Effective Use of Information Technology to Optimize Financial Performance

Healthcare leadership can use information technology to significantly improve operational, clinical and financial performance. There are several prerequisites for transforming screens and data into actionable decision-making business intelligence — steps that, not taken, will prevent your IT investment from reaching its potential (for more on this, see “Essential Steps Before You Can Reap IT’s Rewards” on p. 43).

Once your proper planning is behind you, it’s time to use IT to improve and transform operations. That is, financial analysis, which is typically a cause-effect determination. Your high-level benchmarks provide a summary of performance. How you arrived at this performance requires drilling down into your operational components. Both high-level benchmarks and derivatives require sound benchmarking and trending to ascertain potential prescription for improvement.

Here are the four examples of leveraging information technology to monitor and improve financial performance.

1. Assessing profitability
Whether your CFO looks at EBIT, EBITDA or another primary profitability measure, the importance lies in the accuracy, legitimacy, relevance and drill-down capabilities of the benchmark. For example, if EBITDA is 26 percent, what does this really tell you? Depending on the reader, this may sound good, fair or poor. Quite frankly, unless a legitimate and reasonable benchmark is available for comparison, the value of this measure is incomplete. If likefacilities with similar case-, acuity- and payor-mix average a 34 percent EBITDA, your healthcare entity is under-performing (relatively speaking). Assuming your data and target(s) are reliable, your opportunity shifts to determining the root cause of the under-performance to take steps toward improving financial performance. And, not all revenue and expense components are self-evident.

2. Revenue measures and drivers
Dissecting profitability begins with revenue. Your dashboard should be armed with revenue composites and influencers. Examples include inpatient cases, outpatient cases and revenue per case. All should have drill-down capability to attributes such as procedure, gross charge and payor mix to better comprehend the aggregate. Trending revenue over time models predictability of inpatient and outpatient revenue provided the revenue per case remains reasonably stable. Without a clear understanding of revenue, which is often used as a point of reference, you are at a significant disadvantage of the ability to dissect other components of your business and assess their performance.

- Payor mix
The percentage of cases tied to Medicare, Medicaid and lower-reimbursable payors are strong predictors of revenue expectations. In many cases, they clarify why one entity’s financial performance is superior to another’s. Your chart of accounts should reflect revenue broken out by payor type. Your dashboard should include payor percentages such as commercial, workers’ comp, self-pay, Medicaid and Medicare. A further drilldown into your commercial payors will help expose opportunity of reimbursement negotiation, where available. Payor mix may often help explain deltas from period to period given the wide range of reimbursement per case.

- Revenue cycle management
Negotiating better revenue contracts with payors and having a favorable payor mix is diminished if you are not able to bring the dollars in the door. Your dashboard should include A/R measures and have aggressive targets with timelines associated. Your blueprint should illustrate the financial improvement equivalent per A/R day improvement, culminating in the ROI when you meet your target. Again, being able to drill-down into A/R provides a better understanding of collection management.

- Charge capture and coding
As you notice change in gross charges you may wish to examine the accuracy of your coding and billing. Keeping tags on gross revenue may expose issues with coding. This could also be an indication that there are missed charges from clinical documentation. Periodic review of both charge capture from the OR and coding should be conducted. Dashboard metrics might proactively indicate issues in either area.

Capturing charges, proper coding and collections occur after you have earned your revenue. These are large risk areas — if executed poorly, you will be unable to maximize revenue. Denial management should be conducted in parallel to coding.

- Anesthesia
After an anesthesia software implementation, perform routine audits to ensure the levels of anesthesia administered are both properly documented and properly coded and charged. Lost revenue can be attributed to either system set-up or manual documentation error at the point of care. As the deltas are large from level to level, your ability to submit appropriate documentation and reduce claim rejections is vital for aggregate reimbursement as well as timely payment.

- Operating room
Management of the OR has clear priorities, with the patient as the primary customer — and, therefore, patient safety and patient outcomes being first. Proper management of the OR takes into account the ancillary customers, the surgeons, staff and entity. The dynamics are complex and correlations of efficiency and satisfaction are high. Minimizing delays and increasing access provide satisfaction for the surgeon. Maximizing staff and materials utilization benefits the entity’s financial performance. In ASCs and hospitals alike, the OR is the primary source of revenue, with its direct and indirect management leading to your source of profitability.

