Lean Accounting in Healthcare

Transcription

1 Lean Accounting in Healthcare Lean Accounting Summit 2011 Brian H Maskell, President, All Rights Reserved. Contact: [email protected] 1 Lean is a Principle-Based Operating System CUSTOMER VALUE 5 1 Customer 2 VALUE STREAMS EMPOWERED PEOPLE Shipping PURSUIT OF PERFECTION 4 3 FLOW & PULL All Rights Reserved. Contact: [email protected] 2 1

2 Lean Accounting Attributes Accounting processes that support lean Performance measurement linkage chart Costing Clear and timely communication Plain-English financial statements Incremental cost & profitability analysis Planning from a Lean Perspective Value stream capacity measurement system Box score analysis of business decisions All Rights Reserved. Contact: [email protected] 3 Lean Accounting Lean & Simple business accounting Continuous improvement of accounting processes Plan, Do, Check, Act problem solving Strengthen Internal Accounting Control Replace transaction control with lean control Simple, easy to gather, understand, d & use All Rights Reserved. Contact: [email protected] 4 2

3 Lean Accounting System Elements Performance Measurement s Processed-based measures Integrated with strategy Lean Cost Management Costing s are Profit Centers The Box Score Analyze & understand Capacity Used to analyze decision making Eliminate Transactions Lean controls eliminate the need for transactions Free up time of people All Rights Reserved. Contact: [email protected] 5 Traditional Measures Work against Continuous Improvement Are Expensive & Wasteful Provide Incorrect Information Are Complex & Confusing All Rights Reserved. Contact: [email protected] 6 3

4 Measures must change Traditional Value Measure Organizational Unit to Measure Measure of Control Measure of Perfection Providers Department Lowest Cost per Unit Achieve Budget Lean Patient Value Stream Rate of Flow of Actual Demand Achieve Perfection in Flow & Pull All Rights Reserved. Contact: 7 Two Aspects of Lean Accounting Applying Lean Thinking & Methods to the Company s Accounting Processes Cost accounting, tracking, and reporting. Purchasing & accounts payable. Inventory tracking & valuation. General ledger simplification. Month-end close, etc Accounting for Lean & Supporting the Lean Transformation Reporting & decision-making to supports the lean journey Financial reporting that is immediately understandable & useable to everyone Single lean accounting system for management accounting & external reporting Accounting processes focused on customer value, value streams, flow & pull, empowerment, & continuous improvement All Rights Reserved. Contact: [email protected] 8 4

5 Primary Methods of Lean Accounting Organization Lean Performance Measures Accounting Decision Making Using Box Scores Target Costing All Rights Reserved. Contact: 9 What is a? All the processes required to create value for the customer, organized as a team focused on improving i the customer value, process flow, quality, and profitability. VALUE STREAM A patient-focused team working together to perfect the process and ensure the care that flows without stopping. The value stream manager has full responsibility for the entire flow. The value stream team includes all the people and equipment required to serve the patients from initial contact through to discharge, and beyond All Rights Reserved. Contact: [email protected] 10 5

6 Example of a Organization SERVICE LINES Urgent & Emergency Care Emergency Room VALUE STREAMS Urgent Care Clinic Imaging In-Patient t ICU General Birthing Center Behavioral Care Senior Services Primary Clinics Nursing Homes Primary Clinics on Site Long term Care Off-Site Clinics In-Home Care & Hospice Other Services Physio, Nutrition Dialysis Etc. Surgical Specialty Specialist Clinicsi Surgery Lab Support Food Service Building & Grounds IT Finance Admin Community Relations Foundation Executive Office All Rights Reserved. Contact: [email protected] 11 What is a? Group patient care that takes similar flow through the organization. Include all the people and processes that support the flow of care. Value stream team should be a reasonable size. Et Extend ditf from first patient t contact thru to discharge. VALUE STREAM Focus on creating more value for the patient. Clear accountability. Departments can be optimized but we need to maximize the flow based on patient needs. Develop lean thinking staff & providers All Rights Reserved. Contact: [email protected] 12 6

