Sure, it’s always useful to see where your potential clients are on a map, but sometimes you must combine that picture with something else, like, driving distances. The following example is from the auto industry but can easily be adapted to other industries, like healthcare or manufacturing.
The picture below shows all the dealers and garages licensed in Connecticut.
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Now, say you are in the parts supply business, and you want to open a new location on route 4 west of Hartford. You can use location analytics to visually see, and calculate how many potential clients are within a 10, 15, and 20-minute drive radius from several potential sites.
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The picture above shows a proposed location in Burlington along with 10 and 15-minute drive rings. A 10-minute distance includes only 5 potential clients, but expanded to 15 minutes, the number of potential clients increases to 50.
What happens if we expand the ring to 20 minutes?
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As shown above, a 20-minute drive from the proposed location encompasses 200 potential clients, 150 more potential clients by driving 5 more minutes.
This is only one example of the power of location analytics. How wide to cast the net is only one part of the decision making equation, but it is a significant one.
As mentioned above, this can be adapted to other industries, including healthcare. If, for example, you are looking to expand your orthopedic service line, you can map the location of all the orthopedic clinics, rehabilitation facilities, and sports medicine centers, and see how many of them are within a certain driving radius of your potential sites.
If you are interested in location analytics services, please email me at ELYanalytics@Outlook.com, or call 860-580-5177.
I have posted before about hospital flex budget reports. In this article, I will explore its elements and how to interpret it. Below is a self-explanatory picture that shows the important components of a typical flex budget report.
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What does a Flex report tell us? The two right most columns are the crux of the Flex report. One column shows how a department performed against a static budget (developed months earlier with certain assumptions in mind), and the other column shows how a department performed against a newly “flexed” budget, that took product volume and mix into consideration.
This latter part is important because volume and mix are associated with revenue. Given a constant mix, the higher the volume the more the revenue (and vice versa), and given a constant volume, the higher the mix (i.e., more resource intensive products) the higher the revenue (and vice versa).
You can be under budget (per your static budget variance report), yet over budget per Flex. Look at the Outpatient Clinic (3265) and Inpatient Unit A (8485) as examples. Both had favorable performance per the budget variance report, yet, after taking the type of charge codes billed (i.e., mix adjustment) into consideration, Flex found the two departments to be over budget.
Looking a little more closely at each one, the Outpatient Clinic had more actual volume than budgeted, but they did more of the less intensive products than budgeted. So, although they came under the static budget, it was not enough to compensate for the “light load” they had. On the other hand, Inpatient Unit A had lower than budgeted volumes, and they did come under static budget, but they should’ve come in more under budget, due to the lighter load.
Although this report looks busy, you can re-arrange it to suit your audience. You can add percentage columns for all variance columns (to enhance the information) or eliminate some columns (like volume and mix adjustments) if you only want to display the net flex adjustment. In my experience, executives like to see reports with fewer columns, while Finance and the leaderships of operational areas like to see the details.
Flex reports are not meant to be snap shots. Carefully examining the report and tracking it over time helps uncover issues that may otherwise be difficult to detect. This report is often the first stage in a budget variance investigation. Keep in mind that the numbers associated with each department are derived from individually costed charge codes, which is where your second stage of investigation lies.
Issues that can be revealed in an investigation may include:
Missing charges
Insufficient charges
Lack of labor hour cross-charging, when appropriate (e.g., staff doing work in other departments, but costs remaining in home department)
Lack of supply cost cross-charging, when appropriate (e.g., POs with wrong charging information, or staff “borrowing” expensive supplies from other departments)
Missing or highly inaccurate RVUs
Mismanagement of staff schedules (e.g., volumes dropping significantly, but continuing to staff at former levels)
Due to the complex nature of the calculations, and the many variables that can impact the results, it is important to recognize that flex reports are most accurate when looking at year-to-date (YTD) data. Comparing individual months to each other may show wild swings in the results, but tracking YTD performance usually shows more consistency, especially towards the end of the fiscal year.
Related to the point above, if a hospital introduces a new department (e.g., a new outpatient program), it may take several months before the flex results “settle”. The reason is that, as often happens with new programs, it takes a while to iron out all the wrinkles associated with GL costs and billing.