- OR utilization and scheduling
OR utilization provides vital revenue information and is imperative for your executive dashboard. Leadership needs clear visibility to aggregate utilization, with the ability to drill down to utilization within each OR suite. Effective use of the OR significantly contributes to revenue opportunity through potential increase in cases (and improves surgeon satisfaction).Scheduling and utilization effectiveness are not to be confused with case/utilization efficiency, which is tied to contribution margin.

Depending upon case acuity, use leading-practice duration (in minutes) for target case time and turnover time. Bias assesses the accuracy of actual and estimated case times and is helpful in adjusting your estimates over time. The definition of availability and utilization must be clearly defined as scheduled or actual. If the definition you use is slightly different, ensure the measure is understood and remains consistent. Both utilization baseline, experience and bestpractice targets are needed. If your baseline utilization is 61 percent, and target utilization is 75 percent, you appear to have significant revenue upside upon determining the cause of this delta. Other metrics such as turnover time, case cancellations, add-on cases, late starts (and late start reasons, such as supplies, instrumentation, pre-operative assessment, anesthesia readiness, etc.) are important equation components. Each helps your chief nursing executive or vice president of perioperative services to determine why targets are not being met. If you agree that the OR is your source of revenue, you may need to get granular until you have a clear understanding, which could include working backward to scheduling processes and habits driven by personal dynamics.

- OR utilization and policies
Looking more closely at block scheduling (when applicable) is a worthwhile use of time. If you have six OR suites and four are running at 68 to 73 percent utilization (over time), there may be opportunity to pursue driving additional cases. If the other two OR suites are operating at 48 to 53 percent, you may have found significant opportunity.

Experience has shown that block scheduling policy is developed but not strongly enforced. If key surgeons or groups that have historically driven high case volume (75 percent-plus utilization) and have declined to 50 percent, you need to ask yourself what has changed. Trended utilization for the OR suite and the group controlling the block provide a start. If utilization has hovered around 50 percent for the past five months, it sounds as though you have not addressed the utilization decline. Gather all your facts to have a business discussion with the surgeon or group. Provide an opportunity to learn if the facility shares in the decline (inability to schedule, poor service, etc.). An increase in revenue and profit moving from 50 to 75 percent utilization is large and should be easy for you to calculate.

Your dashboard should proactively alert appropriate leadership of the decline so this does not become a retrospective discussion. If a surgeon or group falls X percent short of the expectations negotiated, one prescription is to shorten their block length and allocate this time to another surgeon or group. If the surgeon can demonstrate the ability to increase and sustain utilization, then you can renegotiate block allocations. Of course, there are personal dynamics that are part of the solution, but long-term utilization of 50 percent (with some exceptions) is not in the best interest of the financial health of your organization. You should also be surveying your physicians annually to learn of their satisfaction with you; this may also help proactively address issues head-on.

- OR/case contribution
OR utilization by itself may not coincide with effectiveness. Say two surgeons are each performing ABC procedure. Surgeon A allocates 120 minutes and requires 110 to complete the case on average. Surgeon B allocates 90 minutes and completes their case in 90 minutes or less. It is possible that, as a result, surgeon B may have lower OR utilization than surgeon A. However, the profit or contribution per minute is much greater for surgeon B. For simplification, during an eight-hour period surgeon B can likely perform one more case. Also, the staff time required to support surgeon A is greater per revenue dollar. Of course, variables other than profit (such as patient safety) must be considered. Many organizations will use both measures to assess both efficiency and effectiveness.

- OR over-utilization
One more note on OR utilization: At some point, OR utilization that is too high could lead to increased overtime, staff burnout, decreased surgeon and staff satisfaction, increased safety risks and other counterproductive issues such as increased patient wait time. As your surgical volume increases, monitor your capacity to ensure it is reasonable and be aware of the potential downsides. It would behoove you to perform a cost-benefit analysis of opening an additional operating suite, or keeping others open for longer periods of time.

- Consumer-driven impact through public reporting
Leadership should keep close tabs on the various public reporting metrics, such as HCAHPS, SCIP and ORYX Core Measures. ASCs will soon have value-based purchasing through the pay-for-performance program, and these measures may impact consumer choice on facility preference. PQRI has obvious financial impacts imbedded.

