financing our mission workshop national leadership conference for academic pediatricians denice...
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Washington, D.C. Learning Objectives At the end of the session, the learner will be able to: 1.Understand the general principles of financial statements, budgets and financial decision making 2.Apply strategies to improve their divisions’ financial performance 3.Assess the financial challenges inherent in leading an academic general pediatrics divisionTRANSCRIPT
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Financing Our Mission WorkshopNational Leadership Conference for Academic
Pediatricians
Denice Cora-Bramble, MD, MBAExecutive Director
Goldberg Center for Community Pediatric HealthChildren’s National Medical Center
Professor of Pediatrics, George Washington University
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Washington, D.C.
Overview
• Practical, case-based, interactive session• Revenues and expenses• Nuts and bolts: Finance & Accounting 101• Financial performance improvement• Future directions• Professional development opportunities
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Washington, D.C.
Learning Objectives
At the end of the session, the learner will be able to:
1. Understand the general principles of financial statements, budgets and financial decision making
2. Apply strategies to improve their divisions’ financial performance
3. Assess the financial challenges inherent in leading an academic general pediatrics division
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Workshop Challenges
• Learners at different stages (prospective, current and “Emeritus” Division Directors)
• Each division is different – our goal is to share and examine the differences
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The Business Side of Medicine
• Limited training as part of undergraduate and graduate medical education
• Ascent to Division Director position often without financial tool kit
• Personal trajectory: leadership fellowship, Business of Medicine Certificate, JHU MBA with concentration in Medical Services Management
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Environmental Pulse
• Decreased reimbursement and total revenue– Medicaid cuts: $26 million over five years (President’s
FY 08 budget proposal)
• Increased expenses• Decrease in NIH research dollars• Productivity pressure• Decreasing educational financial support• Competing demands
– Clinical/research/education/advocacy
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Other Environmental Factors?
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Division Directors’ Financial Challenges
• Develop realistic budgets• Manage clinical and research budgets• Anticipate and manage budget shortfalls• Improve revenues• Minimize expenses• Compensate faculty and staff
appropriately
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Nuts and Bolts: Accounting and Finance 101
• Terms and definitions• Financial statements• Budgeting and forecasting• Financial decision making
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Tools to Answer Financial Questions
Is my division:– Meeting budget?– Making a profit?– Doing better than last year?
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Types of Financial Statements
I. Income statement II. Balance sheetIII. Cash flow statement
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I. Income Statements
Also known as:• Profit and Loss Statement (P&L)• Statement of Revenue and Expenditures• Statement of Earnings
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Income Statements
SalesLess cost of goods sold_____________________________________Gross MarginLess operating cost_____________________________________Operating MarginLess taxes, other_____________________________________Net Income or Net Profit Margin
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II. Balance Sheets
Assets
CashAccounts receivableInventory Fixed AssetsIntangibles
Liabilities
Accounts payableLong-term debt
Equity *Retained earnings
* Equity = Assets - Liabilities
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III. Cash Flow Statements
Beginning balance(+) Cash collected(-) Cash paid___________________________________Ending cash
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Group Questions
• What financial statement(s) do you receive?
• How often are they shared?• Are they easy to understand?• Are they error-free and accurate?
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Comment by General Pediatrics Division Director
“I am certain we lose money but our institution’s creative accounting makes it
difficult to know.”
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Division Directors’ Directives
• Understand, review, identify and correct errors• Teach other division leaders to understand and
interpret financial statements• Plan and implement “back-to-budget” mid course
corrections• Use data as baseline in developing growth plan
and future budgets• Assess financial and patient volume trends (3-5
years)• Plan (boldly!) for division’s growth
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Key Terms
• Revenue– Patient Revenue– Other Operating Revenue
• Expenses• Operating Margin• Variance• Profit, Earnings or Net Income
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Profit Margin = Revenue - Expenses
Revenue(+) Inpatient Revenue (+) Outpatient Revenue(+) Other Revenue(-) Deductions from
Patient Revenue(-) Bad Debt____________________= TOTAL REVENUE
