Questions Regarding Hospital Supplemental Funding Request
Submitted by the Department of Finance
1) The document from your NGH Board Meeting entitled “Key Considerations for FY 2018 Supplemental Request” (Attached) references a “series of operational initiatives and reductions” that were approved by the Board and deferred in implementation. Based on that document:
a. Please provide a detailed list of those approved reductions by line of business.
· Investment in Revenue Cycle to Maximize Reimbursement
o Specifically, what is the dollar-value of this reduction?
o For comparison, what were the YTD costs for FY17 as compared to FY18?
· Outside Referral Payments
o Specifically, what is the dollar-value of this reduction by line of business?
o For comparison, what were the YTD costs for FY17 as compared to FY18?
· Pharmacy Costs
o Specifically, what is the dollar-value of this reduction?
o For comparison, what were the YTD costs for FY17 as compared to FY18?
· Staffing to Next Level of Productivity
o Specifically, what is the dollar-value of this reduction by line of business?
o For comparison, what were the YTD costs for FY17 as compared to FY18?
· Additional Supply Reductions
o Specifically, what is the dollar-value of this reduction by line of business?
o For comparison, what were the YTD costs for FY17 as compared to FY18?
· Optimization/Closure/Transfer of OP Jointly-Operated Clinics
o Specifically, what is the dollar-value of this reduction by line of business?
o For comparison, what were the YTD costs for FY17 as compared to FY18?
If you simply do not have detail to answer this question completely, please indicate so.
b. Will these reductions still be implemented in this proposed new budget?
A majority of the cost savings initiatives have been implemented and are the driving force behind the significant reduction in anticipated additional supplemental funding need from the original $20M budgetary gap down to $13.1M. The current request is based on expected impacts due to new operational uncertainties after the Mayor’s announcement – a projected decline of $13M in gross inpatient revenues vs projected, and higher costs incurred for contract labor and to retain our employees in the face of uncertainty. Significant operational improvements were implemented early in fiscal year 2018 including:
· Supply standardization
· Pharmacy Formulary changes
· Enhanced utilization of 340B program
· Optimization of Staff Productivity Tool
· Implementation of a new outside referral monitoring program that has significantly reduced referrals to outside facilities.
· Additionally, the Hospital Authority Board made the difficult decision to forgo employee raises even though Metro employees received pay increases.
At the Mayor’s request, the following initiatives were deferred. These initiatives were estimated to improve 2018 performance by $2.6M and $2.5M respectively.
· Closure of Women’s Services and Related Service Lines was deferred to accommodate Meharry teaching needs.
· Planned changes to PSA agreement with Meharry.
c. If so, what is the timeline for that implementation?
All initiatives currently in place will remain. Decisions regarding the service level agreement between Meharry and Nashville General are pending until Meharry’s future relationship with the hospital is better defined. The hospitalist program and ER operations are managed by NGH under separate contract and are independent of a relationship with Meharry. Therefore, the partnership between Meharry and HCA does not significantly impact the hospital’s ability to provide inpatient and emergency room services, and the hospital is positioned to continue these services.
d. Please provide a detailed listing of line item expenditures projected for this fiscal year as compared to last fiscal year. Please provide explanations for any variances greater/less than 5% for each line item.
Significant cost savings have been achieved and are projected to continue, and will be outlined in the financials. These were on track to reduce the original funding gap from $20M to $13.1M.
o The data table below is incomplete. Please provide the information for FY 2017 and explain expenditure (NOT budget) variances between FY17 and FY18 as requested in the original inquiry.
Expense / FY18 Budget / FY18 Projected / Change / NotesSalaries / 40,564,474 / 37,869,401 / 2,695,073 / Productivity improvement offset by stay pay
Benefits / 10,617,978 / 10,167,660 / 450,318 / Follows salaries
Contract Labor / 1,293,295 / 4,444,352 / (3,151,057) / Estimate of premium increase due to using more contract labor
Supplies / 18,994,208 / 14,468,417 / 4,525,791 / Saving due to efforts in improving our supply chain management as well as lower patient volume
Contract Services / 9,542,788 / 8,398,540 / 1,144,248 / Patient Revenue decrease will reduce Parallon Collection costs. Anesthesia collections better than budget, thus less costly.
