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FALL CONFERENCE October 12, 2018
A COMPETITIVE STRATEGY
FOR HOSPITAL STABILITY
Prepared by:
Stephanie Dorwart Mike Evans Chief Executive Office Managing Principal Altius Consulting Group Revenue Cycle Solutions, LLC New Kensington, PA 15068 Pittsburgh, PA 15222
Revenue Cycle Solutions, LLC, All Copy Rights Reserved© Page 2
Options for the Future of All Healthcare Organizations • Continue to provide quality healthcare services to your community
• Often one of the largest employers in region • Focus on wellness, community and population health needs when developing
strategies
• Long Term goals fall into one of three categories Maintain independence and develop strategic plans to successfully compete
Become a part of a larger system through merger or formal affiliation
Sell to another provider entity
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Good is the enemy of great. Tom Peters
All great changes are preceded by chaos. Deepak Chopra
Don’t be afraid of change. You may lose something good, but you may gain
something better. Unknown
The need for change…is now!
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As healthcare organizations continue to be challenged financially, they must seek creative and meaningful ways of streamlining their overall operations and revenue cycle processes.
No matter what long-term strategy for viability is pursued, the organization’s
house must be in order.
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Value Equation
Superior Outcomes
Improving long-term outcomes through reliable delivery of high-
quality care
Patient Centered Care
Personalizing treatment plans
based on individual health characteristics,
preferences
Efficiency
Streamlining processes to
increase access, reduce waste
Cost Effectiveness
Delivering cost-effective care in
the most appropriate
setting
Value
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Who should manage improvement?
Financially Responsible, High Quality Organization
FINANCE • Revenue Cycle • Budget • Cost Accounting • Investment • Reinvestment • Productivity
Human Resources
• Position Control • Benefit Cost • Pay Practices • Job Requisitions • Turnover • Productivity
Performance Improvement
• Lean/Six Sigma Operational Improvements • Process Change • Decreased
Waste
Operations • Length of Stay • Discharge Planning • Patient Satisfaction • Overall Quality • Outcomes • Productivity
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Co
st Co
ntro
l: Labo
r and
No
n-Lab
or
Redefined Triple Aim
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Continuous Improvement Cycle
Benchmark &
Evaluate
Plan
& Implement
Monitor
&
Adjust
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Financial Improvement Areas of Focus • Revenue Cycle • Labor Management
• Productivity • Benefit Structure • Pay Practices
• Non-Labor Expense Reduction • Purchased Services • Supply Cost
• Information Systems • Operations
• Length of Stay • Quality Outcomes • Satisfaction • Manage episodes of care
• Physician Practice Management
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Best Practice Revenue Cycle Approach
Opportunities for improved revenue
cycle performances present
themselves in these areas:
Operating Margin Improvement
Cash Acceleration
Expense Reduction
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Executive Summary
OPPORTUNITY AREAS Total Opportunity (No Reduction Applied)
RANGE OF OPPORTUNITY
Conservative Moderate Aggressive
Total Operating Margin Improvement
Net Revenue Improvement:
Coding Denials $ 1,076,428 $ 538,214 $ 807,321 $1,076,428
Patient Access Denials $ 3,083,649 $ 1,541,825 $2,312,737 $3,083,649
Patient Financial Services Denials $ 2,439,428 $ 1,219,714 $1,829,571 $2,439,428
Total Net Revenue Improvement Initial Denials $ 6,599,505 $ 3,299,753 $4,949,629 $6,599,505
Total
Operating
Margin
Improvement
$ 6,599,505 $ 3,299,753 $4,949,629 $6,599,505
Cash Acceleration
Front End Collections $ 413,828 $ 206,914 $ 310,371 $ 413,828
Unbilled (DNFB) Reduction $ 916,498 $ 458,249 $ 687,374 $ 916,498
Billed AR Reduction $ 477,104 $ 238,552 $ 357,828 $ 477,104
Total One Time
Cash Flow
Impact
$ 1,807,430 $ 903,715 $1,355,573 $1,807,430
Expense Reduction
HIM Staffing Reduction $ 84,410 $ 42,205 $ 63,308 $ 84,410
PFS Outsourcing $ 450,000 $ 225,000 $ 337,500 $ 450,000
Total Expense
Reduction
Improvement
$ 534,410 $ 267,205 $ 400,808 $ 534,410
Total Opportunity
(exclusive of investment costs)
$ 8,941,345 $ 4,470,673 $6,706,009 $8,941,345
CDM Charge Capture Ensure there are charges for all billable services
Set pricing at or above highest payor
All codes (revenue & CPT) are up to date when placed on bill
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Operating Margin Improvement
Operating Margin Improvement
CDI Initiative Need for improved provider documentation
for better specificity (Clinical Documentation Specialists assist providers to document appropriately to justify the most accurate assignment of DRGs, which in turn, will positively impact the Case Mix Index)
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Claim Denials Select claim denials should be challenged and
re-billed timely
835’s with denials should go to work queus
Post 835’s in their entirety to the legacy system to determine root causes of denials
Commonly seen – 6-7% of total gross claims submitted are initially denied. Appeals can lower that to 2%.