- Other revenue drivers to consider
There are many more metrics and areas to evaluate; here are a few I recommend you consider: case cancellations (and reasons), staff vacancies and turnover, PACU delays, clinical documentation, and time to chart pre-, intra- and post-operative data.

3. Expense Measures and Drivers
While bringing revenue in the door is step No. 1 toward profitability, optimizing the profitability of the revenue is next. The expense tied to revenue should become part of cost-avoidance and costreduction strategies. There are always places to efficiently reduce costs without negatively impacting operational excellence and customer service. Initial cost-avoidance and cost-reduction strategies are typically found within front-line labor management and supply chain management.

- Supply chain management and infrastructure
Supply chain management is complex, as there are many measures for purchasing power, efficiency and effectiveness. There are still others for throughput and accuracy. The interoperability between procurement and your OR is essential. In order to have the right supply at the right place at the right time and at the right cost, it is imperative that you have a single item master file (IMF) of record, and not separate ordering initiated from the OR and SCM.

Many providers do not properly utilize their item master file and charge description master (CDM) crosswalk effectively and pay the consequences. If you have not maintained your IMF properly, it is worth investing to “cleanse” it to avoid duplicity; remove legacy items; correct nomenclature; and evaluate applying UNSPSC standardization. The latter is being reviewed more frequently as there are opportunities for enhanced bargaining power, as well as significantly improving analysis.

- Perioperative case-costing
Your opportunity to improve financial performance through case-costing is typically quite large. As you track case types, you should apply a best-practice measure you may obtain from a national organization or reputable consulting company. You are likely to find that aggregately you exceed these case-cost benchmarks. This provides tremendous cost-reduction opportunity and promotes standardization.

For example, if the leading practice (supply) case cost for procedure XYZ is $450 per case and your average for 500 cases performed is $850 per case, you stand to save approximately $200,000. Upon discovering these scenarios, you should update your SCM blueprint scorecard. Again, drill-down lets you compare surgeon specific case-cost, where you will likely find a large range. Begin by approaching the surgeons with the highest and lowest case costs (or highest case volumes) to gain a better understanding of their supply usage. This educates you as you seek to promote supply standards recommendations. You need to ensure the cost you allocate to the supplies is accurate (you need an accurate charge description master that is, however, fluid) and you may find generic substitutions using the UNSPSC codes to quickly identify cost-effective alternatives during this process.

Low-hanging fruit may be found commencing with the pursuit of your highest-volume cases. If their supply costs are excessive, you have found an immediate cost-reduction opportunity. By gaining insight to industry best practices and internal supply utilization, you are armed with actionable data for a business discussion with your surgeons about supply usage. By having one IMF of record, all items should be entered and ordered in procurement to avoid the duplicity of items that negate your item master cleanse and maintenance.

- Preference card management
Preference card management and standardization leads to financial performance, patient safety and customer service improvement. Preference card management should have limited variability, other than non-standard items. You may begin to create trays or sets that use a lowest-common-denominator approach with trays containing cost-effective items. As standardization increases, case picking becomes more efficient and accurate. There is a greater likelihood that the right supplies will be delivered to the OR, creating better surgeon satisfaction and fewer late starts due to missing supplies and instrumentation. You should periodically review your preference cards and consider purging those that have not been used in the past 18 months.

- Purchasing power
As you clean your item master file and standardize your items, you may find that you are placing 5 separate orders of 1,000 similar or interchangeable items. Your negotiating power increases as you order 5,000 units instead of 1,000 when duplicity and confusion is removed. If you are part of an IDN or enterprise, you stand to recognize a more significant increase in purchasing power due to volume. Your supply vendor will not bring these opportunities to your attention (combining like items) nor if better pricing exists. The more supply duplication and incorrect naming you have can cost you several thousands of dollars, if not millions for larger organizations. From a resource utilization management perspective, you are less likely to run out of an item if you have 5,000 of the same on hand to be picked as opposed to five groups of 1,000. As mentioned, working with less items improves accuracy of the picked supply.

- Prompt payment
Too few providers take advantage of available prompt payment incentives. In fact, many providers have a very small percentage of supplies negotiated with prompt pay. Insight to promptpay opportunities can result in FIFO disbursements that reduce your outlays simply by prioritizing payment. Executive insight to lost opportunity either to payment or lack of negotiation can also be low-hanging fruit. The benefit realization of prompt-pay opportunity as with all other metrics should be noted in your scorecards.

