Nearly half of all financial leaders who took the recently released HealthLeaders Media Intelligence Report, ICD-10 Puts Revenue at Risk, anticipate a revenue loss of some kind from ICD-10. Even more salient: They anticipate losing margin over the next few years.
With expenses such the implementation of electronic medical record, HIPAA 5010 system changes, and the ICD-10 coding transition, healthcare organizations need to change their systems. To do that they need a lot of capital in a short period. And there are only so many ways hospitals and health systems can fund these:
If financially stable, it could borrow from a lender.
With a healthy operating margin, it could free up funds from the existing budget
Put other capital projects on hold and use its capital budget on these initiatives.
Pass costs on to patients and insurance companies by increasing cost of care.
Use a combination of several of these.
Regardless of which financial option healthcare leaders opt for, the fact remains that not getting all these initiatives completed on time will be costly. With the average healthcare organization operating with about a 2%-3% margin, as reported in the HealthLeaders Media 2011 Industry Survey, there's little room for financial losses and missing any of these mandates could be financially devastating.
In fact, in the HealthLeaders ICD-10 survey, 46% of respondents anticipate a revenue loss of some kind as a result of the ICD-10 transition and nearly half of those respondents believe their organizations will lose revenue of between 1%–10%, and 13% project a loss of between 11%–20%.
Moreover, 25% of survey respondents expect it to take 1–2 years before they'll see a return on investment for ICD-10, while 27% of healthcare leaders responded that they didn't anticipate recouping the outlay for this initiative. Certainly sobering findings for any organization just beginning the process, and there are more than a few organizations in that boat.
With less than two years to go before the mandatory ICD-10 coding transition in October 2013, just over half (51%) of organizations have completed their initial ICD-10 readiness assessment, according to the survey.
Of those respondents that have begun the assessments, nearly 73% have completed the system/vendor readiness portion, while 64% have completed their training assessment, 57% have completed their documentation gap analysis, and 48% have completed the financial impact assessment.
Albert Oriol, lead advisor for the survey and vice president and chief information officer at Rady Children's Hospital and Health Center in San Diego says without the assessment, organizations cannot budget accordingly. "The cost is higher than they may think. We did our financial assessment and now we're discovering that it's double what we estimated," he said.
So what's the hold up? More pressing matters, in fact, were cited by 41% of respondents as to why they had not even completed an ICD-10 readiness assessment, while 39% said that efforts were scheduled but had not yet begun. Basically, there's too much to do and too little time, money, and manpower to do it.
"It's not surprising [so few people have started], just the sheer magnitude of the number of projects and the amount on people's plates already has slowed people down," said Oriol.
Regardless of the reason behind why these preliminary steps to prepare for ICD-10 haven't been taken, financial leaders need to push hard to complete the financial assessment as soon as possible. With so many initiatives competing for dollars that are in short supply, CFOs need to have a reasonable estimate of the kind of capital they'll need to get this initiative done on time.
Call coverage is a necessity at every hospital, but if it isn't calculated properly (and recalculated frequently) it can quietly bleed your budget. So how can you get your call coverage costs under control? Simply, you must benchmark them.
I've written more than my share of articles on RVUs, incentive compensation, and benchmarking. What has held true over the years, is that some calculations are harder than others and call coverage is on the list of challenging areas. At the recent Health Care Financial Management Association meeting in Orlando, I asked numerous financial leaders what their compensation planning pain points were and the answer was invariably one of two topics:
1. How to create a compensation plan for the new health care models (which I'll save for another column).
2. How to get call coverage "right" – which generally means "pay less, but stay market-competitive and encourage physicians to participate."
Perhaps what makes this area so difficult and irksome for financial leaders is that for many years call coverage was an unpaid expectation placed on physicians, but today doctors want to be paid, and increasingly, hospitals are doing so.
According to MGMA's Medical Directorship and On-Call Compensation Survey Report, nearly two-thirds of providers in hospital-owned group practices report some compensation for on-call duties, either via an hourly rate or through a stipend (hourly, weekly, monthly, or annually.
So, how do you arrive at what to actually pay these physicians? Naturally, it varies depending on specialty and regionand in some instances supply and demand.
The Basics
Getting a handle on your call coverage means you must benchmark against your local and regional competitors, and if you're a large system, you should do a national benchmark too. Benchmarking takes time, which is why it isn't done nearly as frequently as it should be, so if you are scratching your head over when you last looked at your call compensation, it's been too long and it's time to do it again.
There are numerous compensation surveys to turn to. The rule of thumb is that you should use a minimum of two, but more may be better. Start by looking at the large industry compensation surveys, such as AMGA (which has a call coverage survey as well as a larger compensation survey), MGMA, and Sullivan Cotter. These three, well-known benchmark surveys are useful tools, however, keep in mind the data is compiled approximately a year before publication, so the numbers may be a little stale.
Once you cull a call coverage average from these surveys, review a couple of pulse-point surveys. This data is compiled and released quickly (usually within six months of the surveys) and can help gauge the current compensation scene.
For instance, Cejka Search offers one of these surveys as does MD Ranger, Inc. Taking an average from both surveys should offer a near-accurate call coverage compensation rate for your market.
