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Avoid ‘FTE Creep’ With Productivity Monitors

Of all the financial monitors hospitals must scrutinize, none are more important than productivity. The biggest threat to keeping productivity on track is that of "FTE creep," an often used — but very often misunderstood — phrase for an increase in FTEs beyond reasonable control. 

 

Wages and benefits generally are about 50 percent of any hospital's expenses, and that percentile generally walks a very tight line between profitability and falling into the "red zone." Often hospitals do not have a clearly defined method for monitoring "FTE creep" and keeping it at bay.

To promote productivity actively, hospitals need to ensure that their managers receive timely and regular reports...and more importantly, that the managers know how to interpret the data. It's not uncommon for a sizable portion of hospital management to have a poor grasp on calculating productivity requirements based on a reasonable, industry-accepted indicator. Too often managers base productivity on the voices of personnel "gripes" or unreliable and compromised indicators. 

Good management means grooming good leaders, and a good leader can orchestrate established industry standards to help the organization meet its financial goals without sacrificing patient care or other service outcomes. Keep in mind that productivity has two factors: maintaining good outcomes or services, and affordable staffing. If a hospital cannot afford to provide the right staff to ensure good outcomes and services, a thorough third-party operational assessment should be obtained as soon as possible.

A good operational assessment will include a staffing assessment and a productivity analysis, correlating labor with established processes to determine inefficiencies and opportunities for improving outcomes and services.

Michael Carr, RN, NEA-BC, CJCP is Vice President, Clinical Services, at Alliant Management Services. For more information or to discuss this article, contact him at 502.992.3525 or mcarr@alliantmanagement.com

Measure Performance with the Financial Flexibility Index

Every hospital chief financial officer is confronted with that question daily, weekly, monthly and annually. The perception of what constitutes financial performance depends upon the person asking the question. It could be profitability, cash position, cash reserves for future endeavors, degree of current debt leverage, meeting current financial obligations or investing in the facility and modern medical technology. All of these perspectives are valid, but they need to be taken in aggregate to properly address the question.

By definition, the Financial Flexibility Index is a composite measure of seven financial ratios (standardized around 1995 norms). The index is published in the 2010 Ingenix Almanac of Hospital Financial and Operating Indicators. The Financial Flexibility Index results from an assumption about the importance of funds flow in a business entity. Firms that are likely to thrive can better control the relationship between source of funds and uses of funds and increase the difference between them. The seven ratios that comprise the index are all measures of various dimensions of the funds flow construct.

The Financial Flexibility Index is the sum of the following indicators:

·    (Total Margin -4.7)/4.7)

·    (ROI  PLA – 10)/10)

·    (Replacement Viability – 15.5)/15.5)

·    (Equity Financing – 52)/52)

·    (Days Cash on Hand Short Term – 18)/18

·    (Cash Flow to Total Debt – 17)/17

·    (7.5 - Average Age of Plant)/7.5

Increasing values are favorable.

Applying the Financial Flexibility Index positions the CFO to address the question of financial performance from both a comprehensive and objective position. The index can be utilized on an annual basis and compared to previous fiscal years as well as peer groups. It also accommodates monitoring of financial performance throughout the year based on interim financial reports, on a rolling 12-month basis, versus budget or tracking actual performance against the hospital strategic plan.

Earl Wolff is Senior Vice President, Finance, at Alliant Management Services. For more information or to discuss this article, contact him at 502.992.3525 or ewolff@alliantmanagement.com

How to Increase Incremental Revenue and Build Profitability

The health care industry is experiencing significant change along with an extreme increase in complexity. The pressure to contain costs and expand services while successfully managing an ever-changing and oppressive regulatory environment creates even more challenges to maintaining profitability. 

With this in mind, here are three key strategies that we have found to be highly effective in building incremental revenues and thus, contributing to the overall financial viability of community hospitals. Some may seem obvious while others are very often overlooked. But when all are included within a broad financial management strategy and then successfully implemented, the profitability of community hospitals can improve markedly.

Cost-based reimbursement as found within Critical Access Hospitals has certainly helped improve the financial performance of these organizations; however, it is not a panacea. Cost reimbursement, by its very definition, does not provide a profit. Therefore, hospital leadership must aggressively pursue a broad range of revenue enhancement measures.

1.      Third-party Commercial Payor Negotiations

It's not unusual to find hospitals that avoid rate negotiations with third-party payors. And no wonder! It can be tedious and altogether unpleasant. But it is an essential component of hospital profitability and the first building block in successfully implementing an overall strategy geared toward profitability.

Because many CEOs and CFOs do not possess a background in this type of third-party contracting, expert help is available. An experienced firm will understand the revenue requirements of the hospital, the local market and the cultures of the various third-party payors — all essential for successful rate negotiations. We often recommend individuals or firms that specialize in this type of negotiation and without question, the return on investment can be significant!

2.      Chargemaster Review…Elusive but Significant Revenue

Once new third-party payor commercial contracts are in place, the next step is to implement a regular process of reviewing (updating) the hospital's Chargemaster because this, too, can create significant new revenues for the hospital. This can be especially true where the hospital has negotiated third-party payor contracts that reimburse the hospital a reasonable percentage of charges. We have seen the results firsthand — and they can be dramatic.

Because it is essential to be vigilant, we recommend a full Chargemaster review (update) every other year with a desk review (minor) performed during intervening years. Hospitals that ignore this task can leave significant amounts of reimbursement on the table — funds they are entitled to receive per their commercial payor contracts. We often recommend firms that specialize in this type of revenue cycle activity and again, the return on investment can be significant.

3.      Charge Audit…More Elusive Revenue 

Charge capture processes also can lack focus and emphasis in many community hospitals. As a result, the hospital may not be capturing patient charges it is entitled to collect per its commercial payor contracts. This can be especially true in those hospitals that may lack an order-entry system or other more sophisticated IT system.

We often recommend the establishment of a Charge Audit Committee that meets without fail on a regular basis. Membership should include representatives from all revenue-producing departments (preferably the department manager). Representatives from Information Management, IT, Fiscal Services and Nursing Services should also be included. Contingent upon the hospital and situation, membership may be expanded or modified. Committee review of hospital billing statements against patient medical records provides an opportunity to:

*  Identify lost charges by department and develop modifications to charge capture processes that can increase incremental revenue

*  Draw lines of accountability to those departments where modifications to charge capture processes are needed and have been implemented

*  Identify overcharges or mistaken charges and correct problems that could evolve into corporate compliance issues for the hospital

*  Enhance the activities associated with RAC's readiness

Put into place an ongoing and highly effective Process Improvement activity that fosters communication, teamwork and problem solving across departmental lines; in essence, an activity that is oriented to improving the financial performance of the organization, reducing unnecessary risks, and improving patient satisfaction and quality.

Obviously, other areas of the revenue cycle can and often do need improvement and require a high degree of vigilance. However, the three strategies discussed here are most significant. For many hospitals, they may offer a dramatic opportunity to enhance incremental revenue, overall profitability and long term viability. 

Jeff Buckley is Vice President, Managed Hospitals, at Alliant Management Services. For more information or to discuss this article, contact him at 270.556.1783 or jbuckley@alliantmanagement.com

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