Creating Buy-In without a Bailout

1. Creating Buy-In without a Bailout Creating a sense of financial ownership in a VTH Pat LeBlanc, DVM, MS, Diplomate, ACVA Director, Veterinary Teaching Hospital Michigan State University President, AAVC

2. Three Motivating Factors Motivating Factor #1 Development VTH-accepted accounting practices. Motivating Factor #2 Individual financial sessions with every service Motivating Factor #3 Input regarding distribution of year end profit

3. Generally Accepted Accounting Practices VTH Accepted Accounting Practices V = /

4. Cost accounting is performed on each of the following areas: Primary Service Support Service Anesthesia Central Sterilization Clinical Pathology Diagnostic lab Hospitalization Pharmacy Radiology Dermatology Emergency Service (Small Animal) Equine Med / Surgery Food Animal Med / Surgery General Medicine Internal Medicine Ophthalmology Oncology Orthopedics Soft Tissue Surgery

5. Profit / Loss Calculation for each Section Motivating Factor #1 - Accepted Accounting Practices

6. Profit / Loss Calculation for each Section Motivating Factor #1 - Accepted Accounting Practices

7. Overhead expenses Motivating Factor #1 - Accepted Accounting Practices • Three reception areas • Call Center • Purchasing • Laundry • Word Processing • Medical Records • Info Tech department • Business Office Overhead pool is approx $4M

8. Overhead expenses Motivating Factor #1 - Accepted Accounting Practices 3 Overhead pools Hospital-wide Small animal only Large animal only Allocation based of sections % of VTH revenue

9. Motivating Factor #1 - Accepted Accounting Practices “Primary Service Profit alone doesn’t accurately account for what we bring in! It is not the Real Thing”

10. Motivating Factor #1 - Accepted Accounting Practices How can we determine the Real Thing?

11. Motivating Factor #1 - Accepted Accounting Practices Acceptable Real Thing!! Primary Service Profit + Their contribution to support service profit (downstream profits) = Real Thing!!

12. Motivating Factor #1 - Accepted Accounting Practices For every $ of revenue a Primary Service generates, how much profit in each of the support services does that $ generate?

13. Example: Amount of support service revenue generated by the Internal Medicine Service

14. Support service revenue Motivating Factor #1 - Accepted Accounting Practices X Support service profit margin (profit margin = Ratio of profit to revenue) = Support service profitgenerated by the PRIMARY SERVICE

16. Example: Int. Med revenue of $250,000 $357,987 Total Allocated Service Section Profit to Internal Medicine for this period:

17. Motivating Factor #1 - Accepted Accounting Practices Profit of Primary Service+ Portion of Support service profit= Total profit contribution to VTH

18. Motivating Factor #2 - Shared information Individual financial sessionswith each service

19. Example of a Primary service section profit

20. Primary service section with allocated Support service section profits Motivating Factor #2 - Shared information

21. Motivating Factor #2 - Shared information

22. Motivating Factor #2 - Shared information Top expense items

23. Motivating Factor #2 - Shared information Top expense items Revenue generating procedures

24. Motivating Factor #2 - Shared information Top expense items Revenue generating procedures Profit ranking

25. Motivating Factor #2 - Shared information Top expense items Revenue generating procedures Profit ranking Top referring vet clinics

26. Motivating Factor #2 - Shared information Opportunity to discuss marketing of any or all parts of the service

27. VTH Year-end profit

28. VTH Year-end profit Projected 2008 profit of $3,843,368 was only off by $18K

29. Fiscal Results Years 1 – 5 average: $1,322,124 Years 6 – 10 average: $2,985,143

30. Motivating Factor #3 - Faculty input Year end profit distributionapproved by: 1. Hospital Management Group 2. Section Chiefs 3. VTH Board

31. Motivating Factor #3 - Faculty input 2008Year End Distribution of Profit Hospital equipment fund 25% Academic departments 75%

32. Motivating Factor #3 - Faculty input Increasing number of departmental faculty are paid for by VTH profit VTH Profits

33. Motivating Factor #3 - Faculty input Equipment purchases from year end profits Section Chiefs determine major equipment purchases(over $5K)

34. Motivating Factor #3 - Faculty input Creating Buy-In from MOST of the rest of the VTH Equipment purchases from year end profits

35. Regularly compare current VTH financials with current forecast to many VTH groups

36. Up to date VTH financials presented at: Monthly Faculty meetings Monthly “Chat with Pat” sessions Monthly Section Chief Meetings “Wow, no wonder the VTH charges are so high!!! Quarterly Town Hall Meetings Quarterly VTH Board Meetings

37. Expense cuts in past 6 months Staff and Benefit Reductions: Approximately $1M in salary and fringes Elimination of VTH funded travel expenses Other Expense Reductions: Reduction in CareCredit options Reduction in inventory Moratorium on Major Equipment purchases for 2009

38. Those that don’t either refused to be informed and / or are “rumble strips” Informed employees understand staff and benefit cuts

39. Staff Happiness is normally distributed Constant Complainers Always Happy Generally Satisfied Always happy

40. If you never hear any noise from the “rumble strips”, you might be headed off the road!! Constant Complainers Always Happy Generally Satisfied Always happy

41. Summary Factor 1: Well accepted accounting system “Real Deal” We are far from perfect but at least we are trying to get to the same spot. Factor 2: Widespread Sharing of information Factor 3: Faculty involvement for distribution of year end profits