Financing Our Mission WorkshopNational Leadership Conference for Academic

Pediatricians

Denice Cora-Bramble, MD, MBAExecutive Director

Goldberg Center for Community Pediatric HealthChildren’s National Medical Center

Professor of Pediatrics, George Washington University

Washington, D.C.

Overview

• Practical, case-based, interactive session• Revenues and expenses• Nuts and bolts: Finance & Accounting 101• Financial performance improvement• Future directions• Professional development opportunities

Washington, D.C.

Learning Objectives

At the end of the session, the learner will be able to:

1. Understand the general principles of financial statements, budgets and financial decision making

2. Apply strategies to improve their divisions’ financial performance

3. Assess the financial challenges inherent in leading an academic general pediatrics division

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Workshop Challenges

• Learners at different stages (prospective, current and “Emeritus” Division Directors)

• Each division is different – our goal is to share and examine the differences

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The Business Side of Medicine

• Limited training as part of undergraduate and graduate medical education

• Ascent to Division Director position often without financial tool kit

• Personal trajectory: leadership fellowship, Business of Medicine Certificate, JHU MBA with concentration in Medical Services Management

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Environmental Pulse

• Decreased reimbursement and total revenue– Medicaid cuts: $26 million over five years (President’s

FY 08 budget proposal)

• Increased expenses• Decrease in NIH research dollars• Productivity pressure• Decreasing educational financial support• Competing demands

– Clinical/research/education/advocacy

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Other Environmental Factors?

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Division Directors’ Financial Challenges

• Develop realistic budgets• Manage clinical and research budgets• Anticipate and manage budget shortfalls• Improve revenues• Minimize expenses• Compensate faculty and staff

appropriately

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Nuts and Bolts: Accounting and Finance 101

• Terms and definitions• Financial statements• Budgeting and forecasting• Financial decision making

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Tools to Answer Financial Questions

Is my division:– Meeting budget?– Making a profit?– Doing better than last year?

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Types of Financial Statements

I. Income statement II. Balance sheetIII. Cash flow statement

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I. Income Statements

Also known as:• Profit and Loss Statement (P&L)• Statement of Revenue and Expenditures• Statement of Earnings

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Income Statements

SalesLess cost of goods sold_____________________________________Gross MarginLess operating cost_____________________________________Operating MarginLess taxes, other_____________________________________Net Income or Net Profit Margin

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II. Balance Sheets

Assets

CashAccounts receivableInventory Fixed AssetsIntangibles

Liabilities

Accounts payableLong-term debt

Equity *Retained earnings

* Equity = Assets - Liabilities

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III. Cash Flow Statements

Beginning balance(+) Cash collected(-) Cash paid___________________________________Ending cash

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Group Questions

• What financial statement(s) do you receive?

• How often are they shared?• Are they easy to understand?• Are they error-free and accurate?

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Comment by General Pediatrics Division Director

“I am certain we lose money but our institution’s creative accounting makes it

difficult to know.”

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Division Directors’ Directives

• Understand, review, identify and correct errors• Teach other division leaders to understand and

interpret financial statements• Plan and implement “back-to-budget” mid course

corrections• Use data as baseline in developing growth plan

and future budgets• Assess financial and patient volume trends (3-5

years)• Plan (boldly!) for division’s growth

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Key Terms

• Revenue– Patient Revenue– Other Operating Revenue

• Expenses• Operating Margin• Variance• Profit, Earnings or Net Income

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Profit Margin = Revenue - Expenses

Revenue(+) Inpatient Revenue (+) Outpatient Revenue(+) Other Revenue(-) Deductions from

Patient Revenue(-) Bad Debt____________________= TOTAL REVENUE

ExpensesSalaries & BenefitsLeaseSuppliesEquipmentUtilitiesOther________________= TOTAL EXPENSES

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Variance = Actual - Budgeted

• If actual > budgeted: profit– Does division keep the profit?– Reinvestment in faculty/staff, technology,

program development• If actual < budgeted: [loss]

– Communication – Justification– Plan of action– Monitoring

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Sample Profit and Loss Statement

Monthly Departmental Performance ReportFor the Month Ended January 31, 2007Sample Division

Current Month - January Year to Date - January2007

January January Fav / (Unfav) Account January YTD January YTD Fav / (Unfav) AnnualActual Budget Variance % Variance Number Account Description Actual Budget Variance % Variance Budget

SUMMARY INFORMATION-FINANCIAL*** Summary Profit & Loss Statement ***

95,000 110,882 (15,882) -14.3% Inpatient Revenue 567,486 675,568 (108,082) -16.0% 1,141,799 1,655,000 1,467,063 187,937 12.8% Outpatient Revenue 13,125,250 12,967,895 157,355 1.2% 22,355,230 1,750,000 1,577,945 172,055 10.9% Total Patient Revenue 13,692,736 13,643,463 49,273 0.4% 23,497,029