These pulse-point surveys can also offer timely insights to guide your assessment. For example, in MD Ranger's most recent survey, comments on call coverage included these nuggets:
Regional location of a hospital had no effect on the rates paid for call coverage.
Hospitals paid the highest rates for on-call coverage for trauma surgery, at a median rate of $2,379 per day, and lowest for psychiatry, at $161 per day.
Trauma status has the strongest correlation to on-call payment rates. Across all services, trauma status meant an average 26% premium to coverage rates. That's a trend mirrored in California state data that shows non-trauma hospital-physician costs increased at a faster rate than trauma hospital costs between 2008 and 2009.
Multi-campus arrangements reduced the average payment per campus by approximately 55%.
Areas to Watch
Naturally, getting your call coverage in order doesn't end with arriving at a benchmark number. That's your starting point. As you go through the process of setting a compensation figure for physician services, there are some key areas to keep an eye on. Penny Stroud, CEO for MD Ranger offered her thoughts: .
Know what's reasonable: Stroud says not understanding what "reasonable" call coverage pay is can be a problem for some hospitals and health systems. "Most valuation consultants consider payments between the 25th percentile and 75th percentile to be reasonable, although paying in the 75th percentile is being very generous, she says.
Understand exceptional circumstances: Getting and keeping a star physician may require financial leaders to occasionally go above the 75th [percentile] — which occurs in rural areas, she says. In those instances, you must use document the rationale and include the benchmark as part of your hiring policy and in the development of your contacts.
"Then you can go beyond the 75th and up to the 90th with 'special consideration'. But you have to be able to document unusual circumstances, such as a shortage of physicians in the area or particularly burdensome call coverage with only a few physicians [participating]," she explains.
Even with this documentation, however, Stroud cautions that if a hospital or health system needs to go above the 90th percentile, "It's safer to get an outside opinion."
Watch Stark and FMV Restrictions: "You always have to consider fair market value and Stark," Stroud says. As part of watching how much you are compensating physicians for their call coverage you should review the Stark and FMV regulations.
Routinely Benchmark. Stroud says healthcare financial leaders should conduct frequent benchmarks. "They should be doing a benchmark every time they sign a contract [with a physician]," she notes. "It will offer them a guidepost … and it can help them manage the expectations of the physician."
Without question, call coverage compensation is tricky. Ensuring that participating in this vital service is in your physician contracts and paying fair (yet non-exorbitant) wages is are two ways to make this usual financial migraine more of a dull headache.
Although the Patient Protection and Affordable Care Act includes pilot programs for various payment methodologies, there is still a great deal of uncertainty around payment reform overall. Without question, however, the overarching movement is toward better quality, lower cost care, and a payment environment where providers are compensated for outcomes.
What financial leaders need are good examples of how to move hospitals from the current healthcare model of care to the future outcome-based model. Creating a patient-centered environment is an excellent place to start.
Syed Salman Ali, MD, a medical oncologist and hematologist, operates Fauquier Health Hematology/Oncology Center in Warrenton, VA. Since joining the staff of Fauquier Health last year, he has worked with the hospital to create a unique infusion center that emphasizes continuity of care through a patient-centered approach and by optimizing his nursing team's skills.
Greg Bengston, vice president for development at Fauquier Hospital, explains that in 2007 the hospital identified a need for a cancer center.
With the nearest treatment center for the community nearly an hour away, the hospital proposed a joint venture between Fauquier and its competitor Prince William Health System to build a radiation and oncology center. Not long after, the Cancer Center at Lake Manassas opened. With the success of that facility, Fauquier Hospital began to look for other service line opportunities. An oncology infusion center fit the bill, but any facility would have to fit Fauquier's patient-centered culture of care.
The patient-centered approach was a part of the culture at Fauquier Hospital, a designated Planetree facility since 2007. Planetree is a model of personalized care that is all-encompassing, from the design of the physical environment to the welcoming of family members as part of the healthcare solution. Millions of dollars had been invested in the hospital; now the oncology center and its caregivers needed to reflect the same approach.
"We started to look for free-standing space for the center, but because of our Planetree status, the structure had to be patient-focused," says Bengston. That meant when they looked at existing structures the organization needed to factor in how much would need to be altered to accommodate the needs of patients.
For instance, some studies show that natural light (as compared to fluorescentlight) promotes a sense of well-being for oncology patients. But not all the structures and spaces under consideration had enough windows to provide sufficient natural light.
So the hospital decided to build Dr. Ali's office alongside a new oncology center using existing space available at the front of the hospital. The location would fit several needs: it would meet the environmental design structure Fauquier Hospital wanted and it would provide links between the patient and the hospital and Dr. Ali and the center.
Ali, who sees patients in his office and also in the hospital, appreciates the synergy.
"The infusion center patients see me as I go through the office and I see them. Even if I don't have an appointment with them, there is a certain psychological impact on the patient of knowing that the physician is a constant presence in their care," says Ali. The continuity of the patient's care, Ali explains, also comes from the team approach the center has achieved through outreach.
