Operational Assessment: A First
Step in Strategic Considerations
Texas Healthcare Trustees
Healthcare Governance Conference
Friday, July 25, 2014
Presenters
Community Hospital Corporation
Wilson Weber, EVP & COO
Cindy Matthews, EVP
Memorial Health System of East Texas
Gary Looper, President & CEO
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Outline
• Performance in the midst of health
reform
• Strategic vision
• Operational assessment process
• Action plan for improvement
• Case Study: Memorial Health System of
East Texas
3
Example of Operational Dysfunction
4
Health Reform
There’s no better time to set your
performance path
• Costs of healthcare are not sustainable
• Payment system is in need of reform to better
align incentives
• Current levels of quality are not acceptable
• Wave of fiscal conservatism will prevail
• Prevention and medical management will
reduce hospital utilization
5
Strategic Vision
• Led by Board and CEO with medical staff
involvement
• Requires Board and medical staff education
• Provides direction for management’s efforts
• Facilitates development of annual business
plans
• Results in strategic initiatives and growth
plans
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Strategic Vision
Vision without action is a daydream.
Action without vision is a nightmare.
- Japanese proverb
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Operational Assessment
Key Areas of Focus
– Productivity
– Supply Chain
– Information Technology
– Strategy/Business Development
– Revenue Cycle
Additional Areas to Consider
– Managed Care
– Human Resources
– Clinical Services
– Risk Opportunities
– Cost Reports
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The Process
• Desk-top Review of Key Data Elements
• Multi-day / Onsite Assessment of Key
Functional Areas
• Medical Staff and Leadership Interviews
• Presentation of Findings & Recommendations
• Board Education on Operational Improvement
Opportunities
• Action Plan Development
9
Sample Productivity Summary
ACTUAL EEOB for Pay Periods
Jan. 7 - Aug 5
PAID
6.46
7.21
AOB
18.1
WORKED
Incremental Improvement in EEOB
Target EEOB Worked
FTE Reduction
Annual Salary Savings
3%
5%
10%
6.26
6.13
5.81
(4)
(6)
(12)
($193,169)
($321,948)
($643,895)
FTE Reduction with Attached Productivity Standards
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(12.9)
Sample Supply Chain Summary
• Analyze GPO savings opportunities
– Analysis of exact match items indicates savings of $245,000
on medical, surgical and pharmacy supplies (23% savings
on medical/surgical and 2.5% savings on pharmacy)
• Complete 340B enrollment documentation for reduced
pricing on outpatient pharmaceuticals
– Savings of approximately 20-25% of Average Wholesaler
Price
• Reduce inventory levels to industry standards
– Balance sheet impact of $531,000
• Implement charge control processes
– Review patient charge methodology to ensure all revenue
is being captured
11
Sample Revenue Cycle Summary
• Through weekly conferencing with revenue cycle team, collections
have increased $486K and DNFB decreased $1.4 million.
• Areas of continued opportunity include:
– Organizational Structure
– IT/Information Systems
– Point of Service Collections
– Medicaid A/R
– OR Time and Supply Charging
– Charge Capture and Reconciliation
– Education
– Coding/Chart Audit Resources
– CDM/Pricing
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Action Plans
• Set reasonable objectives, assign
accountability and timeframes
• Track progress
– Monthly Operating Review
– Monthly Financial Reporting Package
– Utilization of Productivity Tool
– Weekly/Monthly calls with Subject Matter Experts
– Annual Business Plans
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Action Plan Sample for Productivity
Priority
Issue
Findings
High
Productivity Best Practice
Guidelines
Establish control of staffing
and hiring practices to
improve costs.
High
Establish a Hospital-wide
Hospital does not have a
productivity management tool productivity tool to effectively
and process.
manage performance.
Recommendations
Implement
Responsible
CFO, CEO,
CHC reps
Establish targets by department Hospital
and implement the productivity Leaders, CHC
tool.
rep
Establish a CFO-led Executive
Operations Committee to
review/approve all requests for
new hires/replacements.
CFO
Set up then test the productivity CHC reps
tool.
Train key Hospital contact on the CHC reps
productivity tool.
Establish education
timeline/dates for management
team.
