Introduction to the Activity
As you have learned, benchmarking is useful not only for ascertaining a health care organization’s overall financial “health” but also for decision-making around introducing new services or products. Let’s explore this further together. As you discuss each question, in addition to applying your reading which is of course required, please be sure to bring in real-world experiences that you may have had benchmarking in one way or another. The best learning can be from others’ successes and even failures.
Instructions to Learners
As you progress through the discussion, be sure to refer back to the assigned readings for this module. Please note that the opinion question allows you to consider what you have learned to date and any of your experiences in a health care organization or another workplace to get started. As you progress, you will need to meaningfully apply the readings, using APA 6 formatting for any citations. Remember that the week will go by very quickly, so start early!
First, let’s start with question #1. Discuss this question based on your own opinion. First meaningful post made within the first 3 days in the module.
Scenario: Let’s imagine that the local college asks you as fiscal manager in a large primary care physician’s office to submit a proposal to conduct pre-employment physicals on all new employees.
Based on what you have learned so far in the course:
- What financial or accounting information do you need to prepare your proposal? Provide some hypothetical financial numbers you think you will need, e.g. costs, etc.
Based on what you have learned in your research and readings, let’s discuss the following. Begin this part of the discussion no later than Wednesday.
- Continuing with the scenario above: What will you charge the college per physical based on costs? Would you need a minimum number of physicals to be cost effective?
- Let’s say you are new to offering physicals outside of your regular patient base. Would you consider doing it at cost to gain access to future referral business or access to more local colleges? Why, or why not? Would you use benchmarking to assist in your decisions? Please support your decisions based on your readings (required) and any experiences or external research as if you actually were preparing a proposal to provide this service to the college.
READINGS: In this module, you will discover many different financial measurement tools, including estimates, and benchmarking. These tools are important for depicting the financial health of an organization, especially in health care and will be explored throughout the discussions. You will also prepare a strategic plan using data from a case study that will allow you to synthesize the knowledge gained throughout the course and prepare you for your career as a health care manager.
Measurements in Financial Reporting
According to the dictionary, to estimate something implies a judgment on your part and can be considered a casual way to measure something. For example, you may estimate an amount of something, the value of something, or the size of something. You may want to estimate the amount of beans in a jar to win a prize at a health and wellness fair. You may want to estimate the value of your car, in preparation for trading it in to purchase a new car. Likewise, you may want to estimate the size of a new sofa to determine how you will get it home and through your doorway. We do that all the time in life and in the workplace, so for many of us estimation comes naturally.
What you need to think about is whether something you may be trying to estimate is even capable of being measured. If you cannot find a way to measure a product, service or variable with confidence, then estimates for a financial report may not be the best way. You would sacrifice the accuracy of the data. In health care, for example, when we want to forecast the future of revenues, we do not want to guess! We want to gather the best data we can from past reports or other reliable sources. For example, as managers in a retail pharmacy chain, we may want to predict our future revenues if we open a new pharmacy in downtown Oklahoma City. Think about the sorts of data we would want to gather to make good decisions on what our future earnings would be if we open the pharmacy. Ultimately, many measures are available to you and should be considered.
Benchmarking in Health Care
Many organizations may prefer one type of measure to another. In health care, benchmarking is a popular measurement tool. Benchmarking is defined as the continuous process of measuring products, services, and activities against the best levels of performance. These comparisons may be found inside the organization or outside of it. For example, if you are an office manager at a busy hospice facility in urban Baltimore, benchmarking for you might involve comparing your organization with another hospice facility with similar patient make-up in a similar geographical area. If your hospice facility is a satellite of a regional health system, you might decide to compare with another certified home health care satellite facility within your health system. Your goal in benchmarking would be to identify and measure any gaps in performance between your facility and the other organization or facility.
The textbook authors discuss three types of benchmarks:
- A financial variable reported in an accounting system – for example, what category do you think is the most important for prospective changes – revenue, expenses, or labor?
- A financial variable not reported in an accounting system – for example, computing ratios, break-even points, and contribution margins are several considerations used to benchmark with other organizations.
- A nonfinancial variable – for example, patients and vendors; consider what prospective changes could increase patient mix or load, and cut costs.
