPD?

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Interactive slide

I have a good grasp on what FTE means

– A) Agree

– B) Disagree

– C) What’s FTE?

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Understanding FTEs and Budgeting

– Full Time Equivalent (1.0)

• Amount of time worked in a week = 40 hours

– Business is 24/7

• 24 X 7 = 168 hours in one week

• Coverage needed for 168 hours weekly

– Staff needed for each assignment

• Examples: number of patients, number of visits, number of procedures

• 168/40 = 4.2 FTEs

– 24 bed unit where care standard is each RN cares for 4 patients; how many FTEs are needed?

• 6 RNs X 4.2 FTEs = 25.2 FTEs

– Accounting for indirect, non‐productive or non‐patient care time

• Example: 15% replacement factor (PTO, education, council, etc.)

• 25.2 X .15 = 3.78 + 25.2 = 28.98 FTEs

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Managing to Budgeted HPPD

• Understanding organization’s metrics

– Paid hours

– Worked hours

– Productive hours

• Impact of hours outside of direct patient care

– Orientation

– Education

– Council

• Care models

– Distribution to meet high demand times

– Use of full time and part‐time

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Preparing a Personnel Budget

• Identify workload metric

– Typical units of service

• Patient days or census

• Patient visits

• Number of cases

• Duration of hours for procedures

• Nursing Hours

– Total hours worked by all RNs on the unit for a defined time

• Nursing Hours per Patient Day=Nursing Hours/Census

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Understanding HPPD

• RNs worked 160 hours in the past 24 hours

• Unit census at midnight was 20 patients

• NHPPD = Nursing hours worked/census

• NHPPD = 160/20

• NHPPD = 8.0

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Practice

• Unit daily census 22 patients for the past 2 weeks

• Payroll review shows RNs worked 2,387 hours during the 2 weeks

• What is the NHPPD for the pay period?

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Solution

• 22 patients X 14 days = 308 patient days

• 2,387/308 = 7.75 NHPPD

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Required FTEs using NHPPD

• Budgeted Census X Budgeted NHPPD =

• Required Hours/2080 =

• Required FTEs

• Practice: ADC is 22 and NHPPD is 10.0, how many FTEs are needed?

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Solution

– 22 X 365 = 8030 patient days

– 8030 X 10 = 80,300 Nursing hours/year

– 80,300/2080 = 38.61 FTEs

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Impact of Decrease in NHPPD

• ADC 22

• NHPPD decreased from 10.0 to 9.6

• What is the impact on your FTEs?

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Solution

– 22 X 365 = 8030 patient days

– 8030 X 9.6 = 77,088 Nursing hours

– 77,088/2080 = 37.1 FTEs

– Decrease of 1.51 FTEs

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Tightening the Budget Belt

• Organization makes the decision that all units must decrease their budget by 2%; where do you look to make this accommodation?

• What information do you need to know about your current budget performance?

• What line items would you go to first?

• How do you engage staff with prioritizing cuts?

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Innovative Care Models and Justification

• Understanding your work area flow

– ADT times

• Understanding your staff strengths

– Experience

– Education

– Adaptation

– Resilience

• Data needed for justification

• Nurse Incentives

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Clinical Efficiency

• What does clinical efficiency mean to you?

• Nurse Leader’s role in clinical efficiency

• Engaging clinical nurses in clinical efficiency

– Impact to their practice

– Impact on quality patient outcomes

– Connection to value based reimbursement

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Budgeting

The Crowd Favorite

Budgeting

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Interactive slide

When you hear budget, what’s the first word that pops into your head?

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What is a Budget?

A budget is the financial blueprint or action plan for an organization. It translates strategic plans into measurable expenditures and anticipated performance over a certain period of time.

Budgeting is the process of creating and fine-tuning budgets. Budgeting activities include:

• Forecasting future business results, such as patient volume, revenues, capital investments, and expenses

• Reconciling those forecasts to organizational goals and financial constraints

• Obtaining organizational support for the proposed budget

• Managing subsequent business activities to achieve budgeted results113

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Budgeting Defined

114

Process of converting the operating plan into monetary terms.

Budgets become the control standard against which performance ismanaged and measured.

Budget process is an excellent opportunity for the financial manager to educate non‐financial department managers on financial implications.

Budget process is an excellent opportunity for the clinical and operating manager to educate the financial manager on quality and clinical outcomes implications.

