Association of Academic Surgical Administrators 25 th Annual Conference

1. Association of Academic Surgical Administrators 25th Annual Conference Session X - Business Planning October 2, 2012 Kimberly A. Paul, MHA Business Manager Department of Surgery Wright State University Boonshoft School of Medicine kimberly.paul@wright.edu Stefannie Emerson, MBA Director, Business Development & Planning University of Colorado School of Medicine University Physicians, Inc. stefannie.emerson@upicolo.org

2. Agenda • Business Plans and Tools • Case Study 1 • Case Study 2 • Wrap Up

3. Key Elements of a Business Plan • Executive Summary • Analysis | Data Review • SWOT Analysis • Market Assessment • Feasibility Analysis • Operational Analysis • Financial Analysis • Marketing • Implementation • Evaluation and Exit Strategy

4. Executive Summary • Provide a general description and overview • History and background • Stakeholder and beneficiaries • Scope of services • Highlight the implementation plan • Detail the keys of success • Be sure to • Define how the services supports the Enterprise Mission (School, Department, Division and Hospital) • Define how the vision ties into the Mission and is connects the dotes between the current business environment and related healthcare trends • Use the summary to outline why this service is needed based on the key elements of each area • Tips • Write the Executive Summary after the plan is written • Modify the size and level of detail based on the service / recruitment • Have someone read it outside of your program (reduces confusion for leadership) • Keep it simple (don’t use animation and other unnecessary bling)

5. Analysis • Clinical Revenue • Payor Mix • Retiring workforce • Grant Funding • Space • Market Share (inpatient) • Profit and Loss Statement • Historical / background Information

6. SWOT Analysis

7. Market Assessment • Describe the Market and need for services • Look forward to determine trends • Identify demographic information • Population • Age, Sex, Ethnicity • Household Income • Largest Employers • Competitor Profile • Facility, Number of beds, Physicians, Market Share • Perform a SWOT on their Practice and/or Facility • Philanthropic Opportunities

8. Feasibility • Check on internal requirements • Sites of Practice • Leadership Support • Physician Champion • Check on Legal or regulatory challenges • Stark I, II, III; Antikickback statute • Other Barriers • Technology • IS

9. Current Sample Project Plan

10. Operational Assessment • Create a high level project management plan that describes each step • Look at Staffing • Physicians / Ancillary staff / support staff • Be sure to review the need for other talent resources like anesthesiology, radiology, and pathology • Look at Facility Requirements • Rooms • Operating Rooms • Capital Equipment

11. Financial Analysis • Hospital • DRG | MSDRG • Professional • CPTs • If established provider seek historical reports; 3 years • If new graduate • Look at like physician within the Department/Division • Look at FPSC Clinical Footprints • Enterprise • Payor Mix

12. Sample Financial Plan

13. Marketing • Outline how the program can and should be marketed as well as include the anticipated cost • Look at internal and external audiences • Internal • AMC faculty and hospital staff • External • Direct to Patients • Referring Physicians and Providers

14. Implementation • Identify key stakeholders • Socialize the draft plan prior to submittal • Use the agreed upon project management plan as the map to success

15. Evaluation and Exit Strategy • Describe how you will define success • ROI • Hospital frequently uses contribution margin • Departments/Division use contribution to department and ability to cover direct and indirect costs as well as the ability to contribute to incentives • Describe how you will titrate or terminate the service if things are not going well.

16. Tool Box • MGMA (especially Special Interest Groups) • Current Tools at CU • Truven Health (AKA - Thomson Reuters ) • Peregrine • Colorado Hospital Association • UCH and TCH • Google Analytics • Tools in Development • Health Connect

17. Thoughts and Questions • Always perform a sensitivity analysis • Educate key stakeholders frequently • Ask for help – Tap your resources • Scale and use these tactics for small to large opportunities – internal and external • Questions?

