financial management thomas j. dilts mt(ascp),mbpa vice chair of administration and operations...
TRANSCRIPT
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Financial Management
Thomas J. Dilts MT(ASCP),MBPA
Vice Chair of Administration and Operations
Department of Pathology
Virginia Commonwealth University Healthsystem
Medical College of Virginia Hospitals and Physicians
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Financial Management
Why is this important?
• Economics - A major driver of health care.
• Needed to understand your opportunities
and fate of your profession
• Requirement
• Personal and Professional use
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History
• Medicare
• Medicaid
• Managed Care
• Insurance
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Profit/Loss = Revenue - Expenses
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BUDGET(Cut the Budget!!!!!)
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Planning is the process of deciding in advance what is to be done and how.
Most organizations operate in an environment of change.
With a more dynamic environment the planning function becomes critical.
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Planning
Strategic
Long Range
Budget
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Budget
Revenue (pay check) $4,000.00
Expenses
• Rent/mortgage $950.00
• Gas for car $200.00
• Food $350.00
• Savings/vacation(escrow) $200.00
• Electric bill $185.00
Total expenses $1,885.00
Net income/profit $2,115.00
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Budget
Net income/profit $2,115.00
• What’s left after bills are paid
Revenues - Expenses = Profit ( or Loss )
($4,000.00-$1,885.00=$2,115.00)
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Hospital Lab Budget
Revenues
ExpensesSalaries
Technical LaborNon Technical Labor
Lab ReceptionistsAdministrative
NightsPhlebotomistsPathology Secretaries
Professional FeesSuppliesEquipment
DepreciationService ContractsRepairs
Other
Direct CostsIndirect Costs
Total Costs
Net Income
$9,172,526
$1,668,365
$197,680$114,525$119,873$314,490$128,804$1,286,906$1,498,399
$147,506$105,643$40,842$115,475
$5,738,508$2,215,221
$7,953,729
$1,218,797
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Hospital Lab Budget by Section
Microbiology Blood Bank Chemistry Hematology Anatomic SerologyRevenues 1,006,444$ 1,002,114$ 4,106,062$ 1,457,584$ 1,262,867$ 337,455$
ExpensesSalaries
Technical labor 245,674$ 237,429$ 557,584$ 352,500$ 193,455$ 81,723$ Non Technical Labor
Lab Receptionists 19,217$ 13,440$ 84,595$ 61,845$ 8,961$ 9,622$ Administrative 11,133$ 7,787$ 49,011$ 35,829$ 5,190$ 5,575$
Nights -$ 41,955$ 35,962$ 41,956$ -$ -$ Phlebotomists 46,002$ 14,748$ 131,439$ 98,531$ 4,453$ 19,317$
Path secretaries 12,932$ 1,006$ 6,333$ 4,630$ 103,183$ 720$ Professional Fees 98,215$ 98,214$ 210,636$ 98,214$ 683,413$ 98,214$ Supplies 144,979$ 332,708$ 760,486$ 140,793$ 47,035$ 72,398$ Equipment
Depreciation 13,084$ 9,678$ 50,804$ 45,802$ 23,658$ 4,390$ Service Contracts 9,516$ 2,088$ 52,313$ 32,459$ 7,732$ 1,535$
Repairs 2,375$ 1,661$ 10,452$ 24,058$ 1,107$ 1,189$ Other 11,947$ 7,796$ 49,069$ 35,883$ 5,198$ 5,582$
Direct Costs 615,074$ 768,510$ 1,998,684$ 972,500$ 1,083,385$ 300,265$ Indirect Costs 298,183$ 312,921$ 740,798$ 400,102$ 340,721$ 122,496$
Total Costs 913,257$ 1,081,431$ 2,739,482$ 1,372,602$ 1,424,106$ 422,761$
Net Income 93,187$ (79,317)$ 1,366,580$ 84,982$ (161,239)$ (85,306)$
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Profit/Loss = Revenue - Expenses
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Revenue
Billed Revenue =
Lab Procedures X Current Fee
Collected Revenue =
Billed Revenue - Contractual Allowances
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Insurance Mix
Medicare 35%
Medicaid 10%
Trigon (Blue Cross) 25%
Managed Care 25%
Other 5%
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Revenue
Billed Revenue =
Lab Procedures X Current Fee
Collected Revenue =
Billed Revenue - Contractual Allowances
$40,500 = $54,000 - $13,500
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REVENUE PROBLEM
• 200 CBCs performed
• Current fee per CBC is $25
• All patients have Blue Cross at 50% contractual adjustment for each test
• What is the billed revenue and the collected revenue?
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SOLUTION
• 200 X $25 = $5000( billed revenue )
• $5000 X .5(50%) = $2500( col. Revenue )
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Costs (Expenses)
Direct Costs are costs that can be directly identified with a given product or activity.
• Reagents• Controls• Tubes
Indirect Costs cannot be identified with a given product or activity.