As you will learn in your readings, benchmarking can be done in numerous ways. For example, the text authors discuss how financial benchmarking compares the financial measures among benchmarking groups. The most common type is a peer group. Statistical benchmarking closely related to financial benchmarking. In this case, the statistics of operations and service delivery mechanisms, in addition to the inflows and outflows, are compared with those of certain other health care organizations. Good examples of organizations using statistical benchmarking on a routine basis include hospitals and skilled nursing facilities. Benchmarking is used for opportunity assessment as well. Managers tend to use this approach to gather information about the way things should be going, or how they can get better.
An important component of benchmarking is strong familiarity with best practices. Networking opportunities such as joining your local medical management association, attending meetings, seminars, and workshops are excellent ways to benchmark and get to know what is working well especially with other organizations similar to yours and/or in the same geographic area. In summary, benchmarking allows an overview of the individual organization’s performance. Being objective with the organization’s measurement benchmarks is an absolute requirement for best practice.
The Business Plan in Financial Management
Business plans are important in health care financial management. It is important to read and understand your organization’s business plan. Business plans can vary somewhat, but a traditional business plan typically contains three major elements: the organization plan, the marketing plan, and the financial plan.
These three components are usually tied together by a 1-2 page executive summary. The executive summary gives an overview of what the actual proposal will include, touching on the important elements of the plan’s three key components without giving specific details. Each of the three components is typically rich in detail, while the executive summary is both concise and compelling, inducing the audience to read the entire business plan.
Understanding the business plan and the role in financial management and oversight is crucial. To understand, one has to become familiar with business plans. For those of you who may not work in a health care organization or who may not have access to a business plan in your organization, examples are available on the Internet. Most of the examples endorse products or services to aid in developing a business plan, but the samples will give you a sense of what a good business plan should look like. For an often-cited sample business plan, please see the Wheatland Home Health Care Services Business Plan. (Links to an external site.)
Considerations in a Rapidly Evolving Health Care Environment
When creating a business plan for a health care facility, health organization, or new health care project for an existing organization, we can surmise it would be quite different then creating a plan for a bakery. The upcoming and constant changes to health care are important considerations. Think of the changes forthcoming in health care reform. You will need to be familiar with the timelines through Healthcare.gov and the Affordable Care Act itself, in order to make wise decisions.
Managers must constantly be connected to planning discussions concerning upcoming changes at the local, state, and federal level, even before these changes are enacted. Maintaining this connection is not always easy in the fast-paced health care environment, but solid networking as described earlier can facilitate this. E-newsletters are valuable tools to remain current on upcoming changes. For example, the newsletters from CMS (Links to an external site.) (Centers for Medicare and Medicaid Services) usually foreshadow upcoming changes in covered procedures. The American Medical Association (Links to an external site.), American Nursing Association (Links to an external site.), and the Healthcare Financial Management Association (Links to an external site.)have national newsletters and alerts to receive current and cutting edge information. Be sure to look at local, regional, and statewide organizations, as well. Remember that a great deal of implementation and decision-making occurs at the state level. A prime example of this is health care reform’s state health insurance exchanges. And don’t forget the power of social media in keeping up with shifting trends! Twitter and Linked In provide excellent sources of information from many reputable organizations. Health Reform is constantly changing, it’s imperative you keep up to date with the latest changes.
In a normal business day, you may be tasked to prepare a business plan. A business plan is a forecast of future business and therefore entails significant research before writing can take place. This means allotting sufficient time to do the research needed to develop a strong proposal. Unlike the bakery business, health care is becoming more and more complex. Research should be extensive and look toward what has been done successfully (and unsuccessfully) and toward regulatory and policy changes, both current and projected.
When proposing a plan, it is imperative to be conservative. While innovation often entails some level of risk, the worst thing you can do is to propose a risky venture (even if it is exciting!) that cannot be sustained or that in 1-2 years might become obsolete. Changes occur monthly and a key responsibility for the health care manager is to stay well-informed, be accurate, and remain transparent.
Through the readings and notes, you have gotten a good foundation of current health care benchmarking ideas and knowledge of the budget process, proposals, and strategic planning specific to health care. Through the following discussions and activities, you will have the opportunity to put these into practice. Use the readings to support your statements and your experiences where applicable.