Business Profile | Analytics

Analytics help create an integrated health system

Sponsored by Kaufman Hall
Business Profile | Analytics

Analytics help create an integrated health system

At HFMA’s Financial Analytics Leadership Council’s (FALCO’s) fall meeting, a common discussion theme was the role of financial analytics in creating standardized metrics and processes that unite disparate units within a health system. For many members, a period of rapid growth in their health systems is now being followed by an emphasis on integration and realization of the efficiencies made possible through greater scale.

Service line analytics drive operational transformation

At one member’s health system, a focus on new analytics for outpatient service lines is part of a broader effort to transition the organization from a federation of divisions to a system with true sharing of best practices to eliminate unwarranted clinical variation.

Outpatient service lines have been divided into six key value areas, including behavioral health, cardiovascular, oncology, orthopedics and neurosciences, women and children, and surgical services. Service line leaders are responsible for both inpatient and outpatient — including ambulatory and physician practices.

With new analytic packages in place, the health system has been able, for example, to produce break-even analyses for outpatient surgery centers and to analyze the impact of “white bagging” (the practice of bringing infusion drugs from an outside pharmacy to be administered by a system facility) on the oncology service line. Analytics now allow comparisons across regions, facilities and physicians within the health system, a first step toward standardizing processes and identifying areas of significant variation.

Benchmarked shared services identify improvement opportunities

Another FALCO member presented her system’s experiences with shared services benchmarking.

A focus on shared services benchmarking is a key element in realizing economies of scale. Internal benchmarking is a first step, but external benchmarking is also required to identify specific quality and cost-improvement opportunities and best practices. Variations from a benchmark can indicate whether the organization’s investment in shared services is too high or too low and lead to identification of “shadow structures” within the system that needlessly duplicate services offered at the corporate level.

Meaningful external benchmarking depends on identifying an appropriate peer group for comparison. In this instance, the system pursued two approaches. First, in recognition of the fact that healthcare often lags behind other industries, the system attempted multi-industry benchmarking. Because of significant differences among shared services in healthcare and other industries (e.g., revenue cycle costs in accounting or EHR costs in IT), normalization of expenses in an area such as HR would have resulted in removal of approximately 30% to 40% of the health system’s costs. Were these expenses removed, the system would appear highly efficient compared to other industries, but the comparison would no longer be meaningful.

A more productive approach has focused on benchmarking against other healthcare providers. Again, using the example of HR, expenses were normalized, but up to 98% of expenses were retained. This approach identified a potential cost-saving opportunity in excess of $6 million.

The cost reduction imperative within healthcare today means that accepting current cost structures is not an option. With appropriate external benchmarking in place, organizations can find opportunities that begin to realize economies of scale achieved through system growth.

Standardized costing and forecasting support efficient decision-making

Complexity is the enemy of efficiency, and as health systems grow, complexity often grows as well. Two areas of finance activity — costing and budgeting — can become overwhelmed by complexity, wasting valuable staff resources.

Health system growth can be accompanied by growth in the number of sources, types of data and categories of data that feed into the system. As health systems focus on tighter integration, their goal should be to develop a single source of truth, with standardized costing results and decision support system data.

“Don’t be afraid of the very good — perfection is a moving target,” said Kaufman Hall’s Catherine Savage. As an organization takes on standardized costing, a good place to start is with the chart of accounts. The chart of accounts should be structured to provide costing detail where the detail is meaningful (e.g., costs of implants or pharmaceuticals, including 340B drugs).

A focus on meaningful detail should result in fewer cost categories, which will also require less maintenance. “More is not necessarily better,” noted Savage. “Create what you need where you need to make an impact. Most organizations can get by with very few indirect categories, where added detail will provide little benefit.”

A move to rolling forecasting reinforces the need for strong strategic planning

A move to rolling forecasting can offer a more efficient alternative to traditional budgeting processes, but successful implementation will depend on the strength of the organization’s strategic financial planning.

FALCO members expressed frustration at budgeting processes at their organizations. Deadlines on decision-making slip, the budgeting cycle gets longer and the final product is outdated by the time it is introduced, requiring significant time devoted to budget updates as the year progresses. Many FALCO members noted that their organizations are considering or implementing rolling forecasting as an alternative.

Making the change to rolling forecasting requires a significant change in perspective, however. As Kaufman Hall’s Jason Sussman noted, “If you approach implementation of rolling forecasting as a mechanical step, it will fail. Success depends on having thought through the organization’s strategic plan with senior level involvement and building understanding of rolling forecasting as ongoing support for the strategic plan’s multiyear vision, not as an annual budgeting tool.”

If an organization has done good work on planning, the process of implementing rolling forecasting becomes much easier. The plan provides annual budget targets and rolling forecasting, in turn, supports the plan by enabling more agile management, maintaining focus on a forward-looking view of organizational performance and providing visibility to improve and adjust strategy formulation and execution.

Strong strategic financial planning is also a factor in the movement toward integration of health systems that have gone through a period of growth. Combined with enhanced service line analytics, appropriate benchmarking, and standardized costing practices, strategic financial planning and rolling forecasting provide tools FALCO members need to help their organizations realize the efficiencies of scale that growth can provide. FALCO, in turn, provides its members with a forum to discuss how these tools can be best deployed.

Sidebar

Members of HFMA’s Financial Analytics Leadership Council (FALCO) met in Atlanta for their fall meeting in November 2019. Sponsored by Kaufman Hall, FALCO is a member-driven group focused on sharing best practices and success stories for improving healthcare financial analytics through live and virtual meetings and webinars. Learn more if you are interested in joining FALCO.

About Kaufman Hall

Kaufman Hall is the performance solution company for organizations in dynamic, disrupted, and transforming industries. With a unique combination of software, consulting services, and data products, Kaufman Hall brings one, two, or all three to bear, driven by rigorous analytics, to help leadership achieve transformative outcomes, compete, and win. With particular expertise in healthcare, financial services, and higher education, Kaufman Hall hires the best of the best, to solve the toughest business problems on Earth. For more information, visit kaufmanhall.com.

This published piece is provided solely for informational purposes. HFMA does not endorse the published material or warrant or guarantee its accuracy. The statements and opinions by participants are those of the participants and not those of HFMA. References to commercial manufacturers, vendors, products, or services that may appear do not constitute endorsements by HFMA.

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