ExpensesSalaries & BenefitsLeaseSuppliesEquipmentUtilitiesOther________________= TOTAL EXPENSES
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Variance = Actual - Budgeted
• If actual > budgeted: profit– Does division keep the profit?– Reinvestment in faculty/staff, technology,
program development• If actual < budgeted: [loss]
– Communication – Justification– Plan of action– Monitoring
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Sample Profit and Loss Statement
Monthly Departmental Performance ReportFor the Month Ended January 31, 2007Sample Division
Current Month - January Year to Date - January2007
January January Fav / (Unfav) Account January YTD January YTD Fav / (Unfav) AnnualActual Budget Variance % Variance Number Account Description Actual Budget Variance % Variance Budget
SUMMARY INFORMATION-FINANCIAL*** Summary Profit & Loss Statement ***
95,000 110,882 (15,882) -14.3% Inpatient Revenue 567,486 675,568 (108,082) -16.0% 1,141,799 1,655,000 1,467,063 187,937 12.8% Outpatient Revenue 13,125,250 12,967,895 157,355 1.2% 22,355,230 1,750,000 1,577,945 172,055 10.9% Total Patient Revenue 13,692,736 13,643,463 49,273 0.4% 23,497,029
955,930 839,188 (116,743) -13.9% Deductions from Revenue 7,124,502 7,235,432 110,930 1.5% 13,214,500 45,498 40,409 (5,089) -12.6% Bad Debt Expense 322,781 294,267 (28,514) -9.7% 494,878
748,572 698,348 50,224 7.2% Net Patient Revenue 6,245,454 6,113,765 131,689 2.2% 9,787,651 30,000 29,917 83 0.3% Other Operating Revenue 160,512 150,000 10,512 7.0% 359,000 50,000 134,502 (84,502) -62.8% Satisfaction of Program Restrictions 650,000 941,516 291,516 31% 1,864,027
828,572 862,767 (34,195) -4.0% Total Revenues 7,055,966 7,205,280 (149,314) -2.1% 12,010,678 805,067 855,935 50,868 5.9% Salaries 5,813,263 6,002,428 189,165 3.2% 9,894,621
57,399 62,839 5,440 8.7% Benefits 369,504 360,166 (9,338) -2.6% 654,664 - 2,500 2,500 100.0% Professional Fees 16,791 17,500 709 4.0% 30,000
24,841 20,005 (4,837) -24.2% Supplies 213,426 146,143 (67,284) -46.0% 246,344 10,560 7,913 (2,647) -33.5% Minor Equiptment 49,127 55,985 6,859 12.3% 97,449 12,891 13,078 188 1.4% Purchased Services 77,559 99,662 22,103 22.2% 169,604 30,169 31,543 1,374 4.4% Lease 221,016 219,466 (1,551) -0.7% 377,519 11,030 9,655 (1,375) -14.2% Utilities 64,361 67,216 2,855 4.2% 120,585 25,950 24,155 (1,796) -7.4% Other Expenses 179,381 173,320 (6,061) -3.5% 287,990
977,907 1,027,622 49,714 4.8% Total Operating Expenses 7,004,429 7,141,886 137,457 1.9% 11,878,777 (149,335) (164,855) 15,519 941.4% Net Margin 51,538 63,395 (11,857) -18.7% 131,902
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Group Exercise: What is the Margin?
RevenueTotal Patient Revenue 1,575,000Deductions f/ Revenue 875,000Net Patient Revenue 700,000Other Sources of Rev.
200,000TOTAL REVENUE ______
Actual Revenue ______
Budgeted Revenue 1,000,000VARIANCE ______
Expenses
Total Expenses825,000
Budgeted Expenses925,000
VARIANCE ______
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Revenue Sources for General Pediatrics Divisions
Cheng T, Markakis D, DeWitt T. The Status of Academic General Pediatrics: No Longer Endangered? Pediatrics. 2007;119(1):e46-52
Administration9%
Endowment2%
Other7%
Education12%
Advocacy3%
Research10%
Clinical57%
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Clinical Revenue
• Patient volume• Coding• Denials• Time of service collections• Operational efficiencies• Third party payor contracts
• Payor mix • Capitated vs. fee for service• Uncompensated care
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Improving Our Margin
1. Maximizing reimbursement2. Increasing patient volume3. Accessing new revenue sources4. Managing claims processes5. Controlling expenses6. Maximizing operational efficiencies7. Involving faculty and staff - train,
incentivize and reward
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Group Questions
• How are the research grants’ indirect costs handled by the pediatrics department?
• Does the general pediatrics division receive funding to support medical student education activities?
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Impact of Coding on Patient Revenue: CNMC’s Case Study
• Practice audit of largest of seven health centers revealed significant under coding of primary care E/M visits
• Implemented coding and documentation education of residents, faculty and staff
• Significant initial and sustained improvements in coding
• Featured in AAP News, January 2004Coding improvement initiative led by Mark Weissman, MD, Division Director, General and Community
Pediatrics, Children’s National Medical Center
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Coding: E/M Charge Pediatrics Bell Curve
0
10
20
30
40
50
E/M %: 5 20 50 20 5
99211 99212 99213 99214 99215
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Coding: CNMC and National Comparisons
0
20
40
60
E/M AAP% 5 20 50 20 5National 5 16 51 24 4CHC-CNMC 10 46 34 9 1
99211 99212 99213 99214 99215
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Post Coding and Documentation Training Results
0
20
40
60
E/M AAP% 5 20 50 20 5CHC-FY02 10 46 34 9 1CHC-FY03 6 22 57 13 2
99211 99212 99213 99214 99215
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Sustained Improvement in Charges per Visit
$-
$25
$50
$75
$100
$125
$150
$175
FY01FY03FY05
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Team Effort
Goldberg Center's Primary Care Financial Performance
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
2003 2004 2005 2006
Fiscal Year
Net Pt. Rev. (52% inc.)
