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  • Kauai Veterans Memorial Hospital 4643 Waimea Canyon Road, Waimea, HI

    Performance Improvement Consultation

    Conducted: September 11, 2006 Reported: December 1st, 2006 Updated: January 5, 2007 Final Report: February 7, 2007

    Mary Guyot, RN, BS, CRRN Eric Shell, CPA, MBA

  • 2

    • Assess market and clinical services including: – Evaluate historic/potential demand for clinical services – Identify opportunities to appropriately address clinical service line

    “gaps” – Assess quality improvement and performance improvement strategies

    • Identify other performance improvement opportunities that will result in increased financial stability. Areas to address include:

    – Reimbursement and cash flow – Hospital expense analysis – Organizational architecture and management principles

    • Note – This report was based on our determination of the highest value potential opportunities for Kauai Veterans Memorial Hospital as identified on the basis of a two (2) day site visit conducted by the review team. Additional opportunities may exist for performance improvement that were either not reported or that may be detected after further scrutiny.

    • Note – This Performance Improvement Consultation was supported in it’s entirety by the HI Office of Rural Health

    Purpose of the Engagement

    Introduction

    Service Area

    Clinical Services

    Financial Management

    Physician Practice Management

    Organizational Architecture

    Recommendation Summary

    Attachments

  • 3

    • Gather and review pertinent market, clinical service line, operational, and financial performance data

    – Hospital inpatient and outpatient volume statistics – Hospital medical staff roster – Fiscal Year 2005 cost report – Historic audited financial statements (2003-2005) – 2003-2006 internal financial statements

    • Conduct an intensive two (2) day site visit – Interviews with CEO, CFO, Regional Medical Director, CNO, Regional

    Director of HR, FQHC Executive Director, Patient Financial Services Manager, Regional Facilities Director, Department Managers, and medical staff

    • Develop preliminary report and recommendations – Telephone conference with the CEO to obtain feedback on

    preliminary findings and recommendations • Submit final written summary report

    Approach and Methodology

    Introduction

    Service Area

    Clinical Services

    Financial Management

    Physician Practice Management

    Organizational Architecture

    Recommendation Summary

    Attachments

  • 4

    • Kauai Veterans Memorial Hospital (KVMH) Overview – KVMH is a 25-bed Critical Access Hospital (CAH) located in Waimea,

    Kauai, approximately 23 miles west of Lihue along route 50 • Three HHSC clinics in West Kauai provide primary care services

    – KVMH converted to CAH status in April 2001 • Retrospective analysis of CAH status indicates a $1.3M positive impact in

    FY 2005 for Medicare only not considering Medicaid or HMSA – KVMH has been experiencing operating losses during the last 4 years,

    with a $3.2M operating loss in FY2006. – KVMH is one of twelve Hawaii Health Systems Corporation (HHSC)

    facilities • HHSC is governed by a 20-member Board of Directors covering 5 regions of

    Hawaii, and is a quasi-governmental organization tied indirectly to the State of Hawaii

    – KVMH receives annual capital asset contributions from the State of Hawaii – KVMH receives an annual collective bargaining pay raise appropriation from the

    State of Hawaii

    – A 9-member Management Advisory Committee (MAC) acts as an advisory body to both KVMH and SMMH

    • One member of Kauai’s MAC serves on HHCS’s board

    Background

    Introduction

    Service Area

    Clinical Services

    Financial Management

    Physician Practice Management

    Organizational Architecture

    Recommendation Summary

    Attachments

  • 5

    • General Observations – Strengths

    • Capital Cost reimbursements from State of Hawaii • CAH designation – approximately $1.3M benefit in FY2005 from Medicare alone • Recent physician practice acquisition • Corporate governance structure • Collective bargaining pay raise appropriation from State of Hawaii • Increasing patient care volume and growth in service availability

    – Opportunities • Continued physician recruitment for OB and Ortho as planned • Increase availability of visiting specialists in specific areas • Opportunity to invest in capital projects going forward • Improve efficiency and productivity of Primary Care Clinics • Improved performance reporting • Increase utilization and add-on ancillary services • Registration and business office process improvements • Develop more budget accountability for department managers

    – Context for Recommendations • Due to issues that may be unknown to the consultants, recommendations should be

    carefully evaluated for political and cultural sensitivity • Due to thoughtful and progressive management, recommendations are mostly

    opportunities for incremental improvement only • Note: FY2006 data used in analysis is from non-audited financial statements and reports

    Background

    Introduction

    Service Area

    Clinical Services

    Financial Management

    Physician Practice Management

    Organizational Architecture

    Recommendation Summary

    Attachments

  • 6

    • Financial Summary – Statement of Operations Financial Statements

    Kauai Veterans Memorial Hospital - Financial Summary (amounts in 000's) Audited Audited Audited Internal

    Year Ended Year Ended Year Ended Year Ended 6/30/2003 6/30/2004 6/30/2005 6/30/2006 Operating Revenue: Gross Revenue from ops* 15,044$ 16,815$ 20,723$ 24,768$

    Less - Contractual allowances (4,121) (4,725) (5,150) (6,253) Less- Bad Debt & Charity** (186) 40 (341) (311)

    Net Patient Revenue 10,737 12,130 15,231 18,204 Plus - Other operating revenue 505 642 822 620 Hospital Revenue 11,242 12,772 16,053 18,824

    Operating Expenses: Salaries and Benefits 9,409 9,405 10,612 12,585 Professional Fees* 367 166 417 232 Rent and Lease(s) 209 143 199 - Purchased Services* 2,159 2,407 3,255 4,525 Supplies and other expenses 2,666 2,483 3,264 3,775 Interest - - 3 - Depreciation 614 594 749 984

    Total Expenses 15,425 15,197 18,499 22,101

    Income from Operations (4,183) (2,426) (2,446) (3,277) Non-Operating Income (Expense) 121 (302) 47 (140)

    Excess of Revenues over Expenses (4,062)$ (2,728)$ (2,398)$ (3,417)$ Capital Assets Contributed by State of Hawaii 783$ 619$ 479$ 13$

    Increase (Decrease) in Net Assets (3,279)$ (2,109)$ (1,920)$ (3,404)$

    Cash and Investments, End of Period 39$ 204$ 56$ 1,054$ AP, Accrued Liabilities, & Due to Aff 3,102$ 2,961$ 3,885$ 1,765$ Days of Operating Cash Available 0.96 5.11 1.15 18.22 Average Payment Period 76.45 74.01 79.90 30.51 Days in Net Accounts Receivable 57.2 52.9 72.7 79.6

    *Gross Revenue from internal financial statements fy2003, fy2004, fy2006, from cost report fy2005. **Bad Debt 2006 from intenral financial statements

    Introduction

    Service Area

    Clinical Services

    Financial Management

    Physician Practice Management

    Organizational Architecture

    Recommendation Summary

    Attachments

  • 7

    • Financial Statement Analysis – Profitability Analysis

    • KVMH realized operating losses ranging between $4.1M and $2.4M, which in general were substantially below budgeted losses

    – KVMH has invested in a focused growth strategy through offering of new services and physician practice acquisition and development, resulting partially in ongoing operating losses

    FY2005 revenue and expense increase driven partially by the acquisition of the Kalaheo Clinic in FY2005, with resulting increases in patient revenue, salaries and benefits, purchased services, professional fees, and supplies

    Background – Financial Analysis

    Kauai Veterans Memorial Hospital

    $18,824 $16,053

    $11,242 $12,772

    $22,101

    $15,425 $15,197

    $18,499

    $(