7 Lean Performance Measurements In-Process Measurements Control the Process, Identify Defects, Gather Causes of Problems, Local Problem Solving & Improvement. Daily & Hourly Measurements Measure the Performance of the Value Stream, Team Use Continuous Improvement to Make the Results Better Weekly Company Measurements Senior Leadership use these to see if the Company Strategy is Being Achieved. Monthly All Rights Reserved. Contact: 13 In-Process Measurement Boards Primary measures are Safety, On-Time, and Quality Defects. Measures tracked throughout the day and Andon used to stop & fix. Daily stand-up meeting at the end of the shift/day. Review causes of problems, go to root cause, and solve the problems. Some problems go to the value stream boards All Rights Reserved. Contact: 14 7

8 In-Process Boards Lead to Just-Do-It Improvements The touchstone of Lean is the daily just-do-it s suggested and implemented every day. Kaizen events and CI projects are important, but JDI tells you if you are creating an empowered culture All Rights Reserved. Contact: [email protected] 15 Measurement Boards Weekly value stream performance Drives continuous improvement Measurements, pareto charts, projects. Maintained by value stream team. Empowers the value stream team All Rights Reserved. Contact: [email protected] 16 8

9 Measurement Boards TYPICAL MEASURMENTS Productivity: Hours/Patient Quality: Defects/Million Flow: Days or Stay Cost: Cost/Patient Day Patient Satisfaction: Survey Employees: % Engaged on Lean All Rights Reserved. Contact: [email protected] 17 Performance Measurement Linkage Chart TRUE NORTH VISION COMPANY MEASURES VALUE STREAM GOALS VALUE STREAM MEASURES CRITICAL SUCCESS FACTORS PROCESS GOALS PROCESS MEASURES All measures are derived from strategic vision TRUE NORTH. Linkage Chart ensures consistent measures from strategy thru to local process boards. Ensures the vital few measures All Rights Reserved. Contact: [email protected] 18 9

10 Typical Performance Measurements for Elder Care TRUE NORTH VISION STRATEGIC MEASURES VALUE STREAM MEASURES IN-PROCESS MEASURES Make every minute count for the patient or resident. Standard evidence based processes lead to superior patient/resident outcomes Focused & strategic growth in sustainable net revenue A place on our team is sought by healthcare professionals. Make enough money to ensure sustainability to meet community's healthcare needs Revenue per FTE % Patient encounters using standard protocols Patient Defects/Million Retention Rate of Key Employees Employee Cross- Training % Staff Participation in Lean # Safety Incidences Revenue per FTE Defects per Million Occupancy Rate Cost per Patient Day Employee Engagement Employee safety Cross Training % Patients needs met ontime Defects per Patient Day # JDI s today Resident s Complaints and Compliments All Rights Reserved. Contact: [email protected] 19 Accounting TIMELY DIRECT COSTS Weekly financial reporting for each value stream or service line. All the costs in the End-to-End value stream with little or no allocations. PLAIN ENGLISH Reports that every one can understand and use. CONTROL team have the responsibility to control costs and then reduce costs All Rights Reserved. Contact: [email protected] 20 10

11 Accounting LABOR PURCHASED SERVICES DRUGS SUPPLIES VALUE STREAM UTILITIES FACILITIES DEPRECIATION INSURANCE COSTS Simple, summary, direct costs with little or no allocation. Value stream manager is responsible for the costs, cash flow, & profit. Weekly reporting so that costs can be controlled and then reduced All Rights Reserved. Contact: 21 Weekly Statement Financials WEEKLY NUMBERS 1/7 1/14 1/21 1/28 2/4 2/11 2/18 2/25 Salaries & Wages $ 20,095 $ 25,119 $ 23,838 $ 22,656 $ 19,307 $ 14,973 $ 22,065 Employee Benefits $ 6,516 $ 6,516 $ ,516 $ ,516 $ ,516 $ ,516 $ ,516 Supplies $ 1,213 $ 1,112 $ 1,726 $ 1,367 $ 1,631 $ 903 $ 1,331 Drugs $ 2,736 $ 2,098 $ 3,246 $ 4,010 $ 3,680 $ 3,058 $ 4,807 Professional Service $ 3,999 $ 1,800 $ 3,520 $ 4,799 $ 4,599 $ 1,720 $ 400 Contracted Services $ 1,314 $ 978 $ 1,455 $ 1,655 $ 1,207 $ 1,129 $ 1,720 Equipment $ 1,260 $ 1,260 $ 1,260 $ 1,260 $ 1,260 $ 1,260 $ 1,260 Facilities $ 1,709 $ 1,709 $ 1,709 $ 1,709 $ 1,709 $ 1,709 $ 1,709 TOTAL COST $ 38,843 $ 40,591 $ 43,270 $ 43,973 $ 39,910 $ 31,268 $ 39,809 PROFIT $ 1,810 $ (6,714) $ 4,956 $ 1,861 $ (851) $ (978) $ 4,829 Return on Revenue 4% 20% 10% 4% 2% 3% 11% The value stream manager (together with others in the value stream) reviews the value stream statement each week. The purpose of the report is to control the value stream costs. Once the cost are under control, then the value stream manager will initiate projects to increase revenues and reduce costs All Rights Reserved. Contact: [email protected] 22 11

