Healthcare Valuations in an Era of Reform and Uncertainty
BRG Albany HFMA 4.23.15
1. Clinical Redesign-PPM: Key Efficiencies for
Operational and Financial Improvement
Mark Driscoll,MBA
Opinions expressed are those of the individual author(s) and do not represent the opinions of BRG or its other employees and affiliates.
2. Hospitals Are Making Financial
Progress…But
2
Aggregate Total Hospital Margins,(1) Operating Margins(2)
and Patient Margins,(3) 1992 – 2012
Total Margin
Operating Margin
Patient Margin
-6%
-4%
-2%
0%
2%
4%
6%
8%
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source Graph : American Hospital Association Trendwatch Chartbook 2014, http://www.aha.org/research/reports/tw/chartbook/ch4.shtml
“…the average operating margin in 2013 was 3.1%, down from 3.6% in 2012 based on
data available for 179 health systems, …A total of 61.3% of organizations in Modern
Healthcare's analysis saw their operating margins deteriorate over the previous year.
2013
Source quote : “Fewer hospitals have positive margins as they face financial squeeze By Beth Kutscher Modern Healthcare
http://www.modernhealthcare.com/article/20140621/MAGAZINE/306219968
Posted: June 21, 2014
3. Many Are Still Struggling
3
Chart 4.1: Percentage of Hospitals with Negative Total and Operating
Margins, 1995 – 2012
Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2012, for community hospitals, and
*DefinitiveHC database. .
Negative Operating Margin
Negative Total Margin
4. …and The Next Few Years Won’t Be
Easier
“Even the strongest hospitals and health systems are, at best, only likely to hold
existing margin and reserve levels, (assuming investment market growth) while weaker
providers will likely see ongoing operating margin and cash flow erosion and eventually
balance sheet pressure leading to rating deterioration which has already materialized
and will continue in 2015.”
Martin Arrick Managing Director Standard & Poors
5. Financial Pressures will Continue
• Weaker revenue environment
• Still related to the economy with high levels of unemployment and
underemployment, reduced health insurance benefits (high – deductible plans)
• Medicare: sequestration, HAC penalties, re-admit penalties
• Commercial plans offering smaller rate increases, seeking value based
contracts
• Heightened competition for (in)patients; utilization trends remain generally
weak
• Increased spending on information technology and physician employment
• Cost of employing physicians without commensurate rise in volumes
• Many of the ‘easier’ cost cutting tactics already deployed
• Capital pressures building; must shift to an ambulatory strategy
• Pace of ‘reform’ highly variable
Source: Martin Arrick Managing Director Standard & Poor’s
6. Sample Hospital: “Reaching Beyond
the Low Hanging Fruit- Finding the
Next 20%”
20%
Historical
margins
Labor Revenue
Cycle
New
margins
Elective volume declines
Payer mix worsens
Continued IP shift to OP
Heightened Competition
Operations, IT, MD hiring
11%
Non
Labor
Clinical RedesignTraditional
27%
13%
HR
71%
Clinical Variation
Models of Care
Physician Practices
LOS/Throughput
29%29%
Source: BRG analyses and experience
36M
7. What is Clinical Redesign?
7
Clinical Redesign comprises innovative efforts to reduce inpatient and
outpatient clinical costs using a physician co-designed and co-
implemented model that:
• Sustainably improves health system margins
• Protects or enhances quality outcomes
• Harnesses and aligns physician participation
• Promotes physician integration within the organization
• Reduces the clinical cost structure and cost per case thus
enhancing ability to bear risk
9. Page 9
Employed or Independent – The Trend
Physician Practices has Surpassed
Physician Ownership.
» In 2010, MGMA found that the share of hospital-owned practices reached 68% vs. 30% in 2004.