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• A reasonable profit is necessary to support demand for more and better services, continued investment in advanced technology, medical equipment, and facilities upkeep as well as meeting inflationary pressures.

• In addition, maintaining the credit rating allows for preferred rates and access to capital.

• Any profit is re‐invested in the community via continued operations, access to care for those without financial resources.

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Why do Not-For-Profits need a profit?

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Budget Considerations

• Mission, Vision, Values, Culture

• Strengths, Weaknesses, Opportunities, Threats

• Economic Pressures

• Industry Trends

• Regulatory Issues

• Strategy

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Budget Process Overview

117

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Key Steps in Creating a Budget

• Analysis of Current State

• Setting Goals

• Evaluating Options

• Identifying Budget Impacts

• Coordinating Department Budgets

• Creating Comprehensive Plan

• Executive and Board Level Approval

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Budget Types

119

• Patient Days, Outpatient Visits

• Length of Stay

• Case Mix Index (CMI)

Statistical

• Patient Revenue

• Other Operating Revenue

• ExpensesOperating

• Buildings, Equipment, Software

• Other Investments, Cash Contributions, Loan/Debt Repayments,

Capital

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Steps in the Operating Budget Process

120

• Project volumes

• Convert volumes into revenue projections

• Convert volumes into expense requirements

• Adjust revenues and expenses as necessary

• Evaluate (monitor) budget performance

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Operating Budget Process –ProjectingVolumes

121

Volume projection is the MOST important element in any planning process

• Forecast content‐‐description of specific situation inquestion

• Forecast rationale‐‐explanation of how the situation will progress from its current state to its forecasted state

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Operating Budget Process

122

• Gross Revenues

• Determine price increase

• Apply price increase to current price and multiply by specific• Volumes

• Net Revenues

• Determine payer mix (extremely important planning element)

• Determine rates by specific payer

• Apply payer mix and payer rates against payer volumes

Converting Volumes into Revenue

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• Staffing expenses

• review staffing mix

• review skill mix

• review cost‐of‐living raise policy

• review merit raise policy

• review bonus policy

123

• Non staffing expenses

• Determine variable expenses• based on volumes

• Determine fixed expenses, using benchmarks


Converting Volumes into Expenses

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124

• Adjust revenues and expenses, as necessary

The adjustment will be based upon the requirements (targets) set forth by the Board and the Administration in its Strategic Plan and Strategic Financial Plan

OperatingMargin

Excess Margin

Days Cash on Hand

Debt Service Coverage

Return on Assets

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Variable Expenses

Variable expenses are those that change in direct proportion to changes in activity. Examples of variable expense include:

• Direct labor

• Supplies

• Power and gas used in manufacturing

• Shipping

• Sales commissions

• Income taxes 125

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Fixed Expenses

Fixed costs are those that remain fairly constant within a wide range of production or sales volumes. Examples of fixed costs include:

• Rent

• Basic utilities including electric and telephone service

• Equipment leases

• Depreciation

• Interest payments

• Marketing and advertising

• Indirect labor, such as salaried supervisory employees 126

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Department Heads submit budgets

Department Heads submit budgets

VP/Division Leaders Review submissions

VP/Division Leaders Review submissions

Long Range Financial Plan

(3-5 years) completed

Long Range Financial Plan

(3-5 years) completed

Budget Committee Recommends

Budget

Budget Committee Recommends

Budget

CEO/President Endorses

CEO/President Endorses

Operating Budget Process Example

Board Approves Budget

Board Approves Budget

Budget Assumptions (Volume, New Services, Compensation

increases, Expense inflation/constraints)

disseminated

Budget Assumptions (Volume, New Services, Compensation

increases, Expense inflation/constraints)

disseminated

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Importance of Capital Budgeting

Capital expenditures typically represent 6‐10 % of operating expenses

The healthcare organization has limited and scarce funding sources to maintain its fixed asset (capital)structure

We have already seen that access to tax‐exempt markets has become restricted

The level of fixed asset acquisitions drive depreciation expenses on the income statement higher or lower

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Contingency Funds

• Due to the advanced timing of the budget, there could be significant unknown expenditures (Capital or Operating) that come up after its completion.

