Transcript Washington PI Strategies - 3-26-03

72nd
North Dakota Healthcare Association
Annual Conference – Tomorrow’s Challenges
CAH Financial Analysis Report on Margins
September 8, 2006
Ramada Plaza Suites
Fargo, North Dakota
Eric Shell, CPA, MBA
[email protected]
2
Project Overview
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Question to be addressed:
– “Why is the average margin in
ND CAHs -(2.33%) while the
average CAH margin in SD is
-(.41%) and MN is +2.55%”
• Source: CAH Financial
Indicators Report, July 2006,
Flex Monitoring Team
3
Project Overview
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Other Key Financial Indicators – Our Neighbors
4
Project Overview
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Approach
– Random sample of ten ND CAHs selected by NDHA for
participation in study
– Review of most recent cost report, financial statements,
strategic plan, and other relevant information
– Conference call with CAH administrators to review findings
and answer questions
– Memos to each administrator documenting improvement
opportunities (many still to come)
– Presentation of common findings related to financial
performance – today
5
Project Overview
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Overview of CAH Sample
– Margin Analysis
• Sample slightly
outperforms state average
North Dakota CAHs
Margin Analysis
Hospital
A
B
C
D
E
F
G
H
I
J
Sample Average:
Statewide Average:
Operating
Total
Margin % Margin (%)
2.04%
4.11%
1.38%
2.71%
-8.42%
-7.83%
1.77%
2.87%
-4.42%
-1.14%
-1.80%
1.32%
-5.41%
-4.09%
0.29%
2.65%
-6.57%
0.06%
-2.20%
-0.52%
-2.33%
0.01%
N/A
-2.33%
6
Project Overview
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Common Findings
– Cost reports are well prepared
– Third party payers generally result in marginal loss or profit
on a fully allocated cost basis
– For most CAHs, operating losses are primarily the result of
clinics, nursing homes, and other non-hospital business
• CAHs generally break even
– Important opportunity related to treatment of Swing Bed SNF
vs. NF
– Mark up ratios at most CAHs are below peers
7
North Dakota Opportunities
• Project Overview
• ND Opportunities
– Third Party
Contracts
• Top 12 North Dakota CAH Opportunities
1.
Third Party Contracts
2.
Swing Bed SNF vs. NF
3.
CAH Departments with RCC > 1
– Skilled Care in
SNF or NH
4.
Non-Hospital Businesses
– Nursing
Homes
5.
Medicare Skilled Level Care in Swing Beds vs. Nursing
Homes
– County
Subsidies
6.
Nursing Home Losses
– Bad Debt
Expense
7.
Rural Health Clinic Losses
– Interim Cost
Reports
8.
County Subsidies
9.
Bad Debt Expense
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Rural Health
Clinics
– Physician
Recruitment
– Outpatient
Services
• Summary
10. Interim Cost Reports or Net Revenue Model
11. Physician Recruitment
12. Growth in Outpatient Volume
8
Third Party Contracts
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Guiding Principle
– Commercial business is an important source of profits and profits
generated on this business must more than compensate for nonallowable “costs”
• Issue
– One major third party payer in North Dakota with limited
competition
• Market power or market responsibility?
– Reported that standard contract for all ND CAHs
• Inpatient – DRG based system; Outpatient – Fee schedule
– For CAHs that have analyzed allowed amounts relative to fully
allocated costs, generally breakeven to losses
– So how do they compare to other Blue Cross Plans across the
County?
• It depends on where you live!
9
Third Party Contracts
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Peer Comparison
– Medicare Revenue Per Day below peer averages – WHY?
10
Third Party Contracts
• Project Overview
• ND Opportunities
– Third Party
Contracts
• Peer Comparison (continued)
– CAH economics
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
IP Acute Unit Revenue
$1,600
$1,400
$1,200
Medicare Acute
Rev/Day
$1,000
Non-Medicare
Acute Rev/Day
$800
$600
T otal Acute
Costs/Day
$400
$200
$0
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
Acute and SB SNF ADC
• Aggressive third party reimbursement forces CAHs to be cost
efficient as it drives CAH profitability
– No margin in Medicare services
– Medicare per unit revenue decreases as CAHs become more efficient
11
Third Party Contracts
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Outcomes
– ND CAHs are generally more efficient than peer CAHs
• How we know – look at Medicare revenue per day
– ND strategies to reduce unit costs
• Have gotten into other non-hospital businesses to dilute fixed costs
(to be continued)
• Limited non employee related costs (e.g., capital)
– Not sustainable
12
Third Party Contracts
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
Evaluation of Third Party Contracts – Marginal Cost Analysis
• Growing inpatient
non-Medicare
volume by 50 days
paid at an average
reimbursed rate of
$900 contributes
$5,340 to profit or
approximately
$107/day
Model A: Base Case (Information based on 2004 Cost Report)
Medicare
Medicare
ADC
Total Days Payer Mix
Days
Acute (inc Observ)
0.5
189
99%
172
Swing Bed - SNF
3.4
1,226
100%
1,226
Total Acute/SB SNF
1,415
1,398
Inpatient Fixed Costs
Inpatient Variable Costs
Total Routine Costs
Inpatient Costs Per Day
Medicare Payment
Total Payment
Inpatient Costs
Net Margin
$ 1,002,192 ***
$ 160,400 **