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Increasing Patient Volume
• Aggressive outreach and marketing• New product lines• Expanded referral sources
– Partnerships with schools, WIC, Head Start Centers, others
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Accessing New Revenue Sources
• Training and service grants• Industry and government contracts• Philanthropy• Subsidies by hospital or cross-
subsidization by subspecialty departments
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Managing Claims Processes
• Challenge and reduce denials by third party payors
• Improve point of service collections of co-payments
• Timely claims submission
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Group Exercise: Where Did the Patients Go?
In reviewing the patient volume monthly statistics you notice that there has been a gradual and sustained decrease over the last six months. A new retail-based clinic opened in the neighborhood eight months
ago. What is the financial impact? Are there strategies to mitigate the
impact?
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Budgeting - Business World
• Line item budgets – list all revenues and expenses
• Performance-based budgets – links strategic plan to budget
• Zero-based budgets – must justify all employees, equipment, space
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Budgeting – Academic World
Mission-Based Management:• Quantification of faculty activities: clinical,
research, teaching, administration• Assessment of productivity in each
activity• Assessment of cost
Nutter DO, Bond JS, Coller BS, et al.: Measuring Faculty Effort and Contributions in Medical Education. Acad Med. 2000;75:199-207
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Budgeting – Academic World
Mission-Aligned Planning• Assessment of faculty effort• Unified spreadsheet merging activity data
and department’s expenses/revenues• Identification and presentation of mission
specific financial margins Sloan T, Kaye C, Allen W, et al.: Implementing a Simpler Approach to Mission-Based
Planning in a Medical School. Acad Med. 2005;80(11);994-1004
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Sample Spreadsheet
Revenue and Expenses Education $ Clinical $ Research $ Admin/Svc $ Total $
Revenue12345678910
Expenses121314151617181920
Non salary expensesTotal expensesOperating margin
UNIFIED FINANCIAL WORKSHEET
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Group Discussion:Budgeting Process
• Who in the division should be included?• How long should it take?• What criteria should be used to prioritize
and make final budget decisions?
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Faculty Compensation
National benchmarking data sources• Professional Associations
AAMC (Association of American Medical Colleges): Report on Medical School Faculty Salaries
AAAP (Association of Administrators in Academic Pediatrics): Medical School Pediatric Faculty Compensation and Productivity Survey
MGMA (Medical Group Management Association): Physician Compensation and Productivity Survey
SHM (Society of Hospital Medicine)
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Faculty Compensation
National benchmarking data sources• Surveys conducted by consulting
companies, such as: Sullivan, Cotter and Associates Watson Wyatt Worldwide
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Compensation Challenges
• Variability in delivery of clinical services• Fluctuation in extramural funding• Physician expectation of “guaranteed
salary”
Andreae M, Blad K, Cabana M: Physician Compensation Programs in Academic Medical Centers. Health Care Management Review. 2006;31(3):251-8
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Incentive-Based Compensation
Some published articles raised authors’ concerns regarding:– Impact on teaching– Quality of trainees’ educational experience– Acceptance by academic physicians
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Incentive-Based Compensation
Recently published review (1995-2005) article– Business and medical research databases– Outcome measures
Effect on professional productivity: (+) Financial impact: (+) or neutral Quality of educational experience for trainees:
neutral Faculty satisfaction: (+) or neutral, in one study (-)
Andreae M, Blad K, Cabana M: Physician Compensation Programs in Academic Medical Centers. Health Care Management Review. 2006;31(3):251-8
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Incentive-Based Compensation
“The most important finding from our review was that incentive-based compensation programs can
motivate academic physicians to improve their productivity in both the clinical and scholarly
arena without a negative impact on job satisfaction or education of trainees. Use of
financial incentives is not necessarily in opposition with and may actually enhance the
academic missions.”Andreae M, Blad K, Cabana M: Physician Compensation Programs in Academic Medical Centers. Health
Care Management Review. 2006;31(3):251-8
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Productivity Measures
National Physician Fee Schedule relative value units (RVUs)
– Used frequently to estimate clinical productivity– Does not measure research, administration and teaching
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Productivity Measures
Educational Value Unit (EVU)– “Unit of time spent in education of
students and residents”– 0.1 EVU = 4 hours of work per
week– Core EVU: teaching time not
associated with clinical care– Clinical EVU: associated with billable
clinical activitiesStites S, Vansaghi L, Pingleton S, et al.: Aligning Compensation with Education: Design and
Implementation of the Educational Value Unit (EVU) System in an Academic Internal Medicine Department. Acad Med. 2005;80(12);1100-1106
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Future Directions
• Increase in financial demands in general pediatrics divisions
• Need for on going financial and leadership training
• Expansion of small but important pay-for-performance payments
• Increased competition of retail-based clinics• Others?
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Professional Development
• Hopkins Business of Medicine Graduate Certificate Program
– Four courses (business, finance, accounting and leadership) in one year
• MBA and/or MPH– Degree granting, university-based program– On-line programs (George Washington U, Hopkins,
U of Maryland, others)• Workshops
– American College of Healthcare Executives– Medical Group Management Association
• Others
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Questions and Comments
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Contact Information
Denice Cora-Bramble, MD, MBAExecutive Director
Goldberg Center for Community Pediatric Health
Children’s National Medical Center(202) 476-5857