Source: MGMA Physician Compensation and Production Survey Report ; Organization Ownership 2011 based on 2010 data; Wall Street Journal, “Shingle Fades as More Doctors Go
To Work for Hospitals,” November 8, 2010
0%
10%
20%
30%
40%
50%
60%
70%
80%
2002 2003 2004 2005 2006 2007 2008 2009 2010
MedicalPracticeOwnershipTypeasa%ofTotal
MedicalPractice
Physician-Owned Hospital-Owned
10. Avoiding Pitfalls – Gaining Alignment
10
Pitfalls Actions
• Hospitals’ financial, clinical-cost, and
operational data will never be fully
satisfactory to physicians
• MDs legitimately see every patient as
different
• Many physicians may not understand the
clinical-cost/financial data
• Many may be embarrassed to ask basic
questions
• More complex data isn’t necessarily
better –For MDs it’s not so much about
statistical analyses as it is about precise,
timely information for decision-making
• Set realistic expectations
-“the data is directional”
• Acknowledge data shortfalls upfront
• Create ownership of the data by making it
transparent and easily modifiable
• Be open and non-defensive in correcting
errors
• Proactively explain all business jargon
and financial terms in layman’s language
• Translate the data into message before
presentation
• At a minimum use severity adjusted data
11. Avoiding Pitfalls – Gaining Alignment
11
Pitfalls Actions
• They will ask “what about quality
metrics”
• They will question the objectivity and
quality-protection goal if you start with a
must-hit financial target
• They need much more than just clinical
cost information if they are to make
decisions
• Incorporate quality metrics and
address quality concerns
• Start with a process to identify a $
target not simply a $ target
• Be transparent with cost, revenue and
any other data necessary for them to
make informed decisions
12. Step 3: Shared Authority & Responsibility
Geisenger
• MD and administrator paired at every level. Both must agree on a budget and be able to speak for
each other at meetings
• Incentive compensation and goals are the same
• The capital allocation committee is chaired by a physician and most of the membership are
physicians
Mayo Clinic
• “…What differentiates Mayo Clinic is the structure that makes the physician accountable for what
happens throughout the institution. If the institution fails, the physicians have only themselves to
blame. This fact affects physician behavior at Mayo Clinic in a positive way. They must keep the
institution’s interests in mind because those interests are aligned with their own.”
-John Herrell the Chief administrative Officer of Mayo Clinic from 1993-2001 is quoted in the book “Management Lessons from Mayo Clinic
-Interview with Dr Hamory Executive Vice President and Chief Medical Officer, Geisinger Health System 8/9/13
Source AHA Trendwatch Clinical Integration- The Key To Real Reform http://www.aha.org/research/reports/tw/10feb-clinicinteg.pdf
15. Assessment Focus Areas
• Areas of Focus:
– Physician Production
• APP Use
– Compensation
• Administrative Time
– Revenue Cycle
• Outpatient Clinical Coding
– Clinical Workforce
• Span of Control
• Span of Support
24. Coding and Chart Completion
24
• Recommendations
– Efforts to improve coding documentation throughout FY 2014 and
FY 2015 have yielded positive results, but physician accountability
metrics would improve initiative sustainability
25. Recommendations
Production Best Practice
• Access – patient-centric hours, block schedules, and open schedules
• Patient Flow – reduced no-shows, cancellations, and rooming times
• Scheduling – reduced wait lists and decreased variation
• Staff – cross-training, utilizing APP’s more effectively, working in scope
Recommendations
Three options for corrective action can be considered when analyzing
productivity:
• Increase under producing providers by the required work RVUs through
improved access and targeted goal setting productivity improvements
• Increase alignment of clinical compensation with productivity
• Reduce and/or consolidate underperforming services and redistribute wRVU
