Creating Buy-In without a Bailout

Creating Buy-In without a Bailout

Pat LeBlanc, DVM, MS, Diplomate, ACVADirector, Veterinary Teaching HospitalMichigan State UniversityPresident, AAVC

Creating a sense of financial ownership in a VTH

Motivating Factor #1

Development VTH-accepted accounting practices.


Individual financial sessions with every service


Input regarding distribution of year end profit

Three Motivating Factors

V

Generally Accepted Accounting Practices VTH Accepted Accounting Practices

=/

Cost accounting is performed on each of the following areas:

DermatologyEmergency Service (Small Animal)Equine Med / SurgeryFood Animal Med / SurgeryGeneral MedicineInternal MedicineOphthalmologyOncologyOrthopedicsSoft Tissue Surgery

AnesthesiaCentral SterilizationClinical PathologyDiagnostic labHospitalizationPharmacyRadiology

Primary Service Support Service

Profit / Loss Calculation for each Section

Motivating Factor #1 - Accepted Accounting Practices

Gross revenues

- Discounts

Net revenues

- Var. Expenses

- Fixed Expenses

Profit or Loss

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Profit / Loss Calculation for each Section


Gross revenues

- Discounts

Net revenues

- Var. Expenses

- Fixed Expenses

- Overhead

Profit or Loss

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Overhead expenses


• Three reception areas• Call Center• Purchasing• Laundry• Word Processing• Medical Records• Info Tech department• Business Office

Overhead pool is approx $4M

Overhead expenses


3 Overhead pools

Hospital-wide Small animal only Large animal only

Allocation based of sections % of VTH revenue

“Primary Service Profit alone doesn’t accurately

account for what we bring in! It is not the Real Thing”


How can we determine the Real Thing?


Primary Service Profit+

Their contribution to support service profit

(downstream profits)

=

Real Thing!!


Acceptable Real Thing!!

For every $ of revenue a Primary Service generates,

how much profit in each of the

support services does that $ generate?


Support Service used by Int. Med

Ratio of Int. Med codes charged to Support Service

Codes charged

Radiology 141 %

Diagnostic lab 45 %

Pharmacy 61.7 %

Clinical Pathology 89 %

Anesthesia 24.8 %

Hospitalization 26 %

Central sterilization 0.4 %

Example: Amount of support service revenue generated by the Internal Medicine Service

Support service revenue

Support service profit margin

(profit margin = Ratio of profit to revenue)

X

=Support

service profitgenerated by the

PRIMARY SERVICE


Support Service

Profit Margin

Radiology 52.4%

Diagnostic lab 45.9%

Pharmacy 36.4%

Clinical Pathology

27.5%

Anesthesia 18.9%

Hospitalization - 10.8%

Central sterilization

- 39.3%

Usage Ratio

Radiology 141.0%

Diagnostic Lab 45.0%

Pharmacy 61.7%

Clinical Path 89.0%

Anesthesia 24.8%

Hospitalization 26.0%

Central Sterilization 0.4%

Service Revenue

$352,500

$112,500

$154,250

$222,500

$62,000

$65,000

$1,000

Profit Margin

52.4%

45.9%

36.4%

27.5%

18.9%

-10.8%

-39.3%

Allocated Profit

$184,710

$51,638

$56,147

$61,188

$11,718

-$7,020

-$393

Example: Int. Med revenue of $250,000

Total Allocated Service Section Profit to Internal Medicine for this period: $357,987

