Today’s Healthcare landscape is changing dramatically with governmental changes, an aging boomer generation, increased healthcare regulations, and others factors such as ICD-10. It is important that healthcare companies stay on top of performance, properly deploy analytics and/or metrics, and forecast where the organization might be going. Budgeting and forecasting are commonly very challenging for healthcare entities as there are a lot of inputs to create a revenue model and an equal amount of cost drivers. There is a simpler and more robust solution than an unwieldy Excel spreadsheet.
Revenue budgeting is typically driven by number of patient stays, patient type, physician encounters, procedures performed, drugs administered and patient re-admits. There are numerous assumptions which are used in this process to properly track the revenue and associated cost of a patient stay. Some of those assumptions include number of patient days, average daily charges, procedure charges, food costs, linen costs and others. This creates a tremendous number of drivers for both revenue and cost figures. Additionally staffing a hospital is a critical aspect and ties directly to financial performance and patient outcomes. Whether planning by position, shift or specific people, healthcare organizations need a planning system with the flexibility to accommodate their model and ensure proper staffing based on patient needs.
All of the revenue, cost calculations, and expected contribution margins should be tied together in a driver based budgeting and forecasting model to create realistic expectations. These drivers can also be used to model what-if scenarios so that executives can properly access risky situations and make better decisions. Metrics are also outputs from proper usage of a driver based budgeting system. Reporting budgeted figures against actuals and comparing them to industry averages can provide valuable insight into a healthcare provider. Is your organization actually achieving the expected average length of stay?
Additionally as with most organizations in today’s economy, it is necessary to perform frequent what-if scenarios so that proper planning can occur. What will happen if our expected payback for outpatient procedures from a provider slips a percentage point? Can we recoup that cost from our patients or do we simply lose it on the contribution margin? Thinking proactively about the future is a good exercise for businesses as it helps organizations plan for unforeseen obstacles and hopefully achieve promising financial results.
Reporting and analysis of the inputs from a financial budget and forecast are also critical components for a successful planning and analysis tool in the healthcare industry. Do you have the proper Key Performance Indicators (KPIs) deployed, being actively monitored and promptly reported throughout the organization. These are critical factors that help create a collaborative culture and ensure everyone in the group is moving towards the same goals. KPIs have been shown to dramatically improve performance and assist in making CFO’s and financial executives more strategic.
Patient interactions and healthcare decisions are driven by data, analysis and an understanding of history. The same should be true for your finance organization. The concept is to create a data driven culture where financial and operational outputs are measured, analyzed and forecasted helping create a secure future for your healthcare operation.
At Kraft we specialize in helping healthcare organizations deploy budgeting, forecasting, reporting and analytical solutions built on Adaptive Insights best in class corporate performance management capabilities (CPM). Our consultants have extensive experience in healthcare companies helping design, implement, and support financial, accounting and budgeting solutions.