Objectives. Financial Basics. Justification of New Pharmacy Programs. Outline. Objectives. Skill Sets

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1 Objectives Financial Basics: Justification of New Pharmacy Programs Robert P. Granko, PharmD, MBA Alex Varkey, PharmD, MS Jacob Thompson, PharmD, MS Describe the components that are key to successful financial and budget management. Identify the necessary elements of a successful business plan. Understand key financial metrics to help build a new pharmacy program. Outline Fiscal Year Budget Types Predicting Costs Business Plan Components Financial Metrics UHS Anticoagulation Clinic Business Plan Financial Basics Robert P. Granko, PharmD, MBA Associate Director of Pharmacy University of North Carolina Hospitals Chapel Hill, NC Objectives Provide an overview of basic financial terms Assist in navigating example financial and productivity reports Provide an overview of commonly used references and resources Skill Sets Communication Relationship Management Anticipation Project Management Organizational Skills Attention to Detail Problem-Solving Skills Ethics 1

2 UNC Healthcare at a Glance Key Terminology 3 main financial statements Balance sheet Income statement Cash flow statement Gross revenue Payer payments Expense Supplies and labor Profit/Contribution Margin Revenue expense UNC Hospitals Monthly Budget Variance Report Division: Pharmacy For the Month Ended January 31, 2013 Current Month - January Year to Date - January Jan-13 Jan-13 Jan-12 Account Budget Variance Number Account Description Key Terminology Inpatient Revenue Outpatient Revenue Inpatient Revenue Outpatient Revenue Total Patient Revenue Deductions Deductions Net Patient Revenue Other Operating Revenue Non-Operating Revenue Total Revenues Net Patient Revenue Other Operating Revenue Non-Operating Revenue Total Revenues Salaries & Wages Contract Labor Employee Benefits Purchased Services Drugs Medical Supplies Other Supplies Lease and Rental Utilities Depreciation Bad Debt Expense Total Operating Expenses Salaries & Wages Contract Labor Employee Benefits Purchased Services Drugs Medical Supplies Other Supplies Lease and Rental Utilities Depreciation Bad Debt Expense Total Operating Expenses Jul-12 Total Patient Revenue Income From Operations Income From Operations Overhead Overhead ***Staffing Information*** Total Worked FTEs Total Worked Hours Total Paid Hours ***Staffing Information*** Total Worked FTEs Total Worked Hours Total Paid Hours Paid FTEs by Pay Class H_Prod FTEs-Worked H_Overtime FTEs-Overtime H_NonProd FTEs-NonProductive H_Contract FTEs-Contract Labor Total Paid FTEs by Pay Class Account Number Account Description 2013 Jan-13 Jan-13 Jan-12 Annual Account Budget Variance Budget Number Account Description SUMMARY INFORMATION-FINANCIAL Cash Flow Cash moving in and out of the business Return on Investment (ROI) Amount of return an organization realizes from an investment Comparison of financial consequences Break Even Analysis Inventory Variances UNC Hospitals Monthly Budget Variance Report Division: Pharmacy For the Month Ended January 31, 2013 UNC Hospitals Monthly Budget Variance Report Division: Pharmacy For the Month Ended January 31, 2013 Division Rollup H_Prod FTEs-Worked H_Overtime FTEs-Overtime H_NonProd FTEs-NonProductive H_Contract FTEs-Contract Labor Total Paid FTEs by Pay Class Division Rollup Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 BUDGET Mar-13 BUDGET Apr-13 BUDGET May-13 BUDGET Jun-13 BUDGET FY13 Projected Productivity SUMMARY INFORMATION-FINANCIAL Inpatient Revenue Outpatient Revenue Total Patient Revenue Deductions Net Patient Revenue Other Operating Revenue Non-Operating Revenue Total Revenues Salaries & Wages Contract Labor Employee Benefits Purchased Services Drugs Medical Suppli es Other Suppli es Lease and Rental Utilities Depreciation Bad Debt Expense Total Operating Expenses Income From Operations Overhead ***Staffing Information*** Total Worked FTEs Total Worked Hours Total Paid Hours H_Prod H_Overtime H_NonProd H_Contract FTEs-Worked FTEs-Overtime FTEs-NonProductive FTEs-Contract Labor Report Categories Statistics and Hours Inpatient and Outpatient Days Key Ratios Non Productive Volume Adjusted Variance Analysis Total Gross Revenue Variance Total Salary Variance Total Medical/Surgical Supply / Pharmacy Variance It is not enough to be busy... The question is: what are we busy about? Henry David Thoreau Total Paid FTEs by Pay Class 2