Operating Margin Improvement
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Cash Acceleration
Front End Collections Consumers paying more out-of-pocket due to
high-deductible plans Insurers enjoying discounted rates (for
volume) while continuing to shift a greater share of the contracted payment to patients
Related AR is increasing Need to shift resources to front end (Patient
Access) Increase front-end collections
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Cash Acceleration (continued)
Unbilled AR DNFB (Best practice of 5 days, high of 22
days) Late charge posting: post charges to patient
account timely Assignment of codes: all required
documentation (ex. H&Ps and discharge summaries) should be available for coding within 5 days)
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Cash Acceleration (continued)
Billed AR % of billed AR > 90 should not exceed 20%-
22% (best practice) Insurers should pay within 30-45 days on
clean claims Need sound AR collection strategy which
includes; optimal process flow; use of supporting technology; optimal use of inside and external resources
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Expense Reduction
Staffing Realign people from back-end to front-end
for budget neutral solution Management of Vendor Agreements Too many vendors; software, purchased
services, billing, coding, collecting, auditing, etc.
Re-evaluate all contracts periodically - hold accountable for results
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Expense Reduction (continued)
Information Technology (IT) Maximize capabilities and functionality of
legacy system Too many bolt-ons and interfaces to
manage; can impact integrity of data Legacy system requires upgrades to bolt-
ons Ask, “Doesn’t our legacy system do this?”
Typical Hospital Expenses
Mortgage on the house – 5%
Essential Services – 14%
- Maintenance Contracts
- Equipment
- Facilities Repair
- Utilities
- Software contracts
- Rent
Examples
Bad Debt – 4%
Services – 7%
- Legal
- Travel
- Education
- Contract Labor
- Medical Professional fees
Supplies – 18%
Salaries, Wages, Benefits – 52%
Little Ability to Affect
Some Ability to Affect
High Ability to Affect
Operating Expenses at a Typical Hospital
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
LABOR COSTS
Investments in Future Growth – 8%
- New Equipment Technology
- Physician Recruitment
- Facility Improvements
LABOR COSTS
SUPPLIES
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Without Benchmarks and Data…..
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Without Benchmarks and Data…..
You may meet this creep…….
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Otherwise known as job creep….
1,740
1,760
1,780
1,800
1,820
1,840
1,860
1,880
1,900
1,920
2014 2015 2016 2017 2018
Full-Time Equivalents
Full-Time Equivalents
Organization hired a
consulting firm to complete an organizational
assessment followed by a
large scale layoff
Systematically, the organization replaced
the majority of the positions lost and found themselves in the same position four years later. This time, the financial
situation was worse because they had less volume and revenue
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How do you compare?
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Compensation Ratio
The median performance for profitable hospitals is 47%. This value is expected to decrease by 3-5% under health reform by 2017
If your hospital is operating above 45%, improvements will be necessary
Definition: (Salary Cost + Benefit Cost + Agency Cost)/Net Patient Revenue
Poor (25%) Median (50%) Better (75%) Best (90%)
National Acute 56.90% 48.45% 40.90% 33.48%
Regional Acute 54.32% 45.37% 38.37% 30.5%
State Acute 49.55% 41.70% 37.72% 31.54%
National Critical 61.39% 53.47% 46.67% 38.62%
Regional Critical 66.09% 55.96% 48.01% 40.57%
State Critical 63.04% 54.11% 46.26% 29.85% Source: ALTIUS Proprietary Database
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Net Patient Revenue per FTE
Hospitals that experience poor performance with this indicator, should review both the labor expense of the organization and the revenue cycle performance. Although hospitals or systems have spent large amounts of resources ensuring augmentation of revenue cycle performance, this area requires constant attention
Definition: Total Net Patient Revenue divided by Full-Time Equivalents To calculate the Full-Time Equivalents divide total hours (including contract) by 2080.