12 BOX SCORES The weekly Box Scores shows the performance of the value stream over time. It shows the impact of changes and improvements. m c e nts Value Strea Performanc Measureme Value Stream Cap acity n c ia ls Finan Weekly Numbers 7 Jan 14 Jan 21 Jan 28 Jan 4 Feb 11 Feb 18 Feb 25 Feb 4 Mar 11 Mar 18 Mar 25 Mar 1 Apr Goal Productivity (Hrs Worked/Patient Vist) Defects per Patient Visit OPERATIONAL 15% Average Length of Stay (Minutes) PERFORMANCE Patient Satisfaction (0 5) Average Cost per Visit $54.40 $68.22 $51.09 $54.62 $58.18 $58.78 $50.78 MEASURES $63.79 Employee Engagement 33% 33% 33% 35% 35% 40% 40% 35% Productive Time % 43% 43% 43% 44% 44% 38% 38% 38% CAPACITY USAGE. Non Productive Time % 38% 38% 38% 32% 32% 29% 29% 24% PEOPLE S TIME. Available Time % 19% 19% 19% 24% 24% 33% 33% 38% REVENUE $40,653 $33,877 $48,225 $45,834 $39,059 $30,290 $44,638 $180,034 Salaries & Wages $20,095 $25,119 $23,838 $22,656 $19,307 $14,973 $22,065 $88,993 Employee Benefits $6,516 $6,516 $6,516 $6,516 $6,516 $6,516 $6,516 $28,855 Supplies $1,213 $, $1,112 $, $1,726 $, $1,367 $, $1,631 $, $903 $1,331 $, $4,940 $, Drugs $2,736 $2,098 $3,246 $4,010 $3,680 $3,058 $4,807 $5,811 Professional Service $3,999 $1,800 $3,520 $4,799 $4,599 $1,720 $400 FINANCIAL $17,712 Contracted Services $1,314 $978 $1,455 $1,655 $1,207 $1,129 $1,720 OUTCOMES $3,202 Equipment $1,260 $1,260 $1,260 $1,260 $1,260 $1,260 $1,260 $5,580 Facilities $1,709 $1,709 $1,709 $1,709 $1,709 $1,709 $1,709 $7,570 TOTAL COST $38,843 $40,591 $43,270 $43,973 $39,910 $31,268 $39,809 $162,663 PROFIT $1,810 $6,714 $4,956 $1,861 $851 $978 $4,829 $17,371 Return on Revenue 4% 20% 10% 4% 2% 3% 11% 10% 20% Hurdle Rate 16% 40% 10% 16% 22% 23% 9% All Rights Reserved. Contact: [email protected] 23 BOX SCORE FOR DECISION MAKING Example: Taking on New Business. Your value stream currently earns $56.94 per patient visit. Your value stream costs $52.50 per patient visit, giving you an average profit of $4.44 per patient visit. A large local company has approached you to provide services to their employees and wants to pay no more than $45 per visit. You anticipate 150 visits per month. Should you take on this business? All Rights Reserved. Contact: [email protected] 24 12