$ 1,162,592
$
821.62
Other
Days
17
17
Payment
Per Day
$
900
$
125
$
900
$
821.62
$ 1,148,624
Other
Payment
$
15,300
$
$
15,300
$ 1,148,624
$ 1,163,924
$ 1,162,592
$
1,332
** Assumes $200/day marginal acute costs and $100/day marginal swing bed costs
*** Assumes Medicare fully allocated acute and swing bed costs/Medicare payer mix less variable costs
Model B: 50 additional Commerical Days Paying $900/Day (Assume $200 Variable Costs)
Medicare
Medicare
Other
Payment
ADC
Total Days Payer Mix
Days
Days
Per Day
Acute
**
239
72%
172
67 $
900
Swing Bed - SNF
3.4
1,226
100%
1,226
$
125
Total Acute/SB SNF
1,465
1,398
67 $
900
Other
Payment
$
60,300
$
$
60,300
Inpatient Fixed Costs
$ 1,002,192
Inpatient Variable Costs
$ 170,400
Total Routine Costs
$ 1,172,592
Routine Costs Per Day
$
800.40
Medicare/TennCare Payment
Total Payment
Routine Costs
Net Margin
Difference
$ 1,118,965
$ 1,179,265
$ 1,172,592
$
6,673
$
5,340
$
800.40
$ 1,118,965
13
Third Party Contracts
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
Evaluation of Third Party Contracts – Marginal Cost Analysis
• Growing outpatient
non-Medicare
radiology services by
50 tests paid at an
average reimbursed
rate of $82
contributes $2,178 to
profit or
approximately
$44/test
Model A: Radiology Base Case (2004 Cost Report)
Medicare Medicare
Units
Payer Mix
Units
Radiology Services
1,195
33%
399
Radiology Fixed Costs
Radiology Variable Costs
Total Rad OP Costs
Radiology OP Units
Outpatient Unit Costs
Medicare Payment
Total Payment
Radiology OP Costs
Net Margin
$
$
$
$
105,632 ***
11,950 **
117,582
1,195
98.39
Other
Payment
Other
Units Per Unit*
Payment
796 $
82 $
65,179
$ 98.39
$ 39,283
$
$
$
$
39,283
104,462
117,582
(13,120)
* Assume average Charge per unit*average 3rd party payment (80%) and 2005 charge master inc.
** Assumes variable costs of an additional X-Ray test of $10
*** Assumes fully allocated radiology costs less inpatient cost allocation, less variable costs
Model B: 50 Additional Blue Cross Radiology Tests
Medicare
Units
Payer Mix
Radiology Services
1,245
N/A
Radiology Fixed Costs
Radiology Variable Costs
Total Rad OP Costs
Radiology OP Units
Outpatient Unit Costs
Medicare Payment
Total Payment
Radiology OP Costs
Net Margin
Difference
$
$
$
$
105,632
12,450
118,082
1,245
94.84
Medicare
Units
399
$ 94.84
$ 37,866
Other
Payment
Units
Per Unit
846 $
82
Other
Payment
$
69,274
$
$
$
$
$
37,866
107,140
118,082
(10,942)
2,178
14
Third Party Contracts
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
Evaluation of Third Party Contracts – Marginal Cost Analysis
• Growing outpatient
non-Medicare PT
services by 50 units
paid at an average
reimbursed rate of
$37 contributes
$406 to profit or
approximately
$8/unit
Model A: Physical Therapy Base Case (2004 Cost Report)
Medicare Medicare
Units
Payer Mix
Units
OP PT Services
4,501
63%
2,816
OP PT Fixed Costs
OP PT Variable Costs
Total OP PT Costs
PT OP Units
Outpatient Unit Costs
Medicare Payment
Total Payment
PT OP Costs
Net PT Margin
$
$
$
$
173,446 ***
22,505 **
195,951
4,501
43.54
Other
Units
1,685
Payment
Other
Per Unit*
Payment
$ 36.96 $
62,290
$ 43.54
$ 122,583
$
$
$
$
122,583
184,873
195,951
(11,078)
* Medicare average charge/unit from PS&R*average 3rd party payment (80%) and 2005 charge master inc.
** Assumes variable costs of an additional PT unit of $5.00
*** Assumes fully allocated radiology costs less inpatient cost allocation, less variable costs
Model B: 50 Additional Blue Cross PT Billed Units
Medicare
Units
Payer Mix
OP PT Services
4,551
N/A
OP PT Fixed Costs
OP PT Variable Costs
Total OP PT Costs
PT OP Units
Outpatient Unit Costs
Medicare Payment
Total Payment
PT OP Costs
Net PT Margin
Difference
$
$
$
$
173,446
22,755
196,201
4,551
43.11
Medicare
Units
2,816
$ 43.11
$ 121,391
Other
Units
1,735
Payment
Per Unit
$ 36.96
Other
Payment
$
64,138
$
$
$
$
$
121,391
185,529
196,201
(10,672)
406
15
Third Party Contracts
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Opportunity
– Essential for all ND CAHs to understand third party allowed
amounts relative to fully allocated costs and marginal costs
• Use cost report ratio of cost to charges on a departmental basis to
determine profitability of services
• Marginal cost analysis based on estimated variable costs plus
dilution in Medicare cost-based reimbursement
– Essential to generate enough profit on marginal costs to cover overhead
costs
– With full understanding of contract profitability (or losses), meet
individually with Blue Cross representatives
• Appeal for Market Responsibility
16
Swing Bed SNF vs. NF
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Issue
– Non-Medicare Swing Bed SNF patients should be carved out
of routine costs at regional rate and not average routine cost
• General Principles
– 6-120 Rev. 1843 – “…To calculate SNF-like SB cost per day,
adjusted routine costs are divided by the sum of the total
number of inpatient routine days and total SNF-like SB days
– S-3 Line 3 should be 100% Medicare
• “Adjusted routine costs = total routine costs less NF-like SB
days”
17
Swing Bed SNF vs. NF
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Memo from CMS to upstate NY CAH
– July 1, 2005
18
Swing Bed SNF vs. NF
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Cost Report Impact – Worksheet S-3
19
Swing Bed SNF vs. NF
