415 frazier and janotha

Streamline Your Costing Function to Support Strategic Decision Making

Aaron Frazier

LifePoint Hospitals

D

avid Janotha

K

aufman Hall & Associates

http://www.google.com/url?sa=i&source=images&cd=&cad=rja&uact=8&ved=0CAgQjRw&url=http%3A%2F%2Fwww.insidermonkey.com%2Fblog%2Fhedge-funds-are-buying-lifepoint-hospitals-inc-lpnt-156530%2F&ei=-i64VK_eH5efyATQ6YCYCQ&psig=AFQjCNEyY0ZDIWpcKS8TlwCNrNYU-ALROA&ust=1421443194639054

Our Speakers

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Aaron FrazierDirector, Decision Support Services, LifePoint Hospitals

David JanothaVice President, Kaufman Hall & AssociatesDavid has been in healthcare for over 25 years in various roles including clinical, management, consulting and software. Currently David focuses on building decision support tools and services to facilitate improved operational, strategic and clinical results at customer facilities.

As Director of Decision Support Services at LifePoint Hospitals, Aaron leads the decision support team that supports 68 hospitals in 21 states. Aaron has more than 15 years of experience in healthcare decision support and cost accounting.

Learning ObjectivesWe plan to …

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• Share how industry dynamics was a catalyst to improve our cost accounting processes;

• Review 4 ways we optimized our costing model to improve costing accuracy and efficiency;

• Highlight how executive reporting is evolving to improve visibility to performance trends and support more detailed ‘population analysis’;

• Discuss future plans we have to improve the value we provide as a Decision Support team.

Agenda

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I. About LifePoint Hospitals

II. Our need to redesign our cost accounting model

III. Four significant ways we streamlined our process

IV. Our approach to Executive Reporting – today and future state

About LifePoint Hospitals

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Headquartered in Nashville, TN

68 hospital health system

located in 21 states

LOCATION:

• $3.5 billion annual revenues

• 28,000 employees

• 3,000 physician partners

• 300,000 IP admissions

• 1,500,000 OP visits

STATISTICS:

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Uhhhh…Aaron, Our Product Line

Assignment Process has been running for

2 weeks! Is this normal???

Our Costing Initiative

What drove our need for an improved ‘costing’ process?

• Executive demand for reports

• Need for more timely data

• Technology improvements

• Cumbersome tools

• Extended auditing cycles

• Shift focus from data to analysis

Key Goals to transform Cost Accounting into a more Strategic Function

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Let’s AIM HIGH….Let’s AIM HIGH….

What’s the worst that could happen??

What’s the worst that could happen??

1. IMPLEMENT – Migrate 50+ hospitals

to a new system in 1 year.

2. STREAMLINE - data reconciliation

and validation tasks

3. IMPROVE - executive reporting, more

timely and insightful views

4. SHIFT - our teams focus away from

auditing tasks and move to more

strategic analysis

Define Cost Accounting:

Overview of Data and Process Flows

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OverheadAllocations

Cost FactorWorkbooks

Cost Assignment

Allocations to Patient

Cost Summary

Derive Product LinesEstimate Net Revenue

ENCOUNTER

Clinical, Demographic and Financial Data by

Patient Encounter.

ENCOUNTER CHARGE DETAILEncounter Charge Item

Detail by Date of Service.

CHARGE SUMMARY

RVU’s, Cost Per Unit stored by Department

Charge Item.

• Service Line Trends• Population Analysis• Payor Trends• Physician Analysis• Strategic Modeling• Workload Projections• Ad Hoc and distributed

reporting

REPORTINGREPORTING

Financial

Patient Detail

Reference Tables

INPUTSINPUTS OUTPUTSOUTPUTSVALUE ADDED PROCESSINGVALUE ADDED PROCESSING



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OverheadAllocations


Cost Assignment


Cost Summary


ENCOUNTER


Patient Encounter.



