Performance Improvement (PI)
and Financial Impact
Providing Sustainable
Patient-Centered Care
Agenda
• Challenges in healthcare today
• PI and it’s application in healthcare
• PI and financial analysis
Learning Objectives
• Explain the importance of a PI Model to guide
learning
• List key problems that PI can address to drive
sustainability in healthcare
• Describe how organizational structure and
managerial accounting are impacted by PI
Professional Background
• 7 years in Automotive Manufacturing
– Ford and Goodyear
– Production, engineering, financial analysis
• 3 years in Electronics Manufacturing
– Rockwell Automation
– PI, engineering management
• 3 years in Healthcare
– Norton Healthcare
– PI
Industry Need Analogy: 90’s US Auto
Internal
Favorable
Strengths
Weaknesses
Proximity to US
Customers
Push Flow
PI efforts over
next 2 decades:
Brand / Model
Proliferation
Truck Market
Dominance
High Labor Cost
Opportunities
Threats
Leverage Worker
Votes
Transplant
Operations
Struggling EUR
Brands for Sale
NAFTA
Lax Foreign Reg’s
External
US Auto in the 90’s had internal weaknesses that could be
addressed to counter external threats
Unfavorable
 Lead Time
Reduction
 Brand / Model
Rationalization
 Workflow
Efficiency
Industry Need: US Healthcare Today
Internal
Strengths
Highly Educated
Workforce
Favorable
Outpatient
Service Growth
Opportunities
M&A /
Partnerships
EBP Sharing
Weaknesses
Controllable
Volume Variation
Potential PI
Efforts:
Unnecessary
Practice Variation
 Scheduling
Optimization
 Practice
Standardization
 Workflow
Efficiency
High Labor Cost
Threats
Unfavorable
Retail Markets
VBP / ACA
Higher
Deductibles
External
US Healthcare today is facing similar challenges to
sustainability that the US Auto Industry faced in the 90’s
How do we improve
without trade-off?
Why PI in Healthcare?
 Healthcare is becoming more competitive
 As competition increases, there is greater pressure for
an organization to justify its existence
 Existence is justified by providing sustainable value
 Sustainable value is achieved through PI
 PCAST: President’s Council of Advisors on Science and
Technology
 BETTER HEALTH CARE AND LOWER COSTS: ACCELERATING
IMPROVEMENT THROUGH SYSTEMS ENGINEERING
 www.whitehouse.gov/ostp/pcast
 Find under Documents & Reports (May 2014 Report)
Fact Sheet Recommendations from PCAST
• Recommendation 1: Accelerate the alignment of payment incentives and
reported information with better outcomes for individuals and populations.
• Recommendation 2: Accelerate efforts to develop the Nation’s health-data
infrastructure.
• Recommendation 3: Provide national leadership in systems engineering by
increasing the supply of data available to benchmark performance,
understand a community's health, and examine broader regional or national
trends.
• Recommendation 4: Increase technical assistance (for a defined period—35 years) to health-care professionals and communities in applying systems
approaches.
• Recommendation 5: Support efforts to engage communities in systematic
healthcare improvement.
• Recommendation 6: Establish awards, challenges, and prizes to promote
the use of systems methods and tools in health care.
• Recommendation 7: Build competencies and workforce for redesigning
health care.
What is PI?
Performance Improvement (PI) is the practice
of enhancing the ability of an organization to
learn so that it grows value for its customers
with the greatest speed.
CREATE new knowledge
SHARE new knowledge
Why Lean and Six Sigma?
 Lean




Waste Elimination
Standardized Work
Flow
Customer PULL
SPEED
 Six Sigma




Standardization, Variation
Defects – Miss Elimination
Optimization
Process Control
STABILITY &
ACCURACY
“We will be the region’s most comprehensive, strongest, and preferred
health care organization, setting the standard for quality and caring.”
What is Value?
