FINANCIAL BENCHMARKING TOOL GUIDE

FINANCIAL BENCHMARKING TOOL GUIDE The following guide has been written as a supplement to the training modules from the Business Effectiveness Assessment Module (BEAM) training series, which specifically explain how to understand and utilize the Clinic Technical Assistance Center s Financial Benchmarking Tool. Throughout this guide, each major lesson from the specific modules is laid out in chronological order. What is the Financial Benchmarking Tool? The Financial Benchmarking Tool is an Excel-based financial modeling and planning tool designed to: 1. Identify and quantify the key variables that impact an Article 31 outpatient clinic s financial performance. 2. Model different scenarios by modifying variables to better understand the relationships between those variables and the effect they have on a clinic s financial performance. 3. Set benchmark standards for the variables with the confidence that meeting the benchmarks will result in the desired financial performance. The Benchmarking Tool represents the synthesis of a financial budget and a diagnostic financial model. This allows you to plan for staffing and programming needs, while simultaneously testing the model under different scenarios to observe the impact it has on your bottom line. The modules provided are as follows: Module 1 The Tabs of the Financial Benchmarking Tool Module 2 Orientation to Financial Benchmarking Tool Module 3 Indirect Costs Module 4 Direct Cost Module 5 Conversion and Analysis of CPT Weights Module 6 Effective Utilization of CPT Units Module 7 Analyzing Overall Model for Effective Decision-Making Key Terms; included terms have an asterisk* next to them Glossary throughout the document Acknowledgements: Special thanks to Kafui Nukator, Chloe Ettari, and Irene Chung for their critical work in enabling the publication of this guide. 1

Module 1: The Tabs of the Financial Benchmarking Tool The following module breaks up each individual tab and provides you with a brief description to further your understanding of what the purpose of that tab is and an example Financial model* picture of how the tab will look on your computer. Click here to view the video or slides. The tabs within the Benchmarking Tool are: Employee Direct Care Fee-For-Service (FFS) Contracted Direct Care Indirect Care Costs Model Analysis Tab Benchmark Summary Quick Analysis Tab Current Procedural Terminology (CPT) CPT and Data CPT. Employee Direct Care: This tab calculates the costs associated with your employed clinical staff. Here is where you include your fringe expense* and work week in hours. Be sure to input your employed clinical staff positions, along with their salary, Full Time Equivalent (FTEs)* and % of direct care time. 2

Fee-For-Service (FSS) Contracted Direct Care: This tab calculates the direct care costs* associated with your FFS contracted staff. Input your FFS position s hourly rate and Full-Time Equivalent (FTE)* into this tab. For your convenience, a cell that auto-calculates how many FTEs a contracted staff member provides per week, from hours worked per week, has been added. Also input a position s % of direct care time and CPT* units produced per direct care hour. 3

Indirect Care Costs*: This tab calculates the costs that are not directly attributable to the clinical care that has been delivered (billable time). Enter in the non-clinical staff positions, their salary and FTEs*. Also insert administrative overhead percentage, other operating expenses, equipment, and rent. 4

Model Analysis Tab: This tab allows you to a) adjust your payer mix*; b) adjust your clinical staff s distribution of billable hours to paid hours*; and c) observe its impact on your clinic s bottom line (i.e. operating margin).* 5

Benchmark Summary: This tab defines descriptive measures based on the inputted data. 6

Quick Analysis Tab: This tab is very similar to the Model Analysis tab. It allows you see how altering other variables, (i.e. FTEs*, hours per week*, hourly consultant/ffs* rates, hourly consultant/ffs CPT units per hr, and some specific psychiatric measures) can impact the bottom line* (i.e. cost, revenue, surplus and loss*). This tab allows you to plug in and adjust various parameters to see its effect on the bottom line without corrupting the integrity of the Benchmarking Model. 7

Current Procedural Terminology (CPT)*: This tab gives an overview of your CPT Service Mix* and converts the number of contacts to CPT Weighted Units. This shows a reflection of time and resources involved, while creating a visual of any gaps in the services and alignment of resources. The summary provides the average CPT weight per contact. 8