CHARGE SUMMARY


Charge Item.


reporting

REPORTINGREPORTING

Financial

Patient Detail

Reference Tables


Example:

Radiology

6200-Supervisor6300-Tech 1 S/W7400-Film7400-Contrast H/M

GL Accounts: Cost Types:

Labor $Labor $

Supplies $Supplies $

Implants $Implants $



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OverheadAllocations


Cost Assignment


Cost Summary


ENCOUNTER


Patient Encounter.



CHARGE SUMMARY


Charge Item.


reporting

REPORTINGREPORTING

Financial

Patient Detail

Reference Tables


Example:

Radiology

Chest X-Ray W/C

Arm X-RayPelvis X-Ray 1 V

Ankle 3 View

Procedures:

Cost Per Test:

Labor $Labor $ Supplies $Supplies $

$12$12 $6$6

$12$12 $3$3

$15$15 $3$3

$10$10 $3$3



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OverheadAllocations


Cost Assignment


Cost Summary


ENCOUNTER


Patient Encounter.



CHARGE SUMMARY


Charge Item.


reporting

REPORTINGREPORTING

Financial

Patient Detail

Reference Tables


Example:

Charge DetailEncounter XYZ

(Rad)Chest X-Ray

(Lab) CBC(Lab) WBC

(ICU) Private Rm

Procedures:

Cost:

LaborLabor

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11

11

11

Date:

6/126/12

6/126/12

6/126/12

6/126/12

$12$12

$9$9

$8$8

$450$450

Qty:



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OverheadAllocations


Cost Assignment


Cost Summary


ENCOUNTER


Patient Encounter.



CHARGE SUMMARY


Charge Item.


reporting

REPORTINGREPORTING

Financial

Patient Detail

Reference Tables


Example:

XYX

ABC

Encounters:

Encounters

LaborLabor SupplySupply

DEF

$2500$2500

$1200$1200

$750$750

$5600$5600

$350$350

$200$200

Summarized Cost:

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INPUTSINPUTS OUTPUTSOUTPUTS

1 week

System & time intensive process.

Reconciliationto Financials

$Re-process

Costing & Patient Assignment Process

Process

!OutliersExist

2.5 weeks

Time consuming effort,facility-by-facility

(50+ in total).

AssignProduct Lines

2 days

A pre-requisite step to report

distribution that took days.

Ad hoc

Very manual process, data downloads to Excel

& emailed

Our Challenges

Compute & assign costsCompute & assign costs

Assign product lines

Assign product lines Distribute reportsDistribute reportsLoad dataLoad data

Old Costing Model Separate Query Tool

Reformat in Excel, then Distribute.

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Four significant ways we’ve streamlined the process

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Cost Accounting:Streamline the process

1. An improved data model2. Efficient data reconciliation3. Improved RVU & Cost Modeling4. Improved transparency to cost allocations

1 – Improved Data Model

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Variable cost of $1,974,426?Where does this number comprise?

Labor?, Drugs?, Other Medical Supplies?

Variable cost of $1,974,426?Where does this number comprise?

Labor?, Drugs?, Other Medical Supplies?

PROBLEM:

Detail established during cost modeling is LOST when it is summarized to Patient Level.

1 – Improved Data Model

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PROBLEM:

Detail established during cost modeling is LOST when it is summarized to Patient Level.

COSTSUMMARY

COSTSUMMARY

ENCOUNTERCHARGE DETAIL

ENCOUNTERCHARGE DETAIL

CHARGE ITEM SUMMARY

CHARGE ITEM SUMMARY ENCOUNTERENCOUNTER

Medical SuppliesMedical Supplies

ImplantsImplants

PharmacyPharmacy

Patient Care LaborPatient Care Labor

Purchased ServicesPurchased Services

Indirect Facilities

Indirect Facilities


ImplantsImplants

PharmacyPharmacy



Indirect Facilities

Indirect Facilities


ImplantsImplants

PharmacyPharmacy



Indirect Facilities

Indirect Facilities


ImplantsImplants

PharmacyPharmacy



Indirect Facilities

Indirect Facilities

Table:

Dimensions:

Detail:

Process:

DepartmentDepartment Encounter/Charge Item

Encounter/Charge Item

Department/Charge Item

Department/Charge Item EncounterEncounter

CostsMapped

CostsMapped

CostAssigned

CostAssigned

CostsDerived

CostsDerived

CostsSummarized

CostsSummarized

SOLUTION:

Intuitive data model where cost detail is retained across financial and patient views.

