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Strategic Direction
Three Steps to Help Rural Hospitals Overcome Financial Distress

by Michael Morgan, Director of Due Diligence and Strategic Analysis, CHC

 

An array of issues – from increasing charity care, bad debt and declining reimbursement rates to negative profit margins – create financial distress for rural hospitals. Despite today’s challenging operating environment, many rural hospitals across the country are using a practical approach to grow revenues and control costs.

 

Step 1: AWARENESS

Know the signs and symptoms of declining financial health

 

How does a hospital reach the point of “no return” where closure becomes inevitable? Were there warning signs along the way? Were they missed? Would the outcome have been different if danger signals had been noted and addressed?

 

Discussions around performance, growth and capital stewardship are at the heart of strategic planning for most health care organizations, and even though financial indicators are a harbinger of financial health, “finance” is often considered the responsibility of the chief financial officer or other “financial” folks. Budgeting is usually department-specific.

 

Like car dashboard warning lights, financial warning signs mean it’s time to sit up and take notice. A regular review of the most important indicators related to an organization’s financial health should be a shared responsibility for the entire health care team. Data points to focus in on include:

  • Look at aggregate volume and provider utilization trends. This data can offer a big-picture perspective to leaders and managers across departments.
  • Share operating ratios, including expenses as a percent of net operating revenue focusing on labor, supplies, and purchased services.
  • Examine labor costs relative to volumes. Is the hospital meeting productivity goals? Look at FTE staffing per adjusted occupied bed targets.
  • Review patient revenue indicators including bad debt percentage and net to gross percentage by payor class. Are there shifts in payor mix that need to be addressed?
  • Study liquidity ratios, such as net days in patient accounts receivable and cash collections as a percentage of net revenue minus bad debts. What steps can be taken to improve cash flow?

Step 2: INFORMATION GATHERING

Identify and assess significant financial indicators

 

Operational best practices include a monthly review by hospital leadership of key measures, many of which are listed above. Procedures should be put in place by the hospital’s finance department, with input from department managers, to produce accurate monthly stats and financial performance metrics to facilitate these periodic reviews. A closer look at financial indicators also should be part of the annual review and planning process. A key to financial improvement for hospitals is clear communication of expectations and goals across the leadership spectrum in order to accomplish desired changes.  

 

Step 3: ANALYSIS & ACTION

Connect the dots for sustainability

 

Once data is available to everyone, the next step is to analyze the root cause. For instance, if inpatient admission volumes are down significantly in a current month compared to the same month in the previous year, the conclusion might be, “We think it went down because there were fewer flu cases this year compared to last year.” That may be true, but speculation can be risky. Do a deep data dive and take the guesswork out of the equation. What were the primary diagnoses of the admitted patients for each time period? Were there any abnormal physician trends? How do observation days this month compare? Understanding the trends and their causes is the key to creating actionable solutions.

 

Regular reviews of key financial indicators can identify operational best practices, support strategic planning efforts, enhance understanding and create accountability. These reviews can confirm or redirect efforts aimed at sustainability. The most critical element of the entire process is answering “why.” Only then can the team develop solutions to improve operating margins and avoid financial distress.

 

Learn more about CHC's Financial Improvement services.

Tags: Affordable Care Act, Healthcare Reform , Hospital Management, Hospital Performance Improvement, Operational Improvement, Strategic Direction
Strategy and Vision Planning for Results

By Cindy Matthews, Executive VP, CHC.

 

Strategic planning. It’s listed at the top of meeting agendas, discussedin hallways, and generally viewed as a blueprint for organizational growth and success. It’s how businesses (should) plan for the future, after all. Although the purpose of strategic planning is to enhance an organization’s performance, growth and revenue — classic business objectives with obvious benefits – many participants say “it takes too much time,” or “it’s disconnected from the way we actually operate.” How can this be?

 

“Strategic planning” usually isn’t the issue. According to the Harvard Business Review, it’s how the process is developed and managed to support ongoing decision making. Here are some guidelines to restructure and facilitate the strategic planning process to make it more effective and relevant to your hospital’s daily operations.

 

(1) Assemble key stakeholders to create a clear vision for the future. The first step is to bring everyone to the table to discuss how the hospital can move forward effectively —board members, medical staff and hospital leadership. Explore your desired future state, asking questions such as “Where do we want to be, what’s helping or hindering us from moving forward, and how can we get there?” Talk about the hospital’s strengths and weaknesses too, internal and external. And don’t forget education as a component of the conversation. Share information on the hospital’s service area and patient demographics, market share, the Affordable Care Act and how it may be impacting patient volumes, and more. This visioning process is integral to effective planning.

 

(2) Identify strategies to support attainment of the vision. How will you achieve your desired outcome? Outline key operational, physician, employee, financial, technological and growth strategies for the next three years to help turn vision into reality.

 

(3) Develop action plans for implementation. Now that strategies are defined, the next step is to identify key tactics and measurements for each initiative. Be sure to document plans with timelines and accountability. Engage departments and staff in the strategy execution process. A disciplined approach helps everyone be accountable. A related note: make strategy development continuous, spreading strategy reviews throughout the year to focus on a single issue at a time. Don’t limit reviews to a two- or three-month time period.

 

(4) Align business planning with strategic planning processes. Business-unit focused plans related to service line growth, physician alignment, operational efficiency, clinical quality and patient engagement/satisfaction must be consistent with the organization’s strategic objectives. Leaders should work closely with hospital managers to ensure department and service line business plans and budgets align with hospital strategic planning efforts.

