Finance and Business Skills for Nurse Leaders

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Finance and Business Skills for Nurse Leaders
September 1, 2016
Continuing Education Certificate
Participant Directory
PowerPoint Presentation
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 Leaders Date: September 1, 2016 Place: American Organization of Nurse Executives (AONE) 155 N. Wacker Drive, Suite 400 Chicago, IL 60606 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. . Finance & Business Skills for Nurse Leaders September 1, 2016 – Chicago, IL Participant Directory Denise Banton Rush University Medical Center Chicago, IL [email protected] Jason Bauer Clinical Manager SwedishAmerican ‐ A Division of UW Health Rockford, IL [email protected] Mary Becker‐Roth Patient Care Manager Aurora St. Luke's Medical Center Whitefish Bay, WI [email protected] Jennifer Beyer Centegra Hospital ‐ McHenry McHenry, IL [email protected] Jennifer Blissitt Nurse Manager, Access and Coordination Froedtert Health Milwaukee, WI [email protected] Beth Bradley MSN, RN Penn State Hershey Medical Center Hershey, PA [email protected] Christopher Callahan Nurse Manager Massachusetts General Hospital North Reading, MA [email protected] Cristina Canaria Aliso Viejo, CA [email protected] Ann Caughron Dir, Nursing Presbyterian Homes Evanston, IL [email protected] Scott Christensen University of Utah Health Care ‐ Hospital and Clinics Salt Lake City, UT [email protected] Dawn Clayburn Morris Hospital & Healthcare Centers Coal City, IL [email protected] Kimberly Cleveland Canal Fulton, OH [email protected] George Daly Nurse Manager The University of Chicago Medicine Chicago, IL [email protected] Ashley Davis Clinical Manager Riley Hospital for Children at Indiana University Health Indianapolis, IN [email protected] Teresa De Los Santos Chicago, IL [email protected] Belinda Frazee Rushville, IN [email protected] Finance & Business Skills for Nurse Leaders September 1, 2016 – Chicago, IL Participant Directory Nicole Geist Registered Nurse Associate Partner, Supplemental Associate Administrator Riley Hospital for Children at Indiana University Health Westfield, IN [email protected] Matthew Getsinger OHSU Hospital Newberg, OR [email protected] Jane Gustafson Manager Aurora Medical Center Kenosha, WI [email protected] Karen Hardin Assistant Professor, School of Nursing Anderson University Anderson, SC [email protected] Joey Hollis Franklin, IN [email protected] Denise Hong Chicago, IL [email protected] Belinda Hopper Janesville, WI [email protected] Rebekah Hopper Dir, Med/Surg SwedishAmerican ‐ A Division of UW Health Rockford, IL [email protected] Karen Hunt Nurse Manager Franciscan St Francis Health Indianapolis, IN [email protected] Lynn Lawson Carmel, IN [email protected] Kelly Magee Manager Aurora Medical Center Kenosha, WI [email protected] Cara Marco Morris Hospital & Healthcare Centers Morris, IL [email protected] Jennifer McMillan Manager Aurora Medical Center Kenosha, WI [email protected] Julie Monville Ironwood, MI [email protected] Cathleen Mullane NorthShore University Health System Park Ridge, IL [email protected] Kate ONeill CNO and VP of Quality Patient Safety Springfield, PA [email protected] Yolanda Penny Director of Nursing St. Bernard Hospital and Health Care Center Chicago, IL [email protected] Finance & Business Skills for Nurse Leaders September 1, 2016 – Chicago, IL Participant Directory Tracey Peterson Penn State Hershey Health System Lebanon, PA [email protected] Nancy Pope‐Angulo Walnut Creek, CA [email protected] Kathryn Roberts Children's Hospital of Philadelphia Philadelphia, PA [email protected] James Sturtevant Truckee, CA [email protected] Roberta Szumski Manager Nursing Education Riley Hospital for Children Indiana University Health Avon, IN [email protected] Greg Taylor Patient Care Manager Aurora Health Care Milwaukee, WI [email protected] Ann Vallone Nurse Manager, Cancer Center Clinics Froedtert Health Milwaukee, WI [email protected] Ron Yolo Long Beach, CA [email protected] Finance and Business Skills for Nurse Leaders
Jan Phillips, DNP, RN, CENP
Director, Nursing‐ Adult Acute Care, Emergency Services & Care Transitions
PennState Hershey Medical Center
Chuck Alsdurf, MAcc, CPA
Director, Healthcare Finance Policy, Operational Initiatives
Healthcare Financial Management Association (HFMA)
September 1, 2016
©AONE
The pressure is too much to bear alone
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1
Together we can get through this and succeed!