• Creation of a ‘contingency’ pool is a typical way of handling those types of expenses

• Usually the CEO, COO and/or CFO manage this pool of funds throughout the fiscal year

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Variance Analysis

• Comparisons of actual results to budgeted performance –variance analysis

– Identify cause of variance

– Budget issue

– Fixed vs. variable cost drivers

• Review of trends

• Internal vs. external factors

• Consider possible interventions

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Variance Analysis

Common causes of variances in revenue and expenses

Example: Labor expense over budget by 5%; FTEs on budget

Reason: Staffing mix. Higher level/paid RN’s than budgeted.

Potential solution: Review Labor distribution report to determine which specific job/position codes were over compared to the budget. Use the Labor distribution or productivity reports to obtain detail.

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Variance Analysis

Example: Supply cost over budget, volume on budget

Reason: Supplies issued as ordered, budgeted based on volume. A large order occurred this month to stock up on necessary supplies which were not all used in this period.

Another reason could be that supplies were issued to your department in error.

Potential Solution:

Check the inventory issued product using Inventory distribution report or AP distribution depending on whether supplies were ordered from outside vendor or internal supply room.

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Financial Decision Support

• Decreases in reimbursement have created a need for additional financial information

• This information is typically very detailed and is aggregated from the clinical, financial, supply chain and payroll systems

• Each organization utilizes this data differently, though calculating the provider’s cost of a specific service or procedure is a primary component

• Revenue, cost and profitability is often included in decision support information to better understand the financial perspective and implications of certain operations and/or strategies 133

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Financial Systems

• Enterprise Resource Planning (ERP) systems include modules for Human Resources, Payroll, Supply Chain, General Ledger, Fixed Assets

• Decision Support Systems (DSS) include modules for Labor Productivity Management, Cost Accounting, Variance Reporting, Benchmarking

• These systems interact with the clinical systems and/or Electronic Health/Medical Record (EHR/EMR)

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Key Takeaways

• Financial Reporting is required function of healthcare organizations and is overseen by regulators to ensure accuracy and integrity

• Ratios inform internal and external readers of ‘financial health’ of the organization

• The budgeting process is critical as it provides a financial plan each year to guide spending and maintain or improve the organization’s position

• Increased pressure on cost of care has led to additional tools integrating clinical and financial information

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Financial Management Case Studies

Group Exercises

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Case Study – Part One

You are preparing to open a brand new 24 bed Medical‐Surgical Unit.

What you know:

• The annual patient days the first year will be 5,475

• Direct care staff will be comprised of RNs and CNAs

• Skill mix breakdown is 70% RN and 30% CNA

• Staffing matrix needs:

– Days: 4 RNs and 1 CNA

– Evenings: 4 RNs and 1 CNA

– Nights: 3 RNs and 1 CNA

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Determine Labor

Please calculate: – ADC– The number of FTEs that must be filled in order to provide direct

care 365 days/year– HPPD for this unit– The number of FTEs needed if the staff worked 8 hour shifts – The number of FTEs needed if the staff worked 12 shifts

• Identify other hours that will be necessary to budget in addition to direct care hours.

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Process:

Calculate ADC5,475/365 = 15 patients per day

Calculate productivity standard based on staffing matrix4 RNs and 1 CNA X 12 hours = 60 hours per day shift3 RNs and 1 CNA X 12 hours = 48 hours per night shiftTotal patient care hours in 1 day = 108 hours108/15=7.2 HPPD

Calculate annual hours108 hours X 365 days = 39,420


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Process:

Calculate ADC5,475/365 = 15 patients per day

Calculate productivity standard based on staffing matrix4 RNs and 1 CNA X 8 hours = 40 hours per day shift4 RNs and 1 CNA X 8 hours = 40 hours per evening shift3 RNs and 1 CNA X 8 hours = 32 hours per night shiftTotal patient care hours in 1 day = 112 hours112/15=7.47 HPPD

Calculate annual hours112 hours X 365 days = 40,880


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Calculate FTEs• Based on working 8 hour shifts • 40,880/2,080 = 19.65 FTEs70% RN = 13.75 FTEs30% CNA = 5.90 FTEs

• Based on working 12 hour shifts 39,420/2,080 = 18.95 FTEs* 70% RN = 13.27 FTEs30% CNA = 5.68 FTEs

Indirect care hours• Education, council, projects• Vacation, sick (PTO)• Generally accepted replacement factor is 15%• 19.65 X 0.15 = 2.95 18.95 X 0.15 = 2.84• Total FTES needed

• 8 hour shifts = 22.60• 12 hours shifts = 21.79

*12 hour shift employees are .9 FTE, so you’ll need more than 19 in headcount to staff accordingly.