 

When we’re caught up in day-to-day operations, planning can become an afterthought or an exercise in futility. Reconfigure the process to clarify a shared vision, advance stakeholder collaboration, define responsibility and improve decision making.

 

Learn more about CHC Strategy and Vision Planning services.

Tags: Affordable Care Act, Hospital Performance Improvement, Operational Improvement, Strategic Direction
Beating the Odds in Rural Healthcare

By Wilson Weber, Executive VP and COO, CHC

 

Rural hospitals operate as a healthcare safety net for smaller

communities, where demographics tell the story about these community-based hospitals. Patients tend to be older than those at urban or suburban hospitals, many patients are uninsured, and rural facilities have to maintain emergency rooms and beds for acute care even if they see fewer patients. In the last five years, Congress has sharply reduced spending on Medicare, and this decline in reimbursement rates has been particularly challenging for rural hospitals.

 

Along with the need for hospitals and healthcare services, our rural hospitals need more primary care physicians (PCPs) to care for patients. According to data from the Agency for Healthcare Research and Quality, there are 68 PCPs per 100,000 people in rural areas, compared with 84 per 100,000 in urban areas. Approximately 65 percent of primary care health professional shortage areas are in rural counties, according to Rural Healthy People 2020. This lopsided geographic distribution makes it doubly difficult for rural hospitals to maintain the health of their communities.

 

Like any business, a hospital’s financial well-being is tied to expenses and revenue. The tried-and-true formula is to increase revenue and reduce costs. That’s simple enough — yet bottom-line results for a rural hospital mean more than just the numbers. Employees, patients and the surrounding community depend on the hospital’s continued success.

 

In spite of the challenges, some community hospitals are seeing better financial performance. Let’s examine some actions they are taking to improve the bottom line.  

  1. Identify areas needing improvement. Begin by looking at the basics. For example, Yoakum Community Hospital in Yoakum, Texas began working to qualify the payer status of patients prior to admission. Self-pay patients may qualify for Medicaid or another reimbursement source. This step alone can make a significant difference in increasing revenue. 
  2. Strengthen physician relations. Great Plains Regional Medical Center includes physicians in leadership positions to enhance relationships between hospital executives and physicians. Currently physicians account for roughly one-third of the hospital's board, so they have a voice in the hospital’s strategic decisions. Hospital-physician collaboration can improve quality and cost efficiency. And because a significant part of the growth and success of a hospital is dependent upon the right mix of physicians and specialists, creating or revising your medical staff development plan should also be on your “to-do” list. 
  3. Benchmark performance against similar hospitals. Compare clinical data. This is a great way to identify opportunities for improvement and potential cost saving, and facilitate movement toward value-based care.
  4. Think about partnerships. If internal improvements aren’t sufficient, community hospitals may want to consider forming relationships with other organizations. Analyze the advantages and disadvantages of a potential partnership. What is the community hospital expected to provide? What amount of control they will cede for the expected benefits of the partnership? Make sure cultures are aligned and define expectations at the start.
  5. Ensure board involvement. Your board can be your biggest advocate and ally. When board members are better educated about their responsibilities, including overseeing finances, clinical quality and strategy, their support and ideas can be invaluable.

Financial stability is the solution to beating the odds in rural healthcare. Find out more about how CHC is helping hospitals.

 

Tags: Affordable Care Act, Hospital Performance Improvement, Operational Improvement, Partnership, Strategic Direction
When it Comes to Local Economies, Community Hospitals Prove to Be the Little Engines that Could

 

What makes a hospital a community hospital? Several criteria qualify a hospital as such, including the economic role it plays in the region it serves. As CHC’s Executive Vice President Cindy Matthews puts it, a community hospital “very much tends to be part of the economic engine of the community."

 

In fact, community hospitals tend to be the second or third largest employer in town, usually right behind the school district, she adds.

 

Lately, industry publications as well as the mainstream press have been acknowledging the vital role community hospitals play. Becker’s Hospital Review states that its importance “should not be understated — sometimes a community hospital will be the only thing keeping a town that used to thrive on railroad traffic and manufacturing going.”

 

Read more about the “economic boost” and other factors that make a hospital a community hospital in the Becker’s article “The modern definition of a community hospital.”

 

Read how community hospitals not only provide “an array of jobs from the bottom to the top of the economic ladder” but also “stimulate local spending and help attract new businesses that offer a stable of insured patients” in the New York Times article “Hospitals Provide a Pulse in Struggling Rural Towns.”

 

From healthcare access to employment, read how community hospitals contribute to their regions in the Southern Business Journal article “Hospitals helping bring money into the local economy.”

 

At CHC, we believe that community hospitals are indeed the economic engines of their region, and like any engine, they can sometimes use a tune-up. Learn more about how CHC’s services and solutions can help maximize your hospital’s performance.

 

 

Tags: Hospital Performance Improvement, Independence, Strategic Direction
Your Hospital's Challenges Can Make it Stronger

They say challenge is just another word for opportunity. That’s certainly how CHC views the challenges faced by many community hospitals today. When hospitals enlist CHC’s assistance, “We go in and look at opportunities they can focus on to become more successful,” says President and CEO Mike Williams in a new video describing the company’s operational assessment process. 

 

An operational assessment evaluates strengths and opportunities for improvement in five areas:

 

Strategy

Productivity

Revenue cycle

Supply chain management

Information technology

 

Based on the assessment as well as input from hospital leaders and board members, an action plan is set in motion and a brighter future comes into focus. This brief video provides more information and a success story.

 

Tags: Operational Assessment , Operational Improvement, Strategic Direction

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