Data and Data CPT: This organizes all of the data that has been generated by the model. DATA COLLECTION TAB: FOR DATABASE TAB -> Employee Direct Care Indirect Care Costs Fringe Employee Expense as % Direct Care of gross pay Paid HEADING Work Week in hours Employee Direct Care FTE's FFS Contracted Direct Care FTE's FFS Contracted Direct Care Paid VALUE 28.00% 40.00 5.550 $ 218,033 3.350 $ 490,360 DATA COLLECTION TAB: FOR DATABASE TAB -> CPT CPT CPT CPT CPT Initial Psychiatric Psychiatric Assessment Assessment Assessment Diagnostic - 30 mins - 30 mins - & ADD ON Treatment Plan HEADING TYPE Initial Assessment Diagnostic & Treatment Plan with Medical Services Psychiatric Assessment - 45-50 mins SVC WGT 1.0344 1.0344 0.8293 0.3322 0.8293 SVC % 5% 0% 5% 0% 0% CPT WGT UNITS 1042 0 835 0 0 CONTACTS 1,007-1,007 - - SVC REVENUE $ 110,119 $ - $ 88,243 $ - $ - 9

Module 2: Orientation to Financial Benchmarking Tool This module introduces an Excel-based Financial Benchmarking tool. The focus of the training is on how clinic management can use the Quick Analysis Tab within the Excel tool to play with different scenarios without requiring specific data from their billing, finance, or HR departments. Please note that experimenting in this tab won t interfere with your work on the other tabs. Future trainings will support clinic leadership in developing the ability to understand and complete the entire Financial Benchmarking Tool; however, this training has narrowed in on how clinic management can use the Excel Financial Benchmarking Tool immediately for practical applications. Click here to view the video or slides. Quick Analysis Tab This tab allows you to simulate various scenarios by realistically changing some of the various parameters such as, payer mix* distribution, staffing requirements, etc. This allows you to see how different changes will affect your bottom line* (i.e. your total revenue and your total costs; which are automatically calculated by the model) without corrupting the integrity of the Benchmarking Model. The Quick Analysis Tab allows clinics to calculate, with a click of a mouse, what different scenarios or service mixes* work best for your own clinic structure. In addition, clinics are able to see which factors or types of services are either increasing or decreasing their bottom line. These operational changes would include the altering of staffing requirements (which would be reflected on the employee direct care and fee for service tabs). This would also include the positions, the number of FTEs* associated with each position, and the percentage of time spent providing direct care (i.e. clinical work/billable hours). 10

FTE*: Full-Time Equivalent Quick Analysis Terms Average Annual Cost per Direct Care Staff*: Salary Your total cost* is the sum of your direct costs and indirect costs. Direct costs* pertain to your employee staffing requirements for providing clinical services, which include salaries (adjusted to direct care full time equivalents), fringe expense,* and contracted fee for service direct care payments. Indirect costs* come from each clinical position s indirect care salary. This is automatically calculated for each position once their Full Time Equivalents (FTEs) and % of direct care is entered into the Employee Direct Care Tab and Fee for Service Tab. The payer mix* represents the percentage of your patient-based billable service payment providers and the reimbursement rate from each. This yields a weighted average of the revenue per Current Procedural Terminology (CPT) Unit equal to 1.0. Please note: It is extremely important for clinical staff and finance staff to communicate in regards to revenue and payer mix. Clinic Directors should be able to understand these concepts and how they work in their own clinic. The CPT Unit* is roughly the percentage of an hour that is allotted to a specific procedure (given that a psychiatrist does not need to be present). It is weighted to include enough time for the procedure and spare time to complete the paperwork associated with delivering a service. When reviewing the benchmarking tool and your monthly/quarterly financial reports, you should ask yourself: Does the projected revenue meet your expectations? These expectations refer to what services (or how much) were billed and how much was successfully reimbursed, based on your anticipated payer mix. Review your payer mix and reflect on the distribution of your payers (percentages) to help you get an idea of what your average revenue per CPT unit is. 11