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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.
SHARED GOAL
The Triple Aim framework was developed by the Institute for Healthcare Improvement in Cambridge, Mass. (www.ihi.org).
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2
Collaboration required for quality care
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Collaboration required for success
Nursing 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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3
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?
©AONE
Healthcare Reform Update
©AONE
4
Survey Question
When you read or hear ‘Healthcare Reform’ what
initially comes to mind?
A.
B.
C.
D.
The Affordable Care Act
Opportunity to improve healthcare
Not sure what to think
Feels like we’re shuffling deck chairs on the
Titanic
©AONE
Uninsured rates are decreasing…
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5
…out-of-pocket costs remaining high for
exchange plans….
2014 Average Benefits by Plan Type1
Bronze
Silver
Gold
Platinum
Avg. Ind. Deduct.
$5,081
$2,907
$1,277
$347
Avg.
Fam. Deduct.
$10,386
$6,078
$2,846
$698
% Covered Expenses
60%
70%
80%
90%
OOP Max Ind.
$6,267
$5,370
$4,081
$1,855
$12,569
$11,495
$8,649
$3,710
OOP Max. Fam.
1Source: HealthPocket.com; averages across 34 states
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…and employer plan premiums continue
to climb…
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6
…and even those insured are challenged
to pay bills…
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…with varying levels of knowledge…
Very or Somewhat Confident in Understanding of the Term: “Deductible”
84%
60%
Nongroup
Uninsured
Nongroup: Nonelderly adults currently purchasing individual coverage and not eligible to buy health insurance through an employer or other group.
Source: Urban Institute Health Policy Center ‐ Health Reform Monitoring Survey, 2013 ©AONE
7
…pushing significant and necessary change
in the patient financial experience…
Historical Model
Gather basic info before & at the time of service.
Billing process is post‐service. Amount due is
based on data gathered after service, calculated retrospectively. Pre‐
Service
The Near Future
Pre‐Service: Prospective Gather detailed info
Data Gathering and before & at time of service. Estimate out‐of‐
Processing
At Service
Post‐service: Patients told of financial Retrospective Data obligations after insurance is billed & Gathering and Processing
paid.
pocket costs.
At Service
Post‐
Service
Bill at or right after
service. Many patients
know in advance what
they owe & agree on terms. Insurance bill verifies what
patient already expects.