For instance, a patient who undergoes breast surgery meets with Ali to decide on postoperative treatment options. The nurse is in the room with Ali and is part of the treatment planning process. The same nurse works with the patient as she begins infusion treatments, and the nurse calls the patient at home between appointments to address any concerns. If there is any problem or question with a patient in the infusion center, Ali is accessible and a nurse can fill him in quickly. Ali is certain that this extended care has reduced hospital admissions. Through the phone calls and regular interaction with the patients, the nurses can detect difficulties early on, instead of waiting until the patient arrives for a regular appointment.
"The nurse plays a supportive care role and they keep me plugged in," says Ali. That means keeping tabs on how the patient is reacting to the potentially toxic treatments and ensuring the patient is able to maintain his or her quality of life throughout the process.
"They play navigator for the patient and that makes a difference. My nurses tell me when a patient is having a bad day or a good one. … So when a patient comes in for a follow-up visit, I know everything that's happened since the patient was last in. We want to do everything we can to keep our patients out of the hospital," he says.
And they have; nurses have caught potentially dangerous situations early on through their constant contact. If a nurse learns through a contact call that a patient is having a reaction to a treatment, the nurse can ask the patient to come to the outpatient center right away. Moreover, by catching any problems in the early stages, Ali explains that his practice is able to give the patient fluids and other treatments on an outpatient basis and avoid a hospital admission. "We don't want them to go to the hospital, we want them to go home," he says.
The financial benefit of that isn't lost on Bengston's organization, either. "From a dollars standpoint … managing this as outpatient is cheaper to our system then managing it inpatient. And, certainly from the patients' standpoints, they are definitely happier," he said.
Though Ali has only been operating the practice for a year, the system has begun tracking positive results. He was projected to have 72 new patients in his first year and he currently has 132. Being able to take on that patient capacity so rapidly while still maintaining a very personal approach to care is exactly the goal Ali and Fauquier were striving for. And, patient satisfaction scores are beginning to reflect that — for outpatient special procedures, satisfaction climbed from 83.9% in 2009 and 2010 to 84.5% in the first six months of 2011.
"What makes our program work is we make sure no one falls through the cracks," says Ali. "The team approach to each patient and listening to each patient's needs and situation means we can get them through the treatment … and maintain their quality of life. I think that's what makes this practice unique."
Dr. Ali's model of care is a good example of how using nurses to their fullest potential offers the opportunity to provide better patient-centered care. It also offers two other financial benefits:
It frees up the physician's time to see more patients, which in the current fee-for-service reimbursement structure allows for more billable charges.
It prepares organizations for the future reimbursement structure of pay for performance based on outcomes.
If you haven't started the transition away from a fee-for-service model of care, Fauquier Hospital and Dr. Ali may offer a good option. Applying this outreach approach with some of your smaller service lines may be a healthy first step.
Reform, the economy, and how they will affect your access to capital—it's a provocative topic for healthcare financial leaders and one that Standard and Poor's knows well. Although financial leaders might expect a negative account of these areas, in actuality, similar to the findings in my column last week, the picture is rosier than many realize.
"There have been a couple of periods in the financial community where you felt like the end of the world is here," Martin Arrick, managing director for the non-profit healthcare ratings division of S&P said at last week's 2011 Healthcare Financial Management Association annual meeting in Orlando, FL.
It took the healthcare sector a couple of years to recover from the 1990s downturn, but that period was followed by a "wonderful" decade, he said. That is, "until we had the end of the world again in 2008."
But the current state of healthcare finances isn't as bad as many in healthcare believe, he added. In fact, the economic downturn may have sparked financial leaders into taking actions that, in some instances, put hospitals and health systems on better financial footing.
"Right now [S&P] upgrades are exceeding the downgrades, and half the people we are seeing are doing better. And in some cases we're seeing [margin] numbers that match the 2006 peaks," he said.
But all is not bright. Unfortunately, although healthcare leaders may be getting a handle on expenses, S&P isn't so sure about the U.S. government and its grip on the overall economy. Arrick explained that in April his rating agency actually changed the outlook projection for the U.S. economy from "stable" to "negative" (although our country still maintains its "AAA" rating).
In the report, Arrick said, S&P economists wrote that the government didn't have a clear path toward addressing one major problem: Congress and the Obama administration need to enact a credible deficit reduction plan.
That is causing challenges for economists' future projections. "The crystal ball remains cloudier than usual," Arrick said. "The range of risks for the economy has never been greater. We are climbing out of the recession but the economy is running at half speed; it's a weak recovery."
So, while healthcare financial leaders are doing their part to pull hospitals and health systems back from the brink of financial mayhem, the U.S. economy isn't helping to speed that process along.
Moreover, while healthcare financial leaders have been scaling back large projects, cutting costs, and improving processes, growth has been on the backburner. However, after several years of tight purse strings, financial leaders know it's time to grow again in order to survive. A couple of ways Arrick mentioned that hospitals and health systems are improving access to capital:
1.Mergers and acquisitions: Not surprisingly, Arrick notes there is an uptick in mergers and acquisitions. The merger of two healthcare facilities, one with a better credit rating than the other, can help the one that is struggling to refinance debt at a better rate, he notes.