Value Added Activity
Non-Value Added Activity
An activity that changes the
state of the patient or
information to meet customer
needs and add value
(something a customer would
be willing to buy / perceive
value in having)
Those activities that take time
or resources, but do not
directly meet customer
requirements or add value
Examples of Waste
Type of Waste
Definition
Healthcare Examples
Defects
Time spent creating, detecting, and resolving
errors
Wrong dose administered to a
patient
Overproduction
Doing more than the patient needs or doing it
sooner than needed
Unnecessary diagnostic procedures
Waiting
Waiting for the next activity to occur
Insufficient bed volume / turnover
post surgery
Not Using Talent
Waste incurred due to ignoring employees,
their ideas, and their potential / development
Nurses caught in daily
workarounds and not engaged in
improvement
Transportation
Unnecessary movement of the patient,
specimens, or materials
Cath lab being far from the ED
Inventory
Excessive amounts of supplies
Drugs on hand beyond their shelf
life
Motion
Unnecessary movement by employees
Lab techs walking miles per shift in
a poor layout
Extra Processing
Excessive activity in a process step
Unused form data
Sources of Waste
Source
Definition
Healthcare Examples
Process Design
Waste that is
inherent in the
processes we do
today.
- Long distances between
the ED and CT Scan
(motion)
- Error opportunities
resulting in extra inspection
(defects / extra processing)
Unevenness
Waste that is
generated by
variation of
patient volume or
supply delivery
- Poor coordination with
EMS resources causing
waiting in ED (waiting)
- Infrequent ordering of
supplies resulting in high
inventories (inventory)
Overburdening
Waste that results
from insufficient
capacity
- Poor planning with
changing community needs
resulting in diversion of
patients to other facilities
or rushing service
(transportation / defects)
Graphical Depiction
CT
Scan
ED
100 ft
Lab
NHC DMAIC Improvement Process
PROCESS
STEPS
FOLLOW EVIDENCEDBASED PROCESS
PROCESS
IMPROVEMENT
MODEL
PROCESS
MEASUREMENT
ASSESSING PROCESS
PERFORMANCE
*
*
DMAIC Process Overview
Phase
Outcome
Define
-
Problem Defined
Key process metric(s) identified (id by customers)
Measure
-
Understand Current Process
List of inputs that might be causing the problem
Accurate baseline data (KPOMs)
Analyze
-
Process waste identified
Prioritized list of critical barriers and root cause(s)
Improve
-
New process identified
Actions needed to deploy new process + pilot
-
Hard-wired process w/ hand-off to business
owner
Celebration!
Control
-
Project Overview
DMAIC
• Project Description: In 2011, 24 ED Stroke Patients were
treated with rt-PA out of a total Stroke Patient population of
558 patients (4.5%). Of the 24 patients, only 4 (16%) had a
door-to-needle time of 60 min or less. Timely use of rt-PA
benefits the patient in the following ways:
– Drug Effectiveness: 33% probability of a higher-score recovery
outcome vs. no treatment
– Increased Benefit: Increased probability of favorable outcome at 3
months post-event as OTT (Last known well to rt-PA administration)
decreased showing statistical significance (p=0.005<<0.05)
• Project Scope: All stroke patients eligible for rt-PA.
– Start: Patient arrival at ED / End: Administration of rt-PA
• Project Goal: Achieve median DTN time of 60 min or less.
What we wanted to know: How does the process flow?
DMAIC
Current State VSM
rt-PA Door-to-Needle (DTN) Process
Current State: Data Range from 12/01/11 to 03/31/12
• Process observations were made
for each process step at each
hospital
• Process was timed (stopwatch,
checklists, timestamps)
• Current State VSM was
assembled based on findings
Records Management
ICU (NH or NBH)
EMR System
General Public
CTA Order (as needed)
Stroke Order
Register Pt
Review CT
CTA Order
Pt ID #
rt-PA Order
=3
Patient
Registration
CT Order
CT Order
Lab Order
EMS
rt-PA
Decision
# Radiologist = 1
# ED MD = 1
EMS
=1
# Neurologist = 1
Pt Info
=2
# Admin = 1
Pt ID bracelet
Issue Order for rt-PA
to be administered
# ED MD = 1
# Neurologist = 1
Sign-in
=1
# Admin = 1
Triage
=1
ED Wait
29.0 min (95%)
3.0 min (Median)
6.9 min (Average)
Avg. Time = 2.00 min
Stroke
Response
=3
Transfer Pt
12.0 min (95%)
0.0 min (Median)
4.8 min (Average)
# RN = 1
# RN = 1
Avg. Time = 2.17 min
With the exception of the ED Wait queue, 95% wait times
are really the maximum non-outlier data point of the set.
