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

(1)

Financial Basics:

Justification of New

Pharmacy Programs

Robert P. Granko, PharmD, MBA

Alex Varkey, PharmD, MS

Jacob Thompson, PharmD, MS

Objectives

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

(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

Key Terminology

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 UNC Hospitals

Monthly Budget Variance Report Division Rollup Monthly Budget Variance Report

Division: Pharmacy Division: Pharmacy

For the Month Ended January 31, 2013 For the Month Ended January 31, 2013

Current Month - January Year to Date - January

2013

Jan-13 Jan-13 Jan-12 Account Jan-13 Jan-13 Jan-12 Annual Account Jul-12 Actual Budget Variance Actual Number Account Description Actual Budget Variance Actual Budget Number Account Description Actual

SUMMARY INFORMATION-FINANCIAL

Inpatient Revenue Inpatient Revenue Outpatient Revenue Outpatient Revenue

Total Patient Revenue Total Patient Revenue

Deductions Deductions

Net Patient Revenue Net Patient Revenue Other Operating Revenue Other Operating Revenue Non-Operating Revenue Non-Operating Revenue Total Revenues Total Revenues Salaries & Wages Salaries & Wages Contract Labor Contract Labor Employee Benefits Employee Benefits Purchased Services Purchased Services

Drugs Drugs

Medical Supplies Medical Supplies Other Supplies Other Supplies Lease and Rental Lease and Rental

Utilities Utilities

Depreciation Depreciation Bad Debt Expense Bad Debt Expense

Total Operating Expenses Total Operating Expenses Income From Operations Income From Operations

Overhead Overhead

***Staffing Information*** ***Staffing Information*** Total Worked FTEs Total Worked FTEs Total Worked Hours Total Worked Hours Total Paid Hours Total Paid Hours

Paid FTEs by Pay Class

H_ProdFTEs-Worked H_ProdFTEs-Worked

H_OvertimeFTEs-Overtime H_OvertimeFTEs-Overtime

H_NonProdFTEs-NonProductive H_NonProdFTEs-NonProductive

H_ContractFTEs-Contract Labor H_ContractFTEs-Contract Labor

Total Paid FTEs by Pay Class Total Paid FTEs by Pay Class

UNC Hospitals

Monthly Budget Variance Report Division Rollup

Division: Pharmacy For the Month Ended January 31, 2013

Account Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 FY13 Number Account Description Actual Actual Actual Actual Actual Actual Actual BUDGET BUDGET BUDGET BUDGET BUDGET Projected

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 Supplies Other Supplies 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 FTEs-Worked

H_OvertimeFTEs-Overtime

H_NonProdFTEs-NonProductive

H_ContractFTEs-Contract Labor Total Paid FTEs by Pay Class

Productivity

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?”

(3)

UNC Hospitals Dept Pulse

230110 UNCH Pharmacy Administration Manager: For the period ending: January 31, 2013

Current Current Positive # or % = Favorable Variance YTD YTD Last Year Actual Budget Variance Var % Negative # or % = Unfavorable Variance Actual Budget Variance Var % Actual 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

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

Current Month Of January Year-To-Date

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

FY 2014 Budget Calendar

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

High Performance Budgeting

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

(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

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)

The Methodist Hospital

_{TMH Pharmacy Department}

11

41

42

16

106 Administration

Clinical Specialists

Staff Pharmacists

Residents

Technical Support

“Doing more with less”

23 FTE: Full-Time Equivalents

Business Planning in Pharmacy

Development process:

Conceptualize the initiative

Research the feasibility and details of the

concept

Evaluate and refine the concept based on data

obtained

Outline the plan

Prepare the document

Present the plan

Wilson, AL. Financial Management for system Pharmacists. Bethesda, MD: American Society of Health-System Pharmacists, 2009. Print.

(5)

Business Planning in Pharmacy

Development process:

Conceptualize the initiative

Research the feasibility and details of the

concept

Evaluate and refine the concept based on data

obtained

Outline the plan

Prepare the document

Present the plan

Conceptualize the initiative

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

Development process:

Conceptualize the initiative

Research the feasibility and details of the

concept

Evaluate and refine the concept based on data

obtained

Outline the plan

Prepare the document

Present the plan

Research the feasibility and

details of the concept

Conduct thorough review of published literature

If very little literature exists on the specific

concept, 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

Development process:

Conceptualize the initiative

Research the feasibility and details of the

concept

Evaluate and refine the concept based on

data obtained

Outline the plan

Prepare the document

Present the plan

Evaluate and refine the concept

based on data obtained

Use information from your research and refine

the concept

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

(6)

Business Planning in Pharmacy

Development process:

Conceptualize the initiative

Research the feasibility and details of the

concept

Evaluate and refine the concept based on data

obtained

Outline the plan

Prepare the document

Present the plan

Outline the plan

Plenty of resources available to develop a plan

for a new stand-alone business

The Successful Business Plan: Secrets and

Strategies – Rhonda Abrams

Outline the plan

For a new pharmacy service:

Cover Page

Executive Summary

Description of Proposed Service

Consistency with Organization’s Mission

Market Analysis

Marketing Plan

Facility and Equipment

Management and Organization

Financial Summary

Evaluation

Business Planning in Pharmacy

Development process:

