Jonathan Landsman, CISA, MBA
Senior Director of Big Data Strategy, MiraMed Global Services, Jackson, MI
There’s always been a focus on the numbers. A Chief Financial Officer (CFO) at a regional health system used to refer to it as having to "keep his eye on the dollars and sense" meaning that the money, the numbers and the ratios were all equally important. Cash flow has always been important, but never so critical than during challenging financial times. During economic periods of strength, hospitals had a number of alternative sources to help address operational shortfalls. They leverage their reserves and investments as collateral, along with bank letters of credit which were used to act as credit guarantee for investors and other privately negotiated healthcare lending deals.
However, the 2008 financial crisis changed all that. Hospitals faced high fixed-cost challenges that couldn’t be offset by operational revenues. The changing economy caused elective procedures to drop 31 percent and admissions to drop by 38 percent. Unemployment rose, resulting in increased uncompensated care as patients lost their employer-sponsored healthcare coverage. Medicaid coverage, which reimburses at a lower rate for medical services, didn’t come into play for as much as one year later for many of the growing indigent population.
To address sustainability and even survivability, the focus on funds and operational metrics became critical. Many hospital and healthcare system (HHS) organizations adopted key performance indicators (KPIs) and metrics. KPIs are the indicators or measures which are analyzed and metrics are the data to use for numerators and denominators to consistently measure or track each KPI. Establishing these KPIs help HHS organizations actively track operations and performance to help serve their patients and communities.
Like most industries, there still were closures and a number of consolidations in the HHS space. While these consolidations continue today, the market dynamics and market forces are different today than they were in 2008. Most economists agree the economy has improved. The question has to be asked, what else is different now from 2008? Beyond the Affordable Care Act (ACA) aka "Obamacare" and the advent of Accountable Care Organizations (ACOs) and their quality & performance measures for shared savings, we’re also seeing:
- The continued shift from an inpatient to an outpatient healthcare delivery model.
- The shift to greater patient responsibility. Patient co-pays have doubled. More than 20 percent of insured are now in high-deductible or health savings accounts, up significantly from four percent in 2006.
- The payer mix.
- The aging populace of 78 million baby boomers who are, or will soon be, on Medicare. They’re likely live to the average age of 84. Medicare pays for services at a significantly lower rate than commercial payers.
- The growth in Medicaid due to a weakened economy. Medicaid also pays at a lower amount than do commercial payers. However, as the economy continues to improve, we can theorize a corresponding shift away from the reliance on Medicaid. However, that shift may be towards Medicaid expansion, to health insurance exchange-based plans, and to commercial plans. The impact of this transition on this continuum of plan types is unknown.
- Medicare’s focus is on reducing readmissions. Initially, this was an incentive program that focused on patients with acute myocardial infarction (AMI), heart failure (HF) and pneumonia (PN). Through various CMS and HHS-focused programs, the number of readmissions has dramatically dropped. Medicare has shifted from incentives to penalties.
- This past year, Medicare added two new categories chronic obstructive pulmonary disease (COPD) and total hip arthroplasty (THA) and/or total knee arthroplasty (TKA) related to readmissions. Nearly 19 percent or two million Medicare patients were readmitted within 30 days of discharge. Even with the greater focus, 2,610 hospitals, representing more than 50 percent of the hospitals in 29 states, failed to meet these tighter standards for readmissions and, as a result, were subject to penalties.
While it is important to establish why KPIs and metrics are necessary, it’s also important to continue to evolve those KPIs and metrics as the market and the needs of the business evolve. As the above bullets show, what was necessary to track in 2008, 2009 or 2010, isn’t necessarily the same areas that should be tracked today. Not all measures are appropriate for KPI standardization, nor are they unilaterally applicable to all hospitals. For instance, establishing a KPI tied to readmission is important. This is especially true in view of CMS’ Medicare’s Hospital Readmissions Reduction Program (HRRP). However, the HRRP program excludes nearly 1,400 hospitals including certain Critical Access Hospitals (CAHs) and many cancer hospitals. So a readmission measure might be of value, but not necessarily one that’s defined along the HRRP program.
- KPIs don’t always remain static. Again, looking at the HRRP program, originally its scope was limited to AMI, HF and PN conditions. The HRRP program now includes obstructive pulmonary disease (COPD), hip arthroplasty (THA) and total knee arthroplasty (TKA), as well. If the KPI and metrics aren’t continually updated to reflect new measures, then it’s possible the facility would miss tracking knee or hip replacements from these recent updates.
- Definition of the measure is important. Understanding what should and should not be included in the numerator and denominator is also important. Again, using the HRRP program as an example, patients who are members of a private Medicare Advantage insurance plan are excluded. As well, the facility may have had less than 25 cases within any one of these five categories (AMI, HF, PN, COPD or THA & TKA) during the reporting period. As a result, there may be excluded penalties for that one category. Organizationally, they still may feel it is important to report or track these types of readmissions.
So what could be some KPIs or dashboard measures for your organization?
- Hospital Consumer Assessment of Healthcare Providers (HCAHPs) helps track your patient satisfaction
- Daily census overall, by service line
- Observation stays
- Average length of stay (ALOS) by service line
- Payer mix of patients, of revenue or of days in accounts receivable (AR)
- Daily cash balance, cash collections and days in AR
- Gross revenue overall, by service line
- Number of surgeries
- Operating margin by service line
- Contribution margin by service line
- Inpatient vs outpatient of patient visits of revenue, of payer mix
- Staff overtime
- Variance between actual and budgeted full-time employees (FTEs)
The above are just a few examples of various KPIs or measures that different HHSs track. Being in the data analytics space, we’re always trying to understand the "What’s," "the How’s," but most importantly, "the Why’s." So, we’d like to know what KPIs your organization uses, why your organization has chosen these KPIs over others, and what metrics or data do you use and how you calculate the numerators and denominators.