Budgeting Accurate Cost of Care at Community Health Network

Budgeting Accurate Cost of Care at Community Health Network Session ID: 10655 Linking Hyperion Planning and Hyperion Profitability & Cost Management for Accurate Driver Based Planning Prepared by: Amy Campbell VP of Finance - North Region, Community Health Network Todd Wegener Senior Manager, Grant Thornton

Presenter Introductions Amy Campbell VP of Finance, North Region for Community Health Network with 25 years of experience in Healthcare Finance with intimate knowledge of systems, processes and operations Led the budget and forecast process for the network hospitals and was the functional lead for the Hyperion Planning implementation Community Health Network (CHNw) A non-profit Central Indiana health system with more than 200 sites of care CHNw s full continuum of care integrates physicians, hospitals, surgery centers, home care services, urgent care, behavioral health and employer health services 2

Presenter Introductions Todd Wegener Sr. Manager, Grant Thornton, with15 years experience implementing Hyperion Planning and improving his clients' Budget and Forecast processes A recognized expert within financial, accounting and performance management applications and delivers breakthrough results for his clients Grant Thornton (GT) Global leading Audit, Tax and Advisory firm GT's Technology Solutions practice addresses a broad range of process, technology and organizational needs across finance, supply chain and HR functions Hands-on product experience, deep functional knowledge, and industry insights to successfully deliver integrated, cost-effective and scalable solutions 3

Agenda Finance Transformation Hyperion Planning Implementation Background Goals & Objectives Solution Overview Planning Solution Details Income Statement Driver Approach Planning Applications Flex Budget Reporting Benefits Lessons Learned Next Steps T 4

Finance Transformation Why Finance Transformation Goals & Objectives Application Scope & Timeline

Finance Challenges Overall Finance Challenges Multiple systems, teams and processes Changing reimbursement environment No one source of truth New CHNw leadership A 6

Finance Transformation Goals Common, standardized business processes deployed across the Network Robust data capture, consolidation and reporting capability Improved data integrity Scalable financial system foundation supportive of future growth and expansion Upgrade and implement a current technology for managing the business Reduce applications and tools currently used to manage the business A 7

Finance Transformation Benefits Provides an integrated enterprise platform with standard business processes Establishes a flexible, viable chart of accounts Increased transparency and visibility into business needs and performance Provides a ready, scalable platform for integrating future affiliates Provides vendor delivered integration of in scope applications A 8

Phase 2 Extended* Phase 1 Core Applications Finance Transformation Scope PeopleSoft (PS) Enterprise Performance Management (EPM) Oracle Business Intelligence (OBI) FSCM HCM HFM HPCM HP DRM BIFS OBIA General Ledger Asset Management Project Costing Payroll to GL Financial Management Financial Close Manager Profitability & Cost Mgmt Essbase Planning Human Resources Analytics Financial Analytics Procurement and Spend Analytics Accounts Payable eprocurement Purchasing Essbase Analytics Link Financial Data Quality Mgr OBIEE Essbase Inventory AR / Billing Data Relationship Management (DRM) EPM Data Synchronization and ODI Real Estate Grants Customer Contracts Cash Management * Scheduled to begin in 2016 esettlements T 9

Integrated Program Timeline T 10

Hyperion Planning Implementation Challenges Goals & Objectives Solution Overview

Planning Challenges Entities use differing processes and level of detail Rolling Forecast vs. Budget Account & Department vs. Income Statement Line Item & Entity Off-line point solutions in Excel Differing levels of detail in budget source of truth Limited transparency to business logic contained in offline Excel files impacted data governance and driver analysis Centralized (Finance) budget development limits accountability Comshare / Strata / Excel A 12

Planning Goals Goals of the Planning Implementation Common system for all entities Cased Based planning for appropriate facilities Drivers (rates) tied to historical utilization data Staffing model at job code level and based on case load Improved accuracy Standardized budget and forecast process Enable Flex Budget reporting and analysis A 13

Solution Overview T 14

Financials & Consolidation Financials Standardization and Optimization Standard, Repeatable Processes; A Single Version of the Truth Disparate Chart of Accounts in use across multiple GL, HR and EMR applications General Ledger balances stored in 4 main GL systems and several offshoot QuickBooks applications Manual, time consuming month end consolidation in Excel Organization driven banking relationships with multiple custom integration points Incomplete regional reporting capability that excluded affiliates Manual approvals of balance sheet account reconciliations and journal entries Single corporate chart of account used across all Oracle application as well as the EMR applications QuickBooks and 3 of the 4 GL systems moved to PeopleSoft; foundation established for migration of remaining GL Rapid business consolidation base on system established business rules leveraging HFM Shared banking relationship for all cash disbursement and receivables account types Consolidated reporting at the entity and regional level across the entire network Prototyped delivered functionality that fully supports audit requirements T 15