As mentioned in earlier posts, you cannot do proper flex budget reporting without Activity Based Cost (ABC) accounting. Hospitals that use Ratio of Cost to Charge (RCC) cost accounting may not have all the granularity necessary to build a flex report.
The calculations that go into producing a flex report are very complex, but fortunately, they can be done outside of expensive Decision Support Systems.
If you are interested in having flex budget reports created for your hospital, please email me at ELYanalytics@Outlook.com, or call 860-580-5177.
Hospitals, like most businesses, have budgets. While they all track their performance closely against that budget at the organizational level, many fail to do so with the same rigor at the cost center level, mainly due to lack of dependable reports. In this article, I will explain what flex budgeting is, how it is calculated, and why using it helps the organization.
Before I touch on the mechanics of flex budgeting, I will describe it, for now, as the budget set at the beginning of the year, adjusted (or “flexed”) to the actual volume and mix. Volumes, for the purposes of flex, are charge code volumes, therefore, only direct (i.e., revenue generating) cost centers would be flexed.
First, let me narrow down the focus of the budget discussion. There are different types of budgets, including: capital, operating expense, operating revenue, and volumes (actually, every line account in the financial income statement has a budget). In this article, my discussion only includes the operating expense budget and budgeted volumes, because these two are the essential ones for flex budgeting purposes.
Let me begin with a question. What is a budget? Some people imagine actual money set aside for specific purposes, like you might do if you are saving for a big purchase. In most cases, that is not true. I like to describe a budget as an expectation.
Once a year, during the budget-build process, a hospital forecasts (“expects”) revenue based on projected volumes and payor mix, and that revenue is then used to set expected operating expenses to achieve those volumes. Therefore, a front-line manager in charge of a direct cost center, would be given budgeted dollars and budgeted volumes. Their task, during the year, is to achieve those volumes, within their allotted budgeted dollars. A budget variance report (BVR) is their primary tool to monitor their financial performance.
Image Downloaded from Pixabay
For managers to be held accountable for the performance of their cost centers, the numbers in the budget variance reports need to be accurate. If a staff member coded in that cost center works in other areas, those dollars need to be cross charged appropriately. Similarly, supplies ordered by one cost center should not find their way to another cost center’s stock room. While the need to borrow supplies for patient care is understandable, it is important to track those expenses and cross charge appropriately.
Assuming that the dollars in the budget variance report are all where they belong, the question then becomes how has the cost center performed relative to the activity within the period? A BVR alone cannot answer the question since it provides a static view of the financial performance, based on budgeted dollars assigned during the budget build process months earlier. That is where a flex budget comes in.
How many times have you heard managers explain their overbudget condition by stating that their volumes were high? While most times they are probably correct, no one would know for sure unless there is a flex budget report. A monthly flex report tells the manager what their budget should have been, based on actual volume and mix, and the actual expenses would then be measured against that “flexed” budget. Another way of looking at it, the report tells a manager how much of their actual expenses are “justified” by the actual volume and mix.
The calculation of flex is simple. Through cost accounting, each charge code is costed by allocating the budgeted dollars to the budgeted volumes according to resource intensity. The result is the product standard (or budgeted) unit cost. The actual volume is then multiplied by the standard unit cost to come up with the flex budget.
Image Downloaded from Pixabay
Many organizations try to mimic a flex report by dividing the budgeted dollars by the budgeted volumes, without accounting for resource intensity, and multiplying that number by the actual volumes. It’s a high level and easy approach. On the surface of it, it seems logical, but the problem with this approach is that all volumes are treated equally. A 5-minute chest x-ray is treated the same as a 3-hour fluoroscopy case. Moreover, the calculation is often applied to the encounter (case) level instead of the individual charge code level. Encounters often include charges from multiple cost centers, but only one of them gets credit for that volume.
A flex report provides important information about the performance of a cost center. It splits the results between labor and supply, and takes into consideration the volume mix (i.e., resource intensity). So, in theory, a cost center could have higher volumes, but flex may calculate a lower budget because the volume was mainly driven by less resource-intensive products. The opposite is also true.