Additional detail helps reveal outlier trends related to cost of care.

Consistent Detail Captured thru Encounter DetailConsistent Detail Captured thru Encounter Detail

2 - Efficient Data Reconciliation

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PROBLEM:

Auditing 50+ hospitals each month was incredibly tedious and time consuming.

Next Page

PreviousPage

Is it supposed to take 2 minutes each time I hit

NEXT PAGE?

Example Facility Level Audit Report:

2 - Efficient Data Reconciliation

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PROBLEM:

Auditing 50+ hospitals each month is incredibly tedious and time consuming.

SOLUTION:

• Scheduled audit checks

• Automated for 50+ hospitals

• Data-driven exceptions (alerts)Process: Costs

Mapped

CostsMapped

CostAssigned

CostAssigned

CostsDerived

CostsDerived

CostsSummarized

CostsSummarized

Outliers Flagged

Automated ReviewBy Facility

Example Audit Alert Template:

3 – Online & Intuitive RVU Input

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PROBLEM:

Cost Assignment process was an off-line manual process, prone to error.

Re-formatted to Excel

Re-formatted to Excel

Changes are uploaded

Changes are uploaded

Offline RVU

model

Offline RVU

model

Query downloads

Query downloads !

!

Technical Process

Time Intensive!Technical

Process

RVU Updates

Manager Review

Manager Review

Old Costing Model Separate Query Tool

3 – Online & Intuitive RVU Input

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PROBLEM:

Cost Assignment process was an off-line manual process, prone to error.

SOLUTION:

• Leverage RVU plan file

• Leverages GL $ mapping

• RVU updates are interactive,

change DB in real-time

GL Accounts and $’s are mapped to

cost pools

GL Accounts and $’s are mapped to

cost pools

Example RVU Modeling Plan File:

Cost per Charge Item

logic is EASY to understand

Cost per Charge Item

logic is EASY to understand

4 – Transparent Cost Allocations

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PROBLEM:

• Allocations were difficult to audit and (more importantly) explain.

• Direct patient support costs were being assigned to patients based on utilization instead of benefit and being categorized as indirect expense Improved Reporting:

Audit Reports that validate resulting for each Department by Allocation

Category.

Improved Reporting:Audit Reports that validate resulting for

each Department by Allocation Category.

CLINICAL ADMINCLINICAL ADMIN

4 South4 South

3 North3 North

RadiologyRadiology

ADMISSIONSADMISSIONSPatient PopulationPatient Population

Allocation OUT Allocation TO

9,8989,898

Indirect DepartmentGroupings


Direct Departments

Direct Departments

4 – Transparent Cost Allocations

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PROBLEM:

Allocations were difficult to audit and (more importantly) explain.

SOLUTION:

• Tailored reports to clearly show how dollars map from Indirect to Direct Departments.

• Identified areas where costs could be allocated directly to patients.





CLINICAL ADMINCLINICAL ADMIN

4 South4 South

3 North3 North

RadiologyRadiology

ADMISSIONSADMISSIONSPatient PopulationPatient Population

Allocation OUT Allocation TO

9,8989,898



Direct Departments

Direct Departments

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Service Line Reporting:Strategies that worked

1. Updated Product Line Definitions2. Redesigned key reports3. Provide more comprehensive views of

performance

Reporting Objectives:What did we hope to accomplish?