13 BOX SCORE FOR DECISION MAKING e ts Performance Measuremen Value Stream Capacity cials Finan MONTHLY NUMBERS CURRENT STATE Productivity (Hrs Worked/Patient Vist) 1.37 Quality (Defects per Patient Visit)) 1.34 Average Length of Stay (Minutes) 62 Patient Satisfaction (0 5) 3.1 Average Cost per Visit $52.50 Employee Engagement 33% Productive Time % 43.0% Non Productive Time % 38.0% Available Time % 19.0% REVENUE $180,034 Salaries & Wages $88,993 Employee Benefits $28,855 Supplies $5,370 Drugs $6,117 Professional Service $17,712 Contracted Services $5,821 Equipment $5,580 Facilities $7,570 TOTAL COST $166,018 PROFIT $14,016 Return on Revenue 8% We make the decision by looking at the impact on the as a whole; not looking at the individual item. INCREMENTAL INCLUDING NEW CHANGE PATIENTS (0.06) We have enough capacity. (2.21) $ % No more people needed. 2.0% 45.0% 1.8% 39.8% 15.2% $6,750 $186,784 $0 $88,993 $0 $28,855 $255 $5,625 $290 $6,407 $0 $17,712 $0 $5,821 $0 $5,580 $0 $7,570 $545 $166,563 $6,205 $20,221 92% 11% All Rights Reserved. Contact: [email protected] 25 BOX SCORE FOR DECISION MAKING Let s do some what-ifs. What if the price was $40 per patient instead of $45? e ts Performance Measuremen Value Stream Capacity cials Finan MONTHLY NUMBERS CURRENT STATE Productivity (Hrs Worked/Patient Vist) 1.37 Quality (Defects per Patient Visit)) 1.34 Average Length of Stay (Minutes) 62 Patient Satisfaction (0 5) 3.1 Average Cost per Visit $52.50 Employee Engagement 33% Productive Time % 43.0% Non Productive Time % 38.0% Available Time % 19.0% REVENUE $180,034 Salaries & Wages $88,993 Employee Benefits $28,855 Supplies $5,370 Drugs $6,117 Professional Service $17,712 Contracted Services $5,821 Equipment $5,580 Facilities $7,570 TOTAL COST $166,018 PROFIT $14,016 Return on Revenue 8% INCREMENTAL INCLUDING NEW CHANGE PATIENTS (0.06) (2.21) $ % 2.0% 45.0% 1.8% 39.8% 15.2% $6,750 $186,784 $0 $88,993 $0 $28,855 $255 $5,625 $290 $6,407 $0 $17,712 $0 $5,821 $0 $5,580 $0 $7,570 $545 $166,563 $6,205 $20,221 92% 11% What If $40 per Person % 45.0% 39.8% 15.2% $186,034 $88,993 $28,855 $5,625 $6,407 $17,712 $5,821 $5,580 $7,570 $166,563 $19,471 10% Smaller Profit All Rights Reserved. Contact: [email protected] 26 13