3 UNC Hospitals Dept Pulse UNCH Pharmacy Administration Manager: For the period ending: January 31, 2013 Current Month Of January Year-To-Date Current Current Positive # or % = Favorable Variance YTD YTD Last Year Budget Variance Var % Negative # or % = Unfavorable Variance Budget Variance Var % Variance Var % Statistics & Hours Primary Statistics : IP Calendar Days OP Calendar Days Other Calendar Days Total Key Statistics Hours: Hours - Productive Hours - Contract Labor Hours - Overtime Total Productive Hours Hours - Non Productive Total Paid Hours Worked FTEs Paid FTEs Key Ratios Non Productive Hours % Paid Hours per Unit Worked Hours per Unit Volume Adj Paid FTEs Productivity Index Salary Expense % Average Hourly Rate Cost per Hour Worked Overtime/Worked Hours Dollars per Unit Net Patient Revenues per Unit Gross Patient Revenues per Unit Salary Expense per Unit MedSurg/Pharm Supply Exp per Unit Other Expense per Unit Total Expense per Unit FY 2014 Budget Calendar Capital Files to Departments 12/3/2013 Capital Files Due to Budget 12/27/2012 Capital Files to VPs 12/31/2012 Capital Review w/ CEO/CFO 1/3 1/11/13 Computer, Ergonomics and Communication worksheets 1/25/2013 OC Meeting Capital & Stats 1/22/13, 1/29 and 2/1/13 Operating Budget Files to Departments 2/1/2013 Operating Budget Files Reviewer 2/13/2013 Variance Analysis Gross Revenue Variance due to Volume Gross Revenue Variance due to Rate Total Gross Revenue Variance Salary Variance due to Volume Salary Variance due to Pay Rates FY 2014 Budget Calendar High Performance Budgeting Operating Budget Files to Departments 2/1/2013 Operating Budget Files - Owner to Reviewer 2/13/2013 Operating Budget Files - Reviewer to Approver 2/18/2013 Operating Budget Files - Approver to Budget 2/20/2013 VP Operational Review COO/CFO 3/4 3/9/13 OC Operations Budget Reviews; 3/12/2013, 3/19 and 3/26 Draft to President/ HCS CFO 4/8/2013 Send File to Board 4/29/2013 Finance Committee Meeting 5/6/2013 UNC HCS Board Meeting 5/20/2013 Department Operating Reviews (DOR) Quarterly Finances Productivity Human Resources Emerging Services Business of Pharmacy Innovative Services and their Results Monthly mock DORs - Underway References Financial Intelligence by Karen Berman and Joe Knight Wilson AL. Financial Management for Health-System Pharmacists. ASHP 2009 Healthcare Finance: An introduction to Accounting and Financial Management, 5 th edition. Journals: Healthcare Financial Management Harvard Business Review Business Planning and Financial Metrics Alex Varkey, PharmD, MS Pharmacy Operations Manager PGY1/PGY2 Health-System Pharmacy Administration Residency Director The Methodist Hospital Houston, TX 3

4 Business Planning in Pharmacy Crux of service advancement Any expansion requires resources, facilities, or specific equipment Serves as the primary tool used to propose the service advancement, secure resources, and guide the advancement to fruition Comprehensive description: Opportunity People involved Resources required Results or Return on Investment The Methodist Hospital The Methodist Hospital Private, adult teaching hospital affiliated with Weill Medical College of Cornell University 766 operating beds 73 operating rooms 1,852 affiliated physicians 5,957 employees 35,542 inpatients (2012) 290,555 outpatients (2012) 55,370 emergency room visits (2012) 7 ASHP-accredited pharmacy residency programs (16 residents) TMH Pharmacy Department Administration Clinical Specialists Staff Pharmacists Residents Technical Support 16 Doing more with less Business Planning in Pharmacy Evaluate and refine the based on data obtained FTE: Full-Time Equivalents 23 4

5 Business Planning in Pharmacy Evaluate and refine the based on data obtained Starts with thorough knowledge about your current services put it on paper Identify gaps in current services through needs assessment Prioritize potential advancements based on importance to departmental and institutional goals Take highly-prioritized initiatives to next step in the development process Business Planning in Pharmacy Evaluate and refine the based on data obtained Research the feasibility and details of the Conduct thorough review of published literature If very little literature exists on the specific, rely on professional network ASHP Connect ASHP Pharmacy Practice Managers Listserve UHC Listserves Site visits Search for white papers and/or best practice guidelines from national health-care organizations Business Planning in Pharmacy Evaluate and refine the based on data obtained Evaluate and refine the based on data obtained Use information from your research and refine the Take opportunity to revisit institutional and departmental priorities Move forward with initiatives that will provide sufficient merit and return on investment Concepts that do not provide sufficient merit will be deferred or eliminated so that other initiatives can be pursued 5