Patient Cost Allocation Patient Cost Allocation Expanding and Improving the Footprint Departmental expense costing available for subset of hospitals Costing and planning applications operated independently Lack of product line reporting across the network due to limited costed data Charge item costs based on cost-to-charge One EMR and one ledger in the costing footprint Lack of historical reference into how data was costed Lack of cost reports and analytics capabilities on allocations Departmental expense costing in place for all hospitals and physician practices Heavily integrated costing and planning solutions allowing for creation of a standard cost and budget flexing based on actual activity (cost and volume) Transactional level costed results distributed to the data warehouse for detailed cost-ofcare analysis by product line Actual charge item costs based on driver-based allocations and actual volumes All ledgers and three EMRs included Business rules and transactional tables store auditable trail of allocated data Ability to create reports and trace allocations to analyze results T 16

Planning & Forecasting Case Based Budgeting A Process Revolution Varying levels of budget detail (entity only, departmental by account and entity) Traditional department budgeting based on percentages Inconsistent budgeting tools and methods Costing and planning applications operated independently Largely manual calculation of budget based on historical experience One campus actively engaged in quarterly forecasting All entities budget by product line, entity, account pool and department Case based budgeting where case mix automatically adjusts revenue and expense budget Standard budgeting model for Hospitals, Physicians and Overhead Allocation Heavily integrated costing and planning solutions which allows for case based budgeting using consistent volume, standard charge cost and charge mix information Systematic creation of budget seed using business rules driven off account cost pool type and drivers All entities able to forecast quarterly T 17

Planning Solution Details Income Statement Driver Approach Allocations Planning Applications Flex Budget Reporting

Revenue 1. Costing team provides actual history based on utilization data Sub-Product Line, Facility, Department, In/Out Patient, Revenue Account Encounters, Billed Volume, Departmental Charges 2. Calculate Revenue Departmental Standards The Revenue Model in Hyperion Planning uses the history to calculate a standard rate and a standard volume Standards at the Sub-Product Line, Facility, Department, In/Out Patient & Revenue Account combination 3. Collect Input Volume Regional Finance staff enters the budgeted cases for each Facility by Sub-Product Line and in/out patient A 19

Revenue Cont. 4. Calculate Department volume and charges Use the input case volume, standard rate and standard charge to calculate each Department's Revenue & Billed Units 5. Report by Product Line Product Line is carried through the model from actual history to calculated volume and revenue, therefore can report on Product Line at any step of the process in Planning 6. Payer Mix Payer Mix and Reimbursement rates entered by facility, sub-product line and inpatient/outpatient Driver for Bad Debt and Charity accounts as a percentage (Global Rate) of Gross Revenue A 20

Revenue Example Old Process Activity Inputs Result Historical Admits 50 Historical Days 500 Historical Days / Admit (LOS) 500 / 50 10 days Historical Surgical Billed Units 2,000 Historical Surgical Revenue $ 200,000 Historical Surgical Volume / Day 2,000 / 500 4 billed units per day Historical Surgical Revenue / Volume $ 200,000 / 2,000 $100 per billed unit Budgeted Admits 100 Budgeted Days 100 X 10 1,000 Budgeted Surgical Billed Units 1,000 X 4 4,000 Budgeted Surgical Revenue 4,000 X $ 100 $ 400,000 A 21

Revenue Example Case Based Activity - Historical Inputs Result Ortho Admits 20 Surgical Ortho Billed Units 1,500 Surgical Ortho Revenue $ 40,000 Cardio Admits 30 Surgical Cardio Billed Units 500 Surgical Cardio Revenue $ 160,000 Surgical Ortho billed units / admit 1,500 / 20 75 billed units per admit Surgical Ortho revenue / billed unit $ 40,000 / 1,500 $26.67 per billed unit Surgical Cardio billed units / admit 500 / 30 16.67 billed units per admit Surgical Cardio revenue / billed unit $ 160,000 / 500 $320 per billed unit A 22

Revenue Example Case Based (Cont.) Activity - Budgeted Inputs Result Ortho Admits 70 Cardio Admits 30 Surgical Ortho Billed Units 75 X 70 5,250 billed units Surgical Ortho Revenue 5,250 X $ 26.67 $ 140,018 Surgical Cardio Billed Units 16.67 X 30 500 billed units Surgical Cardio Revenue 500 X $ 320 $ 160,000 Total Surgical Billed Units 5,250 + 500 5,750 billed units Total Surgical Revenue $ 140,018 + $ 160,000 $ 300,018 Previous process overstates department revenue by almost $100,000! A 23