2.Direct purchase debt: In the past, bank letters of credit were a major vehicle for capital, now the shift is toward direct lending, or direct purchase debt. Arrick cautioned, however, that comes with some risks. For instance, if a covenant violation occurs, the lender can call for hospitals to immediately pay back a loan. This type of loan means hospitals should retain enough liquidity to accommodate for this scenario. Also, he notes, the credit markets have gotten tighter but rates are more in line with historic norms of 5% to 6%. "Access is tougher but the rates are reasonable," he said.
Overall access to capital still requires financial leaders to pursue and possibly blend a variety of options to meet the growth needs of the facility. However, Arrick noted that in terms of getting access to that money, hospitals and health systems are now in a much better overall financial position to do so. "Virtually every number has improved," he said. "We are seeing more positive than negative—and that speaks to the credit stabilization."
No one achieves success on his own – that's the message Healthcare Financial Management Association Board Chair Gregory Adams delivered at Monday's keynote at the 2011 ANI: The Healthcare Finance Conference in Orlando.
As day two of the annual conference opened, financial leaders listened to Adams recount a tale from his days as youth basketball coach. While working with an exceptional player who considered his skills as more important than those of others on the team, Adams brought the boy back to reality by asking him, "Who passed you the ball?"
"You have to have an appreciation for the talents that everyone on the team brings," he said.
Adams' tale served as an analogy for how roles in the healthcare team are broadening, and require everyone on the team to embrace the skill sets of each member and how they can be an asset.
"The days of the suits versus the white coats are over," he said. "It's time to work toward the goal of better patient care."
Adams' statement on teamwork comes on the heals of an announcement by HFMA that it will be working with Parallon Business Performance Group, and as a subsidiary of HCA Holdings Inc. The collaboration is designed to improve revenue cycle excellence for hospitals and system through the MAP initiative. Parallon will provide HFMA with key financial data from HCA's 164 hospitals.
MAP, launched in 2010, is an initiative to gather information financial leaders need to measure performance, apply evidence-based strategies for performance improvement and to help hospitals and health systems perform to the highest standards.
"We have to learn to thrive with the new rules. Keep trying … and don't be afraid to fail," said Adams in his conference keynote. "And be ready for when a teammate passes you the ball."
There's a barrage of data in healthcare – I'm not just talking about patient and billing data – I'm talking about the multitude of surveys that offer insights on the direction of healthcare and the economy. While there may be a lot of information coming at you, this research offers key insights as to the direction your peers see healthcare moving—so pay heed.
In the last few months several reports have echoed similar sentiments: Healthcare CFOs aren't optimistic about healthcare reform or the economy. Yet in spite of the pessimism, financial leaders think the future is looking up and capital expenditure plans are being dusted off.
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Healthcare reform doesn't make CFOs feel all warm and fuzzy. There are a lot of costly directives in this legislation, so it's understandable that 61% of financial leaders have responded that they feel healthcare reform will have a negative impact on their business. The finding, from the recently released GE Capital CFO Survey, was part of a larger look at the opinions of CFOs across seven major industries including healthcare.
"It's not surprising that the majority [of respondents] expect this to have a negative impact," said Randy Waring, managing director, for GE Capital, Healthcare Financial Services. "There's still a lot of uncertainly around the implementation of healthcare legislation. Plus there is the weak economy and the prospect of cuts in Medicare and Medicaid… [all of these] are cause for genuine concern."
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Interestingly, the GE Capital survey findings from its Q1 2011 survey nearly mirror the results gathered in the HealthLeaders 2010 Industry Survey (taken earlier in October 2010), in which nearly 60% of CFOs polled said that the financial position of their organization was being weakened by healthcare reform. The pessimism, however, isn't pervasive; many financial leaders also believe the future is looking up, according to both surveys. And another economic survey backs CFOs up on that assertion.
In May, Standard and Poor's Healthcare Economic Indices released data showing:
The average per capita cost of healthcare services covered by commercial insurance and Medicare programs increased by 5.39% over the 12-months ending April 2011.
Since May 2010, annual rates of growth of healthcare costs have been largely decelerating.
Over the year ending April 2011, healthcare costs covered by commercial insurance increased by 7.13%, as measured by the S&P Healthcare Economic Commercial Index.
The rate of growth in healthcare inflation has been steadily decelerating since it hit a high of 8.74% for the 12-month period ending May 2010. S&P analysts note that hospital employment growth has correspondingly slowed significantly, falling from 2%-3% increases between 2008 and early 2009, to 1% since the middle of 2009. S&P analysts believe that slowing rate of inflation in healthcare is also tied to high unemployment in the overall economy, but they also warn that the slowing trend could quickly reverse.
Job growth in the healthcare sector continues to show gains, according to the Bureau of Labor Statistics preliminary data. In fact, the healthcare sector consistently has been one of the few job-creating sectors in the recovery. And, The Conference Board monthly review of online job postings consistently shows that there are three jobs available for every skilled healthcare provider.
The GE Capital survey also indicated that 81% of healthcare CFOs expect to hire more employees in the next 12 months, a 20% increase since they were last polled in Q3 2010. Employment isn't the only area in healthcare that's seeing positive changes. Many formerly shelved capital expenditure plans may be put back into action after several years of delay.