18. Case #1

19. Background • Faculty within the Department of Surgery and Medicine were approached by a for-profit company to invest in a new venture within five miles of the Academic Medical Center • Each department had access to limited one time funds to invest in such a venture • The service was not duplicative of a service rendered at either hospital, therefore it would allowable to invest • The proforma looked promising to the faculty and cash flowed year one • Faculty were anxious and ready to invest • Business Development and Planning was engaged to review the business plan and provide a recommendation

20. The Deal - Financial • $6.5 m Investment (CU $2.6m) • Facility would be built to capacity; operationally could add hours over time to increase volumes • Cash Flows In Year 1 • Revenue • Escalated at 5% per annum • Payor mix based on Denver experience to date • Expenses • Escalated at 5% per annum • Management fee built into proforma • Development fee was built into construction budget • Capital Contribution was recaptured at year 8

21. The Deal – Operating Agreement • Governance • Decision Making • Non Competes | Exclusivity • Ability for Private Practice Physician Ownership • Medical Directorship

22. Why • Company • when physicians invest - venture has a higher success rate • Ability to share investment costs and limit risk • Company has positive reputation; long time player in the market • Departments believed that they could steer tertiary and quaternary business • Departments looking for access to ancillary revenue • Departments could capture research subjects • The proposed location was highly desirable

23. Why Not • Risk of payment changes in short and long-term • Including bundling • Nursing shortages • Competitor entering market and building site in same area • Question return on investment • Is growth rate attainable • What is the Opportunity Cost

24. Review Process • BDP • Reviewed data provided by the Company and requested additional information including scenarios • Looking for exposure to cash calls • Researched the company • Talked to current medical director of a current facility (faculty held position) • Contacted three other institutions who invested in similar ventures • Generated a Report and Recommendation to Departments

25. Report • Overview of Company • Summary of Department/Division Goals • Type of Venture • Clinical Services • Competition and Competitive Advantage • Feasibility • Health Reform / Potential Payment Changes • Impact to other Departments • Short and Long term Impact • Contribution to System • Legal Considerations • Funds Required • Assumption Review • Financial Review • Other Considerations • Recommendations • Appendix • Summary of discussion with other AMC(s)

26. Recommendation | Conclusion • It was recommended not to invest; Each Department had the necessary information to determine if they wanted to proceed • Departments were urged to look at other ways to align • Example, Medical Directorships • Several of the faculty were not supportive of the recommendation

27. Tips and Tricks • Don’t hesitate to ask for additional information • Don’t hesitate to ask for new financials • Challenge the assumptions rigorously • Look at future for reimbursement • Review assumptions with the company, faculty and outside colleagues who have similar ventures

28. Case #2

29. Business Case: Physician Salary Support Wright State University Boonshoft School of Medicine • 1973: approved by Ohio Legislature • 1976: first class accepted • 2005: school renamed Boonshoft School of Medicine honoring a $28.5 million donation by local philanthropist Oscar Boonshoft. Wright State Physicians • 1977: founded as University Medical Services Association • 1993: incorporated as a Not for Profit entity

30. Business Case: Physician Salary Support Background: • Instead of operating a university-based hospital for clinical training, WSU is affiliated with 7 major teaching hospitals in the Dayton area • Formal affiliation agreements with 25 other healthcare institutions in the Miami Valley • Residency training in 13 medical subspecialties and fellowship training in 10 subspecialties for almost 400 resident physicians and fellows • 400 full-time faculty • Over 1,240 voluntary faculty in private practice and other community healthcare professionals

31. Business Case: Physician Salary Support The Ask: • Fixed Price contracts from Dayton area hospital systems • “Teaching Formula” • Based on Resident : Faculty ratio • Does not take into account hospital service line growth and development needs • Strengths • Know the “pot” of money we’re dealing with • Data-driven • Weaknesses • Can only pay new faculty base salary if someone else separates • Again, does not take into account hospital service line growth

32. Business Case: Physician Salary Support Secure base salary in the form of a medical directorship • Provide justification for such position • Categorize and allocate responsibilities needed with narrative and spreadsheet (templates) • Administrative • Clinical • Outreach • Education • Contract executed between hospital system funding position and Wright State Physicians, Inc. • Complete and submit time sheets and invoices monthly • Incorporated into their monthly distribution

34. Business Case: Physician Salary Support Tips and Tricks: • Ensure presence at the table – offering service hospital needs • Facilitate physician input so crucial to service line success • Open communication, solid relationship with hospital administrative director • Be the advocate!