Staffing Model - Labor 1. Staffing model based on job code groupings Job codes from PS HCM grouped into labor pools HPCM provides the rate per hour for each job code grouping, department and facility 2. Industry Standards CHNw uses efficiency targets for hours per unit of service (UOS) by job code grouping Target hours per UOS and volume used to calculate hours needed by job code grouping 3. Variable Labor Cost Calculate departmental labor cost by job code grouping using the industry standard and HPCM historical rate per hour Historical overtime % by Department & Facility A 24

Staffing Model - Labor 4. A fixed labor rate used for administrative and other areas where labor does not vary with case volume Job codes from PS HCM grouped into labor pools HPCM provides the rate for each job code grouping by department and facility 5. Payroll Taxes Taxes and Benefits applied using a variable rate and separate cost pools Rate is a % of salaries by department 6. Benefits Benefits calculated at network level Using # of members by department, a per member/month cost is applied to calculate 7. Incentives Applied as a % of base for the incentive eligible pools A 25

Non-Labor Expenses 1. Standard Costs by Cost Pool from HPCM A cost pool is a grouping of GL Accounts HPCM calculates cost pools at Sub-Product Line, Facility, Department, In/Out Patient level of detail 2. Fixed Costs For fixed costs that do not vary with case volume HPCM provides a $ amount by month to incorporate seasonality 3. Variable Costs Rate per Unit of Service based on 12 months of actual history Same rate used for all budget months Average based on a rolling 12 months of actuals A 26

Expenses Cont. 4. Update Variable Cost Pools Update variable cost pool values for inflation or other known changes 5. Calculate variable expenses Translate the Case volume to UOS driver volume Examples include # of surgery minutes, # of births, etc. Apply historical rate/uos to budgeted volume 6. Update Fixed Cost Pools Update fixed cost pool values for inflation or other known changes A 27

Overhead Allocations 1. Network Medical Insurance Expense Allocate Medical benefits cost pool to departments by number of members by department 2. Allocations Corporate Overhead Allocate corporate costs to the network facilities Allocation Drivers include: Total Operating Revenue, # of Employees and # of invoices processed 3. Allocations Master Service Agreements Revenue that moved between entities Services provided from one hospital to another Determine cost as a % of revenue to shift expense from department performing service to department receiving revenue A 28

Planning Applications Hospital Physician Account Department Business Unit Product Patient Type Job Code Payer Consolidated Account Department Business Unit Procedure Category Product Patient Type Job Code Payer Account Department Business Unit Procedure Category Product Job Code Payer T 29

Flex Budget Reporting Flex budgeting process takes expected performance and calculates where we should have performed Expected performance based on budget rate per unit of service (UOS) Budgeted cost / UOS Budged Rate per UOS multiplied by the Actual Volumes equals flexed expense Approach highlights variation in actual performance using the volume and rate T 30

Flex Budget Reporting Example T 31

Conclusion Benefits Lessons Learned Next Steps

Benefits Common system for all entities Historical experience applied to expected cases by product line derive more accurate budgeted performance by department Better understanding of resources timing needs Labor, implants and other supplies Based on expected case load and seasonality More accurate calculation of margin using reimbursement rates and payor mix Use budget relationships and assumptions to determine variation from actuals in more detail A 33

Lessons Learned Implementation timing of support systems Software is flexible enough to handle method changes mid-stream Involvement of subject matter experts is key Knowledge base Work force Communication there can never be enough! T 34

Next Steps Implement the Case Based model for Affiliates who were not included in Phase 1 Enhance the labor model based on user feedback from 2016 budget cycle Utilize the model for Quarterly Forecasting Implement Hyperion Strategic Finance for long range planning T 35

Questions 36

Upcoming Webinar Achieving Harmony in Healthcare Financial Reporting Tuesday April 19, 2016 Noon Eastern In this complimentary webcast, we will explore how the Central Indiana-based Community Health Network a major vertically integrated nonprofit network with more than 200 sites and 2 million patient encounters annually conquered its maze of financial management systems to achieve system wide harmony. The webcast presenters, including a Community Health Network executive, will describe how the organization built an infrastructure to deliver accurate, efficient financial reporting across its vast network. T 37

Contact Information Amy Campbell ACampbell@ecommunity.com (317) 621-2269 Todd Wegener todd.wegener@us.gt.com (913) 272-2708 38