6.9 min
2.00 min
Transfer Pt
Add’t Wait
1.08 min (NAH)
0.5 min (NBH)
X min (NSH)
Y min (NH)
15.8 min (95%)
2.1 min (Median)
6.3 min (Average)
=2
Transfer Pt
1.08 min (NAH)
0.5 min (NBH)
X min (NSH)
Y min (NH)
# CT-Tech = 1
CT Avg. Time = 2.92 min
Avg. Time = 3.33 min
CTA Avg. Time = 4.83 min
Wait on Lab &
CT Results
Wait on
Tx Decision
Wait on Either:
56.9 min (95%)
12.4 min (Median)
19.3 min (Average)
N = 44 (includes 3 no waits)
(includes CTA Wait)
60.7 min (95%)
46.7 min (Median)
51.2 min (Average)
N = 9 (Total rt-PA Pts in Study)
For N = 4 (4 of 8 had rt-PA)
Draw to Lab: 23.2 min (Average)
CBC: 5.3 min (Average)
INR: 20 min (Average)
CMP: 25.8 min (Average)
6.3 min
3.33 min
NBH
Admin rt-PA
# RN = 1
# ED MD = 1
1.08 min
2.17 min
CT / CTA
# PCA = 1
4.8 min
Process Step: CTA Scan
Aspect
Question
How is the impact to
DTN known? (Is it
Systems
quantifiable?)
Who is to do the Process
Step(s)?
Pathways
(How clear is this?)
1.08 min
Wait on Lab Result:
56.9 min (95%)
32.4 min (Median)
35.8 min (Average)
N=8
CTA TAT:
82.0 min (95%)
61.0 min (Median)
61.7 min (Average)
N=6
Wait on CT Results
35.5 min (95%)
10.5 min (Median)
17.1 min (Average)
N = 33
Pure Wait on Tx Decision
(All tests in)
41.7 min (95%)
17.7 min (Median)
16.7 min (Average)
N = 8 (one had MRI)
19.3 min
51.2 min
=2
# RN = 2
Avg. Time = 4.33 min
Post CT Wait for CTA Order:
87.8 min (95%)
19.4 min (Median)
36.6 min (Average)
N=6
Expected DTN = 110.24 min
NVA Time = 90.66 min
VA Time = 19.58 min
7.75 min
NSH
4.33 min
Comments
NH
Activities
- Not known/checklist not with patient
-Checklist not with patient - could check
- Acute stroke checklist follows patient
-manually write completion time
MSTAT for recorded times
-CT tech
-CT tech
(CT1 preferred due to faster processing time - -CT techs
-Room 1 only
10 mins vs 30 mins)
-2 scanners - 129 Seimens preferred for CTA
-Radioligist notifies ED MD of CT result
-Order from MD (requested based on
-ED MD consults with neurologist to
discussion with neurology)
determine if CTA is necessary
How does he / she know -Currently creatinine result is awaited before (Outsourced to VRC at night)
when service is
performing exam
-ISTAT creatinine done in ED - no delay
needed?
(CTA done when patient has weakness on
waiting for result
-Call from ED
(How is this signaled?) one side and/or contraindications to tpa)
(table weight limit CT 1 650 #'s/ CT 2 450 #'s) -Can see order in computer
-Standard process
How does he / she know
-CT tech training
what is needed?