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Financial Impact – ND Example
Without NF
With NF
Medicare
Carveout
Carveout
Difference
FY 2005 Actual Cost Report
Medicare Impact
Routine Costs (CR, Wkst. B, Pt I, line 25)
NF Carveout -NF Days
NF Rate (estimated regional rate)
NF Carveout
Net Acute Costs
$
$
Total Days (S-3, Rows 1-4, Column 6):
Acute
Swing Bed SNF (Medicare Only)
Swing Bed NF (all non-Medicare SB days)
Observation
Total Days
Routine Costs Per Day
Medicare Acute Days
Medicare Swing Bed Days
Medicare Days
Medicare Routine Costs
1,017,026
$ 1,017,026
1,010
130.43
131,729
885,297
1,137
130.43
148,293
868,733
$
605
450
127
270
1,452
$
609.71
$
417
450
867
528,617
605
450
270
1,325
$
655.65
$
417
450
867
568,446
$
39,829
20
Swing Bed SNF vs. NF
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Opportunity
– It is essential that SNF-like and NF-like SBs are properly
classified on Worksheet S-3 as NF-like SBs are reimbursed on
a “PPS” basis while SNF-like SBs on a cost basis
• High Medicare payer mix for SNF-like beds will increase
reimbursement
– Review prior period cost reports back to December 20, 2000
21
Departments with >1 Ratio of Cost to Charges (RCC)
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
•
Issue
–
– Departments
with >1 RCCs
Outpatient departments with RCCs > 1 will generate losses on
all non cost-based volume
•
– Non-Hospital
Businesses
Issues with
–
– Skilled Care in
SNF or NH
» Many ND CAHs use Blue Cross fee schedule as basis for charge
master
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
Charge Master not set high enough
–
–
All charges not being captured
–
Volume not adequate to offset department standby costs
–
Direct expenses too high
Ancillary departments with costs greater than charges often
include:
•
Emergency Department
•
Physical Therapy
•
Observation beds
22
Departments with >1 Ratio of Cost to Charges (RCC)
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Patient Deductions and Outpatient Cost to Charges
23
Departments with >1 Ratio of Cost to Charges (RCC)
• Project Overview
• ND Opportunities
• Ancillary Service Mark-Up Ratio for ND CAHs
– Third Party
Contracts
North Dakota CAHs
Markup Ratios
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
Hospital
D
H
A
B
C
G
I
J
F
E
Average
Operating
Margin %
1.77%
0.29%
2.04%
1.38%
-8.42%
-5.41%
-6.57%
-2.20%
-1.80%
-4.42%
Mark up
Ratio
2.04
1.84
1.80
1.62
1.56
1.56
1.40
1.40
1.38
1.23
1.58
– Direct correlation between ancillary service mark-up ratio and
CAH operating margin
24
Departments with >1 Ratio of Cost to Charges (RCC)
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
• ND benchmarked to national peer group
– Overall ancillary service mark-up ratio
Ancillary Service Markup Ratio
Average ND CAH (from Sample)
FY 2005
1.58
Benchmark
75th percentile
3.24
Median
2.77
25th percentile
2.36
Benchmark for small, rural hospitals from 2005 Sourcebook (Solucient, based on 2003 data).
• Mark-up ratio significantly below 25th percentile of peers
– Ancillary service mark-up by key department
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Benchmark source: Solucient, Comparative Performance of US
Hospitals
25
Departments with >1 Ratio of Cost to Charges (RCC)
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Opportunity
– Evaluate charge master
• Formal external charge master review
• Blue Cross fee schedule inflated by ???%
• Medicare APCs
– Grow patient volume by working with physicians
– Consider productivity incentives for physical therapists
– Reduce expenses
• Purchasing organizations, networks, etc.
26
Non-Hospital Businesses
• Project Overview
• ND Opportunities
• Sample of Non-Hospital Businesses
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
North Dakota CAHs
Non-CAH Entities
Hospital
A
D
B
H
F
J
E
G
I
C
Operating Nursing
Margin %
Home
2.04%
1.77%
X
1.38%
0.29%
-1.80%
X
-2.20%
-4.42%
X
-5.41%
X
-6.57%
X
-8.42%
Assisted
Living
Basic
Care
Senior Housing/
Apartments
X
X
Ambulance Wellness
Home
Health
Hospice
X
X
X
X
X
X
X
X
X
X
Clinic/
RHC
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
– Direct correlation between number of Non-CAH businesses and
system-wide operating losses
• However, in most rural communities, CAHs are the center of
healthcare activity and core mission supports these services
– Just recognize it!
27
Non-Hospital Businesses
• Project Overview
• ND Opportunities
• Example 1 – Home Health Agency
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
Home Health Profitabilty Analysis
Revenue:
Revenue
Medicare PPS Revenue
Medicare % of Total Visits
Medicare Revenue Grossed Up (1)
$
Operating Expenses:
Direct Expenses (2005 ICR - WS A):
$
Indirect Expenses (ICR Stepdown - WS B)
Capital Costs
Admin and General
Employee Benefits
Plant Operations
Total
Total Home Health expenses
Home Health Direct Gain
Total
Home Health
Allocation
Variable %
$
4,786
50%
$
85,649
20%
$
74,503
90%
$
10,674
25%
$ 175,612 (a)
$ 790,729
$ (117,232)
615,117
Overhead expenses allocated to Home Health away from Hospital (a) - (b)
Estimated CAH Cost Based Payer Mix
Lost Cost Based Payer Revenue on Allocated Costs
Home Health Net Loss
$
183,757
27.3%
673,497
$
615,117
$
$
$
$
$
$
$
2,393
17,130
67,053
2,669
89,244 (b)
704,361
(30,864)
$
86,368
40%
(34,547)
(65,411)
$
(1) Grossed up Medicare revenue assumes other payers pay at approximately Medicare rates.