6 Business Planning in Pharmacy Evaluate and refine the based on data obtained Plenty of resources available to develop a plan for a new stand-alone business The Successful Business Plan: Secrets and Strategies Rhonda Abrams Business Planning in Pharmacy Evaluate and refine the based on data obtained Name of plan/service Month and year plan was prepared Name/contact information of preparers Table of contents Most important section of business plan Clear, concise, and written to compel reader to review entire plan 1-3 pages length Write this portion last Write in narrative form taking from each section of the business plan Will serve as proof that your plan: is thoroughly thought through researched can be achieved meet organizational needs while being financially viable 6

7 Overview of service proposed Location Scope of service(s) Benefits Staff involved Differentiating factors Rationale Reference other organizations/research Anticipated start date Financial/Volume trends Previous program history Consistency with mission Explains how new service supports the mission and strategic plan of the health system Provides greater potential for approval and subsequent success Program cost and return on investment to the institution should be explained clearly here in addition to other positive impacts on organizational performance Market analysis Description of business need based on gap analysis conducted beforehand Clearly identifies market (e.g. patients in need), barriers to entry (if any), projected trends, and description of market research Should new service include development of a new pharmacy (e.g. ambulatory services), market analysis must include review of service areas, market size (historical and future), and economics of the market Facility, Technology, Equipment Indicate planned location and availability include square footage and schematic of layout If construction or renovation required, include in this section Description of all technology and equipment necessary for the new service or program Management and organization Tie in new program / new service with current leadership structure of the department Description of staffing and management needs, timing of adding new staff to payroll, impact of new program on other current programs (both within pharmacy and throughout the institution) should also be included Implementation plan including timetable indicating key milestones Financial summary Tables, spreadsheets, and graphs outlining all financial information Be conservative, candid, use standard formats and financial terms, be consistent, and seek advice of financial services staff Primarily interested in actual expenses and revenues Costs avoided, if clearly indicated, should be included (soft dollars) 3-year Pro-forma income statement Profit and loss Shows volumes;expenses/revenues; and assumptions 7

8 Strategy for evaluating performance of new service or program General description of expected adjustments based on performance and performance indicators Financial Clinical Market Patient/customer satisfaction Criteria for program success Senior leaders may be more supportive if you include this in your plan Business Planning in Pharmacy Evaluate and refine the based on data obtained Formal document Proof-read and edited by more than one person Ensure language is clear and that any charts/graphs enhance the report Use color, professional binding Make several copies Slide presentation Based on business plan document Should compliment/enhance message UHS Anticoagulation Clinic Business Plan Jacob Thompson, PharmD, MS Associate Director of Pharmacy UHS Hospitals Binghamton, NY 4 Hospital Health-System: UHS Wilson Regional Medical Center: 280 bed teaching, regional trauma center UHS Binghamton General Hospital: 200 bed community hospital UHS Chenango Memorial Hospital : 58 bed rural community hospital UHS Home Care UHS Senior Living at Ideal UHS Primary Care UHS Delaware Valley Hospital: 25 bed critical access hospital UHS Specialty Care 8

9 Integrated across the Health-System: 24/7 operations 3 Community Practice Pharmacies 62 Physician office practices 120 Employees 97 FTE 44 FTE pharmacists 53 FTE non-pharmacists Timeline 2009 UHS Hospitals implemented inpatient Anticoagulation Program to support National Patient Safety Goal September 2011 New York State passes Collaborative Drug Therapy Management (CDTM) demonstration program November 2011 UHS Tactic approved by Board of Trustees for 2012 Budget Year September 2012 Anticoagulation Clinic Opens first location Budget Cycle Tactics/Budgets Approved November September January Submit Budgets August Prepare Tactics June/July Submit Tactics The Tactic Document All UHS Tactics submitted on standard Excel workbook Minimum information needed 1) General Instructions 2) Description 3) Resources 4) Revenue 5) Implementation Plan 6) Income Statement General Instructions 9