• Electricity• Environmental services• Management• Computer support
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Direct Costs
Variable Costs-- changes with a change in product volume
02040
6080
1 2 3 4 5 6 7 8 9
product volume
do
llars
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Direct Costs
Fixed Costs-- Do not change with change in product volume
0
100
200
300
400
1 2 3 4 5 6 7 8 9 10 11
product volume
do
llars
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WHICH DIRECT EXPENSE IS THIS?
• Service contract for equipment
• Reagent for each test
• Quality control material
• Labor costs
• Pipet tips
• Purchase cost of equipment
• Rent of lab space
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Costs (Expenses)
Direct Costs are costs that can be directly identified with a given product or activity.
• Reagents• Controls• Tubes
Indirect Costs cannot be identified with a given product or activity.
• Electricity• Environmental services• Management• Computer support
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Indirect costs
Departmental– management
– travel
– telephone
Global (Hospital)– administration
– dietary
– computer systems
– plant facilities
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EXAMPLES OF INDIRECT COSTS
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Profit/Loss = Revenue Minus Expenses
Profit/Loss = Collected Revenue (Net) - Total Expenses
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Month
Budgeted Actual Variance
Revenue $332,000 $325,000 ($7,000)
Personnel Expenses $160,000 $185,000 -$25,000
Supplies/Reagents $35,000 $43,000 -$8,000
Total Expenses $195,000 $228,000 -$33,000
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Profit/Loss = Revenue minus Expenses
$97,000 = $325,000 - $228,000 (gross revenue)
($58,000) = $170,000 - $228,000 (net revenue)
($160,000) = $170,000 - $330,000 (plus indirect expense)____________________________________________
Insurance cont.= $155,000 indirect exp = $102,000
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PROBLEM
• Gross revenue is $100,000
• Contractual adjustments are $40,000
• Direct variable expenses are $15,000
• Direct fixed expenses are $5,000
• All indirect expenses are $10,000
• What is the net revenue(profit)
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SOLUTION
• Gross revenue $100,000• Contractual adjust. - $40,000• _________• Collected revenue $60,000• Direct expenses - $20,000• Indirect expenses - $10,000• __________• Net revenue(profit) $30,000
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Monitoring the Budget
• Usually monthly
• Action plan –(how to get back
on budget)
• Your involvement as lab staff
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Setting the Test FeeA. Must identify all direct costs to do procedure:
– labor – supplies– reagents– equipment(depreciation)– service and maintenance– collecting and processing specimen – ordering supplies - request slip
B. Must add indirect costs.
C. Must consider collection rate for billing.
D. Mark up (% profit)
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Depreciation
• Cost of item divided by useful life
• Useful life is usually five years for lab equipment
• $100,000/5years = $20,000
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SETTING THE TEST FEE EXAMPLE
• Labor 10min x $0.50/min = $5.00
• Supplies $0.80
• Reagents $1.20
• Equipment($200,000/40,000) $0.50
• Service/maintenance $0.12
• Specimen collection/process. $1.00
• _____
• Total $8.62
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SETTING TEST FEE EXAMPLE
• Direct costs $8.62
• Indirect costs(20% of dir) $1.72
• _______
• $10.34
• Collection rate(40%) $10.34/.4 = $25.85
• Mark up (profit) 10%= $25.85+$2.59 =
• $28.44
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COST ACCOUNTING
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COST ACCOUNTING EXAMPLE
• Labor 10min x $0.50/min = $5.00• Supplies $0.80• Reagents $1.20• Equipment $0.50• Service/maintenance $0.12• Specimen collection/process. $1.00• Indirect costs $1.72
• Total $10.43
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Contribution Margin
• Price(fee) – Variable cost/test = Contribution Margin
• Contribution Margin contributes to fixed costs and to profits
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Break Even Analysis
• Break even volume = Fixed costs divided by the Contribution Margin
• Break even volume(analysis) = What is the number of tests I must perform to recover my costs
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Price - Variable cost per test=Contribution Margin
$30.00 - $10.00 = $20.00
Break Even Volume = Fixed CostsContribution Margin
500 Tests = $10,000.00 $20.00
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• Volume = 1,000 tests• Price = $20 each• Costs
– equipment $50
– reagents $1000 ($1.00 each test)
– controls $100 ($0.10 each test)
– supplies $50 ($0.05 each test)
– salary $12,500 (0.50 FTE)
Total $13,700
• Revenue 1,000 X $20 = $20,000• Costs = $13,700• Profit = $20,000 - $13,700 = $6,300
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Change the fee to $15.00
•
• What is the profit?
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$15.00 per test
$15,000 - $13,700 = $1,300 profit
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PROBLEM
• Test volume is now 5,000
• Assume that no additional labor is needed for the increased test volume
• What is the final profit for this volume?