28
Non-Hospital Businesses
• Project Overview
• ND Opportunities
• Example 2 – Assisted Living Center
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
Assisted Living Center
Revenue:
2003 Cash Receipts
$
610,000
Operating Expenses:
Direct Expenses (2003 ICR):
Salary expense
Other
Total Direct Expense
$
$
$
255,022
310,541
565,563
$
$
$
$
$
8,930
69,281
78,211 (b)
643,774
(33,774)
$
(52,840)
(86,614)
Total
Day Care
Allocation
Variable %
$ 89,299
10%
$ 76,979
90%
$ 166,278 (a)
Indirect Expenses (ICR Stepdown)
Admin and General
Employee benefits
Total
Total Day Care Variable Expenses
Day Care Direct Loss
Overhead expenses allocated to Center away from Hospital (a) - (b)
Estimated Cost Based Payer Mix
Lost Cost Based Payer Mix Revenue on Allocated Costs
Total Assisted Living Loss
$
88,067
60%
29
Non-Hospital Businesses
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Guiding Principle
– Important to understand the pros and cons of non-reimbursable
cost centers (e.g., home health agencies, assisted living, nursing
homes, etc.)
• Pros – Mission objectives, potential direct gains/margin, and
dilution of overhead costs to enable hospital profit on commercial
business
• Cons – Potential direct losses and decreased Medicare cost-based
reimbursement from fixed costs allocated out of hospital
• Opportunities
– Understand true loss of non-hospital business performing
analysis similar to prior pages
– If net losses, consider spinning business out of hospital
• If losses acknowledged as part of mission, maintain business
• May be opportunity to give back to County
– Can consider potential hospital subsidy to business
30
Skilled Care in CAH or NH
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Issue
– Several CAHs care for a majority of Medicare SNF patients in
the nursing home vs. the CAH where patients may receive
better rehabilitative care
– Example
Swing Bed vs. Distinct Part SNF Model
1/1/05-12/31/05 Actual (Base Case)
Fully Allocated Cost/Day or PPS
Medicare Days
Medicare Revenue
Acute
1,081
381
411,775
Swing
$
795
696
$ 553,128
LTC
$
217
831
$ 180,693 $
Example 1: LTC In Swing Beds
Acute
Fully Allocated Cost/Day
$
889
Medicare Days
381
Medicare Revenue
$
338,710
Incremental Medicare Reimbursement over Base Case
Swing
$
558
1,527
$ 852,101
LTC
$
217
$
$
1,190,811
$
45,215
$
$
Total
1,145,596
Total
* Assume that incremental costs of swing bed services are $75/day for routine
*Assume that incremental overhead expenses allocated to swing beds are $75/day for routine
• Financial analysis indicates that CAH would improve its overall
reimbursement by $45K if Medicare patients were cared for in
the CAH
31
Skilled Care in CAH or NH
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• For the CFOs
Medicare Acute Impact
Acute costs (CR, Wkst. B, Pt I, line 25)
Incremental Swing Bed Costs
Total Acute Costs
NF Carveout -NF Days
NF Rate
NF Carveout
Net Acute Costs
Total Acute Days (Excludes ICU, includes Obs, SB SNF)
Routine Costs Per Day
Medicare Acute Days
Medicare Routine Costs
Medicare inpatient ancillary costs (Wkst. D-4, col 3, line 101)
Total Medicare costs
Total Medicare Days (Acute and ICU)
Total Costs per day
$
$
Swing Bed Impact
SB ancillary costs (Wkst. D-4, col 3, line 101)
SNF ancillary costs (Wkst. D-4, col 3, line 101)
Total SNF ancillary costs
Medicare SB Days (CR S-3, col. 4, line 3)
Ancillary costs per day
CAH routine rate
CAH ancillary rate
CAH SB rate
Long Term Care Impact
Medicare Long Term Care Days (Wkst. S-3)
Medicare PPS Payments (Wkst. E-3)
Medicare Payment per Day
$
Actual
1,023,758
1,023,758
1,379
138.75
191,336
832,422
1,298
641.31
381
244,340
167,435
411,775
381
1,080.77
Inc SB ADC
1,023,758
124,650
1,148,408
1,379
$
138.75
191,336
957,072
2,129
$
449.54
381
171,275
167,435
338,710
381
889.00
106,776
106,776
696
153.41
106,776
58,877
165,653
1,527
108.48
641.31
153.41
794.72
449.54
108.48
558.02
831
180,693
217.44
0
$
-
32
Skilled Care in CAH or NH
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Opportunities
– Have Swing Beds
– Perform analysis on preceding pages to ensure swing beds will
be financially beneficial relative to the distinct part skilled unit
– If Medicare patients have flexibility, consider rehab services in
the CAH swing beds
– Target growth in swing bed services and promote services to
larger community hospitals
33
Nursing Home Losses
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Sample of Losses in Nursing Home
North Dakota CAHs
Sample Nursing Home Performance
Operating
Fully Allocated
Hospital
Margin %
Charges
Costs
D
1.77% $
1,411 $
1,396
E
-4.42% $
2,153 $
1,984
F
-1.80% $
1,911 $
2,024
G
-5.41% $
3,918 $
4,110
I
-6.57% $
3,245 $
3,406
* Does not reflect any contractual allowances that may exist
Gain (loss) *
$
15
$
169
$
(113)
$
(192)
$
(161)
– Losses in Nursing Homes are likely to create an overall
negative operating margin
• CAH cannot generate enough margin to cover nursing home
losses
34
Nursing Home Losses
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Losses – Its all in the definition of “losses”
Nursing Home Profitabilty Analysis
Revenue:
Medicare Revenue
Medicaid Revenue
Self Pay Revenue
Total Days/Cash Receipts
Days
831
10,701
9,548
21,080
Rate
$
$
$
154.00
154.00
154.00
Revenue
$
$
$
$
127,974
1,647,954
1,470,392
3,246,320
Operating Expenses:
Direct Expenses (2003 ICR - WS A):
Salary expense
Other
Total Direct Expense
$ 1,232,963
$ 392,491
$ 1,625,454
$
$
$
1,232,963
392,491
1,625,454
Indirect Expenses (ICR Stepdown - WS B)
Capital Costs
Admin and General
Employee benefits
Plant Operations
Dietary
Social Services
Central Services
Nursing Admin
Housekeeping
Laundry and Linen
Total
Total Nursing Home expenses
Nursing Home Direct Gain
Total
Nursing Home
Allocation
Variable %
$ 244,470
80%
$ 256,643
50%
$
42,077
90%
$ 169,670
80%
$ 616,482
75%
$ 132,718
75%
$
82,853
75%
$
67,929
75%
$
77,890
75%
$
90,261
75%
$ 1,780,993 (a)
$ 3,406,447
$ (160,127)
$
$
$
$
$
$
$
$
$
$
$
$
$
195,576
128,322
37,869
135,736
462,362
99,539
62,140
50,947
58,418
67,696
1,298,603 (b)
2,924,057
322,263
Overhead expenses allocated to Nursing Home away from Hospital (a) - (b)
Estimated Cost Based Payer Mix
Lost Cost Based Payer Mix Revenue on Allocated Costs
Nursing Home Net Gain
$
$
482,390
50%
(241,195)
81,068
35
Nursing Home Losses
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Opportunities
– Using analysis on prior slide, determine true Nursing Home
losses
– Grow Resident Volume
• Adult day care programs
• Senior exercise programs
– Increase Charges – not allowed in ND as set by costs
• Will only affect non-Medicaid reimbursement
• Market may not allow
– Ensure costs are below direct, other direct, and indirect caps
– Differentiate room rate charges between private and semiprivate
– Hospital to “takeover” unused nursing home space
36
Rural Health Clinic Losses
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Losses in Rural Health Clinics (RHCs)
North Dakota CAHs
Sample Clinic Performance
Operating
Clinic
Clinic
Clinic
Hospital
Margin %
Charges
FAC
Gain (loss)
C
-8.42% $
683 $
875 $
(192)
D
1.77% $
718 $
849 $
(131)
E
-4.42% $
658 $
684 $
(26)
F
-1.80% $
255 $
330 $
(75)
I
-6.57% $
393 $
603 $
(210)
J
-2.20% $
1,256 $ 1,296 $
(40)
* Does not reflect any contractual allowances that may exist
*
– Similar to Nursing Homes, losses created in RHCs are likely
to create overall negative operating margin
• CAH cannot generate enough margin to cover RHC losses
– However, not a business to exit for most rural communities
• Base primary care
• Recruitment vehicle
• Consolidation of key diagnostic services
37
Rural Health Clinic Losses
• Project Overview
• ND Opportunities
– Third Party
Contracts
• Opportunities
– Understand operations and incrementally improve
– Swing Bed
SNF vs. NF
FINANCIAL PERFORMANCE
– Departments
with >1 RCCs
– Non-Hospital
Businesses
ORGANIZATIONAL STRUCTURE
– Skilled Care in
SNF or NH
– Nursing
Homes
REVENUE
– Rural Health
Clinics
EXPENSE
– County
Subsidies
– Bad Debt
Expense
Visits
Price
Non-Provider
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
RVU Benchmarks
Collections
Staff Ratios
Visit Benchmarks
Fee Schedule
Overhead Expenses
New Patients
Payer Mix
Throughput
Coding
Provider
38
Rural Health Clinic Losses
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Realities of Successful Private Practice
–
–
–
–
–
–
–
Have had to keep overhead to a minimum
130-140 patient encounters per week
Have had to control payer mix
Have had to add ancillary services
Tight collection policies
Current with Coding
For Hospital to pay physician private practice salary must
meet all of the above criteria – otherwise you lose
– Salary is always right because revenue-expenses = salary
39
Rural Health Clinic Losses
• Project Overview
• ND Opportunities
– Third Party
Contracts
• Provider Compensation
– Benchmarking example
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
Productivity Measures
FP (w/OB) Benchmarks:
Charges (excludes TC)
Ambulatory Encounters
Work Relative Value Units
12 month
period ended
12/31/2005
Family Health Center
MGMA (2005 Report - 2004 Data)
25th
75th
90th
Percentile
Mean
Percentile
Percentile
381,993
2,935
3,486
Dr. A
Charges (excludes TC)
Ambulatory Encounters
Work Relative Value Units
302,392
2,066
5,094
X
X
X
Dr. B
Charges (excludes TC)
Ambulatory Encounters
Work Relative Value Units
356,140
2,037
3,097
X
X
X
Dr. C
Charges (excludes TC)
Ambulatory Encounters
Work Relative Value Units
342,147
2,195
2,861
X
X
X
505,852
3,992
4,339
597,288
4,783
5,104
723,336
5,940
5,980
– Benchmarking is essential for providers to understand their
productivity relative to peers
• “Scientific” data
40
Rural Health Clinic Losses
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Provider Compensation (continued)
– Create productivity-based compensation models
• Best Performing Practices (BPP) frequently include physician
incentives in provider compensation formulas to encourage
physician efficiency and control costs
– Positive effects
• Revenue enhancement
–
–
–
–
–
–
If structured well, physicians like them
Rewards effort
Last patient seen
Accepting larger patient panels
Achieving higher efficiencies through better use of staff
Retaining more cases with less referrals