The contents of the table above include several parameters that can be altered in order to see its effect on the clinic s bottom line*. See below for explanations of the specific parameters. Ratio of Billable Hours to Total Paid Hours*: The number of hours left for clinical service (after subtracting any paid time off (PTO), trainings, meetings, etc.) divided by the total number of paid hours in a fiscal period (work week in hours multiplied by the number of weeks in the fiscal period). Hours per Week*: The number of hours in a standard work week. Hourly Consultant/FFS rate*: The average hourly rate of the fee for service staff. FFS/Consultant Unit per Hour*: The amount of CPT* units generated per hour of fee for service care. Psych Units per Hour*: The number of psychiatric care CPT Units generated by your psychiatric staff within one hour. Available Weeks per Year (Psychiatrists)*: The number of weeks in the fiscal period that your psychiatric staff is hired to work at your clinic. % of Non-Direct Psychiatrist Time*: The percentage of your total psychiatric staff s hours that are spent on indirect care. Other Revenue*: Includes other miscellaneous revenue that the clinic brings in. Surplus/Loss*: Refers to operating margin (total revenue subtracted by total cost). See table below. 12

Module 3: Indirect Costs This module emphasizes the importance of clinic and financial leadership working together to identify the most effective practices that will help drive down indirect costs* and increase clinic revenue. As explained below, indirect costs are broken down into two main categories: non-controllable and controllable*. A monthly generated clinic financial statement is crucial to the overall understanding of where a clinic stands in relation to surplus or loss*. Future considerations, such as going paperless and switching to electric records, are some suggestions offered for clinics looking to cut controllable indirect costs. Changes in the DSM-V are also noted as a cost consideration. Click here to view the video or slides. Indirect costs* come from each clinical position s indirect care salary. This is automatically calculated for each position once their Full Time Equivalents (FTEs)* and % of direct care is entered into the Employee Direct Care Tab and Fee for Service Tab. Indirect costs include both controllable and non-controllable costs and bear no direct relationship to the provision of services provided. Non-controllable indirect care costs* include rent, electric costs, insurance, and fringe benefits. Controllable indirect costs* include personal services, associated fringe benefits, staffing, equipment, and supplies, etc. 1) When entering in your controllable indirect costs, first review the staffing on the monthly report. All personnel on the expense report should be recognizable and have a clear understanding as to their function within the clinic. 2) When determining your indirect costs, first determine the distribution of time between direct care and indirect care. This can be accomplished with a time study which monitors how much time your clinicians are spending on clinical care versus administrative activities. Any allocations of staff should be verified. Create a workflow analysis of your staffing patterns. 3) When filling in your figures into the Indirect Care Costs Tab, it is imperative to have your finance department verify the validity of data used in the tool versus your monthly reports/statements. Refer to the table on the following page for a picture of what your tab should look like. 13

Please note: Be sure that the figures you enter into the tool are consistent with your monthly expense reports. Watch out for and fix any errors or discrepancies found in the reports. The indirect care cost tab includes: the Salary and FTE* inputs for all administrative/ management staff; other operating expenses (as determined by your finance/operations department); the cost of equipment; the cost of rent; and administrative overhead percentage. See table below for details. Total Indirect Care Cost* = Total Indirect Personal Services + Fringe Benefits + FFS Indirect Care Cost + Sum of the Inputs (Other Operating Expenses, Equipment, and Rent) + Administrative Overhead. 14

Module 4: Direct Cost This module shows you how to use the two tabs of CTAC s Financial Benchmarking Tool: Direct Employee Cost & Contracted Direct Costs. These tabs are used to quantify direct costs* within your clinic, as defined by expenses relating to wages, fringe benefits and contracted staff associated with the provision of billable clinical services. Accurately capturing direct costs is an essential component of understanding the clinic s financial bottom-line*. This is a key component to the creation of an effective financial model that allows decision makers to try out different scenarios of practice models that best suit the needs of your clinic, in order to provide the upmost quality of care to your clients. Click here to view the video or slides. Direct Costs* are defined as including all costs directly associated with your employee staffing requirements for providing clinical services. This includes wages (adjusted to direct care fulltime equivalents), fringe expense* and contracted fee for service direct care payments. Employee Direct Care Tab Inputs On the Employee Direct Care Tab, you will enter several pieces of information including: The fringe expense* (as a % of gross pay). The fringe expense % of gross pay = (total mandated + total non-mandated fringe benefit costs) / (personal services cost). The hours per work week* (normal work week as reported in consolidated fiscal report CFR-4). Annualized salary for each of your clinicians. The FTEs* equal the staff s paid hours divided by the agencies annual hours (work week 35/37.5/40 x 52 weeks). The % of direct care for each clinician. This can be determined by the time study mentioned earlier in the indirect costs section. The allocation of clinical staff time to indirect care time is reserved for clinical staff that has a reduced caseload to accommodate regular, non-service related activity. As an example: a clinical supervisor carries half of a normal caseload to allow time for him/her to supervise four other clinical staff. In this case the % of Direct Care will be 50% corresponding to the half caseload that they carry. 15