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In March, I wrote about how hospitals are cautiously beginning to spend again on capital projects. Naturally, the main expense area is the EMR (perhaps another reason why those Tech CFOs are so giddy about the economy). However back in early January aside from the technology investment, nearly 40% to 50% of healthcare leaders still anticipated delaying or eliminating capital projects for 2011.
"The last 18 months there has been a rebound of the market and investment portfolios, and that's had an impact on the operating side [for hospitals and health systems]," said Greg Pagliuzza, vice president and CFO at Trinity Regional Health System, a four hospital system based in Rock Island, IL whom I interviewed for that article.
Earlier this month, however, Cain Brothers released its Industry Insights Report noting, "As the U.S. is now emerging from economic recession, hospitals will need an increasing level of capital, for both new and deferred capital projects, in an effort to remain competitive in an industry characterized by a high degree of capital intensity, constant innovation in equipment and information systems, and the rapid obsolescence of technologies."
Waring says the GE Capital survey reflects that idea with an uptick in capital expenditure expectation. "They pushed the pause button in 2009-10 and now there's a pent-up demand for capital investment. So … CFOs are less optimistic about the economy than other CFOs, but we are starting to see folks spending capital dollars again," he said.
And there's one more thing to be positive about. According the GE Capital survey, 33% of Healthcare CFOs expect profit margins to increase this year (up 3% since Q1 2010), with another 35% expecting profit margins to remain the same (up 6% since Q1 2010). Financial leaders may be pessimistic about healthcare reform, but it looks like the financial future of healthcare may be brightening.
If you haven't looked at your payroll lately, you might be surprised to learn that you are likely leaking money in your labor budget. Using data from your time management system and making a couple of strategic strikes based on the info, could yield some hard savings in your labor costs.
"Last year physician recruiting was the top priority for everyone. That added a ton of labor cost to hospital budgets," explained Robin LaBonte, CFO, at the 79-bed, York (ME) Hospital, who I interviewed earlier this year for the 2011 HealthLeaders Media Industry Survey. "Everyone wants to be positioned well, but no one knows what's really going to happen [with healthcare reform]. Most CFOs are conservative, so they focus on costs [in order] to position the organization well."
And when it comes to costs, the largest expense in a hospital budget is labor (40%-60% according to the same survey). So, financial leaders need to find ways to trim. Payroll leaks are the unintentional overspending on labor through lost productivity or unnecessary overtime—and they are good place to look for little losses that add up.
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Where should you begin? Working hand-in-glove with human resource leaders can help financial leaders get this area in order. Bernie Becker, chief human resources officer at the Topeka, KS-based Stormont-Vail HealthCare says there's a lot to learn from time management data. He found that on-call and overtime costs at his 405-staffed-bed hospital were continually rising.
With on-call pay coming in from a medical center, 27 physician and clinician offices, and outpatient surgery centers, it was dizzying to track, much less to find a cause for the problem. Becker turned to his time management data to explain the cost increases. The data showed scheduling and overtime problems.
"Whether there [are] higher volume[s], heavier procedures, or unexpected absences, we are trying to get control over when we are paying that premium pay," Becker said.
He says Stormont-Vail HealthCare had stopped using packaged scheduling software about 10 years ago in favor of its departments having non-fixed shifts (mainly inpatient nursing) and a "homegrown" spreadsheet that is updated daily or shift-by-shift to accommodate changes in patient volumes and acuity. But it wasn't addressing staffing shortfalls quickly enough when demand rose. Moreover, managers were calling in staff to call work without the benefit of knowing which team members at lower wage levels might have been available.
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Plus, when it came to tracking call coverage, Stormont-Vail was using an approach that many hospitals and health systems still use today. Becker says the system managed employee time retroactively, reviewing entries every two weeks.
"Looking back at the employee data doesn't help us look and work with the daily patient census," he notes. "When you look at the end of a two-week pay period and see all the hours of call pay, it's too late to analyze why it happened or how to fix it for the future. That can drive the cost per patient per hour in a particular unit through the roof."
Becker says ideally hospitals need to "manage proactively on a shift-by-shift basis, not retroactively."
To remedy the scheduling and call coverage problem, Stormont-Vail still did not add technology, instead it worked with staff. First, managers were made aware of the wages of team member for on-call scheduling. That allowed managers to make more cost-effective decisions.
Second, an employee was hired to track the patient census in realtime and to determine how the teams should address it. An added benefit: Through the payroll system the census employee can figure out the skill mix of the staff clocked in at each facility to help make decisions as to where staff should go to meet demand.
While using the data from the time management system provided Stormont-Vail with insights on how to correct scheduling and call pay overages, it can also reveal when employees are taking unfair advantage of the time management system.
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At Saint Luke's Health System in Kansas City, MO, Tammy Leslie, senior director of compensation and benefits and Casey Knasel, director of payroll and human resource information systems, needed to get a handle on how the employees at the 11 hospital system were using time management.
