Transcript Financial Management - Association of Pathology Chairs

Financial Management
Thomas J. Dilts MT(ASCP),MBPA
Vice Chair of Administration and Operations
Department of Pathology
Virginia Commonwealth University Healthsystem
Medical College of Virginia Hospitals and
Physicians
Financial Management
Why is this important?
• Economics - A major driver of health care.
• Needed to understand your opportunities
and fate of your profession
• Requirement
• Personal and Professional use
History
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•
•
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Medicare
Medicaid
Managed Care
Insurance
Profit/Loss = Revenue Expenses
BUDGET
(Cut the Budget!!!!!)
Planning is the process of deciding in advance
what is to be done and how.
Most organizations operate in an environment of change.
With a more dynamic environment the planning
function becomes critical.
Planning
Strategic
Long Range
Budget
Budget
Revenue (pay check)
Expenses
• Rent/mortgage
• Gas for car
• Food
• Savings/vacation(escrow)
• Electric bill
Total expenses
Net income/profit
$4,000.00
$950.00
$200.00
$350.00
$200.00
$185.00
$1,885.00
$2,115.00
Budget
Net income/profit
$2,115.00
• What’s left after bills are paid
Revenues - Expenses = Profit ( or Loss )
($4,000.00-$1,885.00=$2,115.00)
Hospital Lab Budget
Revenues
Expenses
Salaries
Technical Labor
Non Technical Labor
Lab Receptionists
Administrative
Nights
Phlebotomists
Pathology Secretaries
Professional Fees
Supplies
Equipment
Depreciation
Service Contracts
Repairs
Other
$9,172,526
$1,668,365
$197,680
$114,525
$119,873
$314,490
$128,804
$1,286,906
$1,498,399
$147,506
$105,643
$40,842
$115,475
Direct Costs
Indirect Costs
$5,738,508
$2,215,221
Total Costs
$7,953,729
Net Income
$1,218,797
Hospital Lab Budget by Section
Revenues
Expenses
Salaries
Technical labor
Non Technical Labor
Lab Receptionists
Administrative
Nights
Phlebotomists
Path secretaries
Professional Fees
Supplies
Equipment
Depreciation
Service Contracts
Repairs
Other
$
Microbiology
Blood Bank
Chemistry
Hematology
Anatomic
Serology
1,006,444 $
1,002,114 $ 4,106,062 $
1,457,584 $ 1,262,867 $ 337,455
$
245,674 $
237,429 $
557,584 $
352,500 $
193,455 $
81,723
$
$
$
$
$
$
$
19,217
11,133
46,002
12,932
98,215
144,979
$
$
$
$
$
$
$
13,440
7,787
41,955
14,748
1,006
98,214
332,708
$
$
$
$
$
$
$
84,595
49,011
35,962
131,439
6,333
210,636
760,486
$
$
$
$
$
$
$
61,845
35,829
41,956
98,531
4,630
98,214
140,793
$
$
$
$
$
$
$
8,961
5,190
4,453
103,183
683,413
47,035
$
$
$
$
$
$
$
9,622
5,575
19,317
720
98,214
72,398
$
$
$
$
13,084
9,516
2,375
11,947
$
$
$
$
9,678
2,088
1,661
7,796
$
$
$
$
50,804
52,313
10,452
49,069
$
$
$
$
45,802
32,459
24,058
35,883
$
$
$
$
23,658
7,732
1,107
5,198
$
$
$
$
4,390
1,535
1,189
5,582
Direct Costs
Indirect Costs
$
$
615,074 $
298,183 $
768,510 $
312,921 $
1,998,684 $
740,798 $
972,500 $
400,102 $
1,083,385 $
340,721 $
300,265
122,496
Total Costs
$
913,257 $
1,081,431 $
2,739,482 $
1,372,602 $
1,424,106 $
422,761
Net Income
$
93,187 $
(79,317) $
1,366,580 $
84,982 $
(161,239) $
(85,306)
Profit/Loss = Revenue Expenses
Revenue
Billed Revenue =
Lab Procedures X Current Fee
Collected Revenue =
Billed Revenue - Contractual Allowances
Insurance Mix
Medicare
Medicaid
Trigon (Blue Cross)
Managed Care
Other
35%
10%
25%
25%
5%
Revenue
Billed Revenue =
Lab Procedures X Current Fee
Collected Revenue =
Billed Revenue - Contractual Allowances
$40,500 = $54,000 - $13,500
REVENUE PROBLEM
• 200 CBCs performed
• Current fee per CBC is $25
• All patients have Blue Cross at 50%
contractual adjustment for each test
• What is the billed revenue and the collected
revenue?