Poor (25%) Median (50%) Better (75%) Best (90%)
National Acute $124,574 $150,125 $179,933 $222,439
Regional Acute $125,678 $156,305 $190,863 $235,032
State Acute $150,210 $177,496 $224,582 $268,854
National Critical $98,147 $119,479 $144,272 $168,522
Regional Critical $83,084 $103,694 $132,415 $148,427
State Critical $102,916 $121,471 $142,329 $167,391 Source: ALTIUS Proprietary Database
Revenue Cycle Solutions, LLC, All Copy Rights Reserved© Page 28
Rule for Success
• Establish targets/standards for ALL departments • Update performance metrics annually • Compare to external sources • Include manager input • Relate the targets to budget and department
strategic plan and/or scope of service • Link targets and performance to position control
and the job requisition process • Develop through industry standards, historical
performance and peer-group comparisons • Foster an environment of continuous
improvement
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Best Practice – Benchmark your Performance
Develop global and departmental targets o Gauge your performance against national and customized peer
groups o Establish recommended worked (productive) and paid targets on a
department and organizational level o Select realistic goals that are based on your local environment and
patient care model
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Best Practice – Build Accountability
Establish a transparent accountability model o Require all levels of management to respond to staffing
overages in a timely manner o Develop a “Back on Plan” report that requires managers not
achieving targets to submit action plans and performance improvement steps
o Link annual performance reviews to productivity performance o Link productivity targets to budget
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Best Practice – Hardwire Productivity into your Budget
Link the budget process with productivity target and job requisitions o Utilize your comparative benchmarks and current productivity
performance to develop initial budgeted FTEs based on projected volume
o Once final budget is adopted, create alignment between productivity targets and budgeted FTEs
o Utilize target productive hours to guide job requisition process
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Best Practice – Prospective Hiring
Implement Prospective Staffing Needs Analysis o Utilize your historical turnover rates and current position control list (including open
positions) to determine future staffing needs o Consistently realign findings with open position list and adjust needs as required o Review list as job requisitions are submitted to ensure all positions posted are still
needed and all positions needed are posted
Calculate total current FTEs
and total open positions
Adjust for expected
turnover in next six months
Identify staffing needs in six months
and adjust open
positions accordingly
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Best Practice – Include Provider Entities and Clinics
Complete a physician productivity study and implement targets o Include visits and revenue in addition to RVUs o Study the downstream impact of the physician’s referrals o Identify opportunities on a service-line basis o Secure regional information in addition to national o Monitor performance on a department and provider basis
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Practice Management
Focus on more than just productivity and appropriate staff to provider ratios o Benchmark collections o Evaluate charges o Determine appropriate utilization of extenders
o Hold extenders accountable for meeting standards and benchmarks
o Focus efforts on achieving break even status o You may have a few superstars in a practice but if all providers must
pull their weight for success
The above practice is losing $115,000 per provider, in today’s environment……………. Hospitals and organizations that continue operating at that level……………. Will not survive
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Revenue Cycle Assessment Work Plan
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Sample Assessment Work Plan
SUMMARY GANTT CHART
Total
Completed
Hours
2018Timeline
Assigned Estimated
8/29 9/12 9/26 10/10 10/24 11/7 11/21 12/5 12/19 1/2 1/16 1/30 2/13
Task To
Hrs
GENERAL (RCSC & RC SCORECARD) CFO 158 0 16 16 17 14 11 10 11 10 11 10 11 10 11
PATIENT ACCESS Registration Supervisor 293 0 12 18 29 22 30 21 29 20 22 23 29 16 22
REVENUE INTEGRITY Revenue Cycle Director 435 0 29 36 42 34 41 37 33 35 32 39 37 20 20
HIM CLINIC Clinic Billing Manager 124 0 24 4 2 2 26 26 20 20 0 0 0 0 0
HIM HOSPITAL HIM Director 58 0 25 25 4 4 0 0 0 0 0 0 0 0 0
BILLING Revenue Cycle Director 192 0 23 21 31 25 21 17 17 5 10 4 8 4 6
FOLLOW UP Revenue Cycle Director 223 0 16 14 24 11 38 17 30 13 18 9 16 9 8
CONTRACT MGMT CFO 20 0 0 2 2 4 4 4 2 2 0 0 0 0 0
Total Hours 1,483 0 145 134 149 112 167 128 140 103 93 85 101 59 67
Scheduled Completion 10% 19% 29% 36% 48% 56% 66% 73% 79% 85% 92% 95% 100%