955,930 839,188 (116,743) -13.9% Deductions from Revenue 7,124,502 7,235,432 110,930 1.5% 13,214,500 45,498 40,409 (5,089) -12.6% Bad Debt Expense 322,781 294,267 (28,514) -9.7% 494,878

748,572 698,348 50,224 7.2% Net Patient Revenue 6,245,454 6,113,765 131,689 2.2% 9,787,651 30,000 29,917 83 0.3% Other Operating Revenue 160,512 150,000 10,512 7.0% 359,000 50,000 134,502 (84,502) -62.8% Satisfaction of Program Restrictions 650,000 941,516 291,516 31% 1,864,027

828,572 862,767 (34,195) -4.0% Total Revenues 7,055,966 7,205,280 (149,314) -2.1% 12,010,678 805,067 855,935 50,868 5.9% Salaries 5,813,263 6,002,428 189,165 3.2% 9,894,621

57,399 62,839 5,440 8.7% Benefits 369,504 360,166 (9,338) -2.6% 654,664 - 2,500 2,500 100.0% Professional Fees 16,791 17,500 709 4.0% 30,000

24,841 20,005 (4,837) -24.2% Supplies 213,426 146,143 (67,284) -46.0% 246,344 10,560 7,913 (2,647) -33.5% Minor Equiptment 49,127 55,985 6,859 12.3% 97,449 12,891 13,078 188 1.4% Purchased Services 77,559 99,662 22,103 22.2% 169,604 30,169 31,543 1,374 4.4% Lease 221,016 219,466 (1,551) -0.7% 377,519 11,030 9,655 (1,375) -14.2% Utilities 64,361 67,216 2,855 4.2% 120,585 25,950 24,155 (1,796) -7.4% Other Expenses 179,381 173,320 (6,061) -3.5% 287,990

977,907 1,027,622 49,714 4.8% Total Operating Expenses 7,004,429 7,141,886 137,457 1.9% 11,878,777 (149,335) (164,855) 15,519 941.4% Net Margin 51,538 63,395 (11,857) -18.7% 131,902

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Group Exercise: What is the Margin?

RevenueTotal Patient Revenue 1,575,000Deductions f/ Revenue 875,000Net Patient Revenue 700,000Other Sources of Rev.

200,000TOTAL REVENUE ______

Actual Revenue ______

Budgeted Revenue 1,000,000VARIANCE ______

Expenses

Total Expenses825,000

Budgeted Expenses925,000

VARIANCE ______

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Revenue Sources for General Pediatrics Divisions

Cheng T, Markakis D, DeWitt T. The Status of Academic General Pediatrics: No Longer Endangered? Pediatrics. 2007;119(1):e46-52

Administration9%

Endowment2%

Other7%

Education12%

Advocacy3%

Research10%

Clinical57%

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Clinical Revenue

• Patient volume• Coding• Denials• Time of service collections• Operational efficiencies• Third party payor contracts

• Payor mix • Capitated vs. fee for service• Uncompensated care

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Improving Our Margin

1. Maximizing reimbursement2. Increasing patient volume3. Accessing new revenue sources4. Managing claims processes5. Controlling expenses6. Maximizing operational efficiencies7. Involving faculty and staff - train,

incentivize and reward

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Group Questions

• How are the research grants’ indirect costs handled by the pediatrics department?

• Does the general pediatrics division receive funding to support medical student education activities?

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Impact of Coding on Patient Revenue: CNMC’s Case Study

• Practice audit of largest of seven health centers revealed significant under coding of primary care E/M visits

• Implemented coding and documentation education of residents, faculty and staff

• Significant initial and sustained improvements in coding

• Featured in AAP News, January 2004Coding improvement initiative led by Mark Weissman, MD, Division Director, General and Community

Pediatrics, Children’s National Medical Center

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Coding: E/M Charge Pediatrics Bell Curve

0

10

20

30

40

50

E/M %: 5 20 50 20 5

99211 99212 99213 99214 99215

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Coding: CNMC and National Comparisons

0

20

40

60

E/M AAP% 5 20 50 20 5National 5 16 51 24 4CHC-CNMC 10 46 34 9 1

99211 99212 99213 99214 99215

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Post Coding and Documentation Training Results

0

20

40

60

E/M AAP% 5 20 50 20 5CHC-FY02 10 46 34 9 1CHC-FY03 6 22 57 13 2

99211 99212 99213 99214 99215

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Sustained Improvement in Charges per Visit

$-

$25

$50

$75

$100

$125

$150

$175

FY01FY03FY05

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Team Effort

Goldberg Center's Primary Care Financial Performance

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

2003 2004 2005 2006

Fiscal Year

Net Pt. Rev. (52% inc.)

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Increasing Patient Volume

• Aggressive outreach and marketing• New product lines• Expanded referral sources

– Partnerships with schools, WIC, Head Start Centers, others

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Accessing New Revenue Sources

• Training and service grants• Industry and government contracts• Philanthropy• Subsidies by hospital or cross-

subsidization by subspecialty departments

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Managing Claims Processes

• Challenge and reduce denials by third party payors

• Improve point of service collections of co-payments

• Timely claims submission

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Group Exercise: Where Did the Patients Go?