-Contrast dose 1 cc/pound-max 100cc's
(How is this
-Standard process
-Implied consent used if not able to obtain
determined?)
-CT tech training
consent from patient/family
-Same
Activities
-IV checked with saline flush (blown IV could
delay)
-View images real time to see if contrast is
flowing
-Monitor for adverse reaction real time
-Must have internet for transmitting images
(Re-visit ED MD/neurology dialogue
structure)
How does he / she know (Pts at low risk for CIN; investigating NOT
it is done correctly?
waiting for result to do exam)
(How is this verified?)
Connections
What we found: Most of the process time is spent
waiting after the patient is done in Radiology and
there are opportunities to improve.
Call Ahead Order for CT
-Check computer to verify no contrast allergy
-20g IV necessary to inject contrast
(CT 1 allows test bolus of saline prior to
contrast)
-Audible alarm for high pressure during
injection
-Images visually checked real time to verify
contrast was delivered
-Long distance to radiology - patient should
stay in dept. until determination is made for
CTA
(Have had issues with internet connectivity
at night - event actio plan?)
-Same with these additions:
-Do not use implied conset. Will wait for ED
MD to sign before completing exam
-Only manualy flush available to check IV
-No internet connectivity issues reported
-Radiologist on back up call
NAH
-Unknown-checklist not always with patient
-CT tech
-Call from ED MD/neuro
-Can be verbal order
-Consent obtained if possible-use implied
consent if not
-Standard procedure
-CT tech training/annual competencies
-Same level skill training all shifts
-Contrast load calculated per protocol
-CT tech review images real time for contrast
flow; contacts radiologist if needed
-Alternative contrast options posted in
radiology for contrast allergies
-Machine does test bolus to check IV; high
pressure alarm
-Daily QA's done; biomed does preventive
maintenance on machines; not posted
anywhere
-
What we wanted to know: What is the impact of our efforts?
DMAIC
Impact of Top 3 Priorities
Admin rt-PA
#1 Tx Decision
#2 Lab Label
Wait on Lab &
CT Results
Wait on
Tx Decision
#3 rt-PA Box
Wait on Either:
56.9 min (95%)
12.4 min (Median)
19.3 min (Average)
N = 44 (includes 3 no waits)
(includes CTA Wait)
60.7 min (95%)
46.7 min (Median)
51.2 min (Average)
N = 9 (Total rt-PA Pts in Study)
For N = 4 (4 of 8 had rt-PA)
Draw to Lab: 23.2 min (Average)
CBC: 5.3 min (Average)
INR: 20 min (Average)
CMP: 25.8 min (Average)
Over 40
improvement
options found!
Wait on Lab Result:
56.9 min (95%)
32.4 min (Median)
35.8 min (Average)
N=8
CTA TAT:
82.0 min (95%)
61.0 min (Median)
61.7 min (Average)
N=6
Wait on CT Results
35.5 min (95%)
10.5 min (Median)
17.1 min (Average)
N = 33
Pure Wait on Tx Decision
(All tests in)
41.7 min (95%)
17.7 min (Median)
16.7 min (Average)
N = 8 (one had MRI)
19.3 min
=2
# RN = 2
Avg. Time = 4.33 min
Post CT Wait for CTA Order:
87.8 min (95%)
19.4 min (Median)
36.6 min (Average)
N=6
Expected DTN = 110.24 min
NVA Time = 90.66 min
VA Time = 19.58 min
51.2 min
4.33 min
What we found: Focusing on just the Top 3
improvement priorities alone will address over 70 min
of the 110 min expected DTN Time.
What we wanted to know: How is delay in the Tx Decision addressed?
DMAIC
#1: Tx Decision Roadmap
• Worked with Stroke Neurologists to
develop a shared view of risk
(Contraindication to Tx)
• Mapped with input from EBP
research and Stroke Neurologists
(red is contraindication)
• Minimizes delay between receiving
required results and issuing an order
• Included in related physician
onboarding documentation
Process Map for rt-PA Tx Decision
Norton Healthcare
Contraindication –
STOP and Do NOT
give rt-PA
Stroke call from ED
Process Step to
continue Tx Decision
evaluation
Does initial history
review show any
contraindications?