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• 5,000 tests is volume• Revenue = 5,000 X $20 = $100,000• Costs
– equipment $50
– reagents $5000($1.00 x 5000)
– controls $500($0.10 x 5000)
– supplies $250($0.05 x 5000)
– salary $12,500
• Total Costs $18,300• Profit = $100,000 - $18,300 = $81,700
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PRICE $20 $15 $20 $20
VOLUME 1000 1000 5000 300
REVENUE $20000 $15000 $100000 $6,000
TOTAL COST $13700 $13700 $18300 $12895
PROFIT $6300 $1300 $81700 ($6895)
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Let’s take a break
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Department of Pathology Profit and Loss StatementFor the twelve months ending June 30, 2001
Gross Net Direct Indirect Total NetRevenue Revenue Cost Cost Expenses Income
Anatomic Path $4,411,600 $2,131,277 $1,865,304 $1,287,010 $3,152,314 ($1,021,037)Blood Bank $9,620,938 $4,939,270 $2,015,608 $1,209,373 $3,224,981 $1,714,289Blood Products $4,554,241 $2,419,450 $4,833,592 $1,005,173 $5,838,765 ($3,419,315)Chemistry $46,742,064 $24,362,139 $3,480,162 $1,975,722 $5,455,884 $18,906,255Hematology $15,602,023 $8,144,456 $2,749,265 $1,690,990 $4,440,255 $3,704,201Microbiology/Immunology $13,158,977 $6,733,938 $2,994,244 $1,744,997 $4,739,241 $1,994,697Molecular Diagnostics $2,097,371 $1,029,036 $1,372,563 $559,202 $1,931,765 ($902,729)Reference Testing $1,077,603 $530,942 $2,143,322 $329,341 $2,472,663 ($1,941,721)TOTAL $97,264,817 $50,290,508 $21,454,060 $9,801,808 $31,255,868 $19,034,640
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Gross Revenue
Blood Bank10%
Chemistry47%
Hematology16%
Microbiology/Immunology
14%
Blood Products5%
Reference Testing1%
Anatomic Path 5%Molecular Diagnostics
2%
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Direct Cost
Anatomic Path 9%
Blood Bank9%
Blood Products23%
Chemistry16%
Hematology13%
Molecular Diagnostics
6%
Reference Testing10%
Microbiology/Immunology
14%
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Profit
Chemistry56%
Blood Bank5%
Blood Products10%
Anatomic Path 3%
Molecular Diagnostics
3%
Reference Testing6%
Hematology11%
Microbiology/Immunology
6%
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Capital Costs
• Operational Costs
• Capital Costs
• Where do Capital dollars come
from?
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Profit/Loss = Revenue - Expenses
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Capital Equipment
• Purchase
• Lease
• Reagent Rental
• Cost per Billable Test
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Return On Investment
• ROI (operating margin divided by
capital investment)
• Pay back period (Capital investment
divided by operating margin x 12
months)
![Page 57: Financial Management Thomas J. Dilts MT(ASCP),MBPA Vice Chair of Administration and Operations Department of Pathology Virginia Commonwealth University](https://reader035.vdocument.in/reader035/viewer/2022062315/56649cda5503460f949a38b9/html5/thumbnails/57.jpg)
ROI
• $150,000 X 100 = 300%
$50,000
• $40,000 X 100 = 80%
$50,000
• $18,000 X 100 = 18.5%
$97,000
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Return On Investment
• ROI (operating margin divided by
capital investment)
• Pay back period (Capital investment
divided by operating margin x 12 months)
![Page 59: Financial Management Thomas J. Dilts MT(ASCP),MBPA Vice Chair of Administration and Operations Department of Pathology Virginia Commonwealth University](https://reader035.vdocument.in/reader035/viewer/2022062315/56649cda5503460f949a38b9/html5/thumbnails/59.jpg)
Pay Back Period
• $50,000 X 12 = 4 months
$150,000
• $50,000 X 12 = 15 months
$40,000
• $97,000 X 12 = 64.6 months (5.4 years)
$18,000
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ROI PROBLEM
• The operating margin for this test is $300,000
• Equipment purchase will cost $100,000
• What is the return on investment(ROI)?
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ROI SOLUTION
• $300,000/$100,000 x 100 = 300%
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PAY BACK PERIOD PROBLEM
• The operating margin for this test is $300,000
• Equipment purchase will cost $100,000
• What is the payback period?
![Page 63: Financial Management Thomas J. Dilts MT(ASCP),MBPA Vice Chair of Administration and Operations Department of Pathology Virginia Commonwealth University](https://reader035.vdocument.in/reader035/viewer/2022062315/56649cda5503460f949a38b9/html5/thumbnails/63.jpg)
PAYBACK PERIOD SOLUTION
• $100,000/$300,000 x 12 = 3.99 or 4 months
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![Page 65: Financial Management Thomas J. Dilts MT(ASCP),MBPA Vice Chair of Administration and Operations Department of Pathology Virginia Commonwealth University](https://reader035.vdocument.in/reader035/viewer/2022062315/56649cda5503460f949a38b9/html5/thumbnails/65.jpg)
QUESTIONS