Using Specific Tools to Improve Your Hospital's Bottom Line

By Steven Berger, President, Healthcare Insights

If you believe that your organization is making too much money right now, please do not feel the need to read any further. Otherwise… read on!!!

Much has been made of hospital administrator’s claims that they would like to improve their bottom line. We hear it over and over again. They claim to search for opportunities to enhance top line revenues and reduce contractual adjustments (for more net revenues). They prefer this solution rather than deal with making expense cuts that force difficult decisions primarily on labor issues. Yet, when specifically confronted with opportunities to improve their bottom lines with proven tools and techniques, many balk. There is often an extreme reluctance to pursue the identified significant improvements for a number of reasons, in no particular order:

• Cost
• Time
• Culture

This reluctance stands in marked contrast with to their regular assurance to their boards, their communities, their employees and other stakeholders that they are serious about bottom line improvements.

There are proven software tools out in the marketplace to improve a hospital’s bottom line if the organization is willing to a) acquire them b) implement them and c) use them as designed. Amazing but true, many organization’s see these tools, recognize their importance, claim to understand the ways the tools can improve the bottom line, state their support of the acquisition and then… rationalize any number of ways to put off the acquisition. The rationales are endless but in the end, the hurt is only inflicted on their organization, which is not getting the opportunity to move its finances forward.

A tool that has been proven to significantly improve bottom lines is the INSIGHTS budgeting, monitoring and reporting software solution designed by Healthcare Insights (HCI), a Libertyville (north suburban Chicago) Illinois company. HCI specializes in the helping hospitals to improve their financial planning (long-term financial planning and annual operating and capital budgeting), financial outcomes monitoring (alerts-based management tools and one-click, easy-to-use drill-down capabilities) and their financial reporting (through the use of electronically generated reports, scorecards and dashboards). In addition, HCI’s INSIGHTS software features easy to implement cost accounting tools and most significantly, service-line and product-line profitability reporting, allowing the user to instantly learn the financial winners and losers at the patient, payer, physician or product-line level. All of this is fully integrated within the INSIGHTS software so that the user (defined as the manager, director, vice-president or executive) is never required to leave INSIGHTS to find the answers to a financial question.

Now, how can INSIGHTS be used to generate these cost saving/bottom line improvements? With INSIGHTS alerts-based management function, the organization’s management receives automated and instantaneous email alerts whenever a departmental line item out of compliance to pre-defined parameters. These alerts will not only go to the out-of-compliance manager, they will also go to the manager’s boss(es) as desired as well as executives and finance staff as appropriate. The manager will be required to electronically respond, describing what happened, why it happened and what will be done to remedy the out-of-compliance result.

In order to effectively write the response to the alert, the manager can stay in INSIGHTS and, with its one-click technology, drill-down on the line or line(s) in question to research the reason for the out-of-compliance condition. The ease in which managers can get down to the crux of the issue is unprecedented. It needs only to be seen to be believed. This is true for non-salary, supply chain items as well as payroll and labor items. So, by putting information into the hands of the managers that spent the money, the INSIGHTS solution allows the user to be responsible, often for the first time, for their financial results. In fact, several INSIGHTS clients have used the system’s alerts as part of their annual manager evaluation process. It is INSIGHTS objectively derived alerts that favor an enhanced management opportunity for improvements.

There have been several INSIGHTS client hospitals that have seen their bottom lines skyrocket as the result of installing the software. One such client is LaPorte Regional Health System in LaPorte Indiana.

LaPorte Regional Health System (LRHS) is a 227-bed facility located 60 miles east of Chicago, serving counties in northwest Indiana and south Michigan. They installed INSIGHTS® software and service solution in mid-November 2004. At that time, LRHS was seeing steadily declining margins, limiting its ability to keep up with rapid changes and seize new opportunities. This was caused by a cumbersome financial management system that was making it almost impossible to access, aggregate, analyze, and share detailed data to support decision-making. Inefficiencies and redundancies strained limited staff resources, drained operating funds, allowed problems to go undetected and impeded leadership’s ability to set long-term goals.

LRHS needed a way to manage, monitor, and report on daily operations, so that productivity could be improved, performance expectations met, and long-range financial goals set. The LaPorte administration chose INSIGHTS because they wanted a financial and operational decision-support service suite that helps senior-level executives, division heads, and managers improve and sustain effectiveness, generate better bottom-line results, and align daily operations with strategic goals.

Some of their results have been dramatically good. They include:

• Performance improvement – Better financial management has led to dramatic bottom-line improvement. In less than four years, annual operating margin climbed from near break even to 8.3%. The hospital now has flexibility to take on more risks for enhancing revenue, expanding existing services and facilities, adding new product lines.
• Modeling and forecasting – Now trend current performance against historical data, project what can be expected in future for reimbursement and inflation rates, overlay with impact of adding new services – not just on operating margin, but also what cash-in-hand looks like, do they have to add debt to the mix, if so, how much – and develop very specific long-range plan.
• Faster budgeting – Budget workflow is accelerated 50% – from three months to six weeks. Also allows budgeting process to start later – from May 1st to July 1 st – so there is more robust data to work with.
• Measuring productivity – In a matter of seconds, managers can combine pay-period information – down to the employee and pay code level with each department’s unique volume statistics; display the data in a graph or compile a report; and evaluate where they stand on staffing efficiency.
• Sharing information – Year-to-year capital budgeting process is now streamlined. Managers only fill out capital item request form once. With a simple click, all the information can be automatically re-entered and re-submitted the following year.

In fact, according to Mark Rafalski, LaPorte’s Vice President and Chief Financial Officer, “We’ve gone from nearly breakeven to an 8.3% operating margin… you don’t get results like that unless people are managing differently. I believe INSIGHTS gives our managers access to the information and functional capabilities they need to do that.”

The chart below shows the amazing bottom line improvements experienced by LHRS. Now what hospital administrator would not like to see results like this? It is possible, it is probable, it is available. Yet, there have been numerous instances where, confronted with these dramatic and significant results, hospital financial administrators have passed on this tool. And…many of the stated reasons showed that there was a general lack of commitment or consensus around the concept of really improving the bottom line. This very affordable system has shown returns on investment in high multiples. (Just imagine LaPorte’s ROI, given its improved bottom lines!)

So, the next time that your hospital’s administration claims to really want to improve its bottom line, remember INSIGHTS. The INSIGHTS solution is an opportunity that should not be passed by.