Physician Services / 9,679,743 / 9,810,132 / (130,389)
Repair and Maintenance / 4,333,407 / 3,238,668 / 1,094,739 / Some maintenance costs have been deferred
Other / 9,548,969 / 8,416,664 / 1,132,305 / Indigent referral to outside facilities less than projected along with less marketing spend.
Total Expense / 104,574,862 / 96,813,834 / 7,761,028
2) The key considerations document references “improvements in Revenue Cycle, staffing productivity, Supply and Pharmacy standardization and pricing.”
a. Please provide specifics on each of those items and the amount saved for the hospital by line of business and expenditure account.
Optimization of the revenue cycle has been a major focus for Nashville General Hospital, and significant efforts have been put forth to improve net revenue on existing volumes. The hospital generated an additional $1.7M in net patient revenue in FY 2017 over FY 2016 and cash collection on patient accounts has risen from 15.93 cents per dollar in FY 2016 to 18.19 cents in FY 2017 with the early enhancements that have been accomplished. Raises budgeted at 3% were not granted, a $1M impact vs budget. Supply expenses dropped by $1M when comparing YTD Nov. 2017 to YTD Nov 2016. Supply costs per AOB dropped 9.42% ($441.46 at Nov. 2016 to $399.89 at Nov. 2017) with standardization and real-time management of par levels throughout hospital.
b. Please explain how this has impacted your supplemental estimate.
Our original 2018 budget reflected need for $55.7M subsidy, and the approved $35M left a shortfall of $20.7M. With exception of the two major items deferred at Mayor’s request and the deferral of the early retirement decision/process, the improvements offered by the hospital leadership and HAB are tracking very close to projections. Implementation of these initiatives resulted in a reduction in the expected supplemental funding need from $20.7M to $13.1M - $3.9M of which represented outstanding amounts accrued for Meharry as of 6/30/17. The current $19.7M request is a result of post announcement operational performance concerns created by possible closure of inpatient services. All cost reduction plans remain in place and net revenue capture remains a top priority.
o Please explain the “deferral of the early retirement decision/process?”
o Assuming $49.2M from Metro, your budget to actuals are still showing expenses over budget each month: Sept ($3M YTD) Oct ($4.4M YTD) Nov ($5.2M YTD). Where, then, financially are the cost reductions showing up?
3) The key considerations document includes almost $2M for stay or retention pay, as well as $1M for retention and $125K for longevity.
a. Please provide a specific budget for these bonuses, broken out by position.
The projected amount for stay/retention pay was $1.7M and this is a global estimate based on 10% of wage expense over the last 6 months of fiscal year. This is the anticipated need to retain staff who are concerned about job stability, cash flow, etc.
o Please provide anticipated bonus amounts by position as originally requested.
b. Will any executive staff be eligible for these bonuses? If so, which positions and at what level of compensation?
All wages were used in the estimate, including hourly, PRN, management, and executive. Contract labor positions are ineligible and were excluded from the calculations. The retention or “stay pay” award is only payable to employees actively working on the day of the payout.
c. What is the difference between the $1M for retention and $125K for longevity awards and the next line item of $1.7M for stay and retention pay?
The $125 K service award is modeled after Metro’s program, is awarded based on years of service beyond 5 years, and was approved by HAB for payout in December.
The $1.7M is an estimate based on 10% “stay pay” for the remining 6 months of FY 2018. This could be higher for key staff and positions where there is greater vulnerability such as Women’s Services, which had been at greater risk over many months.
The $1M estimate in the earlier spreadsheet assumed a need for market adjustments for clinical and ancillary professional staff at some point due to the decision not to provide raises since June 2016. Those increases would flow into hourly wages – unlike the retention pay, which is earned but only payable if the employee is still actively working on the date of the award.
o To be clear, the $1M for “retention” is a pay raise for only clinical and ancillary professional staff? Please provide titles for these positions.
d. Are any employees eligible for multiple incentives?
