Identifying the financial bumps and managing through them!

1. Identifying the financial bumps and managing through them! South Carolina HFMA 2004 Annual Meeting Tom Honan THonan@huntergroup-nci.com The Hunter Group, a unit of Navigant Consulting June 3, 2004

2. Agenda • Introduction • Sizing the gap • Identifying the interventions and making them stick • Critical components to management reporting • Opportunity and risk assessment • Daily flash report • Rolling budget • Confronting the barriers • Accountability and changing course in the environment 2

3. Managing the gap • Track your key indicators • Identifying the gap • Size the gap • Identify the required interventions • Assign the accountabilities • Monitor the progress • Be prepared to identify alternative interventions 3

4. Be alert to changes in indicators 4

5. Critical components of identifying the gap • Committed team leadership • Document the long-term performance objectives that the gap initiatives must achieve • Reasonable operating margin • Organizational priorities • Ability to meet: • Capital needs • Access to skilled labor • Technology advancements • Focus on quality of earnings • Be realistic “Would you please elaborate on ‘Then something bad happened’.” 5

6. Passing the realism test • When is the last time your organization met its budget target? • Last year? • Before PPS? • Before Medicare? • Do you have in your projections? • Full impact of Drug Bill going forward? • Volume increases greater than market growth and that of your last several years? • One time settlements? Transactions? • Revenue fairy dust? • Interventions absent accountabilities and timelines? • Actually believe your budget projections are good for a year? • How involved is your medical staff leadership in doing budget volume projections? Are your department directors truly held accountable for failing to meet budget targets (i.e., does it impact their earnings?) 6

7. Sizing the gap • Forecast should go out three years • Establish the targeted outcome • Keep it simple and directionally correct 7

8. Identify the required interventions • Set an expectation of better performing standards for cost and quality • Utilize both internal and external benchmarks to identify the opportunity but: • Don’t benchmark to bankruptcy • Don’t let the benchmarks become the excuse • Net out costs of accomplishing the intervention • Document the realistic timeline of the impact of the intervention • Components of a successful intervention: • Accountability • Is it owned by committee? • Measurability • Do not lose the accountability by overaggressive cost accounting • Ability to Report • Will it track to the general ledger 8

9. Summarizing the Plan 9

10. Getting the interventions to stick • Accountability • Focus on actionable items • Credible management reporting • Reporting tools • Prospective management, not retrospective management 10

11. Assign the accountability • Managing during a performance improvement plan is a team sport, but each player has different responsibilities • Single responsibility for each intervention • Reasonable timeline with phase in impacts • Requirement and ability to update and change as needed • Stay true to the objective 11

12. Assign the accountability • Sample 12

13. Components of GAP monitoring • It must be measurable • It must be timely • Trends, trends, trends • It must tie to source documents • It must reflect accountability • Focus the effort on data that can result in actionable interventions • Maintain a forward-looking discipline • Credibility - don’t manipulate the results 13

14. Management reporting process • Provide simple tracking information daily • Include operational, clinical and financial indicators • Assess the quality of data utilized in decision making • Implement an FTE report on a bi-weekly basis • Instill discipline for monthly budget reports • Expect monthly variance reports with corrective action plans • 20%-20%-60% • Hold quarterly management retreats to review trends and project forward 14

15. Barriers common to GAP planning: clear definitions • Accrual • An entry the finance staff makes to make a manager look bad!! • Filled versus vacant positions • Are you reducing from an inflated budget number or from an actual run rate? • Reduce the same social security number only once “It’s up to you now, Miller. The only thing that can save us is an accounting breakthrough” 15

16. Defining the budget Budget A document in healthcare which most organizations take several months to prepare and is out of date when it is adopted!! 16

17. Manage the business daily: flash reports 17

18. Institute the rolling budget “Three Months Make a Trend”“Keep a PIP in the Pocket” 18

19. Summary of opportunities and risks • Create a document which summarizes each major opportunity not budgeted in the the plan and risks to those that are in the plan • Objective: no major event that should have been foreseen will occur that has not been put on this list • Sensitivity: Calculate the sensitivity of the financial impact should it occur • “PIP in the Pocket”: Create the PIP in the pocket prior to the event occur minimizing the chance of the anxiety and paralysis that could occur 19

20. Confront the barriers • “All programs have a positive contribution yet the organization is tanking!” • “My department would be making money if it wasn’t for the corporate overhead” • “ You haven't accounted for the downstream impact I have on the organization” • “We are not billing for everything” • “We are not coding appropriately” 20

21. Key challenges facing the Finance Executive • Ability to reverse wrong decisions • Avoiding the use of “gimmicks” in the development of a plan • Resist the temptation to find accounting solutions to operating problems • Have so many operating departments that you become part of the conflicted? • Do your board and CEO see you as a financial visionary, or simply a recorder of past events? 21

22. Key challenges facing the Finance Executive • Are you truly still a finance executive or are the range of responsibilities given to you result in not enough time to: • Allow a detail review of the financial statements? • Understand the details of your revenue cycle? • Spend enough time analyzing the financial risks to your organization? • Truly understand the strategic value of your balance sheet? • Understand the financial drivers of your program profit and loss statements • Have we provided the financial leadership to drive the evaluation of new technologies? • Understand the details of your treasury functions? 22

23. Discussion and questions 23