Yes
Do NOT give rt-PA
and consider other
Tx options
Yes
Do NOT give rt-PA
and consider other
Tx options
No
Give rt-PA
Does CT Scan show
Hemorrhage or other
contraindication?
No
Does CT Scan
show previous
stroke?
Yes
Gather patient data
to determine when
last stroke occurred
No
Last stroke
within last 3
mos?
No
Is bleeding abnormality,
thrombocytopenia, or any
anticoagulant use suspected from
history?
Yes
No
No
Yes
Do NOT give rt-PA
and consider other
Tx options
No
Give rt-PA
What we found: This is the EBP and NHC Neurologist
accepted Tx Criteria. Following this and the broader
process for Acute Stroke will reduce delays in Tx.
No
Blood
Pressure NOT
Controlled
> 185 / 110
Yes
Do NOT give rt-PA
and consider other
Tx options
Do lab results show
abnormal values for INR,
H&H, or platelets?
Verify Last Known
Well
Last Known Well
> 3 hrs ago?
Yes
Do NOT give rt-PA
and consider other
Tx options
Yes
Do NOT give rt-PA
and consider other
Tx options
What we wanted to know: How will we control DTN Time?
DMAIC
DTN Time Comparison
DTN Time (min) by Project Stage
200
Pre-Project
Project
1
All solutions
implemented with
negligible cost!
DTN Time (min)
150
100
50
UCL=100.5
_
X=59.3
LCL=18.1
0
11
11
11
11
11
11
12
12
12
12
12
0
0
0
0
0
0
0
0
0
0
0
2
2
2
2
2
2
2
2
2
2
2
7/
7/
9/
3/
2/
1/
4/
5/
0/
6/
5/
1
2
2
0
1
0
1
0
2
2
1
/
/
/
/
/
/
/
/
/
/
/
02
05
07
10
11
12
01
03
05
06
07
Date
What we found: We have an on-going measurement
system, processes in place, and a system team
committed to continuously improving.
PI Impact to Culture
Good Hero
Great Leader
Reactive
Proactive
Fire fighter
Permanent fire preventer
Broken Processes
Efficient, integrated processes
Fragmented efforts
Aligned efforts
The PI Journey
PI Opportunities in Healthcare
1.
2.
3.
4.
Redesign Practice Care Settings – Increase Prevention
Optimize Scheduling of Procedures – Stabilize Demand
Increase Accuracy of Productivity – Optimize Staffing
Iterative Redesign of Work – Continually Improve
Opportunities mostly focus on addressing
operational concerns rather than clinical concerns
A significant amount of the nation’s cost-of-care concerns can
be addressed by incorporating these strategic objectives
Operational vs. Clinical
Core Clinical: Activities that involve Dx, Tx, or
Prevention
Shared Territory: Where clinical factors have
operational implications or where operational
limitations influence clinical decisions
Supporting Operational: Activities that are not part
of Dx, Tx, or Prevention
Many activities are considered operational:
- Scheduling
- Staffing
- Allocation of Equipment
- Capital Planning
The science in healthcare has traditionally been on the clinical
side, but there is opportunity to have operational excellence
Redesign Practice Care Settings
P1. Staffing
(Reliable & Efficient
Workflows, Balanced to
Volume)
P1. Clinical
Design
(EBP Protocols, CEP)
P1. Leadership
(Standard Performance
Metrics, Aligned
Direction, Stakeholder
Engagement)
P1-3.
Enhance
Patient &
Provider
Relationship
(Assessment,
Dialogue, etc.)