- Front-line labor management
Your management of employees balances customer service, financial performance, operational excellence, resource utilization management and patient safety. First and foremost, you need the right person with the right competencies and credentials at the right place at the right time. IT has advanced significantly within the past five years to develop acuitybased scheduling for nursing personnel.

The ability to schedule out six to 12 weeks provides employee satisfaction to staff, as they have the opportunity to discuss shift exchange. Proper configuration of your scheduling system tied to your chart of accounts and employee master file (for salaries) provides you the opportunity to clearly see financial exposure as it pertains to salary and wages. You now have the opportunity to concurrently manage overtime liability and supplemental staff requirements. Proper configuration of the credentials and competencies of your staff affords modeling scenarios to match acuity. Lower supplemental-staff requirements (without overworking employees) improve surgeon satisfaction given the familiarity of working with staff they know and have confidence in.

- Wages and benefits
Be careful when creating staff-based benchmarks. If you choose FTEs, you need to consider supplemental staff. For supplemental staff, if you are outsourcing an entire function, remember that the function may have a component that includes wages as well as other components or deliverables. Supplementalnurse staffing has a discrete wage component as compared to outsourced housekeeping, dietary or instrument asset management services.

Further, productivity measures may use time worked, whereas cost measures need to include fringe (inclusive of tax and WC liability) and overtime. As long as you use consistent measures, you will be able to ascertain the direction you are trending. Comparing yourself with industry benchmarks requires that you clearly understand the industry benchmark’s definition of parameters. As mentioned previously, salary-exposure modeling can take place once your infrastructure is complete and accurate.

- Overtime
I usually see over-complication of salary/pay rules within provider organizations; too many rule variations are in place in many time and attendance systems. Where 15 pay rules may have sufficed, I have seen well over 100. Simplify these structures to easily place non-union and union staff into constructs that properly calculate overtime when warranted. You do not want incorrect pay rules to result in time-and-a-half for an employee’s nine hours’ work if he/she began work one hour early.

Overtime calculations need to be reviewed for staff satisfaction and financial exposure. Some of your employees may want the overtime while others may prefer accruing personal days. Staff retention has become increasingly expensive, and you cannot afford both overtime exposure and to lose employees. Overtime can also be the product of inefficient case management, gaps in scheduling and several other fixable scenarios.

- Other expense drivers to consider
Enterprise content (document) management can be quite expensive, and the archival and retrieval of business and clinical documentation requires planning to address customer service, legal requirements and physical space constraints. Instrument asset management’s primary customer is the OR. Providing incorrect or damaged instruments to the OR can cause case delays and decrease surgeon satisfaction. Asset management and tracking is important as well. Your inventory should not exceed a target number of dollars as compared to the number of OR suites and other requirements of your organization. Days in inventory is also a very useful metric.

4. Summarizing
There are no clear-cut answers to managing financial performance as the data constantly changes. However, if you invest properly in information technology your ROI from the insight gained will far outweigh the cost of IT. Your opportunity to trend, benchmark and expose improvement opportunities is a welcome annuity. The direct and indirect benefits to the patient, surgeon and entity are essential for sustaining long-term excellence.

- Ensure you are using ‘like’ points of reference
It is important to use ‘like’ denominators or points of reference when calculating and comparing revenue and expense. If you are looking at the financial effectiveness of specific cases you need to ensure revenue and expense are per case, per OR minute or whatever is used as a point of reference that is the same for each.

- Balancing key performance indicators
As you build your scorecards it is easy to get metriccrazy. My first suggestion is to start small and add metrics gradually. Equally important is to understand the interdependencies or impact of one measure on another, which is an entirely separate topic on your various internal investments. As you look to improve, you need to question any impact a delta may have on operational effectiveness, patient safety, financial performance and customer service. Patient safety always comes first.

- Operational excellence, customer service, and education and development lead to financial performance
As you look into sustained financial performance,the realization is that it comes last. If you make changes to improve financial performance, but negatively impact your other organizational investments you will only win in the short term. Quality, service and excellence win out in the long-term. That, however, does not preclude you from increasing profitability when these are not impacted adversely.

Mr. Faraclas (pfaraclas@ctqsolutions.com) is the president and CEO of CTQ Solutions.

 

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