Many hospital administrators and CFOs understand the benefits of flex budgets, but most do not use it, and instead rely on the stripped-down version that I described above. The reason for that is that to do it properly, hospitals need to switch their cost accounting methodology to Activity-Based-Cost (ABC) accounting. In a previous article, I explained that many hospitals use an alternate method of cost accounting called Ratio of Cost-to-Charge (RCC) accounting. It is easier and quicker, but it has shortcomings. I made the argument that ABC accounting is more accurate and can be achieved inexpensively by doing the calculations outside the decision support system.
To do ABC accounting, and subsequently flex budget reporting, line accounts and job codes in each cost center would need to be assigned a cost type. There are seven cost types for direct cost centers; three are variable, and the rest are fixed. Only the variable costs fluctuate with volume and drive flex results.
Each charge code should also be reviewed and assigned a relative value unit (RVU). Labor RVUs are used to allocate variable salary costs and supply RVUs are used to allocate variable supply costs.
Initially, the effort to assign cost types and RVUs is significant, after that it is only a matter of annual “maintenance”. Also, as new charge codes are introduced, they should be assigned RVUs before the cost calculations are run for the month.
I have so far used the terms flex budgeting and flex reporting interchangeably. They are really one and the same. Information from the report adjust the budget. For direct cost centers, flex report results are taken into consideration when reviewing the BVR. Also, annually, during the budget build process, the flex results are incorporated into the following fiscal year’s budget.
So, apart from providing an accurate picture of a cost center’s performance, what are the advantages of flex budgeting? I believe it all boils down to the frontline managers and their buy-in. Once they learn to trust the process and data, they start paying more attention to what is going on in their cost centers.
Flex budget reports help managers become in tune with their BVR and charge codes. They become more aware of the importance of keeping expenses where they belong, and it allows them to look for missed charging opportunities, especially in the patient charge items category. Furthermore, even activities that are not chargeable but resource intensive (e.g., injections in nuclear medicine), can be tracked and accounted for by creating statistical charge codes with RVUs. This is a huge satisfier for many managers.
The bottom line is that flex helps managers at the cost center level manage more effectively, and if the cost centers perform well, the entire organization performs well.
If you are interested in implementing flex budgeting at your hospital, please email me at ELYanalytics@Outlook.com, or call 860-580-5177.
All well run businesses use data to drive their decisions. The higher the stakes, the more accuracy they demand from their data. Hospitals are businesses, even not-for-profit ones, and should conduct their operations like any other business.
The area where hospitals lag far behind other businesses is in cost accounting. Most hospitals simply don’t know for sure how much the cost of care is for a patient encounter (i.e., visit), or an entire service line. They have an idea, but that’s not nearly good enough for the purposes of expanding (or shrinking) a service line or setting prices.
This article makes the case that hospitals can switch to a more accurate cost accounting methodology, and it does not have to cost a lot of money.
Healthcare, in general, is an extremely complex environment with many variables. Providing care to patients is not like running a manufacturing or service business. It is often unpredictable. Two patients with the same symptoms may have two different underlying conditions. Similarly, two patients with the same condition, may respond differently to the same treatment. This results in situations where two patients sharing the same room may cost the hospital different amounts because of their unique resource utilization.
Hospitals do have good cost data, at the aggregate level. Like other businesses, they know exactly what hits their general ledger (GL). It is the process of assigning the costs from the GL to the patient encounters that can be challenging.
Most hospitals adopt a method called ratio of cost-to-charge (RCC) cost accounting. They have the aggregate costs in the GL and charges from their billing system, so they calculate a ratio that they subsequently apply to estimate costs for sub-populations.
The description of RCC above is oversimplified, but it is essentially a top down approach which assumes (often wrongly) that markups are uniform. From the proverbial 30,000 ft view, the cost estimates look good, but as you drop to a few hundred feet view, the costs may look “out of whack”.
A far better cost accounting methodology is the activity-based costing (ABC) method. ABC relies on relative value units (RVUs) to allocate cost center GL expenses to the individual charge codes within that cost center. A patient’s encounter is then costed by adding the costs of the various charges (i.e., activity) incurred by that patient.
Although activity-based cost accounting is more accurate in allocating expenses to encounters and service lines, in 2016, only 29% of hospitals (source: hfma), used that method. What explains that? There are many reasons, including:
It is time consuming. All charge codes would need to be assigned RVUs, and all GL accounts and position codes would need to be assigned cost types.