©AONE
…and increasing competition from retail
healthcare…
• Retail healthcare gaining momentum
• Walgreens, CVS and Walmart providing non-urgent care
for affordable rates
• As High Deductible Health Plans (HDHP) increase across
the country, these retail clinics are less costly than a visit
to an urgent care or primary care physician
• Full payment is handled at time of service
• Private companies opening increasing number of Urgent
Care centers
• Similar to retail clinics, these are more convenient than
scheduling an appointment
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…driving value-based payment models
• Medicare Shared Savings & Pioneer ACO
• At-risk portion of Medicare payments with quality
metrics impacting financial outcome
• Bundled Payment Models
• Governmental and commercial models combining
different aspects of care episode
• Pay for Performance (MACRA/MIPS)
• Physician and professional payment system using
comparative data to incentivize quality and
financial performance
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Other Current Issues
• Mergers and Acquisitions continue across the country
in provider and health plan segments
• Cost of new IT systems adding to expense base of
many health systems and physician practices, as well
as changing workflow in various operational areas
• Not-for-profit status of some providers could be
challenged
• Presidential election will likely create another round of
change to ACA in the next 12-24 months
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9
Items to Consider
• Healthcare reform has impacted uninsured rates as well as
out-of-pocket costs for consumers
• Education and communication are critical for both
providers and patients
• The payment models will evolve and vary depending on
payer, providers and type of service
• Managing the efficient delivery, cost, and quality of care
will be key to success as additional risk shifts to providers
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Challenges Ahead
• Aligning goals amongst providers delivering services
• Measuring current cost of delivering services
• Delivering care at a lower cost
• Changes in risk pool of patients receiving bundled
services
• Accuracy and timeliness of performance data
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10
Volume to Value
Does Not Mean Volume is Bad
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Overview
•
•
•
•
Trend Drivers
FFS to Outcomes Based Payment
ACO and Bundled Payment Contracts
Impact on Nursing
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The Federal Deficit is Impacting FFS
Payment Growth
…the CBO Projects Input Prices Will Grow Faster than Medicare Payments
Long‐Term Federal Fiscal Imbalances Are Driven by Healthcare and Retirement Programs…
Illustrative Hospital Medicare Margin Impact:
CBO Projections of Growth in Medicare Pymt and Input Prices
1.0%
‐1.0%
‐3.0%
‐5.0%
‐7.0%
‐9.0%
‐11.0%
‐13.0%
‐15.0%
‐17.0%
‐19.0%
CBO Projection
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Sources:
1) 2014 Margin: MedPAC; Assessing Payment Adequacy and Updating Payments: Hospital Inpatient and Outpatient Services; December 10, 2015
2) Growth in Medicare Revenue and Input Prices: The Congressional Budget Office Economic Outlook: 2016 – 2026, pg 67
3) HFMA Analysis
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Trends ‐ Employers
Health Costs Eating into Wages
Health Insurance Costs Have Grown at an Unsustainable Rate, Depressing Employee Wages
$17,545
400%
221%
Health Insurance
Premiums
203%
200%
Workers' Contribution to
Premiums
$12,591
$6,251
56%
$5,179
42%
0%
1999
2003
2007
2011
2015
SOURCE: Kaiser/HRET Survey of Employer‐Sponsored Health Benefits, 1999‐2015. Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1999‐
2015; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1999‐2015 (April to April). $4,955
$1,071
Single Coverage Family Coverage
Employer Contribution
Worker Contribution
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A Growing Number of Americans Cannot
Afford Health Care
Trends ‐Families
Percentage of US Population By Federal Poverty Level Family of Four
100% FPL
Income: $ 24,250 1Liquid Assets $700
15%
3
300% FPL
Income: $ 72,750 Liquid Assets: $3,426
19%
30%
36%
200% FPL
Income: $ 48,500 2
Liquid Assets: $1,500
400% + FPL
Income: $ 97,000 4
Liquid Assets: $18,343
Sources:
1)
http://kff.org/health‐costs/issue‐brief/consumer‐assets‐and‐patient‐cost‐sharing/
2)
http://familiesusa.org/product/federal‐poverty‐guidelines
3)
http://kff.org/other/state‐indicator/distribution‐by‐fpl/
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Trends ‐Variation
Variation Exists Across and within
Markets By Purchaser
Medicare Spending Variation Is Mostly Driven by Utilization Differences…
Below Avg.
…Commercial Spending Variation Is Mostly Driven by Pricing Differences
Avg.
Above Avg.