In reviewing the patient volume monthly statistics you notice that there has been a gradual and sustained decrease over the last six months. A new retail-based clinic opened in the neighborhood eight months

ago. What is the financial impact? Are there strategies to mitigate the

impact?

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Budgeting - Business World

• Line item budgets – list all revenues and expenses

• Performance-based budgets – links strategic plan to budget

• Zero-based budgets – must justify all employees, equipment, space

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Budgeting – Academic World

Mission-Based Management:• Quantification of faculty activities: clinical,

research, teaching, administration• Assessment of productivity in each

activity• Assessment of cost

Nutter DO, Bond JS, Coller BS, et al.: Measuring Faculty Effort and Contributions in Medical Education. Acad Med. 2000;75:199-207

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Budgeting – Academic World

Mission-Aligned Planning• Assessment of faculty effort• Unified spreadsheet merging activity data

and department’s expenses/revenues• Identification and presentation of mission

specific financial margins Sloan T, Kaye C, Allen W, et al.: Implementing a Simpler Approach to Mission-Based

Planning in a Medical School. Acad Med. 2005;80(11);994-1004

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Sample Spreadsheet

Revenue and Expenses Education $ Clinical $ Research $ Admin/Svc $ Total $

Revenue12345678910

Expenses121314151617181920

Non salary expensesTotal expensesOperating margin

UNIFIED FINANCIAL WORKSHEET

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Group Discussion:Budgeting Process

• Who in the division should be included?• How long should it take?• What criteria should be used to prioritize

and make final budget decisions?

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Faculty Compensation

National benchmarking data sources• Professional Associations

AAMC (Association of American Medical Colleges): Report on Medical School Faculty Salaries

AAAP (Association of Administrators in Academic Pediatrics): Medical School Pediatric Faculty Compensation and Productivity Survey

MGMA (Medical Group Management Association): Physician Compensation and Productivity Survey

SHM (Society of Hospital Medicine)

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Faculty Compensation

National benchmarking data sources• Surveys conducted by consulting

companies, such as: Sullivan, Cotter and Associates Watson Wyatt Worldwide

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Compensation Challenges

• Variability in delivery of clinical services• Fluctuation in extramural funding• Physician expectation of “guaranteed

salary”

Andreae M, Blad K, Cabana M: Physician Compensation Programs in Academic Medical Centers. Health Care Management Review. 2006;31(3):251-8

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Incentive-Based Compensation

Some published articles raised authors’ concerns regarding:– Impact on teaching– Quality of trainees’ educational experience– Acceptance by academic physicians

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Incentive-Based Compensation

Recently published review (1995-2005) article– Business and medical research databases– Outcome measures

Effect on professional productivity: (+) Financial impact: (+) or neutral Quality of educational experience for trainees:

neutral Faculty satisfaction: (+) or neutral, in one study (-)

Andreae M, Blad K, Cabana M: Physician Compensation Programs in Academic Medical Centers. Health Care Management Review. 2006;31(3):251-8

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Incentive-Based Compensation

“The most important finding from our review was that incentive-based compensation programs can

motivate academic physicians to improve their productivity in both the clinical and scholarly

arena without a negative impact on job satisfaction or education of trainees. Use of

financial incentives is not necessarily in opposition with and may actually enhance the

academic missions.”Andreae M, Blad K, Cabana M: Physician Compensation Programs in Academic Medical Centers. Health

Care Management Review. 2006;31(3):251-8

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Productivity Measures

National Physician Fee Schedule relative value units (RVUs)

– Used frequently to estimate clinical productivity– Does not measure research, administration and teaching

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Productivity Measures

Educational Value Unit (EVU)– “Unit of time spent in education of

students and residents”– 0.1 EVU = 4 hours of work per

week– Core EVU: teaching time not

associated with clinical care– Clinical EVU: associated with billable

clinical activitiesStites S, Vansaghi L, Pingleton S, et al.: Aligning Compensation with Education: Design and

Implementation of the Educational Value Unit (EVU) System in an Academic Internal Medicine Department. Acad Med. 2005;80(12);1100-1106

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Future Directions

• Increase in financial demands in general pediatrics divisions

• Need for on going financial and leadership training

• Expansion of small but important pay-for-performance payments

• Increased competition of retail-based clinics• Others?

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Professional Development

• Hopkins Business of Medicine Graduate Certificate Program

– Four courses (business, finance, accounting and leadership) in one year

• MBA and/or MPH– Degree granting, university-based program– On-line programs (George Washington U, Hopkins,

U of Maryland, others)• Workshops

– American College of Healthcare Executives– Medical Group Management Association

• Others

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Questions and Comments

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Contact Information

Denice Cora-Bramble, MD, MBAExecutive Director

Goldberg Center for Community Pediatric Health

Children’s National Medical Center(202) 476-5857

dcorabra@cnmc.org