SOLUTION
• 200 X $25 = $5000( billed revenue )
• $5000 X .5(50%) = $2500( col. Revenue )
Costs (Expenses)
Direct Costs are costs that can be directly
identified with a given product or activity.
• Reagents
• Controls
• Tubes
Indirect Costs cannot be identified with a
given product or activity.
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•
•
•
Electricity
Environmental services
Management
Computer support
Direct Costs
dollars
Variable Costs-- changes with a change in product volume
80
60
40
20
0
1
2
3
4
5
6
product volum e
7
8
9
Direct Costs
Fixed Costs-- Do not change with change in product volume
400
dollars
300
200
100
0
1
2
3
4
5
6
7
product volum e
8
9
10
11
WHICH DIRECT EXPENSE IS
THIS?
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Service contract for equipment
Reagent for each test
Quality control material
Labor costs
Pipet tips
Purchase cost of equipment
Rent of lab space
Costs (Expenses)
Direct Costs are costs that can be directly identified
with a given product or activity.
• Reagents
• Controls
• Tubes
Indirect Costs cannot be identified with a given
product or activity.
•
•
•
•
Electricity
Environmental services
Management
Computer support
Indirect costs
Departmental
– management
– travel
– telephone
Global (Hospital)
–
–
–
–
administration
dietary
computer systems
plant facilities
EXAMPLES OF INDIRECT
COSTS
Profit/Loss = Revenue Minus
Expenses
Profit/Loss = Collected Revenue (Net) - Total Expenses
Month
Budgeted
Actual
Variance
Revenue
$332,000
$325,000
($7,000)
Personnel Expenses
$160,000
$185,000
-$25,000
Supplies/Reagents
$35,000
$43,000
-$8,000
Total Expenses
$195,000
$228,000
-$33,000
Profit/Loss = Revenue minus Expenses
$97,000 = $325,000 - $228,000 (gross revenue)
($58,000) = $170,000 - $228,000
(net revenue)
($160,000) = $170,000 - $330,000 (plus indirect expense)
____________________________________________
Insurance cont.= $155,000 indirect exp = $102,000
PROBLEM
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Gross revenue is $100,000
Contractual adjustments are $40,000
Direct variable expenses are $15,000
Direct fixed expenses are $5,000
All indirect expenses are $10,000
• What is the net revenue(profit)
SOLUTION
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Gross revenue
Contractual adjust.
Collected revenue
Direct expenses
Indirect expenses
Net revenue(profit)
$100,000
- $40,000
_________
$60,000
- $20,000
- $10,000
__________
$30,000
Monitoring the Budget
• Usually monthly
• Action plan –(how to get back
on budget)
• Your involvement as lab staff
Setting the Test Fee
A. Must identify all direct costs to do procedure:
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–
–
labor
supplies
reagents
equipment(depreciation)
service and maintenance
collecting and processing specimen
ordering supplies - request slip
B. Must add indirect costs.
C. Must consider collection rate for billing.
D. Mark up (% profit)
Depreciation
• Cost of item divided by useful life
• Useful life is usually five years for lab
equipment
• $100,000/5years = $20,000
SETTING THE TEST FEE
EXAMPLE
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Labor 10min x $0.50/min = $5.00
Supplies
$0.80
Reagents
$1.20
Equipment($200,000/40,000) $0.50
Service/maintenance
$0.12
Specimen collection/process. $1.00
_____
Total
$8.62
SETTING TEST FEE EXAMPLE
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•
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Direct costs
Indirect costs(20% of dir)
$8.62
$1.72
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$10.34
Collection rate(40%) $10.34/.4 = $25.85
Mark up (profit) 10%= $25.85+$2.59 =
$28.44
COST ACCOUNTING
COST ACCOUNTING EXAMPLE
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•
•
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•
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Labor 10min x $0.50/min =
Supplies
Reagents
Equipment
Service/maintenance
Specimen collection/process.
Indirect costs
• Total
$5.00
$0.80
$1.20
$0.50
$0.12
$1.00
$1.72
$10.43
Contribution Margin
• Price(fee) – Variable cost/test =
Contribution Margin
• Contribution Margin contributes to fixed
costs and to profits
Break Even Analysis
• Break even volume = Fixed costs divided
by the Contribution Margin
• Break even volume(analysis) = What is the
number of tests I must perform to recover
my costs
Price - Variable cost per test=
Contribution Margin
$30.00 - $10.00 = $20.00
Break Even Volume = Fixed Costs
Contribution Margin
500 Tests = $10,000.00
$20.00
• Volume = 1,000 tests
• Price
= $20 each
• Costs
– equipment
– reagents
– controls
– supplies
– salary
Total
• Revenue
• Costs
• Profit
$50
$1000 ($1.00 each test)
$100 ($0.10 each test)
$50
($0.05 each test)
$12,500 (0.50 FTE)
$13,700
1,000 X $20 = $20,000
= $13,700
= $20,000 - $13,700 = $6,300
Change the fee to $15.00
•
• What is the profit?