Actual Completion 0%
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Sample Metrics for Audit Work Papers Data Required Calculation Best Practice Metric
1.) Total gross patient revenue the latest 3 month period Total gross revenue / number of days in 3 month period = average daily gross revenue
Total gross patient AR as of the latest month period end Total gross patient AR / average daily gross revenue = Gross AR days outstanding
38 Days
2.) Total net patient revenue the latest 3 month period Total net revenue / number of days in 3 month period = average daily net revenue
Total net patient AR as of the latest month period end Total net patient AR / average daily net revenue = Net AR days outstanding
38 Days
3.) Total point of service (POS) collections for latest 3 month period POS collections for the latest 3 period / net patient revenue for the same period = POS collection rate
> 2%
4.) Credit balance AR as of the latest month period end Total credit balance AR / average daily gross revenue = Credit AR days outstanding
< 1 Day in AR
5.) Total patient AR amount that has been discharged but not final billed. This amount should include all legacy systems unbilled AR + unbilled AR which resides in bill scrubber system + Medicare Return to Provider (RTP) file/Claim rejection file
Total unbilled AR / average daily gross revenue = number of unbilled AR days
< 5 Days in AR
6.) Total insurance denial write-off amount for the latest 3 month period
Denial write-off amount for latest 3 month period / total gross revenue for the same period = Denial write-off percentage
< 2%
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Sample Metrics for Audit Work Papers
7.) Charity care write-off for the latest 3 month period
Charity write-off amount for the latest 3 month period / total gross revenue for the same period = Charity write-off percentage
< 2.5 %
8.) Bad debt write-off amount for the latest 3 month period
Bad debt write-off amount for the latest 3 month period / total gross revenue for the same period = Bad Debt write-off percentage
< 2.5%
9) Late charges (Department charges beyond 2 days from date of service)
Late charges postings/ Total Charge postings
<2.0%
Notes and recommendations:
A.) Obtain all raw data directly from the hospital’s A/R and G/L systems. Do not rely upon hospital submitted calculations.
B.) Best source for Insurance Denials, Charity Care and Bad Debt amounts are the hospital’s A/R Transaction Summary reports. Alternative source is hospital’s G/L system.
C.) Bad Debt write-off amounts should correspond with collection placement amounts. Differences may represent internal revenue cycle problems.
D.) Some facilities may not have a handle on their denial rates , which is an immediate consulting opportunity
Data Required Calculation Best Practice Metric Actual
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Sample KPI Metrics Scorecard
Best Practice Monthly
Area / Indicator Benchmark May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Average
Revenue Performance
Gross Revenue 9,329,443 9,392,011 9,615,510 9,449,318 9,163,181 10,124,925 9,095,000 8,974,320 9,212,502 9,238,995 9,499,057 9,415,749 9,005,811 8,702,738 $9,381,409
3 month Average Daily Gross Revenue 323,692 312,758 308,010 309,071 306,826 312,363 311,902 306,459 299,800 301,383 307,149 312,820 303,485 298,069 $313,888
Late Charges Posted > 4 Days (as Of 11/12/15) 462,127 224,971 572,368 459,412 333,937 341,173 434,541 433,604 167,654 566,860 588,602 340,526 229,980 299,002 $387,584
Late Charges as a % of Gross Revenue 2% 5% 2% 6% 5% 4% 3% 5% 5% 2% 6% 6% 4% 3% 3% $0
Net Patient Revenue (NPR) 3,400,519 3,024,351 3,268,846 3,487,948 2,916,028 3,521,373 3,739,145 2,988,910 3,715,717 3,164,072 3,350,229 3,461,707 3,504,211 3,160,870 $3,393,648
Cash Collections
Active AR Payments 3,348,285 3,777,265 3,003,462 2,792,861 3,557,422 3,785,174 2,861,935 3,595,133 2,589,756 3,090,894 3,768,553 3,261,963 3,733,209 3,462,487 $3,326,765
Payments as a % of Gross Revenue 36% 40% 31% 30% 39% 37% 31% 40% 28% 33% 40% 35% 41% 40% $0#DIV/0!
Payments as a % of NPR 100% 98% 125% 92% 80% 122% 107% 77% 120% 70% 98% 112% 94% 107% 110% $1
POS Payments 27,018 24,803 32,748 25,685 22,737 23,570 19,619 23,653 22,893 21,652 22,890 30,564 27,885 27,476 $25,957
POS Collections as a % of NPR 1.2% 0.79% 0.82% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% $0
POS Collections as % of total patient cash collections 23% N/R N/R N/R N/R N/R N/R N/R N/R N/R N/R N/R N/R N/R N/R NR
Discharged Not Final Billed (DNFB)
DNFB Total 3,617,511 3,547,240 4,383,206 3,529,167 3,136,632 3,343,206 3,404,915 2,583,503 3,153,045 3,403,470 3,322,616 3,187,085 3,145,387 2,718,500 $3,489,276
DNFB Beyond Bill Hold (Unprinted Bills) 1,449,801 497,352 1,218,707 974,932 220,581 201,219 1,279,390 530,535 784,847 1,015,699 1,178,073 1,183,079 1,064,851 411,368 $913,555
DNFB Days 5 Days 10.1 10.1 12.5 10.2 8.7 9.4 9.9 7.6 9.9 10.3 9.8 9.3 9.1 8.4 $10
Patient Access
Pre-Pegistrations Rate 95% N/R N/R N/R N/R #DIV/0!