They asked their current time management provider, Kronos, a leading global workforce management solutions provider, to do an optimization analysis. As with Stormont-Vail, Saint Luke's system analysis revealed a fundamental, and costly, scheduling issue. Managers scheduling the on-call or stand-by staff weren't able to discern when demand was rising nor could they determine which employees had the lowest hourly wage to call those individuals in to work. Knasel says the problem was that the hospital had failed to provide realtime patient census information and tie it to staff wage information.
In addition to the scheduling issues, the Kronos analysis of Saint Luke's uncovered a smaller issue, time entry misuse. They found the clocks closest to the points of entry were getting the most traffic because employees were clocking in and then taking their time to arrive at their workstation.
Employees could take extra five to 10 minutes to change clothes, get coffee or do other non-work related activities, all costing the hospital unnecessarily. The few extra minutes in some instances even bumped an employee's time from regular pay to overtime pay, though the individual wasn't engaged in work. By simply relocating time clocks closer to the employees' actual workstations, the hospital could shave several minutes per day off of nonproductive time.
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The study also found that St. Luke's had a large number of manually entered time cards. Upon closer scrutiny, Knasel estimates that at least 7% of their employees may be overusing the manual timesheet option.
"The frequency of the manual editing of time cards tells us that either we are having some issues with people not understanding or it may be an opportunity where when someone is five minutes late they write it down in a log rather than clock in. That tells us we are probably overpaying people," says Knasel.
Though tracking an extra five minutes of employee time may seem knit picky, Knasel says the time adds up. For instance, if each person at a 200-employee hospital takes an extra 10 minutes on the clock daily (that's nearly an hour extra in their check each week. Not factoring in that it may cost additional in overtime pay, annualize that for employees using a low, $15 an hour wage and the cost is $780 a year per employee. If all 200 employees overcharge the hospital by 10 minutes a day, the hospital loses $156,000 annually. That figure is likely significantly higher when the variance in hourly wages is factored.
From a strategy standpoint, Leslie says, management ought to be aware of these seemingly small issues and must address them in action and in written policy. Writing them off as insignificant is a mistake.
I spend a lot of time interviewing healthcare leaders about financial strategies. Sometimes I look at the big ideas, such as the effect accountable care organizations may feel on their margin. Other times I look at the low-hanging fruit that any financial leader would be thrilled to find and put back into a budget. Whether the task is large, such as ACOs, or smaller, such as revenue cycle quick-fixes, all have a common thread: in order to achieve success critical and abstract thinking must be applied.
I'm always enthralled to come across stories that describe, in practical terms, how leaders actually lead. As the saying goes, tough times define us and in the last few years with the downturned economy followed by the enactment of the Patient Protection and Affordable Care Act more than a few leaders have redefined what it means to be a healthcare leader.
Here are four of my recent favorites and must-reads for all healthcare leaders:
How a CEO Empowered Staff to Save $3M and Their Jobs During the recession, Chicago's Swedish Covenant Hospital chief Mark Newton was unwilling to take draconian measures such as layoffs. Instead, he deployed a tactic from his entrepreneurial background: He challenged his staff to find ways to cut costs themselves. In Part 2, Newton details measures taken by hospital staff to meet his challenge, and divulges the wider benefits of leading through a crisis by engaging and empowering employees. Great stuff by my colleague, Philip Betbeze, and a must-read for all hospital and health system CFOs.
How to Make Millions in Hospital Revenue Reappear
I wrote this one myself, but it's both a practical treatise on charge capture and a morality tale about the value of consistency. I relay the story of Christus Health in Irving, TX one of the largest Catholic Health Systems, which decided to prioritize consistency in the charge capture of its emergency department levels and injections/infusions and wound up recovering a whopping $29 million in net revenue.
How Scripps Health Brewed Up a Plan That Saved $350K
This one, by Cheryl Clark, weighs in on a slightly smaller scale, but is no less rewarding, unless you're counting dollars exclusively. An audit of the food and beverage services at Scripps Health in San Diego last year uncovered enormous variation and expense throughout its five hospitals in just one little perk. The coffee. Seems some hospitals were sipping free "fancy" coffees while others had to make do with the cheap stuff. Long story short: Java consolidation saved $350K in year one. That kind of savings should give any financial leaders a wake up call.
Bleeder to Feeder: How an ED Turned Its Business Around
The challenges at one Texas hospital's emergency department were numerous, but they all boiled down to a left-without-being-seen rate of 8-10%. Here's how hospital leaders re-engineered the department and its processes and stopped seeing business walk out the door. Jonathan Davis, president of Methodist Charlton Medical Center in south Dallas tells Philip Betbeze that he accomplished all this by invoking his philosophy of solving problems internally when possible. "Our lesson here," he said," is we're not spending money on a facility when we can't improve the process within it."
If the greatest asset of a healthcare organization is its physicians, why then are so few resources put into retention and so many put into recruitment? It's a costly imbalance, explains J. Gregory Stovall, MD, senior vice president of medical affairs for Trinity Mother Frances Hospitals and Clinics in Tyler, TX and Lori Schutte, president of the healthcare recruiting firm Cejka Search.
Schutte and Stovall spoke on techniques for hiring and retaining star physicians during the April American Medical Group Association annual conference in Washington, DC. I caught up with them to learn more about quick, low-cost strategies that hospitals or health systems can use to decrease their turnover.