• Expense management
– Converts a portion of fixed costs to variable costs
41
Rural Health Clinic Losses
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Charge Master
– Establish appropriate charge master
EMHS - Evaluation of Clinic Fee Schedule:
Cod e
Descrip tion
Evaluation and Management Codes:
99201 Office Visit N ew 1
99202 Office Visit N ew 2
99203 Office Visit N ew 3
99204 Office Visit N ew 4
99205 Office Visit N ew 5
99211 Office Visit Established 1
99212 Office Visit Established 2
99213 Office Visit Established 3
99214 Office Visit Established 4
99215 Office Visit Established 5
Total E&M Review ed
Total 2003 Charges
% Review ed
2003
Charges
$
$
$
$
$
$
$
$
$
$
$
3,905
10,275
7,700
1,960
125
28,222
276,255
624,483
28,088
17,942
998,955
$ 1,872,788
53%
** 2003 Fu lly Imp lemented N on-Facility Total
Charge
$
$
$
$
$
$
$
$
$
$
40.00
65.00
100.00
140.00
180.00
25.00
40.00
60.00
85.00
130.00
2003 Conversion Med icare
% of
RVUs**
Factor
Con Fact Med icare
0.95
1.70
2.52
3.59
4.58
0.56
0.99
1.39
2.17
3.18
$
$
$
$
$
$
$
$
$
$
42.11
38.24
39.68
39.00
39.30
44.64
40.40
43.17
39.17
40.88
$
$
$
$
$
$
$
$
$
$
36.32
36.32
36.32
36.32
36.32
36.32
36.32
36.32
36.32
36.32
116%
105%
109%
107%
108%
123%
111%
119%
108%
113%
42
Rural Health Clinic Losses
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Establishing an Appropriate Fee Schedule (continued)
– Goal
– Establish charges that reflect overall market conditions
including:
– Third party payer fee schedules
– Resource based standardization of fees
– Community perception
• CF below market rates = leaving “money on the table”
– EOMBs tell the story
– Opportunities
• Consider developing a standardized conversion factor for
E&M codes in a range between $42-$47 that is reasonable
given local market conditions
• Using RBRVS information, standardize Charge Fee schedule
using these conversion factors
• Continue to evaluate EOMBs to ensure charges are above
“allowed” amount for all primary payers
– Caution: Must meet market conditions
43
Rural Health Clinic Losses
• Project Overview
• ND Opportunities
• E&M Coding Relativity
– Third Party
Contracts
– An estimated 50-60% of visits are actually under-coded
– Swing Bed
SNF vs. NF
• Overall distribution of E&M codes is often skewed towards
lower level services when compared to rural peers
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
E&M Visits, Established Patients
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
% of All Visits
– Nursing
Homes
120%
100%
80%
60%
40%
20%
0%
Provider A
Provider B
Provider C
Provider D
Combined
Rural Peer
99211
99212
99213
99214
99215
44
Rural Health Clinic Losses
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• E&M Coding Relativity (continued)
– Opportunities
– Work with the providers to develop a systematic, scientific
review process that will identify physician-specific trends
and target feedback
– Evaluate coding relativity performance on a quarterly
basis
– Chart coding relativity
– Standardize coding practices from provider to provider
and site to site
– Coding is also a compliance issue
– Assigning an improper code is abuse/fraud – whether
too high or too low
45
Rural Health Clinic Losses
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Practice Expenses - Benchmarking
Dr. Overby's Clinic - Analysis of Overhead Expenses:
10 Months ended 7/31/02 MGMA**
Dollars
% of Net Rev Median %
Gross Charges
$
498,114
196%
129%
Contractual Allow/Bad Debt/Free Care
(244,122)
-96%
-29%
Net Revenue
253,992
100%
100%
Non-Provider Payroll Costs:
Total Non-Provider Salary
Non-provider Benefits costs
Total Non-Provider Payroll Costs
41,547
6,232
47,779
16%
2%
19%
Operating Expenses:
Building and occupancy
Professional liability insurance
Telephone/information systems
Medical supplies
Administrative supplies
Miscellaneous operating cost
3,641
19,966
2,664
9,548
2,654
352
Total Operating Expenses
Total Operating Costs
Net Income before Provider Comp
Provider Compensation and Benefits:
Provider compensation
Provider benefits
Total Physician Expense
Net Practice Income (Deficit)
$
Diff
0%
31%
12%
1%
8%
1%
4%
1%
0%
9%
1%
2%
3%
8%
-7%
1%
-1%
38,825
15%
28%
13%
86,604
167,388
34%
66%
59%
41%
25%
14%
117,522
19,288
136,810
46%
8%
54%
54%
0%
30,578
12%
-8%
20%
** MGMA Cost Survey: Family Practice-Hospital Owned, Median Information (1999 Report)
2
0
46
Rural Health Clinic Losses
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
• Practice Expenses – Benchmarking (continued)
– Various methods to consider clinic support staff
– Departments
with >1 RCCs
Dr. Overby's Clinic Staffing Per FTE Provider:
– Non-Hospital
Businesses
Total FTE Support Staff (excludes bus office, admin, lab, rad,etc.)
Total Number of Providers
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
Practice
2.50
1.00
Benchmark
**
Existing Support Staff per Provider
2.50
Support Staff Below Benchmark
(0.47)
** Benchmark MGMA1999 Cost Survey - Single Specialty, FP, Hosp owned, Median level
2.97
Dr. Overby's Clinic Support Staffing Per 10,000 RVUs*:
Total FTE Support Staff (excludes bus office, admin, lab, rad,etc.)
