Financial Deconstruction: An Enterprise Approach to Financial Planning

1. Financial Deconstruction: An Enterprise Approach to Financial Planning Brian Rasmus, Senior Director, Strategic Finance and Budget University of Illinois Hospital and Health Sciences Sheetal Ghayal, Senior Director, Business Planning and Decision Support University of Illinois Hospital and Health Sciences October 8, 2013

2. About university of illinois HOSPITAL & health SCIENCES systeM • 495 Bed Hospital • Specialty Clinics – 450,000 visits annually • College of Medicine • 800+ medical residents and fellows • 1 in 7 Illinois doctors are a graduate of the College of Medicine • 5 Additional Health Science Colleges • FQHC – 12 Clinics

3. Learning Objectives • Analyze recruitments and service expansions from the physician and hospital perspectives • Implement an enterprise funds flow model for new ventures • Use tools and templates to ensure ongoing monitoring and success

4. Fun FactS

5. Construction

6. But first - deconstruction Hospital Clinical Depts. Physician

7. Previous Organization Structure

8. Current Organization Structure Vice President for Health Affairs

9. Key Initiatives • Mission Based Budgeting • Establishing benchmark comparisons (RVU and compensation) • Creating transparency and collaboration • Enterprise Approach to Financial Planning • Comprehensive Profitability • Service Line Development • New Business Ventures

10. Dr. Example Mission Based Budget

11. Dr. Example Benchmark Analysis

12. Department Roll Up

13. Multi-year comparison • New Physician Starting? • Productivity Issues? • Access Issues? • Market Demand?

14. Comprehensive profitability PURPOSE OF ANALYSIS: • To establish a methodology for assessing the technical financial performance of inpatient and outpatient services and their related sub-specialties at the University of Illinois Hospital. • To assist the Medical Center and College of Medicine leadership in determining gain sharing opportunities. • To identify required breakeven cases for each sub-specialty for planning purposes. • To tie technical revenues and costs associated with patient services to the net operating income reported in the HSFS audited financials. • Includes allocation of net indirect (overhead) expenses. Potential Use: • Service Line and program development • Profitability analysis • Breakeven analysis

15. Analysis breakdown • Analysis only represented hospital or technical perspective • Analysis identified reimbursement and expenses for all 58 subspecialties by inpatient and outpatient activity • What’s missing? • The inclusion of professional profitability to understand overall enterprise profitability

16. Methodology for professional profitability • Net Revenue: • Billing service revenue • Collection agency, • Other Operating revenue (i.e. Investment Income, Hospital Transfers) • Direct Fixed Costs: • Personal Expenses (i.e. Wages, Support Staff) • Non Personnel Expenses (i.e. Travel, Direct Billing Fees, Telecomm, Self Insurance, Internal tax) • Variable Compensation & Benefits • Indirect Costs: • Transfers (Other Internal Tax, Internal Overhead)

17. result • A fiscal year ENTERPRISE profitability analysis by specialty at the net operating income line item • The total FY2012 Enterprise (Tech + Pro) net operating income was ~$10.2M. • The total Technical FY2012 IP & OP net operating income was ~$47.9M and ($42.1M) respectively. • 8 of the 20 specialties generated a positive total Enterprise net operating income.

18. Service line development • Fall of 2012: Leadership team targets Sickle Cell as a program for service line development • First program identified for enterprise wide development • Working team comprised of representatives from College of Medicine, Hospital, and VPHA Office • 3 month planning process resulted in a five year business plan that was approved and launched in Winter of 2013.

19. Service Line Development: Sickle Cell Target Program Plan Development Initiated by Executive Sponsor Scope Confirmed with Working Team Development of Target Profile Profit & Loss Analysis Capacity 3 Year Trends Market Intelligence Clinical & Quality Benchmarks Utilization Patient Profile

20. enterprise profitability analysis components Business Planning develops enterprise wide five year P&L

21. Service line development: Results after 3 months • 5 stem cell transplants to date, 4 future stem cell transplants scheduled • 26 adult new patient appointments and consults scheduled in May • Inpatient volume is 102 discharges higher than FY12 (11% increase). • Annualized ADC increased from 18.3 to 20.3 • Acute Care volume is 20 visits higher than FY12 (13% increase). • The annualized IP and OP FY13 (based on first 3 quarters (Q1-Q3)) sickle cell operating margin is ~$300K above the FY13 business plan operating margin of ~$8.6M.

22. New business ventures Departmental Perspective

23. Hospital Impact What if the clinic is able to offload lower-level ER visits and free up capacity?

24. System Wide Proforma

25. COnclusion • Mission Based Budgeting has created improved transparency and clinical expectations • The development of Comprehensive Profitability as enabled us to better understand our clinical enterprise • By understanding our clinical enterprise, we’re able to focus on key service lines better • By operating outside of traditional silos, we’re better able to approach new business ventures with a system-minded focus