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CFO, CHC rep
CASE STUDY
MEMORIAL HEALTH SYSTEM OF EAST TEXAS
LUFKIN, TEXAS
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Memorial Health Overview
• Lufkin Area
– County seat of Angelina County
– Regional hub for East
Texas and 12
surrounding counties
• Points of interest
– Lush Piney Woods
– Angelina College
– Stephen F. Austin State
University in nearby
Nacogdoches
16
Memorial Health Overview
• Memorial Health System of East Texas – founded
in 1949 and funded by the people it serves
• The largest health care system in the deep East
Texas area
17
Memorial Health Overview
• Memorial Health’s four Texas hospitals:
−
−
−
−
Memorial Medical Center—Lufkin, 271 beds
Memorial Medical Center—Livingston, 66 beds
Memorial Medical Center—San Augustine, 18 beds
Memorial Specialty Hospital—Lufkin, 26-bed long-term
acute care hospital
• Providing more than a quarter of a million patient
services each year
• Mission: Providing quality healthcare to the
communities we serve
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The Situation
• After six decades of prominence, Memorial Health was
struggling with a declining revenue position resulting in
potential bond covenant violations
• Competition from an area for-profit hospital put more
pressure on hospital leaders
• The Memorial Health Board and leadership team wished to
find a resource and solution to assist with a turnaround
strategy in order to maintain viability and local control
• When Memorial Health sought guidance from CHC, Moody’s
Investor Service deemed this to be a sound move
• CHC met with hospital leaders to frame and prioritize critical
actions, while creating the foundation for a focused
“turnaround” strategy
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Assessment Approach
• During the summer of 2011, nearly 20
counterpart experts were brought in to
conduct a system-wide operational assessment
• Led by Gary Looper, the Memorial Health team
involved over 90 leaders from across the
organization
• A 170-page report identified challenges and
opportunities
• Action plans were developed with timelines
for completion
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Memorial Health Specific Areas of Focus
• General overall operational performance
review
• Growth opportunities and medical staff
analysis
• Revenue enhancement opportunities
–
–
–
–
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DSH, UPL, and chargemaster reviews
Revenue Cycle review
Cost Report analysis
Managed Care review
Memorial Health Specific Areas of Focus
• Operational improvement opportunities
–
–
–
–
–
–
–
–
–
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Productivity and labor review
Nursing and Perioperative
Quality
Human Resources
Supply Chain Cycle review
Information Technology
Insurance/Risk
Internal Audit
Post-Acute Services
The Plan
• Conducted a coding audit, pricing analysis and
chargemaster review
• Enrolled Memorial Health in CHC’s GPO,
significantly reducing supply spend
• Instilled a cultural shift for the four hospitals to
function more like a system, with shared
resources and fewer redundancies
• Appointed physicians to the hospital board to
strengthen communications and lend clinical
expertise
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The Plan
• Conducted an IT platform cost-of-ownership
analysis
• Renegotiated managed care contracts
• Optimized reimbursement from federal and state
programs
• Implemented productivity tool to monitor labor
expenses and maximize staff productivity
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Summary Impact of Recommendations
Impact of Recommendations
FY 2012
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Area of Focus
Revenue Enhancement
Finance and Accounting
Managed Care
Post Acute
Total Revenue Enhancement
Expense Savings
Memorial Multispecialty Associates
Productivity/Labor*
HR Benefits
Supply Chain
Current savings
Anticipated savings
Information Technology
Risk/Insurance
Post Acute
Total Expense Savings
TOTAL INCOME STATEMENT IMPACT
Balance Sheet Impact
Supply Chain (Inventory Control)
Revenue Cycle (Cash Acceleration)
Post Acute (Inventory Control)
TOTAL BALANCE SHEET IMPACT
FY 2011
Low
High
$
$
$
$
1,322,667 $
713,431 $
140,000 $
2,176,098 $
5,858,935 $
704,223 $
240,000 $
6,803,158 $
9,153,118
2,012,065
960,000
12,125,183
$
$
$
10,000 $
333,180 $
$
134,638 $
2,763,123 $
15,520 $
747,987
5,321,067
194,000
$
$
$
$
$
$
609,000
607,000 $
$
60,197 $
$
1,619,377 $
1,023,750 $
$
$
10,500 $
3,947,531 $
1,365,000
760,000
44,500
30,000
8,462,554
$
3,795,475 $
10,750,689 $
20,587,737
$
$
514,000 $
185,338 $
$
699,338 $
$
-
$
$
$
$
372,678
30,000
402,678
* For FY 2011 labor savings represent the productivity improvement of 50 FTEs for two months; FY 2012 savings represent the productivity improvement of 75 FTEs
(low) to 136 FTEs (high) including the 50 FTE productivity improvement from FY 2011; benefit expense reduction and severance expense are not included.
The Results
• Within one year of management support and
implementation of action plans, Memorial Health
realized a $10 million gain
• Additional IT and supply chain savings totaled
upwards of $15 million
• The turnaround strategy positioned Memorial Health
for the future
• The Memorial Health Board began the search for a
long-term partner early in 2014 and selected Catholic
Health Initiatives (CHI) effective June 1, 2014
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Summary
• Assess the future
• Be optimally efficient, clinically sound,
geographically essential and mission-focused
• Community hospitals are an essential provider
in the continuum of healthcare services
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Questions & Answers
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Thank You!
Community Hospital Corporation
7800 N. Dallas Parkway, Suite 200
Plano, Texas 75024
972.943.6400
www.communityhospitalcorp.com
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