Insurance Verification Rate 98% N/R N/R 39% 58% 57% 58% 58% 58% 58% 62% 61% 52% 42% 44% 54.8%
Registration Accurary Rate 98% 99.78% 99.68% 99.74% 99.69% 99.68% 99.66% 99.79% 99.80% 97.92% 97.72% 97.12% 97.80% 98.29% 99.2%
Patient Wait Times 7.5 minutes 10 11 8 8.38 6.00 4.00 7.00 6.77 6.43 6.81 6.00 7.02 7.37 7.77
Brownsville General Hospital: Profile of a Hospital in Trouble!
• BGH is a 92-bed acute care, med/surg. hospital with a 19-bed mental health unit
• Annual revenues are $29M, and expenses are > $31M, three years running
• Cash reserves < $500K, with very little investment income
• Inpatient med/surg volumes in decline for seven straight years
• Mental health unit typically at capacity
• Outpatient departments and ED have good volumes
• Payor mix: 60% Medicare, 25% Medicaid, 10% commercial/mgd care, 5% self-pay
• Hospital located in blighted community w two bigger, more successful hospitals located 20 miles away with easy accessibility
• Population is aging and declining
• Physical pant is deteriorating; no capital improvements in five years
• Physician recruitment very difficult
• Payroll soon to be in jeopardy
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Lessons Learned 1) Focus on revenue and cost improvement simultaneously 2) Optimize revenue cycle, new services, MD recruitment
and alignment 3) Perform organizational assessment (including revenue
cycle and operations) every 2-3 years 4) Annually benchmark the organization and utilize
information for budget and improvement goals 5) Annually update the CDM, with quarterly maintenance 6) Implement a monthly performance improvement
steering committee meeting 1) Updates from rev cycle, productivity, practice management,
population health/quality
7) Review all hospital insurance contracts to ensure market comparability and competitiveness; negotiate both rates and language
Revenue Cycle Solutions, LLC, All Copy Rights Reserved© Page 42
Lessons Learned (continued) 1) Reduce expenses more than you think you need to 6) Let metrics and unassailable analytics drive decisions 7) Manage all vendors and departments very tightly based
on productivity and value 8) Survive on Medicare rates and reduce the overall
episode of care 9) Align with physicians – execute contracts with
incentives; ACO, PHO development
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Focused efforts on growth and cost reduction lead to a remarkable operating margin improvement.
Case Study: Weirton Medical Center
Weirton WV
9.40%
6.40%
1.30%
-1.20% -1.90%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
2017 2016 2015 2014 2013
Operating Margin
44.20%
47.10%
49.10%
55.40%
57.60%
35.00%
40.00%
45.00%
50.00%
55.00%
60.00%
2017 2016 2015 2014 2013
Personnel Expense as a percent of Total Operating Revenue
Revenue Cycle Solutions, LLC, All Copy Rights Reserved© Page 44
A comprehensive approach to hospital stability and viability will include both revenue enhancement and expense reduction strategies…operating simultaneously.
Anatomy of a success story: Warren General Hospital
Warren, PA Revenue enhancement + operational efficiencies=stable organization Potential bankruptcy avoided, strong partnership attained!
Anatomy of a Success Story
Warren General Hospital, Warren PA • Through a well-designed approach to expense reduction and
revenue generation, the hospital was able to reverse its trend of annual multi-million dollar operating losses.
• It became financially and strategically attractive to a number of organizations interested in affiliating with or owning the hospital.
• The hospital recently signed a partnership agreement with Highmark/AHN/LECOM, and through a significant infusion of capital, is once again a viable and vital source of healthcare for the communities it serves.
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Jack Welch’s Six Rules for Organizational Success
Face reality as it is, not as it was or as you wish it to be Be candid with everyone Don’t manage. Lead Change before you have to If you don’t have a competitive advantage, don’t compete Control your own destiny or someone else will
One more for good measure: Don’t make hope a strategy