Conceptualize the initiative

Research the feasibility and details of the

concept

Evaluate and refine the concept based on data

obtained

Outline the plan

Prepare the document

Present the plan

Prepare the document

Cover Page

Name of plan/service

Month and year plan was prepared

Name/contact information of preparers

Prepare the document

Executive Summary

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

(7)

Prepare the document

Description of Proposed Service

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

Prepare the document

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

Prepare the document

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

Prepare the document

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

Prepare the document

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

Prepare the document

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

(8)

Prepare the document

Evaluation

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

Development process:

Conceptualize the initiative

Research the feasibility and details of the

concept

Evaluate and refine the concept based on data

obtained

Outline the plan

Prepare the document

Present the plan

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 Delaware Valley Hospital: 25 bed critical access hospital

UHS Home Care

UHS Senior Living

at Ideal

UHS Primary Care

UHS Specialty

Care

(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

January

June/July

August

September

November

Prepare Tactics

Submit Tactics

Submit Budgets

Tactics/Budgets

Approved

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

For a new pharmacy service:

Cover Page

Executive Summary

Description of Proposed Service

Consistency with Organization’s Mission

Market Analysis

Marketing Plan

Facility and Equipment

Management and Organization

Financial Summary

Evaluation

(10)

Description

For a new pharmacy service:

Cover Page

Executive Summary

Description of Proposed Service

Consistency with Organization’s Mission

Market Analysis

Marketing Plan

Facility and Equipment

Management and Organization

Financial Summary

Evaluation

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

For a new pharmacy service:

Cover Page

Executive Summary

Description of Proposed Service

Consistency with Organization’s Mission

Market Analysis

Marketing Plan

Facility and Equipment

Management and Organization

Financial Summary

Evaluation

United Health Services Tactical Plan Request Form for 2012 Budget Year

Financial Analysis: Incremental Expenses -- Detail

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 2012 2013 2014 (FTE) Start Date Code Title Salary FTEs FTEs FTEs 1/1/2012 76020 Patient Care Pharmacist II (Clinic) $ 111,134.40 1.15 1.15 1.15 9/1/2012 76020 Patient Care Pharmacist II (Retail) $ 111,134.40 0.04 0.12 0.13 9/1/2012 44160 Pharmacy Technician (Retail) $ 27,705.60 0.05 0.18 0.20

Total 1.24 1.45 1.48

Salary Expenses Position Position 2012 2013 2014 Code Title $ Required $ Required $ Required 76020 Patient Care Pharmacist II (Clinic) $127,805 $134,195 $140,905 76020 Patient Care Pharmacist II (Retail) $4,088 $13,628 $14,991 44160 Pharmacy Technician (Retail) $1,483 $4,943 $5,438

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 2012 2013 2014

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$ 500 - Limited Service Laboratory Registration $ 200$ 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 2012 2013 2014 Budget Process (Y or N) Description $ Required $ Required $ Required

N Laptop or Desktop Station (2) $ 3,600$ - $

-Total $3,600 $0 $0

2012 Estimate of Resources Required Tactical Plan Title: Pharmacist/Resident Ambulatory Anticoagulation Clinic

Resources

Revenue

For a new pharmacy service:

Cover Page

Executive Summary

Description of Proposed Service

Consistency with Organization’s Mission

Market Analysis

Marketing Plan

Facility and Equipment

Management and Organization

Financial Summary

Evaluation

Revenue

1)

Existing Market Volume? What % of it is UHS

expected to capture?

2)

Describe marketing plan to accomplish volumes

3)

Estimate 3 years of volumes

Unit of Volume

Existing Market

Expected UHS

(Days, D/C, Visits)

Volume

Capture (%)

Volume Year 1

Pts Discharged on Warfarin

2,440

20.0%

488 Potential Yearly Visits

29,280

20.0%

5,856

Year 1

Year 2

Year 3

Patients

488

537

590 Pt. Visits

5,856

6,442

7,086

(11)

Revenue

4) Payor Mix Volumes (if applicable)

5) Any Revenue at risk?

6) Grants available

7) Cost Reductions

% 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%

Implementation Plan

For a new pharmacy service:

Cover Page

Executive Summary

Description of Proposed Service

Consistency with Organization’s Mission

Market Analysis

Marketing Plan

Facility and Equipment

Management and Organization

Financial Summary

Evaluation

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

For a new pharmacy service:

Cover Page

Executive Summary

Description of Proposed Service

Consistency with Organization’s Mission

Market Analysis

Marketing Plan

Facility and Equipment

Management and Organization

Financial Summary

Evaluation

United Health Services Tactical Plan Request Form for 2012 Budget Year

Financial Analysis

Summary

Cost/Benefit Analysis 2012 2013 2014

Results Expected

Incremental

Clinic Visit Volumes: 5,856 6,442 7,086 Incremental Revenues: Clinic Revenue $306,790 $337,469 $371,216 Retail Revenue $53,231 $58,554 $64,410 Grant Funds $0 $0 $0 Savings $0 $0 $0 Total Revenue $360,021 $396,023 $435,625 Resources Required Incremental 2011 Salary Expenses:

Incremental Staff (FTEs) 1.24 1.45 1.48 Salary Expense ($) $133,376 $152,766 $161,333 Fringe Benefits Expense

(35% of Salary Exp.) $46,682 $53,468 $56,467 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