10 Description Description 1) Purpose of the tactic 2) How the tactic supports UHS strategic plan 3) Benefits (direct/quantifiable and indirect) to UHS 4) Critical success factors 5) Regulatory requirements Resources Resources United Health Services Tactical Plan Request Form for 2012 Budget Year Financial Analysis: Incremental Expenses -- Detail Tactical Plan Title: Pharmacist/Resident Ambulatory Anticoagulation Clinic 2012 Estimate of Resources Required Please quantify below the incremental resources (staff/salary, non-labor, and capital) required to implement the proposed tactic. Please fill in each of the white cells in the row. You may insert more rows as needed; be sure to insert them before the total row. Incremental Staffing Resources: Please note that the Salary Expenses will populate from the FTE table as you complete it. Incremental Staff Position Position Annual (FTE) Start Date Code Title Salary FTEs FTEs FTEs 1/1/ Pharmacist 111, Patient Care II (Clinic) $ $ /1/ Patient Care Pharmacist II (Retail) 111, $ /1/ Pharmacy Technician (Retail) 27, Total Salary Expenses Position Position Code Title $ Required $ Required $ Required Patient Care Pharmacist II (Clinic) $127,805 $134,195 $140, Patient Care Pharmacist II (Retail) $4,088 $13,628 $14, Pharmacy Technician (Retail) $1,483 $4,943 $5, $0 $0 $0 0 0 $0 $0 $0 0 0 $0 $0 $0 0 0 $0 $0 $0 Total $133,376 $152,766 $161,333 Incremental Non-Labor Resources - including supplies, legal, marketing, consulting, training, contract fees, etc. Non-Salary Expenses Expense Expense Code Description $ Required $ Required $ Required - INRatio2 Point of Care Device $ 1,500 - INRatio2 Test Strips $ 22,019 $ 24,220 $ 26,642 - Marketing brochure $ 500 $ 500 $ Limited Service Laboratory Registration $ 200 $ 200 $ Allocated Overhead $ 5,000 $ 5,000 $ 5,000 - Retail Drug Expense $ 13,703 $ 15,073 $ 16,581 - Retail Script Expense $ 2,066 $ 2,273 $ 2,500 Total $44,988 $47,267 $51,423 Capital Resources: Expenses generally $2,500 or greater with useful lives of 2 years or more. Capital Expenses Requested During Capital Items Budget Process (Y or N) Description $ Required $ Required $ Required N Laptop or Desktop Station (2) $ 3,600 $ - $ - Total $3,600 $0 $0 Revenue Revenue 1) Existing Market Volume? What % of it is UHS expected to capture? Unit of Volume Existing Market Expected UHS Expected UHS (Days, D/C, Visits) Volume Capture (%) Volume Year 1 Pts Discharged on Warfarin 2, % 488 Potential Yearly Visits 29, % 5,856 2) Describe marketing plan to accomplish volumes 3) Estimate 3 years of volumes Year 1 Year 2 Year 3 Patients Pt. Visits 5,856 6,442 7,086 10

11 Revenue 4) Payor Mix Volumes (if applicable) % Allocation Medicare 24.5% Blue Cross 27.6% Medicaid 23.3% Worker's Comp/No Fault 0.7% Other 18.0% Commercial 1.2% Self Pay 4.7% Total 100.0% 5) Any Revenue at risk? 6) Grants available 7) Cost Reductions Implementation Plan Implementation Plan Develop CDTM agreement according to new regulations from NYS Board of Pharmacy Develop Marketing Brochure Set up office location to determine patient flow Establish Quality Metrics Roll out clinic Income Statement United Health Services Tactical Plan Request Form for 2012 Budget Year Financial Analysis Planned 2012 Results and Resources Required Summary Cost/Benefit Analysis 2014 Results Expected Incremental Clinic Visit Volumes: 5,856 6,442 7,086 Incremental Revenues: $306,790 $337,469 $371,216 Clinic Revenue Retail Revenue $53,231 $58,554 $64,410 Grant Funds $0 $0 $0 Savings $0 $0 $0 $360,021 $396,023 $435,625 Total Revenue Resources Required Incremental 2011 Salary Expenses: Incremental Staff (FTEs) Salary Expense ($) $133,376 $152,766 $161,333 Fringe Benefits Expense (35% of Salary Exp.) $46,682 $53,468 $56,467 Final Comments Under Promise, Over Achieve Relationship Building Align goals Incremental 2011 Non-Salary Expenses: $44,988 $47,267 $51,423 Depreciation & Interest planning and finance to determine planning and finance to determine planning and finance to determine Total Expenses: $225,046 $253,501 $269,223 Net Operating Income: $134,975 $142,522 $166,402 ROI 60% 56% 62% Capital Costs: $3,600 $0 $0 Grant Funding $0 $0 $0 Net Capital Cost $3,600 $0 $0 11

12 Questions Contact Us: Robert Granko, PharmD, MBA Alex Varkey, PharmD, MS Jacob Thompson, PharmD, MS ***Special thanks to past faculty of the New Manager s Boot Camp for providing past slides on Pharmacy Finances*** Financial Basics: Justification of New Pharmacy Programs Robert Granko, PharmD, MBA Alex Varkey, PharmD, MS Jacob Thompson, PharmD, MS 12