Module 5: Conversion and Analysis of CPT Weights This module discusses the conversion and analysis of CPT* Weights. Different services also have different Medicaid service CPT weights. This affects how clinics should think of and design their service mix* to maximize both their clinical effectiveness and reimbursement revenue. It is important for clinics to understand: 1) how to convert their existing unit of service system to a CPT weighted system; and 2) analyze their average CPT weight for each unit of service provided (this helps to measure the CPT cost incurred when providing clinical services). With this understanding, clinic leadership can measure productivity by aligning inputs (costs) and outputs (revenue) with the value awarded to each service. Click here to view the video or slides. Current Procedural Terminology (CPT) Units* are units of service based on the Medicaid service weight attached for a given medical service. This weight is based on two distinct aspects: 1) the treatment and visit category (service provider sensitivity); and 2) the amount of time a service is expected to take (time sensitivity). In simpler terms, a CPT weight is approximately the portion of an hour that a given procedure, and its accompanying paperwork/administrative work, is recommended to take. To calculate aggregate CPT units of service you simply add together the CPT weights associated with the type of service provided for each client contact. CPT* weights were initially proposed to elicit better categorization and defining of service needs. It encourages clinicians to thoughtfully plan appointments. The conversion to CPT weights reflects the move to match the billing codes already used by private payers and Medicare. CPT weights more accurately represent costs represented with individual service types. When analyzing the use of CPT* weights (CPT Tab) within the Benchmarking Tool, it is important to note that non-billable time is the key variable that is impacting the aggregate production of CPT units. This includes the use of leave time, meetings, no shows and cancellations; however, no shows and cancellations are not directly referenced within the model. In the interest of a strategic plan that is driven by the insights derived from this model, no shows and cancellations should be taken into consideration when planning or scheduling particular appointments. 16

Module 6: Effective Utilization of CPT Units This module discusses the importance of diversifying the Service Mix* by distributing services across the billable CPT* codes, as represented by a percentage breakdown of total services. In doing so, clinics can determine how efficiently they are providing services (average CPT weight per contact); what gaps in services they could address (e.g. adding groups); current revenue; and how the services they currently provide align with their available resources. Both the CPT Tab on the CTAC Financial Model and on the CTAC Service Mix Calculator (posted after this training was aired) can be used to look at and model various scenarios with these different variables. Click here to view the video or slides. One of the major themes covered in this training module was the CPT Service Mix.* Service mix is different than the payer mix* variable, which is comprised of your different payers and their differing reimbursement rates. The goal of a service mix is to give you a weighted average of the expected revenue per CPT unit generated in your clinic, as well as the average CPT weight per contact. The Average CPT* weight reflects the overall average of Contacts per Service CPT Weight. It represents the overall avg CPT weight of the services provided and does not reflect upon the actual time spent providing the services. That would be considered productivity, which measures the efficiency of the agencies available billable time measured by the total Weighted CPT Units provided divided by the Clinical FTE s*. For example: Provider A whose Avg CPT Wgt is.6206 vs. Provider B whose Avg CPT Wgt is.9202 does not reflect on the efficiency of the provider, but reflects the overall type of services provided. It would be expected that Provider A would produce more billable visits since the services they provided (.6206) take less time than Provider B (.9202). When the model is calculating the revenue (after you have entered your payer mix*), it does so as per 1 CPT unit of service (payment/cpt weight) and therefore you can calculate the payment per CPT unit. 17

Module 7: Analyzing Overall Model for Effective Decision-Making This module emphasized the importance of data driven decision making. David Wawrzynek modeled various scenarios that demonstrate how to use the CTAC Financial Model to make better data informed decisions. Frameworks to help organize priorities and structure decision-making were also discussed. Click here to view the video or slides. What is data-driven decision making? Making decisions as a team, based on available quantitative data, rather than what you might think or what your initial instincts are. Requires thinking in advance about what you want to measure and monitor. Challenges your pre-conceived notions, by implementing new performance-monitoring systems to successfully move forward with implementing organizational change Requires the willingness to adjust what you re measuring overtime and how you measure it, in order to provide you with the best way of viewing the variables and how they affect your clinic. Shows which variables are impacting your fiscal viability (ratio of billable hours to paid hours*, use of contracted/ffs service*, indirect care costs*, distribution of services, staff salaries, percentage of uncompensated services, other revenue*, etc.) Before developing a strategic plan, you must: o Prioritize variables how easy is it to change and how much of an impact will those changes make? Understand variables that you can easily change vs. variables that are outside your authority and that you can t change. o Find the areas that have the biggest impact on your bottom line*. o Figure out what issues and variables are urgent and/or the most important in your clinic. Why data-driven? Data brings a variety of options to consider regarding what your program will and will not do. Data provides milestones that assist you in deciding what to monitor and how to assess results. 18