Total Number of Practice Work RVUs
Support Staff per 10,000 Work RVUs **
Support Staff Below Benchmark
** BenchmarkMGMA1999 Cost Survey - Multispecialty, Median level
Practice
Benchmark
2.50 **
5,660
4.42
(0.79)
5.82
47
County Subsidies/Non Operating Revenue
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
• Issue
– Few CAHs in ND access county subsidies to support operations
• Due to low patient volumes resulting from limited population, CAHs
often do not have enough volume to offset high fixed cost of
maintaining a profitable CAH
– MT CAHs often rely on County Subsidies
– Skilled Care in
SNF or NH
Montana CAHs
County Subsidies (amounts in 000's)
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
Hospital
A
B
C
D
E
F
G
H
I
J
K
L
M
Operating
Revenue
$
995
$
1,309
$
1,497
$
1,638
$
2,531
$
2,965
$
3,118
$
3,127
$
3,236
$
3,384
$
4,656
$
9,867
$ 13,708
Operating
Expense
$
1,296
$
1,504
$
1,788
$
1,993
$
3,461
$
3,182
$
3,440
$
3,319
$
3,273
$
3,632
$
5,545
$ 10,593
$ 13,242
Operating
Margin
$
(301)
$
(195)
$
(291)
$
(355)
$
(930)
$
(217)
$
(322)
$
(192)
$
(37)
$
(248)
$
(889)
$
(726)
$
466
County
Subsidy
$
287
$
112
$
500
$
122
$
77
$
79
$
64
$
$
$
61
$
534
$
231
$
-
48
County Subsidies/Non-Operating Revenue
• Project Overview
• ND Opportunities
• Non-Operating Revenue
– Third Party
Contracts
North Dakota CAHs
Non-Operating Revenue %
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
Hospital
I
E
F
H
A
J
G
B
D
C
Sample Average:
Statewide Average:
Operating
Margin %
-6.57%
-4.42%
-1.80%
0.29%
2.04%
-2.20%
-5.41%
1.38%
1.77%
-8.42%
-2.33%
N/A
Total
Non Operating
Margin (%)
Revenue %
0.06%
6.64%
-1.14%
3.28%
1.31%
3.12%
2.57%
2.28%
4.01%
1.97%
-0.50%
1.70%
-4.02%
1.39%
2.65%
1.27%
2.84%
1.07%
-7.72%
0.70%
0.01%
2.34%
-2.33%
N/A
– No correlation between non-operating revenue and total margin
– Varying degree of non-operating revenue by CAH, however
critical for some CAHs
49
County Subsidies/Non-Operating Revenue
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Opportunity
– Consider approaching county and present information to
demonstrate CAH economics as rationale for a subsidy
• In particular, non-hospital businesses that the organization has taken
on as the community healthcare hub
– Outreach to community for contributions either directly through
hospital or foundation
50
Bad Debt Expense
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
• Issue
– Varying degree of performance when comparing Bad Debt
Expense relative to hospital and Clinic gross charges
– Departments
with >1 RCCs
North Dakota CAHs
Bad Debt Analysis
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
Hospital
J
G
H
A
B
I
D
C
E
F
Operating
Margin %
-2.20%
-5.41%
0.29%
2.04%
1.38%
-6.57%
1.77%
-8.42%
-4.42%
-1.80%
Bad Debt
To Gross Rev
4.61%
2.97%
2.22%
1.77%
1.75%
1.47%
1.38%
1.05%
0.80%
0.51%
• No strong correlation between CAH operating margin and Bad Debt
Expense
51
Bad Debt Expense
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Opportunity
– Many CAHs have explored options for reducing bad debt expense
– Strategies have included:
• Establish process to collect co-payments and deductibles from all
patients
– Process will require patient registration staff to be trained in
collection techniques as well as providing additional information
to staff including charge master, etc.
• Analyze the process of physicians triaging patients in the ED
– Establish a non-emergent co-payment amount of $50 or $100 for
all emergency room patients determined to be non-emergent
(after medical screening by an approved clinician)
• Target 100% of elective procedures to be pre-registered
– Use the pre-registration process to begin conversations regarding
payment for services at time of service as well as to verify insurance
• Establish weekly process to monitor collected upfront co-payments
and deductibles
• Provide expanded financial counseling to assist self-pay patients in
filling out Medicaid applications and to set up payment arrangements
52
Interim Cost Reports or Net Revenue Model
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
• Issue
– Without an understanding of current year volume and expense
changes on Medicare revenue, year end surprises may occur
– Interim financial statements can be meaningless and allow
inaccurate operating decisions
• Example:
CAH Interim Payments and Revenue Recognition
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
Medicare Acute Costs
Medicare Acute Days
Cost Per Day
Interim Rate
Difference
Settlement
Prior Year
$ 1,716,000
1,844
$
930.59
Scenerio 1
Scenerio 2
15% Volume
15% Volume
Decrease
Increase
$
1,716,000 * $
1,801,800 **
1,567
2,121
$
1,094.81
$
849.67
$
930.59
$
930.59
$
164.22
$
(80.92)
$
257,400
$
(171,600)
* Assumes 0% costs increase due to higher nursing and benefits offset by a lower ancillary cost allocation
** Assumes 5% increase in costs related to higher nursing and benefits as well as additional ancillary costs
53
Interim Cost Reports or Net Revenue Model
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Guiding Principle
– Interim reimbursement is not final reimbursement
• Understand the difference from both a cash flow perspective
and from an operational decision-making perspective
• Opportunity
– Quarterly calculation of Medicare cost-based reimbursement
– Work with cost report preparer or CPA to either develop tool for
internal analysis prepare quarterly/semi-annual interim cost
reports
54
Physician Recruitment
• Project Overview
• ND Opportunities
• Expected physician complement
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
Current Service Area Potential Service Area
Physician Need Calculations
Physician FTEs
3,000
Area
1
Total
Area
Surplus
Need (Shortage)
2
3,500
Area
Surplus
Need (Shortage)
2
Primary care specialties
– Non-Hospital
Businesses
Family practice
1.50
1.53
(0.03)
1.79
(0.29)
– Skilled Care in
SNF or NH
General internal medicine
0.00
0.82
(0.82)
0.96
(0.96)
General pediatrics
0.00
0.35
(0.35)
0.41
(0.41)
– Nursing
Homes
3
Primary care total
(1.66)
Medical subspecialties
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
(1.20)
Cardiology
0.00
0.09
(0.09)
0.10
(0.10)
Gastroenterology
0.00
0.06
(0.06)
0.07
(0.07)
Medical subspecialty total
(0.21)
(0.25)
Surgical specialties
General and other surgery
– Interim Cost
Reports
0.00
0.18
(0.18)
0.20
(0.20)
Obstetrics/gynecology
0.00
0.30
(0.30)
0.35
(0.35)
– Physician
Recruitment
Ophthalmology
0.00
0.11
(0.11)
0.13
(0.13)
Orthopedics
0.00
0.13
(0.13)
0.15
(0.15)
– Outpatient
Services
• Summary
Surgical specialty total
(0.85)
(1.00)
1
Physician FTEs calculated as 18 days per month = 1.0 FTE. Mid-level provider FTE calculated as 0.75 FTE and added to Family
practice total.