The decision support systems that do all the data crunching can be prohibitively expensive, often in the $100,000s of dollars.
Many executive decision makers are unaware that there are more accurate cost accounting methodologies. Historically, their cost data may not have been an issue.
Perhaps those executives had been right, at least in the past. After all, no one would want to spend $100,000s of dollars and numerous staff hours to “refine” their calculations when things were working “just fine”. Moving forward, however, they can no longer afford to ignore the potential discrepancies between their calculated costs, and reality.
image downloaded from Pixabay
Healthcare consumers (i.e., patients) are savvier that ever. As insurance companies shift more of their expenses to patients (in the form of deductibles and coinsurance), patients start to shop around for the best prices. A hospital could price itself out of a market simply because it relied on inaccurate cost estimates.
So, what can hospitals do to switch from RCC to ABC accounting? Large hospitals that can afford to purchase a decision support system with ABC accounting functionality should do so. Having the resources to get the most accurate cost data but not acting upon it would be unfortunate, especially since market forces may divert its business elsewhere.
Smaller hospitals, on the other hand, may be able to do the calculations outside of their DSS system. The math is relatively easy, and the calculations can be performed in Microsoft products. Data extracts can be pulled into SQL, Access, and/or Excel to calculate the costs, which can either remain in their database, or be pulled back into the DSS, if the system permits that.
There is no reason for smaller hospitals to continue using rough guesstimates. Today’s desktop computers are very powerful and can easily crunch the numbers. It just takes a little bit of outside the box thinking.
In addition to improved cost accuracy, ABC cost accounting allows hospitals to do flex budgeting, which is the subject of my next article.
For brevity purposes, the article has not addressed the differences between direct and indirect costs, but, in a nutshell, the ABC method can be applied to both. Most hospitals rely mainly on contribution margin analysis (net revenue minus direct costs) when evaluating a service line, because indirect cost allocation is subjective.
If you are interested in switching to the ABC cost accounting method, please email me at ELYanalytics@Outlook.com, or call 860-580-5177.
Most of us have been there. The scenario may be different, but it goes something like this: you get your oil changed, and after you pay, the staff member tells you that you would be receiving a customer survey and they would really appreciate it if you gave them all 5s.
For whatever reason, this request does not sit well with me. On the one hand, I feel that a 5 is for above and beyond, and a 4 may be good enough for most uneventful transactions. On the other hand, I don’t know if their corporate office penalizes them for anything below a 5.
What is the point of the survey? One would assume that surveys are designed to give honest feedback so that processes can be improved, but that is not always the case. I have heard of a survey where customers have only 4 choices: a) Definitely Not Recommend, b) Not Recommend, c) Recommend, and d) Definitely Recommend. That survey became binary once the business combined the last two and marketed the results as “95% of our customers recommend us to their friends and family”. This is an example of a survey designed to give good news.
Survey design and purpose are important. Most of us would agree that surveys should be designed to receive honest feedback for the purposes of improving operations. Ideally, if the business acts on the survey results, then future scores would naturally improve and there would be more 5s. That approach requires patience and consistency. Patience because you need time to increase your sample size and be able to trend the data, and consistency because the questions should not change during that period. Frankly, I am not even sure that a 1-5 scale can accomplish that.
My recommendation is to abandon the 1-5 scale and go with a 1-10 scale. When you have a larger spread, it is easier to detect small movements of the needle (provided your sample size is large enough). I also do not recommend tying too much of the staff’s compensation to the number of 10s. Sometimes customers are unhappy for reasons beyond the control of the staff.
Finally, if you are curious, I do give all 5s when staff request it, provided that my experience is seamless and uneventful. I prefer to err on the side of not having them penalized for anything less than a 5. If the staff does not ask me for all 5s, and I do fill out a survey, I often give a 4 when I am satisfied, and a 5 only when I am wowed.
I am curious to know what your thoughts are. Do you think there is a problem with asking for the highest scores? Should 5s be given if the service simply met expectations?
Many of us who have worked in hospitals have been there; you are in a meeting with Finance, and their handouts have what is supposed to be Radiology volumes, but they are different from what Radiology’s internal reports show. So, whose numbers are right?