No. Only one “stay pay” or retention award would be offered. The longevity service award is separate from the stay pay incentive and would still be considered on an annual basis for qualifying employees with more than 5 years of service.
4) The key considerations document notes $613,183 more in charity care than pre-budget.
a. Please explain the rationale behind this increase assertion.
The assumption is based on expected degradation of payer mix – as the percentage of charity and indigent care vs. insured patients is expected to trend higher – thus an estimate at 1% decrease in net patient revenue percentage collected. Insured patients may seek alternative places of services, but the charity patients are qualified as the responsibility of Nashville General Hospital. While the number of charity patients may or may not increase, the possible loss of insured patients, as they try to find alternative care sites to ensure continued care in the future, would reduce the insured to uninsured ratio.
5) The key considerations document anticipates an increase in contract labor of $600,000.
a. Please provide a more detailed financial analysis of this expenditure that includes specifics on where these cost increases will occur.
The anticipated increase is based upon current environment with potential restructure that is impacting staff turnover and ability to recruit permanent staff.
o Specifically, in what areas do you anticipate contractors being brought in to account for this $600,000? Please provide the relevant program and financial analysis requested.
6) The key considerations document notes that hospitalist, anesthesia and ED physician subsidies will rise as collections decline with fewer patients.
a. Please detail how this impact might be minimized through your staffing resourcing initiatives.
The increased cost in physician subsidies cannot be offset through the NGH staffing initiatives. Coverage by Hospitalists, ED physicians, and Anesthesia (MD & CRNA) is at a fixed rate based on hours of coverage. The cost is offset by collections of those physician services (billed by the providers, not NGH). Potential restructuring is expected to have a negative impact on current and future volumes. This decrease, coupled with a degradation in payor mix, will affect collections for these services which will in turn cause an increase in the amount due from the hospital.
7) The key considerations document notes $300,000 in anticipated legal expenses needed for any restructuring or other costs related to change in character or operations of Hospital.
a. Is it the Authority’s intention to retain outside legal counsel?
Yes, the Hospital Authority is retaining outside counsel. While this relates to the Mayor’s proposed restructuring of the operations, Kevin Crumbo suggested this be added to the supplemental request for FY18 operations as this proposed closure of inpatient and emergency services will require legal consultation beyond the capabilities of hospital counsel or Metro Legal. Estimates ranged from $250,000 to $500,000, and the Hospital Authority Board settled on $300K to be added to the operating supplemental request.
b. Does this anticipate that the Hospital Authority will adopt changes to the operating model of NGH?
The Mayor’s office and Mr. Crumbo have indicated that potential changes in services, character, licensure, and any related reductions in force would best be handled by those expert in this area of health care law. The Hospital Authority will review potential futures with counsel.
The key considerations document outlines differences between the anticipated budget prior to the announcement of closing inpatient services (pre-budget), and the anticipated budget after that announcement (post-budget).
8) The pre-budget presumes $235,116,444 for FY18 which is arrived at by simply multiplying the first fiscal quarter actuals by a factor of 4. The actuals were below the projected YTD at the end of the first fiscal quarter.
a. What were the original revenue projections for Metro General prior to the start of FY2018?
Our original budget projection for FY 2018 was $240,387,717.
b. When did the Hospital Authority adopt a revised budget with an anticipated $235M in patient revenues?
The $235M was a projection, made before the Mayor’s announcement, and was based on first quarter FY 2018 annualized gross revenues.
c. What is the anticipated monthly number of admissions you will need to meet to hit this revenue goal? How does that compare to your current admissions rate?
The number of admissions is not the single driving factor of revenue. Type of service drives the gross revenue and the payor mix drives the net revenue. Filling up beds or a drop-in census may have the same impact depending on services rendered and payor mix.
o Based on the assumptions outlined in your response, please provide the financial forecasting model used to establish your revenue goal.
o Please make sure that your response has the specific revenue assumptions made for with regard to the items you outlined including admissions, type of service rendered, payor mix, filling of beds and drop-in census.
o Please make sure that your response includes the specific YTD revenue realized with regard to admissions, type of service rendered, payor mix, filling of beds and drop-in census for NGH.