Redesigning practice care settings, starting with primary care,
drives preventive care efforts while testing concepts
P2. Volume
Balancing
(Panel Sizing, Scheduling)
Workflow Redesign
3b
i
5b
Provider Patient 1
MA Patient 1
Provider
3a
4
5a
ii
Desk Nurse/
LPN
MA
MA
2
Patient 2
Provider Patient 2
Provider Patient
MA Patient 2
6
1
Room 1
Room 2
Reception
Patient 2
Check-out/Scheduling
Patient 1
• Redefined work roles to balance work load
and move interruption away from the MA
• MA now able to be in a cyclical workflow
with provider for higher throughput
Eliminating unnecessary work, rebalancing assignments, and
redesigning the Provider – MA flows have improved capacity
Optimize Scheduling of Procedures
Total Excluding
Simulated
Weekends
Current State
(~15% Vol. Increase)
OR minutes
87,685
101,520
Actual LH
10,471
10,891
Target LH
9,663
11,188
Prod. Index
92.29%
102.72%
OR min per LH
8.25
9.32
Avg Daily OR min
4,384
5,076
>10% Productivity
gain possible by
reducing CV from
0.36 to 0.07
Reducing daily scheduling variation allows for increased
utilization and efficiency
Increase Accuracy of Productivity
• Productivity standards are based on benchmarks
– Internally modified to better reflect current process
– Do not identify true process potential (theoretical capacity)
• Benchmarks are based on peer group performance
– Disguises waste from unevenness, hides potential
Variable Paid FTE Opportunity
(Based on Consultant Productive Standard Recommendation)
Opportunity to
apply
improvement in
practices too
0.67 FTE opportunity was
found to be closer to a
5.00 FTE opportunity
Hospital Nursing Surgery
#1
30.51
1.68
#2
(21.91)
3.81
#3
(15.94)
(3.24)
#4
(3.63)
(0.67)
#5
(28.89)
(3.52)
System
(39.86)
(1.94)
Pulmonary
Hospital
Services
Imaging Cardiology Total
2.34
0.42
1.05
35.70
2.57
3.00
6.77
(2.20)
0.30
(1.92)
(1.48)
(15.39)
3.00
1.21
1.56
6.12
(1.48)
(2.34)
(1.10)
(32.58)
6.72
0.37
6.80
(8.36)
More accurate measurement of performance allows for gaps
to be better understood and addressed
Iterative Redesign of Work
• Operational procedures include plans for
reaction to abnormal events
– Stop the process to analyze and fix
– Set new standards (inspect for what you expect)
• Take every opportunity to encourage finding
problems and solving them
– Can’t fix what you can’t see
– Everybody should have a specific role to play
• Structure reports & accounting for identifying
system level problems with drilldown
Current processes are continually challenged in a structured
manner through procedures for increased efficacy
Report Example
Provider
Name
Surgeon A
Surgeon B
Surgeon C
Surgeon D
Procedure
Px 1
Px 2
Px 3
Px 4
Px 5
Px 18
Px 19
Grand Total
Total Var from AVG
by Px: OR Supply $
$210,798
$66,470
$34,064
$20,434
Total Var from AVG Count
Count of
by Px: OR Supply $ over AVG Cases
$53,971
30
33
$52,467
30
32
$36,088
11
11
$25,944
25
25
$15,238
7
7
$0
0
1
-$11
0
1
$210,798
138
173
Total Var from AVG Count
Total Var from AVG AVG Var from AVG AVG Var from AVG Var from Count of
Provider Name by Px: OR Supply $ over AVG by Px: OR Implant $ OR Minutes by Px AVG LOS by Px AVG SEV by Px Cases
Surgeon A
$52,467
30
$201,192
28
(2.1)
(0.6)
32
Surgeon B
$26,847
22
$139,927
33
(2.4)
(0.8)
22
Surgeon X
($19,051)
0
($6,009)
75
0.7
0.1
30
Surgeon Y
($24,108)
7
$20,423
(43)
(0.2)
0.2
71
Surgeon Z
($40,117)
1
($365,280)
(6)
(0.3)
0.1
64
Data can be arranged for higher power analysis that identify
where further studies / engagement is most beneficial.