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Implications
• Governmental Health Expenditures Are Crowding Out Investments in Other Areas Valued By Society
• Fee for Service in the Public Sector Is Unsustainable
• Even Insured “Middle Class” Families Would Struggle Financially if They Had a Significant Medical Event
• As a Result, Purchasers Are Looking to Reduce Both Unnecessary Utilization and Payment Rates
©AONE
Overview
•
•
•
•
Trend Drivers
FFS to Outcomes Based Payment
ACO and Bundled Payment Contracts
Impact on Nursing
©AONE
14
FFS to Outcomes
CMS’s Glide-Path to Outcomes Payment
CMS’s Long‐Term Goal Is to Shift Providers to Prospective Population Based Payments
©AONE
FFS to Outcomes
Slow Transition to Risk Based Payments
Nationally, Only 20% of Commercial Payments Are Outcomes Based
% of Commercial Health Plan Revenue by Payment Mechanism
40%
Capitation
20%
Partial Capitation
Shared Risk
FFS ‐ Shared Savings
0%
Source: http://www.catalyzepaymentreform.org/news‐and‐publications/publications
©AONE
15
FFS to Outcomes
CMS Is Attempting to Align Quality
Measures Across Payers
In Response to Negative Feedback from Providers…
How Consistently Are Value Metrics Defined Across Carriers in Your Market?
…CMS Has Defined Core Measure Sets with Groups Representing Health Plans and Providers Specialties That Have Core Measures Sets
•
•
•
•
•
•
•
Very inconsistent
Somewhat inconsistent
Somewhat consistent
Very consistent
ACO, PCMH, PCPs
Cardiology
Gastroenterology
HIV and Hepatitis C
Medical Oncology
Obstetrics and Gynecology
Orthopedics
Sources:
1)
HFMA Value Project Research
2)
https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact‐sheets/2016‐Fact‐sheets‐items/2016‐02‐16.html
©AONE
FFS to Outcomes
Volume Still Matters
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 ©AONE
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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
©AONE
Overview
•
•
•
•
Trend Drivers
FFS to Outcomes Based Payment
ACO and Bundled Payment Contracts
Impact on Nursing
©AONE
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What is an ACO?
ACOs and Bundled Payment Contracts
From a Structural Perspective ACOs Can Include A Variety of Provider Types
Examples of Different Combination of ACO Components
Source: The Brookings Institute; Issue Brief: Accountable Care Organizations; March 2009
©AONE
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
Incentive to Redesign
Care Delivery
Full
Capitation
Partial
Capitation
Shared
Savings/
Loss
Shared
Savings
Low
Fee for
Service w/
P4P
High
Degree of Risk Assumed by ACO
http://healthaffairs.org/blog/2015/06/16/the‐revised‐medicare‐aco‐program‐more‐options‐and‐more‐work‐ahead/
©AONE
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Shifting Risk
Payment System Reforms Will Require Providers to Bear Greater
Population-Based Financial Risk
Degree of Population Risk Transferred to Provider by Payment System
Low
High
Pay for
Coordination
Fee for Service
Paid for each unit of
service w/o constraint
on spending
Additional per
capita payment
based on ability to
manage care
Pay for
Performance
Episodic
Payments
Payments tied to
objective
measures of
performance
Payment based
on delivery of
services within
a given
timeframe
Shared Savings
Shared savings
from better care
coordination
and disease
management
Capitation
Providers share
savings from
better care
coordination
and disease
management
©AONE
MSSP’s Evolving Benchmarks
Responding to Feedback CMS Has Finalized Changes to the MSSP Benchmark Calculation
Finalized MSSP Benchmarking Methodology for ACOs Beginning After 2014
Agreement
Period
Trend Factors
Blend of Regional
vs. National Benchmark Data
Adj. for Prior
Savings
Adjusted for Changes in ACO Participant List
Adjustment for Health Status and Demographic Factors
1st
National
100% National
No
Uses benchmark year assignment based on the ACO’s certified Participant List for the performance year.
New bene’s adj. using HCC model; continuously assigned adj. using demographics
2nd
Regional
35% Regional/* 65% National
No
Same as above; regional adjustment re‐determined using ACO Participant List for the performance year.