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As Analysts:

•To be more responsive with an improved toolset

•Shift time from tedious downloads and reformatting to more analysis

•To deliver comprehensive reports that answered first line questions about performance trends.

For the Executives (CFO’s):

•For data to be timely, well-understood, trusted

•Reports that are intuitive, easy to comprehend

#1 – Update Product Line Groupings

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OBJECTIVE:

• Develop a consistent set of services lines across all facilities

• Provide consistency where possible across IP & OP populations.

APPROACH:

• Derive Service Lines across populations using PROCEDURES

• Where necessary, we are evaluating Department & Charges Detail for assignments

Derived by Procedure for IP & OP

Populations.

Derived by Procedure for IP & OP

Populations.

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#2 – More Intuitive Report Formats

• Excel Pivot Tables• Prohibitively large files• Not terribly intuitive

MOVE AWAY FROM:• Refined Report Templates• Filter-”Wizards” to streamline qualifications• Pre-formatted, efficiently distributed

Filter & QualifyFilter & Qualify

Choose Primary and Secondary

Break Fields

Choose Primary and Secondary

Break Fields

Per Case TrendsPer Case Trends

ADOPTING MORE DYNAMIC REPORTING:

# 3 – Comprehensive Trend Reporting

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OBJECTIVE:

• Shift time away from reacting to various ad hoc request to comprehensive reporting

• Isolate variables – volume, payor and cost per case measures.

Snapshots in time show raise more questions: (*) Sample data is being used.

CASE VOLUME•Is the volume changing overall?•Increasing year-over-year?•Or, Shifting across service lines?

CASE VOLUME•Is the volume changing overall?•Increasing year-over-year?•Or, Shifting across service lines?

REVENUE•Increasing?, Decreasing?•What’s driving change?•Mix? Cost Per Case?

REVENUE•Increasing?, Decreasing?•What’s driving change?•Mix? Cost Per Case?

MARGIN•What’s change to prior year?•Are high margin services up?•Shifts due to revenue or cost?

MARGIN•What’s change to prior year?•Are high margin services up?•Shifts due to revenue or cost?

VAR COST•Is it cost or utilization driven?•Do outliers exist?•Increasing in certain services?

VAR COST•Is it cost or utilization driven?•Do outliers exist?•Increasing in certain services?

# 3 – Comprehensive Trend Reporting

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OBJECTIVE:

• Shift time away from reacting to various ad hoc request to comprehensive reporting

• Isolate variables – volume, payor and cost per case measures.

APPROACH:

• Deliver a consistent set of reports (“push”) to Division CFO’s

• Engage in follow-up to understand where additional review or analysis is needed.

Service Line Margin Analysis

Service Line Margin Analysis

Payor Mix & RateAnalysis

Payor Mix & RateAnalysis

Cost Per CaseAnalysis

Cost Per CaseAnalysis

Highlight Trends in Service Line Margins

across volume, revenue and cost drivers.

Evaluate the impact of volume, payor mix and rate changes by Service

Line (or population).

Understand Cost Drivers, by Department, by

Physician.

Benefits Achieved

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• Reporting flexibility has led to wider utilization of Axiom by non-financial users:

• EXAMPLE #1 - Our Physician Relation Initiative teams lacked sufficient data when engaging w/ our physicians.

– We overcame this by creating physician volume reports now being utilized by facility growth teams

– The reports allow the user to see, by product line, physician volume over time and to see referral patterns across four different physician fields.

– This is leading to more accurate physician metric tracking and more effective tools to drive positive physician engagement

– Provides visualization of missing physician data points

Benefits Achieved

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• EXAMPLE #2 - ED Dept Acuity Level Reporting

– Is now being utilized in the Emergency Rooms

– Tailored reporting now provides effective visualization trends of ER volume by acuity level

Next Steps & Future Plans

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• Continue partnering with Divisional CFO’s

• Dashboards

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Questions & Answers

Documents

415 frazier and janotha