Profit of Primary Service

+Portion of

Support service profit

=Total profit contribution

to VTH


Individual financial sessions

with each service

Motivating Factor #2 - Shared information

Example of a Primary service section profit

CUMULATIVE THRU Percent3/31/2008 3/31/2007 Change

$998,437.65 $960,827.25 3.9%($8,157.94) ($5,079.25) 60.6%

$990,279.71 $955,748.00 3.6%

$72,906.48 $50,522.73 44.3%

$1,063,186.19 $1,006,270.73 5.7%

$14,505.05 $12,090.48 20.0%$14,505.05 $12,090.48 20.0%

$228,391.66 $186,869.12 22.2%

6,896.04 4,497.34 53.3%87,667.80 65,590.66 33.7%

$322,955.50 $256,957.12 25.7%

$82,411.63 $81,408.78 1.2%43,226.86 57,884.59 -25.3%10,945.12 3,890.18 181.4%

$136,583.61 $143,183.55 -4.6%

$2,537.80 $2,818.74 -10.0%

$41,464.69 $36,988.91 12.1%

$518,046.66 $452,038.80 14.6%

$300,407.65 $289,229.28 3.9%

$818,454.31 $741,268.08 10.4%

$244,731.88 $265,002.65 -7.6%

REVENUE: Primary Service PROFESSIONAL DISCOUNTSTOTAL SERVICE REVENUE:

GENERAL FUND SUBSIDY

NET REVENUE:

EXPENSES:DIRECT:

PP & E EXPENSESSpecial EQUIPEMENT

TOTAL:

PAYROLLSALARIES:

STUDENTFRINGE:

TOTAL:

SUPPLIES INVENTORYSTOCKED SUPPLIESMISCELLANEOUS

TOTAL:

TRAVEL/TRAINING

INTERNAL-DISPOSABLES

TOTAL DIRECT EXP:

INDIRECT:

OVERHEAD

TOTAL EXPENSES:

NET PROFIT/(LOSS):

ANCILLARY SERVICEPROFIT ALLOCATION

RADIOLOGY ANESTHESIAPHARMACYDCPAHCLINICAL PATHOLOGYHOSPITALIZATIONCENTRAL STERILIZATIONTOTAL ALLOCATION:

NET PROFIT/(LOSS)

After Allocations

Primary service section with

allocated Support service section

profits

CUMULATIVE THRU Percent3/31/2008 3/31/2007 Change

$998,437.65 $960,827.25 3.9%($8,157.94) ($5,079.25) 60.6%

$990,279.71 $955,748.00 3.6%

$72,906.48 $50,522.73 44.3%

$1,063,186.19 $1,006,270.73 5.7%

$14,505.05 $12,090.48 20.0%$14,505.05 $12,090.48 20.0%

$228,391.66 $186,869.12 22.2%

6,896.04 4,497.34 53.3%87,667.80 65,590.66 33.7%

$322,955.50 $256,957.12 25.7%

$82,411.63 $81,408.78 1.2%43,226.86 57,884.59 -25.3%10,945.12 3,890.18 181.4%

$136,583.61 $143,183.55 -4.6%

$2,537.80 $2,818.74 -10.0%

$41,464.69 $36,988.91 12.1%

$518,046.66 $452,038.80 14.6%

$300,407.65 $289,229.28 3.9%

$818,454.31 $741,268.08 10.4%

$244,731.88 $265,002.65 -7.6%

REVENUE: Primary Service PROFESSIONAL DISCOUNTSTOTAL SERVICE REVENUE:

GENERAL FUND SUBSIDY

NET REVENUE:

EXPENSES:DIRECT:

PP & E EXPENSESSpecial EQUIPEMENT

TOTAL:

PAYROLLSALARIES:

STUDENTFRINGE:

TOTAL:

SUPPLIES INVENTORYSTOCKED SUPPLIESMISCELLANEOUS

TOTAL:

TRAVEL/TRAINING

INTERNAL-DISPOSABLES

TOTAL DIRECT EXP:

INDIRECT:

OVERHEAD

TOTAL EXPENSES:

NET PROFIT/(LOSS):

$109,776.27 $86,601.18 26.8%38,967.29 34,554.81 12.8%15,856.35 9,961.38 59.2%2,607.88 916.46 184.6%8,871.30 5,486.24 61.7%