Same as above
3rd
Regional
70% Regional/** 30% National
No
Same as above
Same as above
4th
Regional
70% Regional/ 30% National
No
Same as above
Same as above
*If an ACO is determined to have higher spending compared to region blend is 25% regional/75 national ** If an ACO is determined to have higher spending compared to region blend is 50% regional/50 national ©AONE
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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 postacute providers
Improve patient outcomes and experience
©AONE
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
©AONE
20
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
©AONE
Illustration of Bundled Concept
Sample Inpatient Stay
Current Payment Methodology:
1:
MS-DRG Pmt
- 3 Days
Admit
Physician Fee
Schedule (PFS)
Discharge
Home Health PPS
Episode
+ 7 days
+ 14 days
Readmission:
MS-DRG Pmt
+ 19 days
+ 27 days
+ 30 days
30 Day Episode of Care
2: Bundled Payment System:
MAC
Payment
MS-DRG + PFS+ Avg. PAC
Cost – “Efficiencies” –
Readmissions
Medicare
Provider
Negotiated Pmts
©AONE
21
Value: Public Payers
Volume Remains an Important Factor
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
©AONE
Direct Contracting with Centers of Excellence
Transplants
Cardiac Surgery
Spine Surgery
Cardiac Surgery
Sources:
1)
2)
http://thehealthcareblog.com/blog/2012/10/18/walmart‐moves‐health‐care‐forward‐again/
http://my.clevelandclinic.org/about‐cleveland‐clinic/newsroom/releases‐videos‐newsletters/lowes_expands_heart_healthcare_benefits
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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
©AONE
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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Finance Fundamentals
©AONE
Discussion topics
•
•
•
•
•
•
•
Hospital Financial Management
Speaking the language
Accounting & Financial Reporting
Labor Budget Interactive Exercise
Budgeting
Financial Decision Support & Systems
Key Takeaways
©AONE
24
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
©AONE
Hospitals as financial organizations
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”
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25
Hospitals as financial organizations
Purpose of healthcare financial management:
“to provide accounting and finance information that assists healthcare
managers accomplish the purposes of the organization”
• To generate a reasonable net
income
• To respond to federal
regulations
• To facilitate relationships with
third 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
©AONE
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 organizational
performance
• Executive Committee
• Finance Committee
• Audit Committee
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Chief Financial Officer
• To establish, coordinate,
and maintain an integrated
control plan
• To report to government
agencies and to supervise
all matters related to taxes
• To measure performance
against approved
operating plans and
budgets
• To interpret and report on
the effect of external
influences on the attainment
of business objectives
• To measure and report on
the validity of the business
objectives
• To provide protection for the
assets of the business
10
©AONE
Finance Leadership Roles
Controller
• Financial accounting
Treasurer
• Managing working
capital
• Managerial accounting
• Tax accounting
• Patient accounting
• Internal auditing (varies)
• Managing investment
portfolio
• Managing capital
financing
54
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27
Finance Leadership Roles
Corporate Compliance
Officer Internal Auditor
• To conduct compliance
reviews
• Employee of the
organization
• To investigate potential
fraud and abuse
problems
• Protects assets from
fraud, error, or loss
• To examine relationships
for possible illegal
actions
55
©AONE
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
56
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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 risks
and costs of comfortable
inaction."
President John F. Kennedy
57
©AONE
Orange Jumpsuits & Silver Bracelets are
not a good look for anyone…
58
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29
Finance Terminology
Speaking the Language
©AONE
Finance Terminology
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.
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30
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.
©AONE
Accounting Fundamentals
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31
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
©AONE
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
dividends
Assets – Liabilities = Net Assets
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32
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 Debt
Net Patient Service Revenue
+ Other Operating Revenue
Total Operating Revenue
- Operating Expenses
Operating 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
*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 Financing
activities
•
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
• Allows external reviewers to quickly understand
the current position, strengths, weaknesses and
areas to watch.
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Categories of Ratios
• Liquidity-How well is the organization positioned
to meet its short-term obligations?
• Activity- How efficiently is the organization using
its assets to produce revenues?
• Profitability-How profitable is the organization?
• Capital structure- How are the organization’s
assets financed and ability to take on new debt?
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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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Questions?
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Budgeting
Budgeting
The Crowd Favorite
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Interactive slide
When you hear budget, what’s the first word
that pops into your head?
