Traditional budgets rely on meticulous line item details to plan business expenses and anticipated revenue during the coming 12-month period. Advantages of a rolling budget from 4 organizational leaders who have successful implemented the process in their health organization.
LONG TERM FINANCIAL PLANNING
Minnesota-based IDN wants to analyze performance across its multiple facilities and better understand the big financial picture.
Projecting the financial future of a healthcare delivery system is like hitting a continually moving target being pushed in various directions by a wide variety of forces. Anticipated patient volumes, associated payer mix, physician referral patterns, and service line performance represent some—but not all—of the key variables in a complex equation.
CentraCare Health, a St. Cloud-Minn.-based integrated delivery system, is looking to improve the way it tackles the problem. Beginning with its long-range financial planning for 2015, the delivery system wants to analyze its performance across its multiple facilities and in turn understand how its individual facilities, and their underlying service lines, contribute to the big picture.
The health system includes a 489-bed flagship hospital in St. Cloud, five critical access hospitals dispersed in the central part of the state, and a number of long-term care facilities. CentraCare Clinic, its physician group, has nearly 250 physicians across 25 specialties.
Moving forward, CentraCare is looking to combine its service line planning efforts at the local level with its long-term financial forecasting for the entire system. Historically, the two planning efforts occurred separately, said Sonja Zitur, the health system’s finance director. “About three years ago, we began an effort to reconcile and combine the two. We knew we needed to do a better job. We were not making sure the detailed plans we were creating at the service line level were getting us to enterprise goals.”
CentraCare has deployed an enterprise-wide financial decision support system, from Chicago-based Strata Decision Technology, to serve as the data backbone of the effort. But far more than a central data repository and analytic capacity are required, Zitur observed. “The biggest challenge is identifying the right people and the right information. You have to think through how you gather data, create your plans and get the buy-in related to them.”
The health system has enjoyed some success in combining its planning effort for its largest service lines at the flagship hospital and specialties at CentraCare Clinic. For example, Heart & Vascular Center leaders from both hospital and clinic consider extraordinarily discrete data in making their forecasts—including detailed breakdowns in the projected age and growth of the population in the health system’s service area, national benchmarks for costs and value indicators, and even estimates of future physician needs balanced against the supply of that specialty in the area.
We were not making sure the detailed plans we were creating at the service line level were getting us to enterprise goals.
Zitur says CentraCare is looking to expand that forecasting model across the board. “We will transition the entire organization to an integrated planning model,” she said.
Representatives from three key areas participate: the planning department, the finance department, and hospital and clinic service line leaders. Although much of the effort is data-driven, the process begins with what Zitur likens to a “thought exercise.”
Known internally as the work plan overview, the exercise constitutes a short written account of what service line directors think will be their key drivers behind future patient volume. In these accounts, the directors consider likely changes in the population they serve, competitor activities, economics of the community, technology, regulatory implications, and changes in the physician staff. In the past, hospital financial projections did not always square with changes in the physician group composition, Zitur said.
“Say we are projecting a 5 percent boost in heart surgeries at the hospital,” she explained. “How can we say that if we are going to lose a physician at the clinic in that specialty? We want to bring together leaders from the hospital and clinic and develop plans for the next 5 years. That will help us get a better handle on the reality.”
But describing the reality of a hospital is challenging. A wide variety of data sources are in play. The planning department, for example, gathers data around patient volume and market demographics from Sg2, a provider of healthcare business intelligence, market analytics and clinical consulting services. Taking into account data compiled by the planning department, service line directors estimate their future patient volume projections. The numbers are based in part on past performance and in part on their own internal assessment of physician productivity and community demographics. They also consider changes in technology and the ever-present effect of regulatory changes.
Once the patient volumes are estimated, Zitur’s team applies other assumptions around payer reimbursement rates for given procedures. Overall, CentraCare’s mix is 35 percent Medicare and 12 percent Medicaid, but the mix changes among the service lines and also needs to reflect long-range changes in the age of its customer base.
Zitur determines base rate increases in conjunction with health system’s managed care contracting department. “They help with assumptions for the future, after a current contract expires.” Similar calculations occur for service line expenses, with historical actuals adjusted for future-tense inflation or projected staffing changes.
We want to bring together leaders from the hospital and clinic and develop plans for the next 5 years.
In some cases, fine-tuning individual payer rates enables CentraCare to get a more accurate estimation of a given service line’s revenue performance. Zitur noted, for example, that while growth in the state’s Medicaid rate is nominal, its payments for behavioral health services sometimes are carved out for additional reimbursement. “We can change the assumptions for that service line,” she said.
For 2015, the goal is to create a 3-tiered plan for each of the regional hospitals. The plan will encompass the hospital’s performance, its local clinic and its related long-term care facility. CentraCare will then combine the local hospital plans into a larger enterprise forecast. “We can then tell if we will meet the overall margin target for the entire enterprise,” Zitur said. “The process is helping us think more broadly about all the components that impact our long-range plan and goals.”
Sometimes small steps can offer big benefits, she added. Merely having the work plan overview in writing has helped CentraCare analyze any performance variances, she said. “We used to get together and decide we could boost revenue by 1 percent, but three months later we could not remember why we said that if the projection fell short,” she said. Having the underlying assumptions spelled out in writing helps jog memories—and enforce department leader accountability as well.
Frank Stevens is vice president of consulting services at Strata Decision Technology.