2
Based on 2000-2002 physician to population ratio data from three prepaid group practices that serve over eight million consumers.
Source: Weiner JP, Prepaid Group Practice Staffing and U.S. Physician Supply: Lessons for Workforce Policy, Health Affair
3
Family practice calculated need calculated by averaging Weiner data and a state-specific ratio of self-labeled generalist physicians
to population. Source: Flowers L et al. State Profiles: Reforming the Health Care System. AARP Public Policy Institute
55
Physician Recruitment
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Issue
– Communities do not have enough providers to meet expected
community demand
• Result is patients leave the community for health care services
• Opportunity
– Evaluate current community demand using information provided
in previous slide
• Use information as a basis for a Medical Staff Plan
• Meet with local providers to understand their thoughts
– Recruit providers to meet expected demand of the community
56
Growth in Outpatient Volume
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Issue
– Outpatient volume is necessary to generate profit in a CAH
– Many communities have below expected levels of charges for
outpatient departments
• Radiology, PT, Lab, etc.
– High RCCs are often an indicator of outpatient volume leaving
the community
57
Growth in Outpatient Volume
• Project Overview
• ND Opportunities
– Third Party
Contracts
• CAH Economics - Hypothetical Model
– All growth in inpatient services
– Swing Bed
SNF vs. NF
Inpatient & LTC Breakeven Analysis
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
(IP Growth - Assumes Constant OP Visits)
$6,000,000
$5,500,000
$5,000,000
$4,500,000
T otal IP Rev
$4,000,000
IP Costs
$3,500,000
$3,000,000
$2,500,000
$2,000,000
3.0
3.5
– Outpatient
Services
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
Acute and Swing Bed ADC
• Summary
• Growth in inpatient services increases margin, but not much
– Why?
58
Growth in Outpatient Volume
– All growth in outpatient services
– Swing Bed
SNF vs. NF
Outpatient Breakeven Analysis
– Departments
with >1 RCCs
– Skilled Care in
SNF or NH
$5,500,000
$5,000,000
– Nursing
Homes
$4,500,000
– Rural Health
Clinics
$4,000,000
$3,500,000
– County
Subsidies
$3,000,000
$2,500,000
– Outpatient
Services
• Summary
50
0
37
,
00
0
35
,
50
0
32
,
00
0
30
,
50
0
27
,
00
0
25
,
50
0
50
0
00
0
17
,
– Physician
Recruitment
$2,000,000
50
0
– Interim Cost
Reports
T otal OP
Rev
T otal OP
Costs
12
,
– Bad Debt
Expense
(OP Growth - Assumes Constant Acute and SB ADC)
$6,000,000
15
,
– Non-Hospital
Businesses
22
,
– Third Party
Contracts
• CAH Economics - Hypothetical Model (continued)
00
0
• ND Opportunities
20
,
• Project Overview
Outpatient Visits
• Growth in outpatient services increases margin substantially
– Why?
59
Growth in Outpatient Volume
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
– Rural Health
Clinics
– County
Subsidies
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
• Opportunity
– Ensure patients are staying in the community for all appropriate
outpatient services
– Promote services in the community
– Work with physicians to better understand their requirements for
referring additional services to the CAH
60
Summary
• Project Overview
• ND Opportunities
– Third Party
Contracts
– Swing Bed
SNF vs. NF
– Departments
with >1 RCCs
– Non-Hospital
Businesses
– Skilled Care in
SNF or NH
– Nursing
Homes
• Third party contracts are aggressive and have forced
ND CAHs to be efficient
– Partially responsible for underperformance relative to
neighboring states (SD and MN)
• Many opportunities for ND CAHs to pursue financial
improvement independent of third party contracts
– Rural Health
Clinics
– Charge master
– County
Subsidies
– Non-hospital businesses
– Bad Debt
Expense
– Interim Cost
Reports
– Physician
Recruitment
– Outpatient
Services
• Summary
– Care for Medicare skilled patients
– Etc.
61
Thanks for listening!
Eric Shell, CPA, MBA
[email protected]