to remaining providers with excess capacity
25
26. Practice Span of Control & Workforce
Findings
• Total Staff to Management Ratio is
140.1 : 12.6
• Difficulty recruiting qualified staff
at manager level
• Of the 16 benchmarked practices,
the largest area of opportunity
exists in medical receptionist and
RN/LPN staffing
• Staffing based upon MGMA
Median using the by provider FTE
metric
• Active effort to flex staff
• Staff productivity tools currently
utilized
3.0 FTEs
9.6 FTEs
140.1 FTEs
26
Directors
Managers/
Supervisors
Staff
Total Staff to Management
= 140.1 : 12.6
27. Practice Workforce Detail
27
Mid Mid
Medical receptionists 55.6 4.2 166,838$
Registered Nurses 23.2 1.7 155,369$
Licensed Practical Nurses 20.5 1.5 76,932$
Med assistants, nurse aides 12.2 0.9 36,843$
Patient accounting 10.5 0.8 33,558$
Radiology and imaging 8.3 0.6 57,561$
Clinical laboratory 4.6 0.3 14,706$
Med secretaries, transcribers 2.1 0.2 7,477$
Medical records 1.6 0.1 4,284$
Information technology 1.1 - -$
Other medical support services 0.6 - -$
Opportunity w/Benefit 140.1 10.4 553,569$
Job Category Actual Paid FTEs
Paid FTE Opportunity Dollar Opportunity w/Benefit
28. Practice Span of Control &
Workforce
28
Recommendations
• For hospital integrated practices, best practice staff to management
ratio of 17:1 – 20:1 is used for span of control
– Reduce staff at the Practice Manager level and re-assign multiple
locations to remaining Practice Managers for over-sight
– Replace managerial FTE’s at smaller practice sites with a Team Lead
• Right-sizing department workforce resources while working with
areas requiring specific skill mixes and minimum staffing needs
– Evaluate staffing at practice locations, in conjunction with practice
optimization efforts, to streamline workflows
– Introduce more robust staff productivity tools that include metrics on
staffing by provider FTE, as well as per wRVU
– Establish a workforce management committee to track staff productivity
and manage staffing requests
29. Summary Findings
Opportunities
• Provider productivity
• Provider salary and fringe
benefits
• Right-size labor resources with
benchmarks
• Analyze all other non-labor
expenses and support
allocations for improvement
opportunities
• Strategic analysis of all sites /
services
─ Optimize sites of strategic
value or divest/consolidate
those low performing
Low Mid High
Productivity/Access $756,000 $850,500 $945,000
Revenue Total $756,000 $850,500 $945,000
Provider Reallocation $1,812,000 $2,038,500 $2,265,000
Operations - Labor $260,000 $348,000 $436,000
Span of Control $144,000 $246,500 $349,000
Service Reallocation TBD TBD TBD
Medical Directorships TBD TBD TBD
Expense Total $2,216,000 $2,633,000 $3,050,000
Financial Opportunity $2,972,000 $3,483,500 $3,995,000
Holzer Implementation Improvement Opportunities
30. Physician Scorecard Methodology
Example
– Patient access
• Production measured by wRVUs
• Patient visit trends
• New Patients Year over year comparison
• Established Patients Year of year comparison
– Coding Distribution
• E/M visit levels compared to CMS Distributions
• Coding Accuracy
– Example Citizenship parameters
• Coding Accuracy
• Chart Completion
– Patient Arrival/Cancellation/No-show rates
32. PM Steering Committee Structure
Steering
Sub-Committee
Practice
Optimization &
Productivity
- Referral
Management
- Scheduling
- Access
- Chart Completion
Revenue Cycle
- Coding
Compliance
- Coding Mix
- Fee Schedule
Clinical Labor
- Span of Support
- Span of Control
- Locum Use
Compensation
- Modeling and
Parameters
- Recruitment
- Citizenship
- Admin Time
33. Practice Optimization Workgroup
Practice Optimization
& Productivity
Referral
Management
Scheduling &
Access
Open v Closed
(tool)
Call Triaging
EMR Efficiencies
APP Use
Facilitate Data
request and
validate findings
36. Practice Workforce Workgroup
Practice Workforce
Facilitate Data
Request and Validate
Findings
Span of Support
(tool)
Span of Control
(tool)
Workforce Change
Management