Radiology is one of those areas where you can have different volumes for the same thing, and they can all be correct. I hope this article can explain what perhaps is being counted and help prepare you with the right questions to ask the next time you are presented with inconsistent data.
Consider the following:
– One patient can have multiple outpatient exams over time. In this scenario, it is important to distinguish among counting unique patients, unique exams, and unique cases.
– One patient can have multiple exams in one session. Although it is a single time slot, there may be multiple exams in the Radiology Information System (RIS) associated with that single patient. Again, there is a need to distinguish between counting patients and counting exams.
– One exam can produce multiple CPT codes. Although exam codes are usually one-to-one with billing codes, there may be occasions where an exam can produce multiple billing codes. Again, what is being reported?
– In a single case, you can have multiple exams from different modalities. A patient may have an x-ray and an MRI, or an Ultrasound and a CT. It is important to find out how the data are being reported. Is only one of them being counted, or is the case being duplicated and counted once in each column?
Now, just to add a little more confusion, beware that there are different terms used to describe the same things. Here are some:
A Case is sometimes called an Encounter. In the financial systems, charges and revenues, and direct and indirect costs are calculated and reported at the Encounter level. To avoid double counting revenues and costs, Finance may assign a case with multiple modality exams to only one modality based on some hierarchy (e.g., MRI trumps x-ray).
An Exam is sometimes called an Accession. In RIS each exam has a unique accession number. As a side note, for the purposes of “big data” analysis (my specialty!) accessions are extremely important when it comes to process/operations analyses since timestamps, exam codes, along with demographic information can be found at that level.
A CPT Code is sometimes called billing code, fee code, charge code, or simply “procedure”. In my experience, the latter is what I have seen used most often.
Now, in case you are starting to feel confident that you understand everything above, allow me to introduce you to Nuclear Medicine!
If there is an area where the discrepancy among reported volumes is greatest, it is most likely Nuclear Medicine. The reason is, in one word, “injections”.
In Nuclear Medicine, a patient is injected with a radio-pharmaceutical and then scanned. Sometimes, as in the case of a stress test, that process is done twice.
Injections take technologist time and are often scheduled in the RIS on a particular resource (i.e., room). Nuclear Medicine sections often choose to count injections as procedures, which helps explain why volume discrepancies can get big. In the case of a stress test, one case could be counted four times (2 injections + 2 scans) in Radiology’s internal reports.
How these procedures are counted also needs to be understood. Some Nuclear Medicine sections create a no-charge statistical fee codes for the purposes of counting injections, while other sections base their count on the number of times the injection room is utilized. Neither is wrong, as long as the counting process is consistent.
Finally, I will reiterate what I mentioned previously: all the volumes reported can be correct, they are simply counting different things.
Hopefully, this article helps explain the discrepancies, and helps you ask the right questions when presented with volumes (or asked to produce volume reports).
In a previous blog, I showed how you can look at a year’s worth of data to look at the average utilization of an MRI machine. The average number of minutes of “patients-on-table” was 550 /day, and the average number of patients was around 14. In this blog, I take it a step further and look at what a typical 550 minute /day looks like.
I selected a day with 557 minutes of patients-on-table with 14 cases, and plotted each case, to the minute.
The visual itself is revealing. In theory, each yellow block is an opportunity. Although I argued previously that you cannot expect 100% utilization, the amount of yellow in this graphic should raise some questions.
Managers should sit with frontline supervisors and staff to better understand the causes for these downtimes. This graphic can serve to facilitate the discussion.
Whatever the causes are, including “no-shows”, failed safety questionnaires, or claustrophobia, they should be tracked and addressed.
The process of assembling the graphic also revealed that there may be an opportunity to standardize data entry among the technologists. There were a couple of examples of “overlap” between patients. One may be due to continuing to process the images after the patient left and the next patient walked in, but in one case, both patients were begun the same time!
My advice to all radiology administrators is don’t wait for a process improvement project to begin thinking about your data’s integrity–start standardizing the process of entering timestamps now, and perform frequent audits.
“Big data” analysis is extremely helpful, but it requires a certain level of trust in the data. Even if it is difficult to capture the exact time of when a patient goes into or out of a room, it is still possible to make assumptions that reasonably estimate those times, but that requires consistency and adherence to the process by all staff.