$15.00 per test
$15,000 - $13,700 = $1,300 profit
PROBLEM
• Test volume is now 5,000
• Assume that no additional labor is needed
for the increased test volume
• What is the final profit for this volume?
• 5,000 tests is volume
• Revenue = 5,000 X $20 = $100,000
• Costs
–
–
–
–
–
equipment
reagents
controls
supplies
salary
$50
$5000($1.00 x 5000)
$500($0.10 x 5000)
$250($0.05 x 5000)
$12,500
• Total Costs
$18,300
• Profit = $100,000 - $18,300 = $81,700
PRICE
$20
$15
$20
$20
VOLUME
1000
1000
5000
300
REVENUE
$20000
$15000
$100000
$6,000
TOTAL COST $13700
$13700
$18300
$12895
PROFIT
$1300
$81700
($6895)
$6300
Let’s take a break
Department of Pathology
Profit and Loss Statement
For the twelve months ending June 30, 2001
Gross
Revenue
Anatomic Path
Blood Bank
Blood Products
Chemistry
Hematology
Microbiology/Immunology
Molecular Diagnostics
Reference Testing
TOTAL
$4,411,600
$9,620,938
$4,554,241
$46,742,064
$15,602,023
$13,158,977
$2,097,371
$1,077,603
$97,264,817
Net
Revenue
Direct
Cost
$2,131,277
$4,939,270
$2,419,450
$24,362,139
$8,144,456
$6,733,938
$1,029,036
$530,942
$50,290,508
$1,865,304
$2,015,608
$4,833,592
$3,480,162
$2,749,265
$2,994,244
$1,372,563
$2,143,322
$21,454,060
Indirect
Total
Net
Cost Expenses Income
$1,287,010
$1,209,373
$1,005,173
$1,975,722
$1,690,990
$1,744,997
$559,202
$329,341
$9,801,808
$3,152,314
$3,224,981
$5,838,765
$5,455,884
$4,440,255
$4,739,241
$1,931,765
$2,472,663
$31,255,868
($1,021,037)
$1,714,289
($3,419,315)
$18,906,255
$3,704,201
$1,994,697
($902,729)
($1,941,721)
$19,034,640
Gross Revenue
Molecular Diagnostics
2%
Microbiology/
Immunology
14%
Reference Testing
1%
Anatomic Path
5%
Blood Bank
10%
Blood Products
5%
Hematology
16%
Chemistry
47%
Direct Cost
Reference Testing
10%
Molecular
Diagnostics
6%
Anatomic Path
9%
Blood Bank
9%
Microbiology/Imm
unology
14%
Blood Products
23%
Hematology
13%
Chemistry
16%
Profit
Reference Testing
6%
Molecular
Diagnostics
3%
Anatomic Path
3%
Blood Bank
5%
Microbiology/
Immunology
6%
Blood Products
10%
Hematology
11%
Chemistry
56%
Capital Costs
• Operational Costs
• Capital Costs
• Where do Capital dollars come
from?
Profit/Loss = Revenue Expenses
Capital Equipment
• Purchase
• Lease
• Reagent Rental
• Cost per Billable Test
Return On Investment
• ROI (operating margin divided by
capital investment)
• Pay back period (Capital investment
divided by operating margin x 12
months)
ROI
• $150,000 X 100 = 300%
$50,000
• $40,000 X 100 = 80%
$50,000
• $18,000 X 100 = 18.5%
$97,000
Return On Investment
• ROI (operating margin divided by
capital investment)
• Pay back period (Capital investment
divided by operating margin x 12 months)
Pay Back Period
• $50,000 X 12 = 4 months
$150,000
• $50,000 X 12 = 15 months
$40,000
• $97,000 X 12 = 64.6 months (5.4 years)
$18,000
ROI PROBLEM
• The operating margin for this test is
$300,000
• Equipment purchase will cost $100,000
• What is the return on investment(ROI)?
ROI SOLUTION
• $300,000/$100,000 x 100 = 300%
PAY BACK PERIOD PROBLEM
• The operating margin for this test is
$300,000
• Equipment purchase will cost $100,000
• What is the payback period?
PAYBACK PERIOD SOLUTION
• $100,000/$300,000 x 12 = 3.99 or 4 months
QUESTIONS