(5,425.02) 3,448.27 -257.3%(20,470.37) (19,471.33) -5.1%

$150,183.69 $121,497.01 23.6%

$394,915.57 $386,499.66 2.2%


CASELOAD thru 03/08 thru 03/07 % changeOffice call 827 868 -4.7%

Recheck off ice call 286 273 4.8%Transfer 90 103 -12.6%N/C recheck 592 399 48.4%

TOTAL: 1,795 1,643 9.3%

Consultations 56 70 -20.0%

Surgeries 631 620 1.8%

Revenue/case $1,079.91 $984.29 9.7%Labor expense/case 352.19 264.63 33.1%Supply expense/case 194.16 185.55 4.6%

Total expense/case 892.53 763.41 16.9%Profit/case 430.66 398.04 8.2%

$1,321,520.00

$1,240,310

$1,104,982$1,112,032

$1,067,785

1342

1422

1332

1430

1454

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

2002/2003 2003/2004 2004/2005 2005/2006 2006/2007

Rev

enu

e

1260

1280

1300

1320

1340

1360

1380

1400

1420

1440

1460

1480

Cas

elo

ad

Revenue Caseload


Top expense itemsMotivating Factor #2 - Shared information

Top expense items

Revenue generating procedures


Top expense items


Profit ranking


Top expense items


Profit rankingTop referring

vet clinics



Opportunity to discuss marketing of any or all

parts of the service

VTH Year-end profit

Fiscal year ended

1998 $573,870 1999 $1,210,880 2000 $1,615,065 2001 $1,560,808 2002 $1,649,998

VTH Year-end profit

Fiscal year ended

2003 $1,822,115 2004 $2,831,260 2005 $3,262,184 2006 $3,358,556 2007 $3,651,602 2008 $3,861,931

Projected 2008 profit of $3,843,368 was only off by $18K

Years 1 – 5 average: $1,322,124

Years 6 – 10 average: $2,985,143

Fiscal Results

Year end profit distribution

approved by:

1. Hospital Management Group

2. Section Chiefs

3. VTH Board

Motivating Factor #3 - Faculty input

Hospital equipment fund 25%Academic departments 75%


2008Year End

Distribution of Profit

Increasing number of

departmental faculty are paid

for by VTH profit


VTH Profits

Equipment purchases from year end profits

Section Chiefs determine major

equipment purchases (over $5K)


Equipment purchases from year end profits


Creating Buy-In from

MOST

of the rest of the VTH

Regularly compare current VTH financials with current forecast to

many VTH groups

“Wow, no wonderthe VTH charges

are so high!!!

Up to date VTH financialspresented at:

Monthly Faculty meetingsMonthly Faculty meetings

Monthly “Chat with Pat” sessionsMonthly “Chat with Pat” sessions

Quarterly Town Hall MeetingsQuarterly Town Hall Meetings

Monthly Section Chief MeetingsMonthly Section Chief Meetings

Quarterly VTH Board MeetingsQuarterly VTH Board Meetings

Staff and Benefit Reductions:

Approximately $1M in salary and fringes

Elimination of VTH funded travel expenses

Other Expense Reductions:

Reduction in CareCredit options

Reduction in inventory

Moratorium on Major Equipment purchases for 2009

Expense cuts in past 6 months

Informed employees understand

staff and benefit cuts

Those that don’t either refused to be informed and / or are “rumble

strips”

Always happyAlways Happy

Generally SatisfiedConstant Complainers

Staff Happinessis normally distributed

Always happyAlways Happy

Generally SatisfiedConstant Complainers

If you never hear any noise from the “rumble strips”, you might be headed off

the road!!

Summary

Factor 1: Well accepted accounting

system “Real Deal”

Factor 2: Widespread Sharing of information

Factor 3: Faculty involvement for distribution of year end profits

We are far from perfect but at least we are trying to get to the same spot.

Creating Buy-In without a Bailout

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