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Labor is major component though other items are necessary

• Supplies

• Services

• Travel, Education, Miscellaneous

Unit will require significant capital equipment

Next step: Create a list of the other items you’ll need to open the unit

Considerations: Typical capital budget limits around $2,500 for single item or $5,000 for group of similar items or renovation/construction project

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• What did you come up with that may not have been on your mind previously?

• What did you learn during this process?

• Other questions about capital budgeting?

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You are the manager of a 36 bed surgical unit.The benchmark for direct hours per patient day is 10 hours.

The average census on the unit is 32 during the week and 16 on weekends.

Your replacement factor is 15%

How would you propose the FTE staffing for this unit for the year?

Case Study – Part Two

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What You Know:

ADC: 32 M‐F16 S‐S

HPPD: 10 hours per patient day

Replacement Factor: 15%


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Process :• Start with the number of hours that must be provided per the productivity

standard• Determine the FTEs required to staff at the productivity standard

How many hours of patient care are needed?M‐F 32 census x 10 hppd = 320 hppd

x 5 days in a week= 1600 hppd a weekx 52 weeks in a year

A = 83,200 hppd a year

S‐S 16 census x 10 hppd = 160 hppdx 2 days in the week

= 320 hppd a weekx 52 weeks in a year

B= 16,640 hppd in a year

A + B = 99,840 hours per year


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How many FTEs are needed?99,840 hours per year divided by 2,080 = 48 total FTEs to schedule on the staffing grid.

What is the replacement factor?15% x 48 FTE = 7.2 additional FTEs will need to be hired to cover the indirect hours and PTO

Total FTEs needed:48.0 total FTE for the schedule+ 7.2additional replacement factor= 55.2 total FTEs to hire


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Solve by week Solve by Pay Period Solve by Year

TOTAL HPPD

40

1,920/40 = 48

TOTAL HPPD

80

3,840/80 = 48

TOTAL HPPD

2,080

99,840/2,080 = 48

How many FTE’s?(FTE = 40 hrs/week FTE = 80 hrs/pay period FTE = 2080 hours/year)

Add additional FTEs for replacement factor = 15%

48 X 0.15 = 7.2 + 48 = 55.2


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M‐F 32 x 5 day = 160 pt

days

S&S 16 x 2 day = 32

192

M‐F 32 x 10 = 320

S&S 16 x 4 = 64

384

M‐F 32 x 260 = 8320

S&S 16 x 208 = 1664

9984


HPPD X PT Days

10 X 192 = 1920

HPPD/week

HPPD X PT Days

10 X 384 = 3840

HPPD/pay period

HPPD X PT Days

10 X 9984 = 99840

HPPD/ year

How many patient days?M‐F 32 ADCS&S 16 ADC

How many Total HPPD?(each patient day is budgeted for 10 hours of care)


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Case Study – Part 3

• Benchmarking data: Medical Group Management Association

• 0.38 APC FTE/ physician FTE

• 4.67 support staff FTEs/ physician FTE

Benchmarks by job category per physician FTE:

0.44 RN

0.40 LPN

0.76 MA

1.0 receptionist

• Physician productivity is 5,200 annual visits

• Clinic sees an average of 26,000 visits annually

• How many physician FTEs are needed if the clinic is open 40 hours per week?

• How many support staff are needed to operationalize the clinic 40 hours per week?

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Case Study – Part 3

• How many physician FTEs are needed if the clinic is open 40 hours per week?

• How many support staff are needed to operationalize the clinic 40 hours per week?

Answers:

• 5 MDs (each works as 1.0 FTE with a productivity of 100 patients per week on average)

• 1.9 APCs

• 2.2 RNs

• 2.0 LPNs

• 3.8 Mas

• 5.0 receptionists

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Feedback and Insights

• What did you learn or realize today that surprised you the most?

• How will this influence your approach to current or future roles?

• What could we have done better to help you through this course? Was this helpful?

• Any unanswered questions?

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Feedback and Insights

• Overall, how did we do?

• What’s one thing you would change about today?

THANK YOU FOR BEING HERE!!

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