14 BOX SCORE FOR DECISION MAKING What if it were 300 extra people AND only $40 per visit? e ts Performance Measuremen Value Stream Capacity cials Finan MONTHLY NUMBERS INCLUDING NEW What If $40 per CURRENT STATE PATIENTS Person Productivity (Hrs Worked/Patient Vist) Quality (Defects per Patient Visit)) Average Length of Stay (Minutes) Patient Satisfaction (0 5) Average Cost per Visit $52.50 $ Employee Engagement 33% 33% 33% Productive Time % 43% 45.0% 45.0% Non Productive Time % 38% 39.8% 39.8% Available Time % 19% 15.2% 15.2% REVENUE $180,034 Salaries & Wages $88,993 Employee Benefits $28,855 Supplies $5,370 Drugs $6,117 Professional Service $17,712 Contracted Services $5,821 Equipment $5,580 Facilities $7,570 TOTAL COST $166,018 PROFIT $14,016 Return on Revenue 8% $186,784 $88,993 $28,855 $5,625 $6,407 $17,712 $5,821 $5,580 $7,570 $166,563 $20,221 11% $186,034 $88,993 $28,855 $5,625 $6,407 $17,712 $5,821 $5,580 $7,570 $166,563 $19,471 10% What If 300 People/Month $ % 45.4% 40.1% 14.5% $193,534 $92,289 $29,924 $5,879 $6,697 $17,712 $5,821 $5,580 $7,570 $171,473 $22,061 11% What if 300 at $40 per Person $ % 45.4% 40.1% 14.5% $192,034 $92,289 $29,924 $5,879 $6,697 $17,712 $5,821 $5,580 $7,570 $171,473 $20,561 11% All Rights Reserved. Contact: [email protected] 27 BOX SCORE FOR VALUE STREAM MAPPING Performance Measurements Value Stream Capacity cials Financ POTENTIAL BENENFITS Monthly Numbers IMPROVEMENT PLANNED FUTURE STATE CURRENT STATE FUTURE STATE FROM IMPROVEMENT THIS KAIZEN AFTER THIS KAIZEN Add Preventive Reduce Employees Increase Visits Health Assessment Productivity (Hrs Worked/Patient Vist) 1.97 (0.24) Quality (Defects per Patient Visit)) 1.34 (0.22) Average Length of Stay (Minutes) 62 (23) Patient Satisfaction (0 5) Average Cost per Visit $65.11 $1.32 $63.79 $59.17 $57.18 $57.66 Employee Engagement 33% 2% 35% 42% 35% 35% Productive Time % 43% 5% 38% 45% 52% 55% Non Productive Time % 38% 14% 24% 32% 33% 28% Available Time % 19% 38% 23% 16% 17% REVENUE $180,034 $0 $180,034 $180,034 $201,638 $216,041 Salaries & Wages $88,993 $0 $88,993 $80,094 $88,993 $88,993 Employee Benefits $28,855 $0 $28,855 $25,970 $28,855 $28,855 Supplies $5,370 $430 $4,940 $4,940 $5,237 $6, Drugs $6,117 $306 $5,811 $5,811 $6,160 $5,811 Professional Service $17,712 $0 $17,712 $17,712 $17,712 $17,712 Contracted Services $5,821 $2,619 $3,202 $3,202 $3,202 $3,202 Equipment $5,580 $0 $5,580 $5,580 $5,580 $5,859 Facilities $7,570 $0 $7,570 $7,570 $7,570 $7,570 TOTAL COST $166,018 $3,355 $162,663 $150,878 $163,308 $164,671 PROFIT $14,016 $3,355 $17,371 $29,156 $38,330 $51,370 Return on Revenue 8% 10% 16% 19% 24% 20% Hurdle Rate 12% 10% 4% 1% 4% All Rights Reserved. Contact: [email protected] 28 14

15 Target Costing Traditional Thinking Price = Cost + Margin Lean Thinking Cost = Value Profit Needed The Starting Point for All Lean Management is Customer Value All Rights Reserved. Contact: [email protected] 29 Target Costing Value What creates value for the customer? How much value? How can we create more value? Cost What must the cost be? Where is the value and where is the cost? Use lean continuous improvement to bring costs in line with value. Profound Understanding of Patient Value. Detailed Knowledge of True Cost. Drive Lean Change from Patient Value All Rights Reserved. Contact: [email protected] 30 15

16 Lean Accounting for Healthcare Organization Lean Performance Measures Accounting CREATE A DEDICATED FOCUSED TEAM ADDRESSING THE END-TO- END PROCESSES Decision Making Using Box Scores MEASUREMENTS THAT CREATE VISUAL CONTROL, DRIVE LEAN BEHAVIORS, AND MOTIVATE CONTINUOUS IMPROVEMENT. Target Costing SIMPLE, SUMMARY, DIRECT COSTING EVERY WEEK. CONTROL THE COSTS, REDUCE THE COSTS. TAKE ACCOUNT OF THE WHOLE VALUE STREAM WHEN MAKING DECISIONS. OPERATIONAL FINANCIAL, CAPACITY. DEEPLY UNDERSTAND CUSTOMER VALUE. MATCH COSTS TO VALUE All Rights Reserved. Contact: [email protected] 31 Question Time Visit BMA USA website Visit BMA Europe website Contact BMA To receive free Lean Accounting resources by download To read articles and case studies about Lean Accounting Join the Lean Accounting SuperGroup (free) [email protected] or to contact your trainer, ta e, visit st Visit and click the Download Free Resources button Visit and choose the Lean Accounting Tab Visit Blogs, forums, videos, and more Join the BMA Lean Accounting Group on LinkedIn (free) Visit and either join or sign in. Go to the Groups tab, search on BMA Lean and join in. Forums, networking, and more All Rights Reserved. Contact: [email protected] 32 16