Managerial Accounting
• Traditional allocation spreads indirect costs to
business units via assumed cost driver
– Cost driver may not be highly correlated
– Costs do not necessarily go away if unit is closed
• Segmented income statements only assigned
traceable (direct) fixed costs to business units
– Traceable costs disappear if unit is closed
– Common costs are lumped into a cost pool
– Structure allows drilldown to see performance gaps
Segment reporting provides more insight than traditional
allocation of costs.
Segment Reporting Example: Step 1
Example Only Healthcare, Inc.
01/01/14 - 03/31/14
Unrestricted revenue
Total Company
$85,000,000
Divisions
Hospital
Medical Group
$70,000,000
$15,000,000
Variable expenses:
Variable patient care expenses
Other variable expenses
$66,500,000
$9,000,000
$55,000,000
$7,000,000
$11,500,000
$2,000,000
Total variable expenses
$75,500,000
$62,000,000
$13,500,000
Contribution margin
Traceable fixed expenses
$9,500,000
$4,500,000
$8,000,000
$3,500,000
$1,500,000
$1,000,000
Division segment margin
$5,000,000
$4,500,000
$500,000
Common fixed expenses not
traceable to individual divisions
$5,000,000
Net operating income
Medical Group Division
01/01/14 - 03/31/14
$0
Unrestricted revenue
Total Division
$15,000,000
Service Lines
Specialty
Primary
$6,000,000
$9,000,000
Variable expenses:
Variable patient care expenses
Other variable expenses
$11,500,000
$2,000,000
$4,000,000
$500,000
$7,500,000
$1,500,000
Total variable expenses
$13,500,000
$4,500,000
$9,000,000
Contribution margin
Traceable fixed expenses
$1,500,000
$500,000
$1,500,000
$200,000
$0
$300,000
Service line segment margin
$1,000,000
$1,300,000
($300,000)
Common fixed expenses not
traceable to individual services
$500,000
Net operating income
$500,000
The Medical Group has a low segment margin that is due to
relatively high variable patient care expense in Primary Care.
Segment Reporting Example: Step 2
Primary Care Service Line
01/01/14 - 03/31/14
Total Service
$9,000,000
Office A
$2,000,000
Practices
Office B
$4,000,000
Office C
$3,000,000
Variable expenses:
Variable patient care expenses
Other variable expenses
$7,500,000
$1,500,000
$1,600,000
$300,000
$3,450,000
$700,000
$2,450,000
$500,000
Total variable expenses
$9,000,000
$1,900,000
$4,150,000
$2,950,000
$0
$200,000
$100,000
$50,000
($150,000)
$100,000
$50,000
$50,000
Service line segment margin
($200,000)
$50,000
($250,000)
$0
Common fixed expenses not
traceable to individual lines
$100,000
Unrestricted revenue
Contribution margin
Traceable fixed expenses
Net operating income
($300,000)
Some factors to investigate further for Office B:
• Revenue integrity (e.g. proper coding of visits and supporting documentation)
• Compensation structure (e.g. NP to MD ratio)
• Practice efficiency (e.g. visits per provider per day and use of tests / supplies)
Addressing the challenges for Primary Care Office B would
significantly impact the company’s net operating income.
Segment Reporting Impact
• Only have common costs where necessary
– Examples: CEO compensation, corporate office lease
• Make common costs traceable where possible
– Example: Accounting staff of 20 broken out to cover
business units
– Supporting departments can still have central
leadership to ensure standardization
• For more see managerial accounting text
– Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2008).
Managerial Accounting 12e. New York, New York:
McGraw-Hill/Irwin.
Segment reporting can drive the business to be structured
with better clarity.
Summary
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Challenges to healthcare sustainability (SWOT)
PI to minimize waste & grow value
Transforming into a proactive culture is a journey
Great opportunities to improve operations
Need to align reporting and structure
Getting Started
• Find a PI Mentor
• Identify a project need
– Culturally manageable
– Strategically important
• Get a Senior Leader Champion
• Pick a PI Methodology (e.g. DMAIC) and follow it
Q&A