"We know from surveys that the critical time period after a physician is hired is the first one to three years," says Schutte. "Somewhere in there they start to get unsettled."
Just 5 years ago, Stovall explains, his organization had a physician turnover rate of 14%, more than double the current industry average, which hovers around 6.1%, according to a Cejka Search survey. The 400-plus-bed system, which employs more than 250 of their nearly 500 physicians, took a step back and decided to evaluate retention's true cost.
"We realized we'd been resting on our laurels. Retaining our outstanding physician has to be a high priority," says Stovall. "Every organization recognizes the value of hiring a superstar physician, yet very few invest the time and energy to create intentional strategies that contribute to retention."
Stovall says when Trinity Mother Frances Hospitals analyzed the numbers, the need to get a retention strategy in place became clear. The organization estimated $50,000–$75,000 was spent per physician just on recruitment. Then there was the additional $200,000–$300,000 spent to train, credential, market, and onboard the physician. Total cost per new recruit came to roughly $250,000–$350,000.
Stovall went to the CFO to get a better understanding of how much the organization was budgeting for turnover, "Because it's never zero. There are always people leaving or retiring. But we weren't budgeting for it."
A quick show of the math and Stovall had their attention, "I explained that if we lower[ed] our turnover rate by just one percent, we [would] save nearly a half a million dollars."
Stovall's initial estimate of the losses due to turnover ended up being a conservative one. After calculating the recruiting and on boarding costs, the organization looked at benchmark data and also calculated the downstream revenue lost when a physician left the organization. The result, an estimated $1 million per physician was lost with each doctor's departure, Stovall says.
"It just made sense to budget for and invest in retention in order to reduce our turnover," says Stovall. So they set aside approximately $100,000 for a retention program—or approximately $300 per physician. Since doing so, they've seen their turnover rate drop to just 4% and hold steady for several years.
Six strategies that both Stovall and Schutte agree help keep turnover low include:
Mentoring: The cost of adding a mentoring program for an organization is generally low, as most organizations don't compensate their staff for this duty. The return on investment in terms of retention, however, can be great.
According to a Cejka Search survey, organizations that use this retention strategy see their turnover drop approximately 1%. "That may sound small, until you do the math," notes Stovall. His organization added a mentoring program, and it cost them nothing to do so.
Leadership Development: "We began to recognize that when physicians are engaged in leadership, they develop a loyalty and a sense of ownership that contributes to retention," says Stovall.
To that end, Trinity Mother Frances Hospital created a leadership development program, investing approximately $65,000. The money is used to send their physicians to large national conventions as well as for their own, onsite, bi-annual leadership development courses.
Family and Future: Just as physicians need to treat the whole patient and not just the individual ailment, retention needs to consider the whole employee—including their career goals and the physician's family, says Schutte. Moreover the process of retention, both Schutte and Stovall agree, actually begins with your recruitment process.
"Sometimes a physician moves and adjusts, but the family never makes the adjustment to the community. It can be very hard to move to a new neighborhood and school," adds Schutte. "When you have a whole family involved, everyone needs to make the adjustment. Essentially, you're not just recruiting the person but the whole unit."
Schutte says organizations should always recommend that the family come to the interview with the candidate so everyone can decide if this is a good fit. "What do you know about this physician other than where he trained and worked? What are his or her life goals and what does his or her family look like?" she adds.
To that end, Stovall says his organization set aside $25,000 to host networking events and an awards dinner as well as family events.
Employee Satisfaction Surveys: Ten years ago Trinity Mother Frances Hospital began using the AMGA employee satisfaction survey to get a pulse on how their employees felt about the organization. However, the results were not always acted on. Now, Stovall explains, when the results come back from the survey they are prioritized and addressed.
For instance, in their most recent employee satisfaction survey the majority of physicians were pleased with their compensation level. They felt, however, that communication between the administration and themselves was lacking. "Our people and culture committee will now develop a strategy to address this area," he says.
Compensation: "The laws of economics hold true," says Schutte. "If you're in a popular location, your compensation structure will be lower. If you're not, such as in a rural location, it will be higher."
Compensation structures should be clear and easy to explain, she says, and they should always be realistic based on the market. She adds that non-monetary benefits can also be factored in, such as flexible schedules that encourage better work/life balance.
Primary Interviews: A well-planned interview process is an essential ingredient of retention, says Schutte. "The best indicator of future behavior is past behavior so know your candidate," she notes. "Having a structured, formal interview in which everyone knows what's going to be covered and what questions will be asked is also a great way to get an accurate assessment of the candidate's skills."
Trinity Mother Frances Hospital uses a standard interview and a behavioral interview to screen candidates for their leadership potential and to get a sense for the direction these physicians might like to go with their careers, Stovall says.
Though millions may await you by reducing the turnover rates at your hospital or health system, there's one other benefit that may interest healthcare leaders.
"Like all health systems, in order to meet our strategic goals we need to maintain a predictable, reliable margin. … It would be exceedingly disruptive and put our strategic plans in jeopardy if we returned to having high turnover," says Stovall. "We can't ever take for granted how important this is to maintain."