Although experienced managers often have a good grasp of how their areas are performing, sometimes it takes a carefully crafted image to shine a light on the reality of a process.
The same analytics process can be used for other modalities. Also, beyond Radiology, other entities with available data (e.g., physician practices) can benefit from such an analysis.
If you would like your utilization data analyzed in a similar fashion, please reach out to me via my email at ELYanalytics@Outlook.com
Experienced supervisors, generally speaking, do a good job scheduling their staff to meet demand. They are good at predicting when they need more or fewer staff. Many, unfortunately, may be tempted to overstaff to meet all demand at all time.
In queueing theory, having no wait time for customers means having overcapacity (a.k.a. waste). In most non-life-threatening situations, it is OK to have wait times, as long as they’re not excessive. So how do you achieve that balance?
If you’re looking at staffing levels in a department (say ED), then you need to look at historical customer demand. In this case it is represented by the ED patient arrival pattern (i.e., average number of patients arriving for each hour) for each day of the week. This allows you to take into account the differences between days, including weekends and weekdays.
In this example, the patient arrival pattern is typical of that found in a mid-sized emergency department. As you can see, the staffing pattern does not match the demand pattern, so the staff schedules should be adjusted to match the demand (similar shape).
This graph would need to be recreated for each day of the week (or you can combine Mondays through Thursdays, and create a separate one for Fridays, Saturdays, and Sundays – the reason is that Mondays through Thursdays often have similar patterns).
This example is basic, but it can be refined in several ways, including by reducing the arrival calculation from hourly to 15-minute increments, and calculating the minimum and maximum number of patients arriving in each increment. The latter allows you to create a band surrounding the line which represents the range of arrivals. You can also refine it by breaking the annual data into quarterly chunks, to account for seasonality.
You can also calculate how many staff you need if you know how many patients one staff member can serve each hour. If doing that, you may want to consider using in your calculations the average number of patients arriving each hour plus 1 standard deviation. This gives you a small buffer to accommodate the times when more patients than average arrive. Basically, erring slightly on the side of overstaffing.
One thing to keep in mind is that there is always an element of guessing when doing staff schedules. Spreadsheets and historical data analysis are only tools that need to be supplemented with input from experienced supervisory staff. Never take the human input out of your analysis.
Your IT staff possess the data that are the key to your operational success. I have always believed that canned reports can only take you so far, and that you need raw data to have the flexibility to analyze your operations in ways that are meaningful to you.
You don’t always need fancy and expensive software to analyze your data. Pivot tables in Excel and simple queries and reports in Access often suffice.
So how do you obtain raw data in a format that you can use in Excel or Access? Here’s what to ask your IT staff for:
Ask for the data export to be in Excel or CSV (comma separated value) format.
Data output should be “pivot table friendly”. Most IT folks know exactly what you would mean by that. Don’t just ask them for an excel export.
One row per record; each row should be unique, and preferably have a unique identifier (e.g., a visit number or accession number)
Data should be stacked – every column is a field, with the same type of data repeating. For example, instead of three columns with the headings “First shift”, “Second shift”, and “Third shift”, ask for one column with the heading “Shift”, and the data within can state, First, Second, or Third.
Dates and times should be combined in one cell, whenever possible. For example, instead of having the date in cell F2 and the time in G2, it is easier to have both date and time in cell F2. You can always separate them afterwards, but it is easier to do math calculations when both are combined.
Make column headings descriptive. Instead of “TurnAroundTime”, it should state “OrderToComplete” or “OrderToResult” to remove ambiguity.
Make sure you fully understand what every field represents. For example, what does “Scheduled Time” mean? Is it time that the exam was scheduled ON, or time exam was scheduled FOR. Also, Patient Status is a changing field. Do you want patient status at time of order or time of discharge. Neither is wrong, you just need to specify what you want.
Beware of averages; they are heavily influenced by outliers. In fact, don’t ask for averages-calculate them yourself.
Make sure that fields that have numeric values are in a numeric, not text, format. For example, if you are looking at RVUs, make sure they are numeric so that you can sum and average them, etc.
Make sure the zip codes field is in text format. This way you don’t lose any leading zeros.
By following the tips above, you will save yourself a lot of time and frustration, and your analysis effort will be more productive.