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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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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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Understanding FTEs and Budgeting
• Full Time Equivalent
• Amount of time worked in a week = 40 hours
• Business is 24/7
• Coverage needed for 168 hours weekly
• Staff needed for each assignment over a 24 hour period
• 168/40 = 4.2 FTEs
• 24 bed unit where each RN cares for 4 patients; how
many FTEs are needed?
• 6 RNs X 4.2 FTEs = 25.2 FTEs
• Accounting for non-productive or non-patient care time
• 15% replacement factor (PTO, education, council, etc.)
• 25.2 X .15 = 3.78 + 25.2 = 28.98 FTEs
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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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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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Managing to Budgeted NHPPD
• Understanding organization’s metrics
• Paid hours
• Worked hours
• Productive hours
• Impact of hours outside of direct patient care
• Orientation
• Education
• Care models
• Distribution to meet high demand times
• Use of full time and part-time
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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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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
•
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Managing subsequent business activities to achieve budgeted results
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Budgeting Defined
• Process of converting the operating plan into monetary terms.
• Budgets become the control standard against which performance is
managed 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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Why do Not-For-Profits need a profit?
• 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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Budget Considerations
• Mission, Vision, Values, Culture
• Strengths, Weaknesses, Opportunities,
Threats
• Economic Pressures
• Industry Trends
• Regulatory Issues
• Strategy
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Budget Process Overview
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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
Statistical
Operating
Capital
• Patient Days, Outpatient Visits
• Length of Stay • Case Mix Index (CMI)
• Patient Revenue
• Other Operating Revenue
• Expenses
• Buildings, Equipment, Software
• Other Investments, Cash Contributions, Loan/Debt Repayments,
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Steps in the Operating Budget Process
• Project volumes
• Convert volumes into revenue projections
• Convert volumes into expense requirements
• Adjust revenues and expenses as necessary
• Evaluate (monitor) budget performance
10
0
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Operating Budget Process –Projecting
Volumes
• Volume projection is the MOST important element
in any planning process
• Forecast content--description of specific situation
in question
• Forecast rationale--explanation of how the
situation will progress from its current state to its
forecasted state
10
1
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Operating Budget Process
Converting Volumes into Revenue
• 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
10
2
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Operating Budget Process
Converting Volumes into Expenses
Staffing expenses
– review staffing mix
– review skill mix
– review cost-of-living
raise policy
– review merit raise
policy
– review bonus policy
Non staffing expenses
– Determine variable
expenses
• based on volumes
– Determine fixed
expenses, using
benchmarks
10
3
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Operating Budget Process
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
•
•
•
•
•
Operating Margin
Excess Margin
Days Cash on Hand
Debt Service Coverage
Return on Assets
10
4
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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
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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 employees106
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Operating Budget Process Example
Budget Assumptions (Volume,
New Services, Compensation
increases, Expense
inflation/constraints)
disseminated
Long Range Financial Plan
(3-5 years) completed
Department Heads submit
budgets
VP/Division Leaders Review
submissions
Budget Committee
Recommends
Budget
CEO/President
Endorses
Board
Approves
Budget
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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
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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
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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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Budget Committee Exercise
Driving the Process
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Budget Committee Executive Exercise
Each of you represents an executive on the budget committee of a large,
stand alone hospital.
Jan will play the CEO and Chuck will play the CFO
We’ll meet with each group as you process through this exercise
You will work simultaneously in teams acting as the committee
There will be decisions made by your committee:
• Key assumptions
• New position requests
• Prioritizing initiatives for investment
• Capital investments
• Communication to core leaders
• Closing the remaining deficit
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Feedback and Insights
• What did you learn or realize that surprised you
the most?
• How will this influence your approach to next
year’s budget?
• What could we have done better to help you
through this process? Was this helpful?
• Any unanswered questions?
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Feedback and Insights
• How did we do?
• What’s one thing you would change about today?
THANK YOU FOR BEING HERE!!
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