If you feel as though just about every week or so something new comes out involving accountable care organizations, you’re not mistaken. The Centers for Medicare & Medicaid Services recently announced two initiatives related to the ACO model: The ACO Pioneer Program and the Advanced Payment Initiative. So, what do these two programs mean for hospitals and health systems? Well that depends on your thoughts on ACOs, and more than a few experts, including the two I spoke with, disagree.
First, the lowdown on the latest programs:
The ACO Pioneer Program: Launching in fall 2011, the ACO Pioneer Program allows 30 organizations, or “Pioneers,” to more rapidly move from a shared savings payment model to a population-based payment model “on a track consistent with, but separate from, the Medicare Shared Savings Program,” according to the CMS Center for Medicare & Medicaid Innovation.
The program is designed to:
work in coordination with private payers by aligning provider incentives
achieve cost savings for Medicare, employers and patients
For the first two years of the Pioneer program, the payment models being tested are a shared savings payment policy with generally higher levels of shared savings and risk than those currently proposed in the Medicare Shared Savings Program. In the third year of the program, participating ACOs showing specified levels of savings over the first two years will be eligible to move a substantial portion of their payments to a population-based model.
Advanced Payment Initiative: Also launching in the autumn, the Advanced Payment Initiative offers organizations the opportunity to receive financial assistance to set up an ACO. “Under the proposed initiative, eligible organizations could receive an advance on the shared savings they are expected to earn as a monthly payment for each aligned Medicare beneficiary. ACOs would need to provide a plan for using these funds to build care coordination capabilities, and meet other organizational criteria. [These] advance payments would be recouped through the ACOs’ earned shared savings,” according to the CMS’ Center for Innovation website.
What does all this really mean for your hospital or health system? Should healthcare leaders revisit the idea of establishing a Medicare ACO program?
Yes.
Scratch that, No.
Well, Maybe?
If you’re not sure, take comfort in the knowledge that even experts don’t quite agree on what these programs will and will not do for hospitals or health systems.
“It’s a step in the right direction because the innovation office is signaling flexibility around individual terms and conditions, and spending more time concentrating on the readiness of the afflicted organizations for the task at hand,” says Mark Lutes, senior member of the Washington, DC office of Epstein Becker and Green, P.C.
On the other hand, Nathan Kaufman, strategic director and founder of the San Diego-based Kaufman Strategic Advisors disagrees. “I don’t think these are helpful at all. The fundamental business fallacies that are baked into the [original] ACO regulations are still in the Pioneer regulations,” he says.
As with many new healthcare programs there are pluses and minuses for healthcare leaders to consider. A few positives of the pioneer program include, according to Lutes:
The Application: Unlike the application to participate as a Medicare ACO, the Pioneer program application is more free-form. Applicants are being asked to make their case to participate in the program through a narrative.
Acceptance Criteria: The narrative portion allows CMS to accept providers into the program without using rigidly defined criteria, such as it uses with the Medicare ACO program. “It’s evident with this program that they heard the comments of the industry and they are trying to address some of them through this proposal,” says Lutes.
Larger Portion of Shared Savings: In this model CMS is willing to share a larger percentage of the savings--approximately double what’s available in the Medicare Shared Savings program.
A few drawbacks of the program, according to Kaufman:
The Patient: The Pioneer Program doesn’t offer providers the ability to penalize the patient for going out of network for treatment. Nor does it allow providers to know which patients they are treating are participating in the program.
Capital Investment: The amount of capital that needs to be invested in the infrastructure to set up an ACO is still high, which means most providers who want to participate in an ACO would need to affiliate with a hospital. “Most physicians can’t come up with the [approximately] $2 million they’d need on their own. All the Pioneer Program does is provide medical groups with a slighter easier way to buy in to a flawed business model,” says Kaufman.
Shared Saving Cap: There is a shared savings cap of 15% for the providers who participate in this program.
If you’re still not sure if the Medicare ACO or the ACO Pioneer Program sound like opportunities you’d like to pursue at your organization, the CMS is dangling one more carrot to encourage participation through the Advanced Payment Initiative.
“I think going to be helpful, and it’s important [to offer financial aid] but it doesn’t go far enough … there needs to be a loan authority,” says Lutes.
With 93% of American Medical Group Association members recently responding in a survey that they would not be participating in the Medicare ACO program, Kaufman says he views this initiative as an attempt by the government to spark interest and quell their own embarrassment.
“If they weren’t going to get participants, then they needed seed money to try to make it easier to get started,” he says.
So, how do the ACO Pioneer Program and the Advanced Payment Initiative affect your organization? Well, if you were about to launch an ACO, then you may want to take advantage of these two new programs. However, if you have yet to make a decision about starting an ACO, then you may want to attend Beyond Medicare Shared Savings: Effective ACO & Clinical Integration Strategies. This June 7 webcast, featuring Lutes and Kaufman, will describe in greater detail the commercial and Medicare alternatives for your organization’s ACO strategy.
With all there is to know about ACOs—and with all that continues to come out about on it—healthcare leaders must understand not only how new programs and demonstrations will affect their organization, but they must also know a variety of alternative pathways that can be taken to ensure a steady financial and clinical position in the years to come.