APPENDIX I: Glossary of Key Terms Available Weeks per Year (Psychiatrists): The number of weeks in the fiscal period that your psychiatric staff is hired to work at your clinic. Average Annual Cost per Direct Care Staff: Salary Bottom Line (Operating Margin): The total revenue for the clinic in a given fiscal period, minus its total costs. Controllable indirect costs: Includes personal services, associated fringe benefits, staffing, equipment, and supplies, etc. CPT (Current Procedural Terminology): Roughly the percentage of an hour that is allotted to a specific procedure (given that a psychiatrist does not need to be present). It is weighted to include enough time for the procedure and spare time to complete the paperwork associated with delivering a service. Direct costs: Pertain to your employee staffing requirements for providing clinical services. Include salaries (adjusted to direct care full time equivalents), fringe expense, and contracted fee for service direct care payment. Financial Model: Abstract representation of a clinic s operations displayed in Excel. FFS/Consultant Unit per Hour: The amount of CPT units generated per hour of fee for service care. Fringe Expense: The fringe expense % of gross pay = (total mandated + total non-mandated fringe benefit costs) / (personal services cost). FTE: Full-Time Equivalent. Hourly Consultant/FFS rate: The average hourly rate of the fee for service staff. Hours per Week: The number of hours in a standard work week. Indirect costs: Come from each clinical position s indirect care salary. This is automatically calculated for each position once their Full Time Equivalents (FTEs) and % of direct care is entered into the Employee Direct Care Tab and Fee for Service Tab. Non-controllable indirect care costs: Include rent, electric costs, insurance, and fringe benefits. Other Revenue: Includes other miscellaneous revenue that the clinic brings in. Payer Mix: represents the percentage of your patient-based billable service payment providers and the reimbursement rate from each. This yields a weighted average of the revenue per Current Procedural Terminology (CPT) Unit equal to 1.0. 19

Psych Units per Hour: The number of psychiatric care CPT Units generated by your psychiatric staff within one hour. Ratio of Billable Hours to Total Paid Hours: Ratio of the amount of time spent in providing billable services in a time period divided by the total number of paid hours in the same time period (including work and leave time). Service Mix: The mix of different types of services that are provided. Looking at your service mix can allow you to understand the combined average CPT weights provided based upon your normal mix of services. Surplus/Loss: Refers to the operating margin. This is the total costs subtracted from the total revenue. (After subtracting sick time, vacation time and other time) divided by the total number of paid hours in a fiscal period (work week in hours multiplied by the number of weeks in the fiscal period). Total cost: Sum of your direct costs and indirect costs. Total Indirect Care Cost: Total Indirect Personal Services + Fringe Benefits + FFS Indirect Care Cost + Sum of the Inputs (Other Operating Expenses, Equipment, and Rent) + Administrative Overhead. % of Non-Direct Psychiatrist Time: The percentage of your total psychiatric staff s hours that are spent on indirect care. 20

APPENDIX II: Key Drivers of the Model Key drivers of the model refer to the most sensitive variables within the model. These variables are the specific figures and values that you plugged in earlier to complete the Benchmarking Tool. Of all the variables that you have plugged in, the key drivers are a handful of inputs that illustrate the greatest impact on your bottom line. The Key Drivers of the Financial Model include: Fringe benefit* expense Work week in hours Indirect care cost Productivity (ratio of billable hours to total hours) Distribution of time between indirect care and direct care responsibilities for supervisory staff Percentage of Medicaid/Medicaid Managed care Common Diagnoses Some of the most common diagnoses for operational inefficiencies include low productivity, high indirect care costs*, and the distribution of costs between direct and indirect care. 21